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Old 09-30-2008, 02:33 PM
 
Location: Santa Monica
4,708 posts, read 7,719,703 times
Reputation: 1029

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This is what the credit markets pros are worried about:
http://www.bloomberg.com/apps/news?p...CHo&refer=home

Actually, after reading the article yesterday in the NYTimes about how Sweden dealt with its liquidity and banking problems in the early 1990s, I think that Congress should consider that approach, though I doubt many of the Repubs would go along with it. It would lead to the Feds investing in the banks with problems, providing them with equity to meet their reserve requirements, but each troubled bank would first have to write down its bad loans thereby causing the present stockholders to take a major hit. Then, as the banks later recovered as the economy recovered, the Feds (the taxpayers) would benefit as stockholders in the new profits gained by the banks.

Here's a link to the NYTimes article:
http://www.nytimes.com/2008/09/23/bu...s/23krona.html

I think the "Swedish model" is getting new attention. I saw it mentioned this morning at Clusterstock.com, for instance.
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Old 09-30-2008, 02:33 PM
Status: "¯\_(ツ)_/¯" (set 22 days ago)
 
11,393 posts, read 5,972,002 times
Reputation: 3601
Quote:
Originally Posted by KantLockeMeIn View Post
The two major parties are trying to use this as a polarizing issue, and it's working as it has numerous times in the past. It's an opportunity to lead people to believe that there are only two solutions, that it's something that has to be decided in a matter of days, and an opportunity to point fingers.

The two major parties don't have a monopoly on truth, and should encourage the comeptition of ideas. Most people opposing a bailout do so on the principle that bad behavior should not be rewarded... but aren't against the idea of incorporating changes to ease the problems that we will face.

We need to have discussions and debates on these plans, allow a competition of ideas, and stop the closed door sessions. Just a few days ago 179 economic experts, including nobel prize winners, signed a petition requesting we take time to solve the problem and not rush into a solution. The great minds realize that making decisions based upon emotional knee-jerk reactions often times don't lead to solid solutions.
One of the economists who is opposed to the bail out wrote an opinion piece on CNN that I think was very interesting:

Commentary: Bankruptcy, not bailout, is the right answer - CNN.com
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Old 09-30-2008, 02:37 PM
 
Location: Santa Monica
4,708 posts, read 7,719,703 times
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I commented on that article, written by a Libertarian, on another thread. Having more bankruptcies among banks could lead to serious deflation. Do we want our leaders to allow the banks' dealmakers to make a "crap shoot" with the entire economy? I don't think so. It needs to be managed by the Feds.
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Old 09-30-2008, 02:39 PM
 
Location: DFW, TX
2,935 posts, read 6,128,573 times
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Quote:
Originally Posted by ParkTwain View Post
I commented on that article, written by a Libertarian, on another thread. Having more bankruptcies among banks leads to deflation.
Given the dramatic inflation we have faced due to reduced exports of goods, increased lending from abroad, introduction of liquidity, increased government spending, and reduction in taxes... I don't see deflation as a bad thing. Our currency needs to readjust.
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Old 09-30-2008, 02:40 PM
 
Location: Albemarle, NC
7,730 posts, read 12,718,411 times
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The Fed is the problem. That's it. Thanks for the debate.
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Old 09-30-2008, 02:48 PM
Status: "¯\_(ツ)_/¯" (set 22 days ago)
 
11,393 posts, read 5,972,002 times
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Quote:
Originally Posted by ParkTwain View Post
I commented on that article, written by a Libertarian, on another thread. Having more bankruptcies among banks could lead to serious deflation. Do we want our leaders to allow the banks' dealmakers to make a "crap shoot" with the entire economy? I don't think so. It needs to be managed by the Feds.

I agree with the previous posts that contradict you. The Fed is one of the major causes of the problem, you cant rely on them to fix it...and yeah, deflation is the natural part of the economic cycle that needs to be allowed to bring us back into balance.

I feel like relying on the fed or other "fixes" to change the economy is similar to the efforts by those with beach front property who try to prevent natural erosion and reduction of the size of the beaches in front of their homes by putting artificial barriers in place to keep the sand there. All they do is make the situation worse for someone else further down the chain.
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Old 09-30-2008, 02:50 PM
 
Location: Santa Monica
4,708 posts, read 7,719,703 times
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<beep> <beep> Your tin-foil hats are giving off signals of major distress!
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Old 09-30-2008, 02:52 PM
Status: "¯\_(ツ)_/¯" (set 22 days ago)
 
11,393 posts, read 5,972,002 times
Reputation: 3601
Quote:
Originally Posted by ParkTwain View Post
<beep> <beep> Your tin-foil hats are giving off signals of major distress!
Well, nice to see that, when you cant defend against logic, you stoop to personal attacks.
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Old 09-30-2008, 02:54 PM
 
Location: Santa Monica
4,708 posts, read 7,719,703 times
Reputation: 1029
You'll have to find a forum to explain your ideas about the Federal Reserve. I don't swallow them at the moment.

I do hope that you believe that the United States needs to have a central bank. If you don't, you've thrown away more than 100 years of economics knowledge.
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Old 09-30-2008, 03:12 PM
 
Location: Albemarle, NC
7,730 posts, read 12,718,411 times
Reputation: 1505
Quote:
Originally Posted by ParkTwain View Post
You'll have to find a forum to explain your ideas about the Federal Reserve. I don't swallow them at the moment.

I do hope that you believe that the United States needs to have a central bank. If you don't, you've thrown away more than 100 years of economics knowledge.
Fractional reserve banking is the idea that you can loan money based on a reserve amount you keep in your possession. Say you have $1111. You can now loan out $10,000. When that money is deposited to another bank or your own, you must keep a ration of 9:1 in reserves with 90% being loaned out again. The cycle continues until based on that single holding of $1111 actual money, you've "created" another $100k in money that doesn't exist and never did.

Now, fast forward a bit. Some of these banks were using 20:1 and even 30:1 reserve ratios. For every dollar they held, they were loaning $20 or $30 instead of $9. It's all well and good until we hit the point where property values are higher than the property is actually worth. Why? Because with more money in the system, there is more incentive to loan more and borrow more. Prices are artificially inflated and everything is dependent on everyone paying their debts. One problem, you can't. There's not that much "real" money in the system for everyone to pay their debts back. The reserve ratios guarantee that. Someone has to fail. Lose your job, medical emergency, over leverage yourself, you fail. The asset gets returned to the bank holding your loan and the system cranks up again when they sell it, again overpriced because property values are still over inflated.

Whose fault is it? Obviously it's both. It's the fault of the bank for loaning more money than they have on reserve. It's the fault of the borrower for taking more money than they can pay back. So the system's inherent flaw is that it depends on increasing debt to feed the demand for new loans.

Ultimately, it collapses when too many people find themselves over leveraged. Then banks start to fail when people worry that the banks are overextended and call in their deposits. And now, here we are today. Too many people want their money back from the banks, too many banks can't get their money from the people, and too many people are left with properties that aren't worth what they mortgaged.

None of this even takes into account that regulations in place allowed home owners to pay only a portion of their interest or none at all. It also doesn't account for the banks placing the total value of their loans including interest on their balance sheets as assets. That's some pretty shady accounting, IMO, but has been standard accounting practice for a while. Factor in all that and the system that was already designed to fail starts breaking apart all over. Every modern country in the world uses this banking system.

When the Great Depression occurred, the same thing happened. People went to collect their deposits and the banks had $1111.

So, why is it a good piece of legislation when it allows The Federal Reserve banks to loan money with ZERO reserves?

Even Jesus threw the money changers out of the temple. Why don't we?
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