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This is what happens when you have government interference in the economy. Are people too afraid of uncertainty for a short while to allow the market to work its magic?
Here's an example that's a bit less in scale than the housing crisis, but still illustrates the point quite well. Where I live in NC, gas prices spiked by as much as $0.30-1.50 a gallon on Friday when there was a run on the stations because of hurricane fears. Immediately, the governor and attorney general announced that there would be price gouging investigations. By Sunday, however, the market had completely stabilized at +$0.30-0.40 per gallon - pretty appropriate if you ask me given the supply constraints. The market wouldn't support the gouger's prices and they had to be lowered. The market wouldn't support the lowest prices either, as those stations ran out of gas. All of this happened before the governor and his cronies even got out of bed to go to work this morning.
The whole point is that the government supporting irrationality in the economy only leads to long-term distress for everyone, rich and poor alike. Let housing crash and prices will eventually become rational again.
With that free market philosophy (I agree 110%), I'm surprised you haven't been skinned alive in an aging hippie town like Carrboro.
This is what happens when you have government interference in the economy. Are people too afraid of uncertainty for a short while to allow the market to work its magic?
I disagree. This is what happen when you effectively eliminate the regulation of financial institutions. The moral hazard premise is a bunch of baloney. There is no moral hazard when overpaid, rock star CEOs and senior managers sit on competing boards and have their "exotic" investment vehicles and non-existent assets interwoven into not only other financials but just about every other publicly trade multinational corporation.
This wouldn't have happened 15 years ago because people weren't into tax-deferred pension plans to the same level as they are today. With the move into 401k, 403b, 457 plans and others it eliminated the need for offering interest on savings that covered the inflation rate, risk, and a time value. So the financials have had free money to play with that was largely invested in equities. As long as everyone played by the rules and didn't wipe out the competitor's equity everyone was fine.
Now its a quick path down the drain with possibly only the biggest, fattest players saving themselves because they are too big to fit down the drain.
This is just the start. If something doesn't change then I fully expect to see some large multinational, nonfinancials going belly up.
The problem is going to come for the population if they panic and start withdrawing their money from banks, closing accounts and stuffing their portfolios under their mattresses rather than keeping them in the hands of brokerage firms. The stampede is what will let this nation fail, not the failing of lehmans.
I disagree. This is what happen when you effectively eliminate the regulation of financial institutions. The moral hazard premise is a bunch of baloney. There is no moral hazard when overpaid, rock star CEOs and senior managers sit on competing boards and have their "exotic" investment vehicles and non-existent assets interwoven into not only other financials but just about every other publicly trade multinational corporation.
I'll accept this if you're willing to say that Adam Smith was wrong that what we and the rest of the world need is essentially socialism, or a state-run mercantile system at the very least.
A huge part of the problem with these financial institutions has been the mindset that's been handed down by the government itself - that money can essentially be created from nothing. That, and the activist policy of the Fed that pretty much sent the impression that risk would be eventually be covered by the taxpayer.
For once, I actually agree with Nancy Pelosi, or at least with the spirit of her comments today about "privatized profits and nationalized risks". I'm just not convinced that the current path is the answer to the problem.
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There is hope for some at Lehmans
