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This country needs a clean slate. On some level, I think that's one of the few things conservatives, liberals, and everyone can agree on; it's just agreeing on what that process should be.
I've basically been a Keynesian guy, and I still am. I supported the bailouts, believing that it would be unconscionable to let our financial system collapse completely.
But then I read about Iceland's reaction to their own banking collapse, and I started to question some of my own beliefs a little. Not that I'm about to join the tea part anytime soon or anything but I think the biggest problem with the bailouts is that we have basically told banks, "Do whatever the hell you want - we'll pay for it" There's absolutely no incentive to stop engaging in these risky banking and investment practices.
Perhaps the best response would have been to take the banks into receivership; retained the management for a period so that the markets stabilized; and then gradually let the banks down in a sort of controlled collapse. I don't know if there's a mechanism for that, which may explain why that wasn't done. But it's something we should look into. Instead, the current emergency mechanism just kicks in public funding to ensure liquidity in the short term, but that's still a major long-term problem...and it might even make an already-bad problem and even more gigantic mess in the future.
The Frand/Dodd legislation does nothing to stop the banks from investing in derivitives and the fed keeps insuring them for doing so. It would be nice to hit the crap table and throw everything down on seven and if it doesn't hit have the rest of the betters at the table have to give you your money back.
Why the heck do you think the "Great Depression" lasted as long as it did? It had everything to do with the government geting involved. Keynesians just don't get it.
As you keep questioning you Keynesian beliefs go over to Mises.com and read up on Austrian Economics.
We don't need new laws; we need to return to the old one: The US Constitution!
Ron Paul 2012
The Constitution is still there, has not gone anywhere, but there are alot of loopholes in it for the Govnt. And what does not have a loop hole they do not enforce.
I don't know if there's any way to keep a big from becoming too big to ignore, but we need to find a way to keep them from being too big to fail. They do not have to be one and the same. If a bank goes under and threatens to pull our financial system down with it, then we would obviously need to step in and figure out how to keep the economy solvent. But the bank in that failed incarnation needs to become extinct. I think that's something that both parties could actually work together and make some progress on. The Republicans would get to keep their 'risk-and-reward' free market, and the Democrats would get to humble the big banks once in a while.
It was called Glass Steagall, it worked extremely well, that is until we let the lobbyists and corrupy crony capitalism kill it in 1999. Read about the history of its demise and the amount of corruption and infiltration with trojan horses for the financial industry it took to get it killed:
The Frand/Dodd legislation does nothing to stop the banks from investing in derivitives and the fed keeps insuring them for doing so. It would be nice to hit the crap table and throw everything down on seven and if it doesn't hit have the rest of the betters at the table have to give you your money back.
Yeah, it was Senator Scott Brown from Massachusetts (R) that got the Volcker Rule, which would have reduced banks abilities to take on risky leverage, removed from Dodd-Frank because he received more money than all other Republican senators combined during the Dodd-Frank negotiations. Remember the Republicans were threatening to filibuster Dodd-Frank, the only reason it passed was because of massive amounts of lobbying dollars by banks that got the most essential regulatory aspects from it removed through their proxy Senator Brown.
The Constitution is still there, has not gone anywhere, but there are alot of loopholes in it for the Govnt. And what does not have a loop hole they do not enforce.
Actually, what happens, is that Congress passes unConstitutional bills all the time and the populous is too lazy to protest. Laws will not force elected officials to act lawfully when their own characters have failed. However, smaller government and less power will decrease the amount of damage that can be done.
The Constitution is still there, has not gone anywhere, but there are alot of loopholes in it for the Govnt. And what does not have a loop hole they do not enforce.
I think you have never read the Constitution, but sure as hell should.
Why the heck do you think the "Great Depression" lasted as long as it did? It had everything to do with the government geting involved. Keynesians just don't get it.
As you keep questioning you Keynesian beliefs go over to Mises.com and read up on Austrian Economics.
We don't need new laws; we need to return to the old one: The US Constitution!
Ron Paul 2012
Why did the Great Depression last as long as it did?
First of all, that statement of fact needs to be put into perspective. The recovery from the stock market crash of 1929 actually began in or around late 1932 and early 1933, and that was clearly after a set of Keynesian policies were enacted. In fact, Herbert Hoover began the reversal of a good 15 to 20 years of economic loosening with his massive tax hike in late 1932. What FDR did was to use the revenue to create jobs. So Keynesian has historical evidence behind it.
Moreover, there is also historical evidence to show that small government, such as the kind that we had in the late 19th century and early 20th Centuray, was not effective in terms of reversing economic decline. Some of the recessions during this period lasted three to five years. Inflation and deflation cycles fluctuated wildly, and there were also regular bank panics every 20-25 years. Look at the data, it's all there!
Now, to answer your question, one policy that did not work, and one thing we need to keep in mind today, is the policy of international tariffs. Hoover's tariffs helped to push Europe into its own depression, and it then resulted in retaliatory tariffs. There's no question that the depression was already bad, but the tariffs made them worse.
But Keynesian works...when it's applied properly. Believe it or not, there's even some scant evidence that it has been moderately effective over the past two years. That's getting into a wider discussion that I don't have time for this morning. Maybe when I get back home this afternoon, though.
This seems as good a place as any to ask something I've wondered about for a long time.
On one hand I've been seeing people lose their homes to foreclosure when they either can't keep up with the payments or they walk away from homes which are underwater.
In the meantime, I'm on the outside, wondering why I've been paying more to rent than the payments some homeowners are walking away from...wondering why I can't assume their payments and make everybody happy. The about-to-be-foreclosed homeowner/seller is happy, the lender SHOULD be happy (because the loan continues to perform), and of course I am thrilled.
But it appears that lenders would rather take huge losses on short sales or foreclosures, instead of relaxing their qualifying standards.
Why would lenders rather take huge losses than allow subprime borrowers to assume loans? Are lenders thinking prices will fall further and therefore they should eat their loss now rather than down the road?
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but I think the biggest problem with the bailouts is that we have basically told banks, "Do whatever the hell you want - we'll pay for it" There's absolutely no incentive to stop engaging in these risky banking and investment practices. 
