Ayn Rand's Ugly Step Child

[Tony_S]

That's what the recession means. It means the market needs to correct itself, and that's what the recession does. It's not pleasant, but it's necessary.

This isn't the business cycle at work, although some problems can be related to the easy credit policies of FED during the 90s.

Derivatives are speculation, paper stacked on paper, etc. Some of these exotic instruments were repackaged and resold as well. One cannot liquidate illiquid assets.

Of course this is the business cycle at work. The Fed's low interest rates are what caused this recession.

The FED is responsible for the bubble, I agree. However, the derivatives bubble, at least in the US, was caused by the repeal of Glass-Steagall Act.

 

[Kevin_Kennedy]

But often said the claim is that securitization—and its lack of regulation after the repeal of the Glass-Steagall Act—is the problem. As the argument goes, by being able to sell the mortgages, which are then transformed into mortgage-backed securities, mortgage lenders do not need to worry about the money ever getting paid back, so they loosen their lending standards and make loans that wouldn't be profitable if they were forced to keep them. But this raises the question of why investors would want to buy such dodgy debt. Or to put it another way, how could mortgage lenders fool investors into not demanding high-risk premiums to cover the likely loan losses? If investors had demanded sufficiently high risk premiums, then the initial loans wouldn't have been profitable.

There are two possible explanations for this: either (1) they rationally assume that they will be able to let others take losses, or (2) these investors are incompetent and didn't understand the nature of these securities—didn't realize, that is, that once interest rates rose again, the subprime borrowers wouldn't be able to make their payments. Explanation number one takes us back to the moral hazard created by Greenspan's previous bailouts, as well as the guarantees that Fannie Mae and Freddie Mac created for the various mortgages they bought and either kept or sold to others with that guarantee. Explanation number two also takes us back to Greenspan's bailouts, and the fact that incompetent financial firms weren't weeded out like incompetent companies are in other sectors. Either way, previous bailouts are the root cause of this problem.

Yes, Greenspan Did It - Stefan Karlsson - Mises Institute

 

[Tony_S]

But often said the claim is that securitization—and its lack of regulation after the repeal of the Glass-Steagall Act—is the problem. As the argument goes, by being able to sell the mortgages, which are then transformed into mortgage-backed securities, mortgage lenders do not need to worry about the money ever getting paid back, so they loosen their lending standards and make loans that wouldn't be profitable if they were forced to keep them. But this raises the question of why investors would want to buy such dodgy debt. Or to put it another way, how could mortgage lenders fool investors into not demanding high-risk premiums to cover the likely loan losses? If investors had demanded sufficiently high risk premiums, then the initial loans wouldn't have been profitable.

There are two possible explanations for this: either (1) they rationally assume that they will be able to let others take losses, or (2) these investors are incompetent and didn't understand the nature of these securities—didn't realize, that is, that once interest rates rose again, the subprime borrowers wouldn't be able to make their payments. Explanation number one takes us back to the moral hazard created by Greenspan's previous bailouts, as well as the guarantees that Fannie Mae and Freddie Mac created for the various mortgages they bought and either kept or sold to others with that guarantee. Explanation number two also takes us back to Greenspan's bailouts, and the fact that incompetent financial firms weren't weeded out like incompetent companies are in other sectors. Either way, previous bailouts are the root cause of this problem.

Yes, Greenspan Did It - Stefan Karlsson - Mises Institute

The author isn't addressing the main impact of the repeal of Glass-Steagall. It created a firewall between banks and stockjobber operations. The moral hazard of an investment bank is obvious.

Also, to claim that the sub-prime caused a systemic crisis, is laughable. Mortgage-backed securities are only the tip of the iceberg. We have credit default swaps, structured investment vehicles, collateralized debt obligations, and a shitload of worthless paper out there.

 

[Kevin_Kennedy]

But often said the claim is that securitization—and its lack of regulation after the repeal of the Glass-Steagall Act—is the problem. As the argument goes, by being able to sell the mortgages, which are then transformed into mortgage-backed securities, mortgage lenders do not need to worry about the money ever getting paid back, so they loosen their lending standards and make loans that wouldn't be profitable if they were forced to keep them. But this raises the question of why investors would want to buy such dodgy debt. Or to put it another way, how could mortgage lenders fool investors into not demanding high-risk premiums to cover the likely loan losses? If investors had demanded sufficiently high risk premiums, then the initial loans wouldn't have been profitable.

There are two possible explanations for this: either (1) they rationally assume that they will be able to let others take losses, or (2) these investors are incompetent and didn't understand the nature of these securities—didn't realize, that is, that once interest rates rose again, the subprime borrowers wouldn't be able to make their payments. Explanation number one takes us back to the moral hazard created by Greenspan's previous bailouts, as well as the guarantees that Fannie Mae and Freddie Mac created for the various mortgages they bought and either kept or sold to others with that guarantee. Explanation number two also takes us back to Greenspan's bailouts, and the fact that incompetent financial firms weren't weeded out like incompetent companies are in other sectors. Either way, previous bailouts are the root cause of this problem.

Yes, Greenspan Did It - Stefan Karlsson - Mises Institute

The author isn't addressing the main impact of the repeal of Glass-Steagall. It created a firewall between banks and stockjobber operations. The moral hazard of an investment bank is obvious.

Also, to claim that the sub-prime caused a systemic crisis, is laughable. Mortgage-backed securities are only the tip of the iceberg. We have credit default swaps, structured investment vehicles, collateralized debt obligations, and a shitload of worthless paper out there.

All thanks to the Fed.

 

[Tony_S]

Yes, Greenspan Did It - Stefan Karlsson - Mises Institute

The author isn't addressing the main impact of the repeal of Glass-Steagall. It created a firewall between banks and stockjobber operations. The moral hazard of an investment bank is obvious.

Also, to claim that the sub-prime caused a systemic crisis, is laughable. Mortgage-backed securities are only the tip of the iceberg. We have credit default swaps, structured investment vehicles, collateralized debt obligations, and a shitload of worthless paper out there.

All thanks to the Fed.

Well, thanks to the private cartel we refer to as the FED, as well as various investment banks and central banks around the world. Fucking douches....

 

[Neubarth]

We have the potential for another massive stock market collapse again. I sure hope the Gov has decided to stop all of the speculative bets by the banks in the market. If we have not done that before the coming crash, the poorly betting banks will all go bankrupt, and our economy may take a quarter of a century to recover.

 

[MaggieMae]

I wouldn't. Just the image of them two together makes me blush.

I meant the discussion... A few years ago when I used to listen to Imus in the Morning, it was always hilarious when he would have Andrea Mitchell on because he always asked her if Alan was soaking in the bathtub while she was chatting on the phone.

IMUS usually made my skin crawl. Maybe it was the old guy acting like ... like he did. I get that same feeling when i see Mike BArnicle or Chris Matthews among others. That whole crowd of baby boomers...ugh.

Well then I hope you don't have heart failure, because I'm even older than they are (at least Matthews). But not as old as Greenspan. That comment frankly surprises me coming from you. I would have expected it from someone like Crusader Frank or Frailty, et al.

I'm actually closer to Don Imus's age, and although I didn't get into all the trouble he did back in the day, I had a helluva lot of fun. More so than the 20/30-somethings of today, I can guarantee. So I relate more to his forays into the 70's. That said, gravity happens. And it will even happen to you eventually. Imagine that.

 

[MaggieMae]

I meant the discussion... A few years ago when I used to listen to Imus in the Morning, it was always hilarious when he would have Andrea Mitchell on because he always asked her if Alan was soaking in the bathtub while she was chatting on the phone.

IMUS usually made my skin crawl. Maybe it was the old guy acting like ... like he did. I get that same feeling when i see Mike BArnicle or Chris Matthews among others. That whole crowd of baby boomers...ugh.

Have you heard Stern bust on Imus? It's pretty funny...

I can't get Fox business channel, so haven't watched him since he left RFD-TV. That was a strange experience when I first discovered he was back on television after leaving MSNBC, because Imus seemed to be taking a more right-leaning position on most everything, whereas he wasn't as biased before. Then I discovered that RFD-TV and the ABC radio affiliate simulcasting are owned by Murdoch.

 

[MaggieMae]

If I claim I can fly does that make it true?

I don't deny that if all you did was look at Greenspan's rhetoric then you might have a case for him supporting the free market, but if you were to look at the things he actually did then you, if you're being honest, have to come to the conclusion that he was not a supporter of the free market in any way.

I think you should read Woodward's "Maestro" on Greenspan before you draw that conclusion as your final one. With the exception of Jimmy Carter, he served every president since 1969, and there have been several tumultuous economic situations in all that time, and the free market has survived it all (so far), even this one. I haven't glanced at that book in a long time, but I do remember being struck by Greenspan telling Woodward that the president he felt best understood the economy was Bill Clinton.

I can look up the things Greenspan has done easily enough on the internet, and his policies were not indicative of any support for a true free market. However, you seem to be of the opinion that we currently have a free market, which means that you, like Dev, do not have an accurate idea of what a free market really is.

In today's world, it would be impossible to have an ideological (magical?) "free market" as it is defined. There are disciplines within a capitalist society as large as ours that MUST BE regulated.

 

[MaggieMae]

I think you should read Woodward's "Maestro" on Greenspan before you draw that conclusion as your final one. With the exception of Jimmy Carter, he served every president since 1969, and there have been several tumultuous economic situations in all that time, and the free market has survived it all (so far), even this one. I haven't glanced at that book in a long time, but I do remember being struck by Greenspan telling Woodward that the president he felt best understood the economy was Bill Clinton.

I can look up the things Greenspan has done easily enough on the internet, and his policies were not indicative of any support for a true free market. However, you seem to be of the opinion that we currently have a free market, which means that you, like Dev, do not have an accurate idea of what a free market really is.

I know we don't have a free market. We haven't had one since the emergence of city-states. However, in order for such a system to exist ( the models proposed by Rothbard and von Mises and, to a lesser extent, von Hayek), all actors in said system would have play by the rules. Given the nature of human beings, this is never going to happen. Groups of people, whether it's the state or corporations, pursue their own agendas.

Exactly. And when you think about it, forcing all the players to obey the rules is itself regulating the system.

 

[MaggieMae]

You're saying that people wouldn't play by the rules, and I agree. It's simple human nature, some are going to try to cheat the system no matter what system is in place. But that's not an argument against the free market. If people commit fraud then you prosecute them.

Who will prosecute them? Our government, which has turned into maggot-infested corpse, routinely throws the rule of law out the window. The state has become a parasitical host for special interests.

Back to this mythical free market. Where is it? When has the US or any nation-state ever operated under a 'free market' system? I see monopolies, duopolies and cartels running the show.

That is a legitimate function of the government, to prosecute fraud. Madoff is a good example of this.

Ah, the ol' government should leave us alone until we need 'em argument. Gotcha.

 

[Paulie]

I think you should read Woodward's "Maestro" on Greenspan before you draw that conclusion as your final one. With the exception of Jimmy Carter, he served every president since 1969, and there have been several tumultuous economic situations in all that time, and the free market has survived it all (so far), even this one. I haven't glanced at that book in a long time, but I do remember being struck by Greenspan telling Woodward that the president he felt best understood the economy was Bill Clinton.

I can look up the things Greenspan has done easily enough on the internet, and his policies were not indicative of any support for a true free market. However, you seem to be of the opinion that we currently have a free market, which means that you, like Dev, do not have an accurate idea of what a free market really is.

In today's world, it would be impossible to have an ideological (magical?) "free market" as it is defined. There are disciplines within a capitalist society as large as ours that MUST BE regulated.

Then don't call it what it isn't.

 

[Kevin_Kennedy]

I think you should read Woodward's "Maestro" on Greenspan before you draw that conclusion as your final one. With the exception of Jimmy Carter, he served every president since 1969, and there have been several tumultuous economic situations in all that time, and the free market has survived it all (so far), even this one. I haven't glanced at that book in a long time, but I do remember being struck by Greenspan telling Woodward that the president he felt best understood the economy was Bill Clinton.

I can look up the things Greenspan has done easily enough on the internet, and his policies were not indicative of any support for a true free market. However, you seem to be of the opinion that we currently have a free market, which means that you, like Dev, do not have an accurate idea of what a free market really is.

In today's world, it would be impossible to have an ideological (magical?) "free market" as it is defined. There are disciplines within a capitalist society as large as ours that MUST BE regulated.

And the market can regulate itself.

 

[MaggieMae]

I can look up the things Greenspan has done easily enough on the internet, and his policies were not indicative of any support for a true free market. However, you seem to be of the opinion that we currently have a free market, which means that you, like Dev, do not have an accurate idea of what a free market really is.

In today's world, it would be impossible to have an ideological (magical?) "free market" as it is defined. There are disciplines within a capitalist society as large as ours that MUST BE regulated.

Then don't call it what it isn't.

I think anymore the term "free market" is just a catch-all phrase meaning capitalism. I use the phrase lots of times, but I certainly don't mean it in the context of bartering or x-number of beaver pelts for 20 pieces of gold with no sheriff looking on to make sure the transaction is fair.

 

[Procrustes Stretched]

I can look up the things Greenspan has done easily enough on the internet, and his policies were not indicative of any support for a true free market. However, you seem to be of the opinion that we currently have a free market, which means that you, like Dev, do not have an accurate idea of what a free market really is.

In today's world, it would be impossible to have an ideological (magical?) "free market" as it is defined. There are disciplines within a capitalist society as large as ours that MUST BE regulated.

And the market can regulate itself.

and bears can sprout wings and fly.

 

[Procrustes Stretched]

Since Randism has become popular of late, there have been many historical facts brought to light about her own radical methods that tend to show that she sure didn't practice what she preached. Ayn Rand and her groupies were hypocrites. She demanded strict loyalty to her ideology and ironically held court from her throne as if she, herself, were a dictator. Free expression wasn't allowed by Ayn.

These things aren't new to those of us of a certain age. Thing is, nobody much cared about her back when and really, nobody much cares about her now. if it wasn't for some of the crazed statements and policies pushed by her followers,..

Conservative intellectuals need a hero, other than Rush Limbaugh.

Oh! Is that why Paulie and the others are going around in nylon capes, jumping up and down, and screaming "We do believe in ghosts like socialism" and "The commies are comin!"?

 

[MaggieMae]

I can look up the things Greenspan has done easily enough on the internet, and his policies were not indicative of any support for a true free market. However, you seem to be of the opinion that we currently have a free market, which means that you, like Dev, do not have an accurate idea of what a free market really is.

In today's world, it would be impossible to have an ideological (magical?) "free market" as it is defined. There are disciplines within a capitalist society as large as ours that MUST BE regulated.

And the market can regulate itself.

That's nonsense, especially in light of the recent catastrophe. Here is where Randism, and therefore your own argument, fails:

"A source of mild entertainment amid the financial carnage has been watching libertarians scurrying to explain how the global financial crisis is the result of too much government intervention rather than too little. Like all true ideologues, libertarians find a way to interpret mounting evidence of error as proof that they were right all along.

They are intellectually immature, frozen in the worldview many of them absorbed from reading Ayn Rand novels in high school. Their heroic view of capitalism makes it difficult for them to accept that markets can be irrational, misunderstand risk, and misallocate resources, or that financial systems without vigorous government oversight and the capacity for pragmatic intervention constitutes a recipe for disaster...."
~~ Jacob Weisber, Slate.com

 

[Kevin_Kennedy]

In today's world, it would be impossible to have an ideological (magical?) "free market" as it is defined. There are disciplines within a capitalist society as large as ours that MUST BE regulated.

And the market can regulate itself.

That's nonsense, especially in light of the recent catastrophe. Here is where Randism, and therefore your own argument, fails:

"A source of mild entertainment amid the financial carnage has been watching libertarians scurrying to explain how the global financial crisis is the result of too much government intervention rather than too little. Like all true ideologues, libertarians find a way to interpret mounting evidence of error as proof that they were right all along.

They are intellectually immature, frozen in the worldview many of them absorbed from reading Ayn Rand novels in high school. Their heroic view of capitalism makes it difficult for them to accept that markets can be irrational, misunderstand risk, and misallocate resources, or that financial systems without vigorous government oversight and the capacity for pragmatic intervention constitutes a recipe for disaster...."
~~ Jacob Weisber, Slate.com

You want to talk about an argument that fails, let's start with the argument that the government can magically regulate us into prosperity. It's never happened, and it's not going to happen now.

Also, the fact that makes that quote look absolutely ridiculous is the fact that libertarians, and Austrian economists in particular, are really the only group that predicted this crisis as a whole.

 

[Paulie]

In today's world, it would be impossible to have an ideological (magical?) "free market" as it is defined. There are disciplines within a capitalist society as large as ours that MUST BE regulated.

Then don't call it what it isn't.

I think anymore the term "free market" is just a catch-all phrase meaning capitalism. I use the phrase lots of times, but I certainly don't mean it in the context of bartering or x-number of beaver pelts for 20 pieces of gold with no sheriff looking on to make sure the transaction is fair.

If there's not a real free market, and never was, then how can it be opposed?

The 'free market' you see around you is not free. If you ever knew anyone who's business was stifled because of the regulations that control its particular industry, you might understand where I'm coming from.

How does a small medical company compete with Merck, or J&J for instance? I'm invested in a small little company that makes a product that could compete with, and take market share from, products like Tylenol.

They are hurdled with FDA regulations, advertising regulations, etc. And if we're fortunate enough to get approval from the FDA, we're almost assuredly going to get bought out by one of the big fish. We'll never get to see $50 per share like the J&J's of the world.

I understand where some regulations are necessary, but the anti-free market people don't seem to put much thought into how much some regulations actually STIFLE competition and create anything BUT a free market.

 

[Paulie]

I love how the government loosened up a little bit on the banking industry, and because the banks fucked up, all the sudden that was a "free market" that should be considered a complete failure. Like it was only the banks' fault, too.

Nevermind the rest of the stifling regluations that were still in place everywhere else though.

Like the government hasn't been in bed with the banks since the friggin beginning of the practice of lending.

We're all just idiots that could never possibly figure out what's best for ourselves, right?