We are in a Depression

[iNow]

Yes, I credit the political campaign in part to the problem. Media/Obama/Clinton and the DNC claiming the economy was the worst since the Great Depression, before any problem existed.

Well, I suppose that's one hypothesis...

 

Here's another. On top of the falsely inflated home values... It was the lack of regulation, the lack of enforcement, and the loopholes in the legal codes which allowed banks and companies like AIG to evade their capital requirements and over-leverage their cash positions.

 

So, basically, they got to lie to everyone and say their capital was one amount ("We have X dollars") when it was really another ("oops... we actually have Y dollars, but we won't tell anyone if you don't"), and then after a given amount of time we all realized that they didn't actually have any of that capital ("what, they actually only have Y dollars, despite the fact they've been telling us they have X this whole time and leveraging it into 36X dollars!") and the house of cards came a tumblin' down.

 

Gosh... Your argument suddenly makes so much sense to me now. I can see why you continue to suggest that removing regulations and oversight would have helped with all of that.

 

 

Hopefully, you've detected my sarcasm. I obviously find your assertions baseless and also ridiculous, but I'll tell you what... You can keep regurgitating what you hear on Fox news and try blaming this all on the media, the DNC, and the 2008 presidential campaigns of Hillary Clinton and Barack Obama. That's almost CERTAINLY going to fix our problems and help us learn from the mistakes we made so as not to repeat them in the future.

Edited March 5, 2009 by iNow
correct spelling

[Pangloss]

Come on now, let's get back on polite footing please.

[iNow]

I'm treating him like I would someone who came here claiming that relativity is wrong or that the world will end in 2012. However, I'll try.

[jackson33]

Well, I suppose that's one hypothesis...

 

Here's another. On top of the falsely inflated home values... It was the lack of regulation, the lack of enforcement, and the loopholes in the legal codes which allowed banks and companies like AIG to evade their capital requirements and over-leverage their cash positions.

 

Regulations in short are rules or directives issued by administrative Agencies, in this case Congress to business...They can be restrictive to the operation or how the operation MUST operate. To the Auto Industry, it was what can be sold (CAFE Rules), disregarding what they were set up to produce and the Fannie/Freddy they limited requirements for acceptance...Since AIG, was involved in buying/selling (AND Insuring) government back Mortgages, over leveraging came as a result of regulation, while evaluating values drove their probable legally required backing (NOT Cash, but liquid assets) below the requirement and no means to recover. As an example, NO BANK or financial institution, is required to maintain anything close to what's being held for their clientel or customer base, in either liquid asset or cash...only assets, which can be their own loans.

 

Markets establish values, not Congress, AIG or any Bank, no less than any single item. In all cases these values are what the consumer will pay, at a given time. If inflated price occurs on the values of homes, it was because that consumer base refused to pay the current price. What I am contending and will argue, is that sudden refusal to pay or increase the then current values was a manipulation of the consumer attitude.

 

iNow, Yes I have been detecting your sarcasm for a couple plus years now. I think it's disingenuous to suggest it's based in total, on my understanding of the economy, but rather personal for some unknown reason. Never the less, I feel your not being objective on this issue (and others) to the actual arguments. I enjoy a good debate on issues that interest me, but would rather leave the personalities out of the discussion. What FOX has to do with anything, I don't understand, since I have been in politics and/or political science long before Roger Ailes, FNC or Rush Limbaugh were household names. FDR to JFK and maybe Paul Harvey, would be more likely...

[bascule]

Regulation hinders growth

 

Sometimes hindering growth is good, such as if that growth comes from overspeculation, bubbles, bad investments, etc.

[jackson33]

Sometimes hindering growth is good, such as if that growth comes from over speculation, bubbles, bad investments, etc.

 

Over speculation and bad investments are created by the investors and no amount of regulation will control this. Bubbles are in general a result of the first two. Might add the price is paid by those investors or speculators, not the consumer or should IMO should they be bailed out by Government (were not).

 

What would be applicable and is, would be regulation to control market manipulation, if that would be possible. We have all kinds of checks on this, from quarterly reports to reporting insider trading, reporting of large transfers of stocks (hedge funds etc), rating a companies financial status or a hundred other requirements under Corporate Regulation.

 

I could list 100 examples where growth was unhampered through history, some old examples ongoing to this day, but not in the US. GM/Ford are doing very well in China/Russia/India, even with Toyota or TaTa Motors as competitors. They produce openly a product the others are not. In the US, under CAFE Rules, all produced products are treated as one, under regulation and simply not applicable for growth. Then there was Microsoft and Wal Mart, which grew for years at 20% or more in many years and are increasingly under attack for some business policy, in the US, but not outside. Google, todays best example, remained a private company for years, trying to keep from regulation mandated by trading rules/law, became public after establishment (foundation built) and has grown since. Gore/Tiger Woods were two of their investors.

 

To the thread and you notion regulation could prevent bubbles; Explain to me how regulations could have been applied to 'Building Homes' which is the thought villain in this so called crisis. They were selling subdivisions of homes in all the places I have mentioned, before ground was broken. They were not all flippers (investors) or nothing would have developed from 'again said' over building of new homes. Factually, the flippers and buyers of those yet to be built homes (tens of thousand/maybe a million) simply lost their down payments and moved on. Again the builders (a business) took the brunt and all publicly owned are worth a small fraction of their peak values or have gone under...

 

Then going into qualifications of public servants over business in the first place, when they have 'Board of directors', Stock Holders both preferred and regular, countless creditors and the consumer him/herself holding them accountable, seem a stupid idea.

[bascule]

Over speculation and bad investments are created by the investors and no amount of regulation will control this.

 

On the contrary, I think one of the crucial roles of regulated exchanges is to prevent price manipulation and fraud.

[iNow]

Explain to me how regulations could have been applied to 'Building Homes' which is the thought villain in this so called crisis. [/qUOTE]

 

Can you please clarify your position? Are you suggesting that the cause of this mess was the fact that we built too many homes and nothing else?

 

My issue here is that you are acting as if there were a sole cause, and that (in addition to the liberal media, the DNC, and the 2008 presidential campaign comments from Obama and Clinton) this was all caused because builders and land owners were looking to make a quick buck and built more homes than before?

[ecoli]

Can you please clarify your position? Are you suggesting that the cause of this mess was the fact that we built too many homes and nothing else?

 

My issue here is that you are acting as if there were a sole cause, and that (in addition to the liberal media, the DNC, and the 2008 presidential campaign comments from Obama and Clinton) this was all caused because builders and land owners were looking to make a quick buck and built more homes than before?

Also because investment banks wanted to get in on the home-buying by packaging mortgages as derivatives and selling them. Then insurance groups got in on the deal with credit default swaps.

 

The whole deal was built on the notion that home prices where going to go up forever.

 

The reason why they thought that was because people kept coming into the markets. This is because mortgages writers took advantage of government policies that allowed people with poor credit ratings to get really big mortgages anyway.

 

Loose monetary policy (thank you Alan!) did two things. Encouraged loans by supplying easy credit and discourages savings (you could make more money in the real estate sector and was considered a really safe investment... as safe as government bonds).

 

So while it wasn't ALL government's fault, policies certainly changed the way risk signals were interpreted by market players. Once it became apparent that the feds would jump into the bailout business, moral hazard kicked in.

[iNow]

Which all supports my position that Jackson was myopically and narrowly defining the reality of the situation in order to make some skewed and limited point motivated by a desire to fling poo stinky on "the others."

 

 

As for us being in a "depression," I think is a semantic argument. We're clearly in a deep and troubling recession, and the economy is wildly depressed, but I think we should leave to the historians what best to call it and remain focussed on getting out of it.

[ecoli]

Which all supports my position that Jackson was myopically and narrowly defining the reality of the situation in order to make some skewed and limited point motivated by a desire to fling poo stinky on "the others."

 

The history in the way I presented it seems to support a lot of theories... to Austrian business cycle theory to Keynes's general theory (even the marxists are jumping in).

 

I'll be impressed by who can guess what happens next.

 

The most accurate forecasting I've seen was a paper written in the early 90's that came up with a model from a synthesis of geo-economic and Austrian theory. He predicted a real estate bubble in 2008.

http://www.foldvary.net/works/geoaus.html

 

Not sure why it hasn't received more attention outside of Austrian blog circles.

 

As for us being in a "depression," I think is a semantic argument. We're clearly in a deep and troubling recession, and the economy is wildly depressed, but I think we should leave to the historians what best to call it and remain focussed on getting out of it.

A recession is when you lose your job. A depression is when I lose my job.

 

If not using the term depression creates more market optimism, then why not. psychological forces drive any and every market.

[iNow]

A recession is when you lose your job. A depression is when I lose my job.

 

Cute. Give it time, though... It's only Q2, and I've already lost a lot of friends. By the time Q3 is over, I may be the one collecting food stamps.

[ecoli]

Cute. Give it time, though... It's only Q2, and I've already lost a lot of friends. By the time Q3 is over, I may be the one collecting food stamps.

... or going back to grad school. It's a tough time to be graduating college and applying to grad schools. Most competition ever, because lots of people who would be normally looking towards the financials or even law are looking to go into medicine (a more recession-proof job).

[jackson33]

Can you please clarify your position? Are you suggesting that the cause of this mess was the fact that we built too many homes and nothing else?

 

My issue here is that you are acting as if there were a sole cause, and that (in addition to the liberal media, the DNC, and the 2008 presidential campaign comments from Obama and Clinton) this was all caused because builders and land owners were looking to make a quick buck and built more homes than before?

 

At anytime there are going to be sectors of the market in trouble and other thriving. GM/Ford in the US (North American Operations) have not done well for years, even as GDP rose from around 8T (1998) to todays 15T. K Mart Sears and other retailers have gone under or been bought out (Sears Holding Company) and Home Builders have come and gone in areas where new homes were not practical. All this is Capitalism in motion. What's different today from most recent times, including recession in 2000, 1989 and the late 70's IMO is an overwhelming lack of confidence in US policy, not only from Americans but investors around the world. Bush certainly created the problem, whether through policy or simple statements on the pending financial problem. I don't KNOW why, suspect it was a political maneuver that backfired but he will get the credit regardless.

 

"In part", yes the campaign added to a lack of confidence and yes Obama's messages on future policy played a roll, but all campaigns are based on blaming the current administration on some issue or another, rarely if ever effecting an overall attitude/confidence. Myself, I got out of the markets shortly after the Election of a Democratic Congress, thinking if Bush couldn't control a Republican Congress for 6 years, we had some serious problems coming, for whatever thats worth.

 

No one knows what exactly caused the entire problem and certainly I won't pretend to. I do have thoughts on many single issues, temporarily decreasing regulation (auto/energy exploration/development and others) to stimulate over massive spending or grants, but it's purely subjective and speculative, no more or less than I feel the current administration is accepting from a group of subjective (card in the result) advisor's.

 

I have offered my opinions on the 'Housing Bubble' itself and don't believe there is or ever was an over abundance of available home, prior to the contraction of personal wealth and that same old confidence theory. What's available is in the right places and that remains the hardest hit today, is exactly where people want to go, on retirement, for vacation home or for a future use of a current investment. Yes in Detroit or many urban areas there is an over supply of home/duplex/apartments, but there was before and will be after the current problems are solved...IMO.

[Dudde]

Then there was Microsoft and Wal Mart, which grew for years at 20% or more in many years and are increasingly under attack for some business policy, in the US, but not outside.

 

I just noticed this post and am sorry for my tardiness, but this is not true. There are a lot of Microsoft haters in the world, and they've been attacked more viciously in recent years in the UK or in China than in the United States, albeit still beating out other operating systems to a large extent

 

Regulations are what prevent the ridiculous policies of some of corporate America today - the notion that the president even had to think about putting a salary cap on CEOs who were seeking more bail money for their companies is ludicrous - and the extent that creditors and collectors are financially beating the consumer is way past stupid, and is part of the reason I think we're becoming more financially irresponsible.

 

I'm not implying that executive salaries are the cause for the economic downturn, but it's becoming increasingly obvious that many of today's business leaders don't know how to balance their collective checkbooks in my own opinion.

[jackson33]

I just noticed this post and am sorry for my tardiness, but this is not true. There are a lot of Microsoft haters in the world, and they've been attacked more viciously in recent years in the UK or in China than in the United States, albeit still beating out other operating systems to a large extent

 

Regulations are what prevent the ridiculous policies of some of corporate America today - the notion that the president even had to think about putting a salary cap on CEOs who were seeking more bail money for their companies is ludicrous - and the extent that creditors and collectors are financially beating the consumer is way past stupid, and is part of the reason I think we're becoming more financially irresponsible.

 

I'm not implying that executive salaries are the cause for the economic downturn, but it's becoming increasingly obvious that many of today's business leaders don't know how to balance their collective checkbooks in my own opinion.

 

 

Yes, I am aware of the many law suits against Microsoft in Europe based on their corporate laws. China, I believe it's more a restriction of content, much as with Google. Nevertheless, Microsoft Software remains the biggest seller in all those places and the point of my argument.

 

Your entering an area where the US Federal Government has no business being in with suggestion/control/management of public operated business. It's the reason, I don't support bailouts in the first place. Executive salary is determined by a persons previous experience or if you prefer a performance record. A board of directors, with the approval of the owners (stock holders) determines their value, not the Federal Government. What my main concern on this topic are the obvious expertise of ANY politician, over those of proved executives of very complicated Corporations, many of which are international conglomerates, dealing with dozens of legal systems...

[Dudde]

Yes, I am aware of the many law suits against Microsoft in Europe based on their corporate laws. China, I believe it's more a restriction of content, much as with Google. Nevertheless, Microsoft Software remains the biggest seller in all those places and the point of my argument.

 

But it's the biggest seller in the United States as well, even in the face of free alternatives or a great number of options for people to switch to. I will agree that I think some of the actions taken against the software manufacturer have been absurd, but no more so than have been committed by governments of other countries. I don't see how well a computer software company is doing to be a watermark of the country's economy - and Microsoft isn't doing too badly for itself, Nationally or Internationally

 

 

You're entering an area where the US Federal Government has no business

~~~

many of which are international conglomerates, dealing with dozens of legal systems...

 

Indeed, I doubt that's really how it turns out working, but I'm sure it should be along those lines. However, it's apparent that something wasn't working quite right with those rules I think. We can't blame the government solely for the position any country is in right now. The government might be spending hundreds of Billions of dollars, but a huge fraction of that is going to help larger corporations and banks that, even with the enormous amount of money they supposedly make, are in dire fear of going under. I fail to see the justifiability in receiving 10M+ in a year, while at the same time laying off 5000 workers and receiving any federal assistance. They obviously need some redirection until they can help support themselves again.

 

I tend to think about when I was a teenager - I was responsible and could make money, but if I didn't have any, I had to borrow from Dad. What idiocy possessed him to think that he could tell me what to do just because he was providing money and food and shelter

 

forgive me if I'm not coming through clearly, but I just don't see a lot of the corporate community as being fiscally responsible

[jackson33]

Dudde; Your coming across quite clearly, are very polite, have many of the same opinions of the average/majority , 20-35 yo person today.

 

Using your analogy of a parents responsibility for providing for the children they bring into this world; Democratic Governments have no means to make money or they would be socialistic, owning business. The founders of the US took this one step further, making the Federal Government of 13 -now 50-was designed to govern by representation of the total on interest that concerned the total. Said another way and in my opinion, States are perfectly in their right to cater to social needs and do today in different degrees. We are talking about the Federal...If your Dad, had refused to give you five bucks for say a CD, do you think it would be proper to ask a neighbor

or maybe some one from another State. If it's something every parent should provide, a shelter or a daily diet, your health care or an education, the then responsibility lies to the City, County orState, not the Federal.

 

As for blaming any entity for this current 'so called crisis' (I am not convinced the entire crisis couldn't have been prevented) no single issue can be pin pointed for the condition that made business/people lose confidence in the system. Surely it was a combination, later in your lifetime will be argued no less than the cause of the Great Depression is argued today.

 

I used Microsoft as an example of continued growth, surviving the Tech Bubble Burst along with a host of problems. Frankly I prefer their operating systems and won't buy another, but there is no doubt in my mind they were the bully on the block, during their growth.

 

On COO, CEO and CFO's pay scales or the duties any executive is by job description is required to perform and their relative pay (with/without bailout money) can only be addressed correctly by their board of directors. Wagner, head of GM, is paid $1.00 per year, as was Henry Ford IV former head of Ford Motors and Lee Iaccoca the man who took a bailout loan and pulled Chrysler out of bankruptcy years ago. However if a Corporate Board, the Stock holders, feels the person in charge is better than and of the MAYBE 500 qualified people in the entire world and yet somehow unemployed (not likely) they are duty bound to maintain the requested pay scale. No doubt there are examples of just plain poor management, but in most cases it's not the underlying problem of most major concerns.

[bascule]

This is an incredibly interesting article:

 

http://economistsview.typepad.com/economistsview/2009/04/a-tale-of-two-depressions.html

 

Two economists compare where we are at now to the Great Depression:

 

World Stock Markets:

 

Volume of World Trade:

 

Their conclusion is that we are in a depression, although so far the policy responses have been better than they were during the Great Depression.

 

We also have social programs to ensure people aren't, well, dying as a result of the depression.

[The Bear's Key]

This situation may actually not be all that different from the 1930s, relative to technology at the time, but it certainly doesn't seem to "jive" with my school-educated and Hollywood-modeled view of what life was like during the Great Depression.

 

Maybe my impression of the Great Depression has always been wrong -- maybe the majority of Americans were really "okay" during that time, just careful about not losing their jobs, saved their money more than usual, and didn't go to the movies quite as often.

 

We also have social programs to ensure people aren't, well, dying as a result of the depression.

The last quote answers the first two.

 

 

The Great Depression

 

http://wcco.com/local/great.depression.art.2.754421.html

"Seventy-five years ago this year, he (FDR) was elected in a landslide and he promised a New Deal for Americans. And part of that was to put Americans back to work," said Szott.

 

In the wake of the Great Depression, the nation's unemployment rate in 1935 hit a whopping 25 percent. Soup lines were commonplace in many major U.S. cities.

 

To help get America working again FDR created the "Works Progress Administration," a program designed largely to build public works projects. Many cities and towns around the state still have vestiges of the WPA, things like sports stadiums, river walks, public buildings and parks.

 

 

http://www.forties.net/TheGreatDepression.html

(the images speak a lot)

Remembering the Great Depression leaves a bitter taste. Those days will forever be a memory, which will not be soon forgotten.

 

The stock market crash was the beginning in time for poverty in our States, Many gentlemen were forced into poverty, which was a totally new act of life for them. Many committed suicide, because it left no hope. They had lost everything financially.

.....

Our family was fortunate in that we owned a farm....We had land on which to grow food, and livestock, until the Drought which killed most of the animals.

.....

We had many visitors to the farm of men with ragged clothing seeking work and food. My father hired a few; however, not for long as situations worsened.

.....

Do remember the gold recall. A $10,000 fine for U.S. citizens not turning in gold certificates or coins. And, recall the banks closing.

 

 

 

Foresight

 

It's government-intervention policies from back then which are keeping us on more solid footing today.

 

Policies which have, since then, upped the bar height at which economic failure occurs. And so without them, the economy might've collapsed a while ago.

 

One reason we have it better today is due to preventative actions taken before in the case of a repeat wholesale market failure.**

 

 

An example of widespread damage caused by free market habits (in 3D Tunnel-Vision)

http://en.wikipedia.org/wiki/Dust_bowl

 

The phenomenon was caused by severe drought coupled with decades of extensive farming without crop rotation or other techniques to prevent erosion.[1] Deep plowing of the virgin topsoil of the Great Plains had killed the natural grasses that normally kept the soil in place and trapped moisture even during periods of drought and high winds.

 

During the drought of the 1930s, with no natural anchors to keep the soil in place, it dried, turned to dust, and blew away eastward and southward in large dark clouds. At times the clouds blackened the sky reaching all the way to East Coast cities such as New York and Washington, D.C. Much of the soil ended up deposited in the Atlantic Ocean.

 

 

 

Bashing of improved government

 

Democrats and Republicans need their talking points to resonate and sound true. Any contradictions of reality weakens their party messages' bread and butter: votes.* Thus why Republicans can't afford to play ball if government intervention actually has even a bit of merit -- which yes, it does have some merit. As we can see (again) in the image below, sometimes a Party just doesn't like to play ball...when it hurts their attack platform.

 

 

 

A pattern

 

A decade of Republican Presidents led into....

 

• the Great Depression (1920s)
  
• Clinton's need to rescue/reverse the budget deficit (1980 - 1992)
  
• our current environment (the last 8 years...a near decade )
  

The National Debt clock was even built in 1989 (

) and halted in 2000, only to be rebuilt in 2002.

 

Sure, the Congress has a part (as well)....but maybe it really all just boils down to an image problem of the ones sitting in the highest government office.

 

 

*Not to mention $$ contributions.

**Today's presence and free nature of the internet is likely another reason.

***Yes, the first two asterisks were done in reverse order (from the standard practice). And you're correct: there's no matching, relevance asterisks for this sentence.

Edited April 12, 2009 by The Bear's Key
minor grammar / fixes

[Pangloss]

That chart may say something bad about Republicans, but it doesn't say that Democrats are bipartisan. It shows that they like social spending regardless of who proposes it -- that's an ideological preference. That doesn't mean they're better at "playing ball" than Republicans.

 

I can't really see a bunch of congressional Democrats sitting around saying "oh well.... sigh... I guess if Mr. Reagan really wants to spend our money on the poor, wellllllllll, I guess we can open the purse strings just this once........".

[bascule]

That chart may say something bad about Republicans, but it doesn't say that Democrats are bipartisan. It shows that they like social spending regardless of who proposes it -- that's an ideological preference.

 

Yes, and Republicans like it when it's proposed by other Republicans and dislike it when it's proposed by Democrats. That's hypocrisy.

[Pangloss]

Which tells us to do what, exactly?

[bascule]

Which tells us to do what, exactly?

 

Well, in my case I think it's lead me to stop taking the Republicans seriously... in cases like this their position (one which is evidently universally espoused, given those statistics) is entirely based on what's politically expedient given the current political climate, as opposed to trying to govern effectively. Not a single one of them was willing to side with Clinton over the tax increases, but they were quite happy to try to take all the credit for reducing the national debt.

 

I certainly think the Republicans helped with spending cuts towards the end of the Clinton administration, but that's all they can really be credited with regarding the budget surplus. The rest we can attribute to "irrational exuberance" and the tech bubble. While it was unsustainable, it certainly marks the closest America has gotten in recent times to paying down the national debt as opposed to adding to it.

 

All of this would be completely undone by the end of the tech bubble, 9/11, and Bush and his fellow Republican's "spend more, tax less" policies. While we would recover from 9/11, we never recovered from "spend more, tax less"

[Pangloss]

I understand the sentiment, but IMO you have to be much more hesitant than that in drawing conclusions about what all Republicans are (or aren't). The Republican Revolution was similarly fueled by broad generalizations, in that case about Democrats, that were popularized by talk radio and other conservative media outlets. The whole Anybody But Bush movement was no better grounded in reality, and didn't get us any farther in solving real problems.

 

When it comes to the economy there's enough blame to go around with both parties. The focus on getting us out of this economic slump should be economic realities, not which party was right and which one was wrong.