How do you disprove an Economic Theory?

[JustinW]

There are an abundance of examples throughout history that show that neither pure capitalism nor pure socialism are sustainable models that don't ultimately hurt the populace. You really MUST have a hybrid model that incorporates elements of both to ensure a properly functioning society.

 

The question then becomes one of scale... Which elements should be free market and which socialized, and by how much... That's where the break down occurs... but one thing is for certain, free markets alone are unsustainable and detrimental to the well-being of society, as is socialism alone. The combination of them is necessary, and the subjective opinion on how to strike that balance is where the problems and arguments appear.

 

 

JustinW, on 13 January 2012 - 11:09 AM, said:

 

And in the real world GM would have failed and another company would have taken it's place.

Another company would not have taken it's place in the US, however. Letting them fail in the way you suggest may seem reasonable, but it seems to ignore the monstrous impact such a failure of leadership would have caused in other markets. That cowardly refusal to act would have cascaded the failure much deeper throughout the country than needed. You'd have turned the great recession into a great depression. Right away, without that stop-gap measure more than another million people would be out of work... and that would have a multiplicative impact on the services they purchased, and the vendors of products with whom they engaged in commerce, and then they too would cascade the negative impact... You really cannot look at situations like this in a vacuum. The system is broad, and the impact of such things hardly as simple as "let it ride." These decisions impact real people in real ways, and that's why evidence of effectiveness matters.

 

Looking back today, we can see the industry doing very well as a direct result of the intervention, and a rather significant amount of pain and suffering in the populace has been minimized.

 

I didn't say that the failure of GM wouldn't have had a negative impact, but your comments are under the assumption that the market wouldn't correct itself without intervention. Just because GM would have had to lay off its people doesn't mean that another avenue wouldn't have opened up for its former employees. The vendures also would have been able to adjust in time. It is just as simple as "let it ride". It's just that nobody wants to see people fall on hard times if they can help it. It is usually these interventions that cause the most trouble. You might turn around and say those people would have had trouble finding other employment elsewhere do to the recession. And I would have to say that we were only in a recession of that magnitude because of government intervention in the first place. No one wants to neglect to do something because there is only a chance that the market will correct itself, and no one wants to risk the failure of people on a chance that it will. The market does these kinds of corrections on a smaller level everyday. Why is it so hard to believe that it will do it on a larger level. Doors close while others open. This economic model will work on a more stable level, in theory, if there wasn't so many who feel the need to manipulate it under the assumption that it will fail without there intervention. You say that a free market economic model doesn't, but have you ever had the opportunity to study one that wasn't being altered by some kind of manipulation? You say that a free market economy has ultimately hurt the populace, but have you considered that it was instituted to allow people there freedom and not necessarily provide protection from failure? Everyone has there struggles in life and I don't think it is up to an economic model to provide that sort of protection. In a free market I believe it should ultimately be up to the individual to make correct and sound decisions to prevent there own failure. How far are we willing to go to protect people from themselves?How far should we let the government go to chose the winners and losers in private business?

Edited January 13, 2012 by JustinW

[iNow]

Just because GM would have had to lay off its people doesn't mean that another avenue wouldn't have opened up for its former employees.

This comment right here shows how naively you are perceiving the situation.

 

It is usually these interventions that cause the most trouble.

Are there any other unfounded opinions you'd like me to treat as factual?

 

Oh look... here's one:

 

would have to say that we were only in a recession of that magnitude because of government intervention in the first place.

I know this message is hard to accept, but based on detailed analyses it very much looks like it was the LACK of regulation and intervention which led to the crisis. I can support this point, but I suspect anything I share will be dismissed.

 

 

You say that a free market economic model doesn't, but have you ever had the opportunity to study one that wasn't being altered by some kind of manipulation?

Again, I fear you lack an even remedial understanding of the basics given this comment. Even in a pure free market there are multiple failures and problems that will ensue.

 

http://www.basiceconomics.info/market-failures-and-externalities.php

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

http://en.wikipedia.org/wiki/Free_market#Criticisms

 

 

have you considered that it was instituted to allow people there freedom and not necessarily provide protection from failure

Properly modeling economics and suggesting that a hybrid approach is the best course for achieving optimum outcomes is unrelated to freedom. For your "freedom" to have much worth in these scenarios, you'd need infinite access to infinite information, and you'd need to have an equality between your lone decisions and the decisions of the monopolies. You don't have that equality, and never will. Might does not make right, and some things that benefit society as a whole are better than "every man for himself."

 

Not only is this an economic issue, it's a moral one.

[calabi]

I thought it was pretty obvious what the banks collapsed due to regulation. Its not a problem with the government per se but with the softly softly approach which let the people with lots of money create more money with these ponzi schemes. They had no limits set on them so, same as now they know they have a fall back so they'll probably end up doing the same thing.

 

http://www.bbc.co.uk/news/business-13032013

 

Science is not about finding single truths, so I find your comment a bit irrelevant. Science is more about using a specific methodology to form hypotheses, put them to test, discard flawed ideas, and continually refine our models of the universe around us. Science is a method to continuously improve our models of how the world behaves, and economics falls neatly into that category, even if there is "no single truth to be sought."

Thats the thing though, economics isnt a science because its so full of holes and isnt based on or have any connection with reality at all. It just appears to be a theory testing itself, against itself. They only have peer review with the current orthodoxy of neo-classical economics, no other alternate theories are allowed to be entertained. They dont discard flawed ideas, they dont even examine their own ideas closely at all.

[JustinW]

Are there any other unfounded opinions you'd like me to treat as factual?

How many recessions, or the depression for that matter, were not the caused in large part by government manipulation of an area that had a direct effect on the economy? As with our latest recession begining with the manipulation of the housing market. I thought it was pretty clear that it was Barney Franks and Chris Dodd that were behind the government subsidising housing loans through Fanny and Freddie. What did they think was going to happen when you let a person with a 40k dollar a year job buy a 200k-250k dollar home? Giving loans that you know for a fact that no one can pay is one damn fine way to bust a bank in my OPINION. All because of a belief that everyone is entitled to own their own home. Unfounded opinions? You haven't given a shred of logic to prove that these are unfounded or unfactual.

 

 

 

Again, I fear you lack an even remedial understanding of the basics given this comment. Even in a pure free market there are multiple failures and problems that will ensue.

Wrong again. (see i can do it too) Though I'm not an economist I still have a basic understanding of what economies are and what the ups and downs are caused by. The links you wanted to prove my point wrong with are not what my comment was about. I said you haven't studied an economy that had no manipulations or intervention, and that with the free market platform would in theory be more stable without such interventions.

 

 

Properly modeling economics and suggesting that a hybrid approach is the best course for achieving optimum outcomes is unrelated to freedom. For your "freedom" to have much worth in these scenarios, you'd need infinite access to infinite information, and you'd need to have an equality between your lone decisions and the decisions of the monopolies. You don't have that equality, and never will. Might does not make right, and some things that benefit society as a whole are better than "every man for himself."

 

Not only is this an economic issue, it's a moral one.

 

I feel so much better now. We can all just get together and sing koombaya in the streets while holding hands! Unrelated to freedom? Are you kidding me? Why don't we just get a tattoo of a number on our forhead when we're born telling us what job we're going to have and what we're going to learn for the rest of our lives. Or why don't we make ourselves like russia used to be a while back and designate certain stores we can shop at, if we still have any money at that time, or if the store even has anything on the shelves by then. Freedom of choice has a whole lot to do with the strength of an economy than you make out. You make it seem as though it has little to do with it, if not totally unrelated. That is not the case at all. And you speak of equality. We're back to koombaya again. What does equality have to do with a free market? This is where government gets involved and makes mistakes. It is our want that no one fails, and I admit it goes against the grain to see someone fail, but everyone has the opportunity to rise or fall. The option is there for you. Why do you feel the government has to step in to keep someone from failing when what normally happens is an intervention that has a negative affect on the economy as a whole. You trying to save a fraction by hurting the majority. Where is that right?

Edited January 13, 2012 by JustinW

[iNow]

I thought it was pretty obvious what the banks collapsed due to regulation.

Do you mean deregulation?

 

Thats the thing though, economics isnt a science because its so full of holes and isnt based on or have any connection with reality at all.

It really does connect with reality. It's just that some schools of thought ignore that reality. You can't dismiss the entire field because one sub-population within that field chooses to make up ad-hoc explanations on the fly and then not change their approach when shown wrong.

 

---

I thought it was pretty clear that it was Barney Franks and Chris Dodd that were behind the government subsidising housing loans through Fanny and Freddie.

Yeah, no. Not quite.

 

http://politicalcorrection.org/factcheck/201110140001

http://modeledbehavior.com/2010/08/27/fannie-freddie-acquitted/

http://www.americanprogress.org/issues/2010/12/financial_crisis.html

http://www.ritholtz.com/blog/2011/07/why-wallison-is-wrong-about-the-genesis-of-the-u-s-housing-crisis/

http://economistsview.typepad.com/economistsview/2008/09/it-wasnt-fannie.html

http://economistsview.typepad.com/economistsview/2008/09/once-again-it-w.html

 

 

The two lines to track are the ones at the top. One shows the share of mortgages accounted for by S&Ls, the other the share accounted for by agency-backed pools — i.e., Fannie/Freddie mortgages. Fannie and Freddie did get very big in the 90s, basically filling the hole left by the S&Ls. But they pulled back sharply after 2003, just when housing really got crazy.

 

So who drove the bubble? The blue line, “asset-backed securities issuers.” Notice, by the way, that these were not depository institutions — and therefore not subject to the Community Reinvestment Act.

 

 

The links above aren't just for decoration, btw.

 

 

 

All because of a beliefe that everyone is entitled to own their own home. Unfounded opinions? You haven't given a shred of logic to prove that these are unfounded or unfactual.

See above. This had little to do with thinking "everyone is entitled to their own home." That's little more than a fictional narrative spoon-fed to you by the propaganda machine.

 

Why do you feel the government has to step in to keep someone from failing <snip> You trying to save a fraction by hurting the majority.

I feel no such thing, nor am I "trying to save a fraction by hurting the majority." If you disagree, then the site offers a fancy quote feature for you to show what words I've offered that cause you to conclude this. If there are no such quotes, then I encourage you to improve your reading comprehension skills.

[JustinW]

http://www.bing.com/videos/search?q=McCain+vs+Barney+Franks+on+fannie+and+freddie&mid=3343C6A18A54CE0D1A3A3343C6A18A54CE0D1A3A&view=detail&FORM=VIRE8

http://ireport.cnn.com/docs/DOC-90601

 

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

 

I've got links too. I wonder why cspan is considered a propoganda machine? It's the first I've heard. In truth you can smell government filth all over this thing from start to finish. I don't see why you don't agree that government involvement was a key factor in that failure. When there is intervention by government to manipulate a free market economy it has a negative affect because the model was never meant to have that kind of intervention. It can only work negatively because it presents an unbalance in the system that is unsustainable and plants the seed for failure.

 

 

 

I feel no such thing, nor am I "trying to save a fraction by hurting the majority." If you disagree, then the site offers a fancy quote feature for you to show what words I've offered that cause you to conclude this. If there are no such quotes, then I encourage you to improve your reading comprehension skills.

Maybe it was the general message that was coming across to me. You may not have said it exactly and if that wasn't your stance, then I appoligize for my assumption. I believe it was the comments on equality and your defense of a government intervention to keep a company from failing that made me assume such was the case. And yes I agree with my reading comprehention skills. I like to excersize them daily.

[calabi]

Do you mean deregulation?

 

Yeah, I meant regulation as in lack of.

 

It really does connect with reality. It's just that some schools of thought ignore that reality. You can't dismiss the entire field because one sub-population within that field chooses to make up ad-hoc explanations on the fly and then not change their approach when shown wrong.

 

Does it?, because I'm finding quite alot of evidence that it doesnt. The mainstream didnt have a clue about the collapse. About 10 or so people did predict it whom were mostly outside of the mainstream economics. It seems that most of them realised by just looking at the market and or their own theories. Nothing in the neo-classical economics has given them a clue about what is going on. The entire field is neo-classical economics, which seems to have no or little baring on reality.

[iNow]

http://www.bing.com/videos/search?q=McCain+vs+Barney+Franks+on+fannie+and+freddie&mid=3343C6A18A54CE0D1A3A3343C6A18A54CE0D1A3A&view=detail&FORM=VIRE8

http://ireport.cnn.com/docs/DOC-90601

 

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

 

I've got links too.

A wiki to Fannie Mae, and a video google search you think are equivalent to the detailed economics analyses and robust evidence I provided contradicting your central thesis? Man, I thought we were farther along than this, you and me. Two steps forward, one step back, I suppose.

 

 

I don't see why you don't agree that government involvement was a key factor in that failure.

Because it was precisely their non-involvement which precipitated it. Even Alan Greenspan himself... the Ayn Rand following implementer of free market dogma and grand poobau of deregulation openly stipulated this, conceding that his approach was mistaken.

 

I made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such as they were best capable of protecting their own shareholders.

 

 

http://hbr.org/2009/07/the-end-of-rational-economics/ar/1

 

In 2008, a massive earthquake reduced the financial world to rubble. Standing in the smoke and ash, Alan Greenspan, the former chairman of the U.S. Federal Reserve once hailed as “the greatest banker who ever lived,” confessed to Congress that he was “shocked” that the markets did not operate according to his lifelong expectations. He had “made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders.”

 

We are now paying a terrible price for our unblinking faith in the power of the invisible hand. We’re painfully blinking awake to the falsity of standard economic theory—that human beings are capable of always making rational decisions and that markets and institutions, in the aggregate, are healthily self-regulating. If assumptions about the way things are supposed to work have failed us in the hyperrational world of Wall Street, what damage have they done in other institutions and organizations that are also made up of fallible, less-than-logical people? And where do corporate managers, schooled in rational assumptions but who run messy, often unpredictable businesses, go from here?

 

We are finally beginning to understand that irrationality is the real invisible hand that drives human decision making. It’s been a painful lesson

 

---

 

The mainstream didnt have a clue about the collapse. About 10 or so people did predict it whom were mostly outside of the mainstream economics. It seems that most of them realised by just looking at the market and or their own theories. Nothing in the neo-classical economics has given them a clue about what is going on. The entire field is neo-classical economics, which seems to have no or little baring on reality.

That's a nice narrative, but ultimately untrue.

 

I do, however, think that some viewpoints are trumpeted more loudly than others, primarily because they appeal to people's political ideology.

[calabi]

That's a nice narrative, but ultimately untrue.

 

I do, however, think that some viewpoints are trumpeted more loudly than others, primarily because they appeal to people's political ideology.

 

Is it? Because I'm not so sure.

 

http://bilbo.economi...t/blog/?p=17466

 

http://debunkingeconomics.com/

[iNow]

http://bilbo.economicoutlook.net/blog/?p=17466"]http://bilbo.economi...t/blog/?p=17466

A monetarist screed against economics textbooks. Okay. I'm not seeing this as a valid source, nor as a quality argument against what I've said above, but I suppose YMMV.

 

http://debunkingeconomics.com/"]http://debunkingeconomics.com

Another scathing book that seems to be arguing against a strawman:

 

"Keen builds on his scathing critique of conventional economic theory while explaining what mainstream economists cannot: why the crisis occurred, why it is proving to be intractable, and what needs to be done to end it."

 

How many examples of mainstream economists being right and accurately explaining the crisis would it take for you to abandon your understandable, but ultimately inaccurate narrative?

[calabi]

A monetarist screed against economics textbooks. Okay. I'm not seeing this as a valid source, nor as a quality argument against what I've said above, but I suppose YMMV.

 

 

Another scathing book that seems to be arguing against a strawman:

 

"Keen builds on his scathing critique of conventional economic theory while explaining what mainstream economists cannot: why the crisis occurred, why it is proving to be intractable, and what needs to be done to end it."

 

How many examples of mainstream economists being right and accurately explaining the crisis would it take for you to abandon your understandable, but ultimately inaccurate narrative?

 

One.

 

I dont understand whats a valid source and why is it a strawman.

[Vent]

The trouble with arguments of this type is that people don't qualify their terms. It's no good saying the "free market ideal was the cause…" or that "government intervention was the cause…" without qualifying what you mean with the terms. Take the basic idea of a "free market", generally associated with neo-classical economics, this is an extremely ambiguous term in todays media. We're often hearing that the free market did this, the free market did that, laissez faire no more, etc. So, because those who are seen as savvy among us tell us that it was the free markets fault, those opposed to the consequences of the system we've been following then blame the "free market" for the pitfalls of the world's economy and cite laissez faire capitalism as the root cause. The problem is further compounded because as soon as someone says "capitalism" the world hears "political capitalism" and associates it with everything that goes with that monstrosity. The list actually goes on and the argument becomes extremely convoluted and confusing because no one defines their terms and they assume that everyone knows what they mean, even though they're proceeding from faulty, or at least lax, definitions. You have to infer their definitions from the way they speak and from the arguments they endorse and cite. And this is only one side of the story, we can just as easily say the same from the other sides' perspective.

 

Let me clear something up for you. There's no such thing as a free market in today's world (and rarely in history for any length of time), so blaming the free market or laissez faire capitalism for anything awry about the economy makes little sense.

 

For an explicit example to show you the muddle that unqualified terms get us in we can look at some of the evidence presented in the posts above. Take the following for examples:

 

http://politicalcorr...ck/201110140001

http://modeledbehavi...ddie-acquitted/

http://www.americanp...ial_crisis.html

http://www.ritholtz....housing-crisis/

http://economistsvie...snt-fannie.html

http://economistsvie...again-it-w.html

 

The above are basically arguments against the idea that regulation was the problem and that it wasn't Fanny and Freddie's, subprime mortgages, or the regulated banks fault. This compels us to infer that, therefore, the problem was lack of regulation on the private banks. But what does the information there actually show us? It shows us, in basic terms, that the cause of the problems was the banks' ability to expand credit. Expand it beyond, for want of a better term, sensible and sustainable levels. That's the conclusion we should see (quite clearly), but does this prove that "the cause" was indeed "the lack of regulation" of the banks, and that therefore the free market was to blame for the mess? Yes and no. It depends on how you view things, which largely depends on how you define the terms of your argument.

 

There are two ways that people will view the above, and they both can be seen slamming each other in an attempt to claim the right of truth. Firstly is the regulators argument, which basically says that there was not enough regulation on the banks and we need more to keep them in-line to prevent this mess from happening again. A good argument i think. But is that the end of the story and the free market proponents have lost? That depends on the free market definition you take. If you associate free market with the Republicans, or Friedman, or neo-classical economics then you've lost the argument and you should concede because, basically, you haven't got a leg to stand on (by the way, how is a nation specific regulation, such as CRA '77, meant to be responsible for a global financial crisis?), but if you take a "strict" free market approach the above is evidence for your theory also because the "ability" to credit expand is a consequence of political decisions, a decision that is removed under the laissez faire, free market doctrines. Both free marketers and the pro-regulators agree here. They have the same theory and cite the same cause, the difference is only in the cure.

 

After all is said and done we have two opposing theories and the vague beginnings of an hypothesis, the next task is to explore the consequences of each theory and choose one. Either decision will be an ideological one, and i'm not sure how anyone can say that one side only of a political-economic theory is based on ideology. The difference between the two is the stance they take on ethics, not in the approach, and is after all why economics became divorced from politics in the nineteenth century because economics teaches that one man's gain is not necessarily another mans loss, which is, generally what politics teaches. Capitalists fight for individualism and personal responsibility whilst those who fight for mixed economies fight for social credit and community welfare. Ideology still rules politics, the only reason we don't think it does is because the ideology we follow has been the pursuit and advancement of social services for so long that we think this is the way things are and forget that it's based on the ideology we chose to follow in the past. It isn't so much as what's logically correct that politics proceeds by, but rather what do we think will work in favour of the goal towards which we are trying to achieve.

[iNow]

Vent - To whom are you addressing your post, and can you summarize it in one or two sentences?

 

 

---

One.

Paul Krugman seems to be doing quite well: http://www.poynter.org/latest-news/mediawire/130485/claim-krugman-is-top-prognosticator-cal-thomas-is-the-worst/

Jan Hatzius too: http://asunews.asu.edu/20120928_business_kleinaward

Brad DeLong has been a regular participant in the accuracy club: http://delong.typepad.com/sdj/2011/08/is-there-a-useful-neoclassical-macroeconomics.html

Mark Thoma is super solid economist, too: http://economistsview.typepad.com/economistsview/

Tom Lam isn't bad, either: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aTaMp97rGOnA&pos=10

 

But, that's five. I apologize. You only asked for one.

 

 

Unfortunately, many others have been horribly mistaken:

 

http://krugman.blogs.nytimes.com/2011/12/15/inflation-predictions/

 

Look, the Austrian/Ron Paul types made some very strong predictions about inflation — and rightly, given their model of how the world works. In their version of reality, it really isn’t possible to triple the monetary base without dire effects on the price level. In my version of reality, of course, that’s not only possible but what the model predicts in a liquidity trap.

 

So since we did indeed triple the monetary base with nothing much happening to inflation, the right lesson to draw is that their model is all wrong.

 

And the Wall Street Journal has been fantastically wrong as part of their standard operating procedure:

 

http://www.huffingtonpost.com/jeffrey-sachs/how-the-wall-street-journ_b_1206349.html

http://krugman.blogs.nytimes.com/2011/08/06/prattle-and-prejudice/

http://krugman.blogs.nytimes.com/2011/08/20/fancy-theorists-of-the-world-unite/

 

 

 

 

why is it a strawman.

It's a strawman because he asserts that "mainstream economists cannot explain why the crisis occurred, why it's continuing, and what we should do about it." His premise is flawed, and yet serves as the foundation for his entire book.

Edited January 15, 2012 by iNow

[JustinW]

Vent - To whom are you addressing your post, and can you summarize it in one or two sentences?

I believe it was directed toward the whole thread, and touched on a few key points that we have all made about our current economic system.

 

For the topics subject I remain with the belief that you cannot accurately test a free market economic model due to the fact of government intervention and policy making. I also believe, as I've said before, that the closer a free market stays to being a free market the more stable it will be. It will have its ups and downs, lulls and gains, but won't be as severe as when an authoratative body intervenes to manipulate it in a certain direction.

As for how to test an economic model before implementing one. . . . I think that would strictly be about educated guessing. Testing one after its implemented could be argued, like Vent mentioned above about our current free market model, that it's no longer a true free market because of such influences instituted upon that model.

 

 

 

Because it was precisely their non-involvement which precipitated it. Even Alan Greenspan himself... the Ayn Rand following implementer of free market dogma and grand poobau of deregulation openly stipulated this, conceding that his approach was mistaken.

 

How come a video of C-SPAN on U-tube is not an accurate form of information from me but is fine for you. The reason I chose to use cspan was because it had the government officials speaking of there involvement of the situation at the time of the situation. It shows that government was involved at the time. And when you think about the big picture of the situation the government had to be involved and promises made for a company to act in such a way in the first place. If you were running a company would you have acted in such a way without some promise of financial backing or something to keep your companies head above water once things turned sour? It doesn't make sense for a company to make such a blatantly unsound decision. Especially from a financial firm that has been at the top of the game for decades. Why would they just one day decide that they were going to start providing loans that were unsustainable. Is this the normal business practice for private business? That is why I think there was more government involvement than you would make out for me to believe.

[iNow]

I also believe, as I've said before, that the closer a free market stays to being a free market the more stable it will be.

Let's say I stipulate the point that it would be more stable (which, I don't, but let's just say...). Are you quite sure that is a form of stability that will be balanced, and which will not adversely effect great masses of people? If you are sure, I'd challenge you to check that. I'm not arguing for socialism, I'm just saying that the stability you assert is a monetary one, not a sociocultural one.

 

 

How come a video of C-SPAN on U-tube is not an accurate form of information from me but is fine for you.

I was referencing a statement from Alan Greenspan. I was using that statement to support my point that even the most free market thinkers out there who have had a chance to test their ideas have openly conceded that the free market does not operate in the way they thought. The video was not the source of any argument I made. It was evidence of my comment that Alan Greenspan said what I stated he said. It was to show that I was not putting words in his mouth, and allowing you to hear for yourself those exact words being spoken by him.

 

Your link was a bunch of search results. Sorry, but if you don't see the difference, well...

 

The rest of your argument is rooted in your personal ethics, as you're railing against what they call a "moral hazard." I'm simply speaking about the numbers, and optimizing the system. One is ideology (yours), the other is measured and calculated (mine).

 

On the free market piece, here's an interesting and well referenced read, including positions from Friedman, Hayek, Hale, and others.

 

http://www.spectacle.org/0403/loo.html

 

Or, you could read The Jungle by Uptain Sinclair for more.

[JustinW]

Let's say I stipulate the point that it would be more stable (which, I don't, but let's just say...). Are you quite sure that is a form of stability that will be balanced, and which will not adversely effect great masses of people? If you are sure, I'd challenge you to check that. I'm not arguing for socialism, I'm just saying that the stability you assert is a monetary one, not a sociocultural one.

No I'm not saying that at all. I'm saying that the rises and falls of that market would be a direct reflection of the supply and demand of the market itself. I wouldn't say that it would be more balanced in a way as to not affect a great mass of people, and as a matter of fact I think it is that want to balance it that causes so many problems. If it were a true free market economy there would still be failings, but it would be because of the peoples overall influence on demand or the companies inabillity to manage itself. It wouldn't be caused by political interferance due to peoples feelings of not wanting to see people lose their jobs. The market is what it is now and I don't think there will ever be a time of going back. And I'm not sure that we would want to, because of the fact that it does seem so callus to watch people lose their jobs and do nothing about it. I'm just commenting on the model's origional intent and causes of stability/instability compared to the causes and precieved intent of todays market.

 

 

 

I was referencing a statement from Alan Greenspan. I was using that statement to support my point that even the most free market thinkers out there who have had a chance to test their ideas have openly conceded that the free market does not operate in the way they thought. The video was not the source of any argument I made. It was evidence of my comment that Alan Greenspan said what I stated he said. It was to show that I was not putting words in his mouth, and allowing you to hear for yourself those exact words being spoken by him.

I also put up the video to show that I was not putting words in anybody's mouth and that there was government involvement. As for Greenspan, he said that he had presumed a company would look out for the well being of it's share holders without intervention. I do as well. That is why I believe that the company made the move it did because someone had given them an incentive to do so. Why would a company make such an unsound decision? For a well established company as they were, it doesn't make any sense. Maybe you can explain why. Do you think that they were just so greedy that they started a ponsi style lending program? Do you think that, with their past reputation, that they were just not knowledgable enough to recognize the error in judgement? What do you think is the underlying reason that the company took the direction it did? I find it hard to believe that they did so without an incentive of some kind. So it is not just solely based on ideology. It also has to do with my natural state of paranoia. Edited January 16, 2012 by JustinW

[iNow]

Even libertarian economists think the state should play a role.

 

 

http://www.huffingtonpost.com/jeffrey-sachs/libertarian-illusions_b_1207878.html

 

Economic libertarianism claims a more pragmatic position, that economic freedom in the marketplace is the sole true source of prosperity. Yet economic theory dating back to Adam Smith and up to Friedrich Hayek and Milton Friedman has explained why society should turn to government when the conditions of market competition do not apply. The affirmative role of government includes public education, promotion of science and technology, environmental protection, and the provision of infrastructure. Friedman and Hayek both championed a state guarantee of basic needs for all citizens.

 

 

As for the "incentive," they were raking in monster profits and were willing to take the huge risks and leverage every single dollar into 30 or 40. Short-term greed overtook long-term self-interest.

 

They setup their activities in such a way that they made money whether or not the mortgages defaulted, and in some instances would make more money when they defaulted, so they packaged them together in large bundles and swapped out the default risk on credit.

 

The market is what it is now and I don't think there will ever be a time of going back. And I'm not sure that we would want to, because of the fact that it does seem so callus to watch people lose their jobs and do nothing about it.

I tend to agree with this.

 

As for Greenspan, he said that he had presumed a company would look out for the well being of it's share holders without intervention. I do as well.

Yet, as the point I shared made clear, he conceded that his presumption was wrong. You're essentially holding firm on a position that even Alan Greenspan himself said was a mistaken one.

[JustinW]

Even libertarian economists think the state should play a role.

So? I wasn't origionally trying to argue which ideology played the biggest, I was merely suggesting that the governments role in general was at fault for our most recent recession. And maybe for every other recession as well. I would have to do some further reading to justify that last comment though.

 

 

As for the "incentive," they were raking in monster profits and were willing to take the huge risks and leverage every single dollar into 30 or 40. Short-term greed overtook long-term self-interest.

 

They setup their activities in such a way that they made money whether or not the mortgages defaulted, and in some instances would make more money when they defaulted, so they packaged them together in large bundles and swapped out the default risk on credit.

Somehow I knew you would go with the greed scenario. I won't disagree that they set up their activities in a way that made money, but I disagree that it was done without the help and support of government. There is a reason they are classified as GSE's(government sponsored enterprises)

Lets see if I can break this down a little and you can tell me where I'm wrong.

 

In 2001 the Federal Reserve started aggresively expanding the money supply. At the same time they also started lowering the interest rate for federal funding which went from 6.25% to 1.75% just in 2001.

 

For 2.5 years the interest rate on federal funding was lower than the contemporary rate of inflation.

 

In 2004 the Federal Housing Administration lowered it's downpyment requirements to 3% while there were proposals in Congress to further decrease the rate to 0%. Most private lenders required downpayments around 20%. The problem with this was that historically it is shown that a lower down payment rate equals a higher level of default.

 

Another problem surfaced when the Community Reinvestment Act in the ladder 90's gain the authority to deny approvals for mergers or branching of a bank that had a low CRA rating. The information on a CRA rating was given free access to the public which put the banks under the thumb of community watch groups. All the banks had to do to get a bad CRA rating was have a complaint filed against them. This is why alot of banks went into partnership with certain community watch groups to distribute mortgages to low income buyers that would have origionally been considered non credit worthy. Or they could do like alot of others and purchase a "CRA-mortgage backed security" which were secured by, you'll never guess, Freddie Mac.

 

The Department of Housing and Urban Development in 1996 gave Freddie and Fannie a goal of 42% of their mortgage financing to go to low income earners earning below the average median in their area. That goal grew to 50% by the year 2000 and 52% by 2005. By 2005 22% of Fannie and Freddie's loans were made to people who's income was less than 60% of the average median of their area with a downpayment of less than 10%. (tell me where that is financially sound) Did I miss anything? Or was I not correct in assuming that the government played a major part in the downfall of the economy?

 

So this problem may have been an ideological one, but never would ideology have played a part if the government hadn't been involved in the first place.

Edited January 16, 2012 by JustinW

[Essay]

"Lets see if I can break this down a little and you can tell me where I'm wrong.

In 2001 the Federal Reserve started...."

 

"So this problem may have been an ideological one, but never would ideology have played a part if the government hadn't been involved in the first place."

 

The problems didn't start in 2001.

 

Fundamental economic problems have been plaguing our system since its inception as a virtually free-enterprise system. Government response (the will of the people) has been an increasing response to excesses of capitalism for over 200 years now.

 

These things co-evolved, so it might be helpful to go further back than 2001, when they had to come up with some commodity (home loans) with enough volume to carry our economy forward during the "threat" years. That is specifically why the Bush Tax Cuts were designed to expire in 2010.

 

~

Edited January 16, 2012 by Essay

[iNow]

So? I wasn't origionally trying to argue which ideology played the biggest, I was merely suggesting that the governments role in general was at fault for our most recent recession.

I agree. The governments actions deregulating the markets as much as they did had a huge impact, and was a major driver of the recession.

 

Lets see if I can break this down a little and you can tell me where I'm wrong.

 

For starters, right here:

 

Another problem surfaced when the Community Reinvestment Act in the ladder 90's gain the authority to deny approvals for mergers or branching of a bank that had a low CRA rating. The information on a CRA rating was given free access to the public which put the banks under the thumb of community watch groups. All the banks had to do to get a bad CRA rating was have a complaint filed against them. This is why alot of banks went into partnership with certain community watch groups to distribute mortgages to low income buyers that would have origionally been considered non credit worthy. Or they could do like alot of others and purchase a "CRA-mortgage backed security" which were secured by, you'll never guess, Freddie Mac.

Look at the percentages I shared earlier in the thread to see why this is a mistaken conclusion. SOME were secured by Freddie, but very few (relatively speaking).

 

The Department of Housing and Urban Development in 1996 gave Freddie and Fannie a goal of 42% of their mortgage financing to go to low income earners earning below the average median in their area. That goal grew to 50% by the year 2000 and 52% by 2005. By 2005 22% of Fannie and Freddie's loans were made to people who's income was less than 60% of the average median of their area with a downpayment of less than 10%. (tell me where that is financially sound) Did I miss anything?

Yes, you did miss something. You seem to have missed the several analyses I shared when you brought this up the first time. They show rather clearly that you cannot in good faith rest the blame at the feet of Fannie, Freddie, or some target to help people into homes in the way you are here, and ignoring them doesn't somehow invalidate them.

 

I've already supported my position that your comments here are in error. You simply have to review the references I've provided. As I mentioned previously, I don't add references to my posts just for decoration.

 

To make it easy for you: http://www.scienceforums.net/topic/62828-how-do-you-disprove-an-economic-theory/page__view__findpost__p__650976

 

 

So this problem may have been an ideological one, but never would ideology have played a part if the government hadn't been involved in the first place.

That's an interesting narrative, but one that seems wholly unsupported by the facts.

 

Separate, but related... This article from a day or two ago reminds me of some of the core themes here (namely, oversimplifications, and why they're so common): http://www.ritholtz.com/blog/2012/01/hume-causation-science/

 

By the way... another point... Did you happen to notice that the housing boom and bust were global? Man... That Barney Frank sure is crafty.

 

If you don't like the analyses from my previous post, here's another: http://www.ritholtz.com/blog/2011/11/examining-the-big-lie-how-the-facts-of-the-economic-crisis-stack-up/

 

Only one of the top 25 subprime lenders in 2006 was directly subject to the housing laws overseen by either Fannie Mae, Freddie Mac or the Community Reinvestment Act.

 

 

 

Check the mortgage origination data: The vast majority of subprime mortgages — the loans at the heart of the global crisis — were underwritten by unregulated private firms. These were lenders who sold the bulk of their mortgages to Wall Street, not to Fannie or Freddie. Indeed, these firms had no deposits, so they were not under the jurisdiction of the Federal Deposit Insurance Corp or the Office of Thrift Supervision. The relative market share of Fannie Mae and Freddie Mac dropped from a high of 57 percent of all new mortgage originations in 2003, down to 37 percent as the bubble was developing in 2005-06.

 

 

 

---

 

http://modeledbehavior.com/2010/08/27/fannie-freddie-acquitted/

 

The wave of housing price increases was kicked off by changes in private label securitization. These changes left Fannie and Freddie with a smaller market share and lower absolute level of securitizations. Fannie and Freddie attempted to adjust their basic business practices to stay competitive in bubble markets and among aggressive borrowers.

 

These adjustment left Fannie and Freddie exposed to a large decline in housing prices. This is exactly what happened and Fannie and Freddie reaped enormous losses because of their exposure.

 

Had Fannie and Freddie stuck to their traditional role of guaranteeing low value traditional loans rather than trying to stay competitive in bubble areas their losses would have been substantially less.

 

In short, attempting to subsidize the American dream for low and moderate income families may be a fundamentally bad policy. However, it does not appear to be either the origin of the housing bubble or the source of Fannie and Freddie’s trouble.

 

 

 

http://www.americanprogress.org/issues/2010/12/financial_crisis.html

 

The crux of the FCIC Republican argument is the affordable housing goals and CRA created the demand for risky subprime and Alt-A mortgages, which in turn created the huge demand for the private mortgage-backed securities that led to the 2000s housing bubble.

 

But this ignores the huge existing demand for private mortgage-backed securities. Even after Fannie and Freddie plunged into the market for these mortgage-backed securities, they never accounted for more than a fraction of the demand for these securities. (see graph)

 

 

Instead, the common thread was under-regulation at every level of the financial system leading to a general real estate bubble. The bursting of the bubble first in the subprime home mortgage market was a symptom of just how little consumer protection was left, as federal regulators told state authorities who tried to stop more abusive mortgage companies to stand down due to federal preemption doctrines.

 

 

---

 

 

http://economistsview.typepad.com/economistsview/2008/09/it-wasnt-fannie.html

 

So, overall, perhaps the implicit asset guarantee did distort markets, but those distortions did not start with Fannie and Freddie, and they did not substantially worsen when Fannie and Freddie took over where the S&Ls left off. And even if there was some distortion, it's hard to find any linkage between the onset of the financial crisis and changes in the net socialization of risk through Fannie and Freddie. There was, apparently, some concentration of risk due to central banks buying the safe assets and leaving the riskier ones behind, but even so, it's not clear to me that this was a primary factor in bringing about the crisis. And even if it is the cause, or part of it, the behavior of central banks was not driven by changes in the behavior of Fannie and Freddie.

[JustinW]

Look at the percentages I shared earlier in the thread to see why this is a mistaken conclusion. SOME were secured by Freddie, but very few (relatively speaking).

You may think so, but the thing I left out of that was that fannie and freddie found that they were actually making money off of these quotas and met these quotas every year up to 2008. With 52% of there overall loans going to borrowers that would before be considered noncreditworthy, I don't see how you cannot see the problem. Fannie and freddie may just be two banks that were working in this manner but they are among the largest. And 52% of all loans is an enormous amount risk that was directly mandated by the government.

 

Yes, you did miss something. You seem to have missed the several analyses I shared when you brought this up the first time. They show rather clearly that you cannot in good faith rest the blame at the feet of Fannie, Freddie, or some target to help people into homes in the way you are here, and ignoring them doesn't somehow invalidate them.

I didn't. I lay the blame directly at the feet of our government. Which fannie and freddie are just one of the tools that were used. The government fed the housing bubble by dropping the interest rates for federal funds. And the government fed the crash through high risk mandates and senate comittee meatings denying that we had a problem just because they had good friends like Rahm Emanuel sitting on the board of directors.

 

I also find it amussing that you keep throwing out private label graphs. It shows in 2006 that the private label just shot through the roof. Do you know why? Fannie and freddie started to let investor invest in these companies with a gaurantee of backing by the treasury. If you don't believe me just look what Obama did for all of those private investors. Treasury footed the bill for that as well. It's weird that a private investor usually gets his hind end reemed if the company he invested in fails, but not these investors.

 

 

The wave of housing price increases was kicked off by changes in private label securitization. These changes left Fannie and Freddie with a smaller market share and lower absolute level of securitizations. Fannie and Freddie attempted to adjust their basic business practices to stay competitive in bubble markets and among aggressive borrowers.

 

These adjustment left Fannie and Freddie exposed to a large decline in housing prices. This is exactly what happened and Fannie and Freddie reaped enormous losses because of their exposure.

 

Had Fannie and Freddie stuck to their traditional role of guaranteeing low value traditional loans rather than trying to stay competitive in bubble areas their losses would have been substantially less.

 

In short, attempting to subsidize the American dream for low and moderate income families may be a fundamentally bad policy. However, it does not appear to be either the origin of the housing bubble or the source of Fannie and Freddie's trouble.

That's funny, again I mention the mandates. Not to mention the FHA wanting to get competitive with the private sector by lowering their downpayment rate to 3% creating a higher rate of default.

 

 

So, overall, perhaps the implicit asset guarantee did distort markets, but those distortions did not start with Fannie and Freddie, and they did not substantially worsen when Fannie and Freddie took over where the S&Ls left off. And even if there was some distortion, it's hard to find any linkage between the onset of the financial crisis and changes in the net socialization of risk through Fannie and Freddie. There was, apparently, some concentration of risk due to central banks buying the safe assets and leaving the riskier ones behind, but even so, it's not clear to me that this was a primary factor in bringing about the crisis. And even if it is the cause, or part of it, the behavior of central banks was not driven by changes in the behavior of Fannie and Freddie.

This hear kind of says something without saying very much at all. So it did destort the market. . .but that wasn't the problem.(sarcasm) I'm still quite clear that these policies and mandates by government distorted the housing and financial markets creating the path for recession. Whether you want to say it was directly fannie and freddie or not, it doesn't matter. What does matter is that all of this still proves my point that government involvement in this case had a negative effect.

Edited January 17, 2012 by JustinW

[iNow]

So, basically your rebuttal is, "Nuh uh!"

 

 

What does matter is that all of this still proves my point that government involvement in this case had a negative effect.

How do you figure? It doesn't prove anything even remotely resembling that, especially since it was the LACK of government intervention that fed the issues.

[JustinW]

How do you disagree with things that are public knowledge, like the Federal Reserve expanding the money supply at the same time as it lowered the interest rates of federal funds to under the rate of inflation and kept them that way for years. How did that not play a big role in manipulating the economy on both the financial market as well as the housing market? How do you disagree that the FHA lowering it's rate of downpayments caused the rate of faulty loans to increase dramatically? How do you disagree that the Community Reinvestment Act had a direct reflection on banks having to buy up securities to gain a better CRA rating just to further their companies growth? Because you know they darn sure couldn't do it without a good rating. How do disagree that HUD gave government sponsored lending a set mandate?

 

How do disagree that none of this had an effect on the economy? It is undeniable that these things occured. What was the government to do except regulate itself. They were the ones that provided a path to instability in the first place starting with the Federal Reserves actions. Which inturn not only affected the housing and financial markets but also the construction market as well. Alot of plants building construction equipment had to close their doors at that time. I know, because I lost my job at the time.

 

I say the whole ordeal wouldn't have transpired without the government's opening of the doorway, then further mandating it's continuity. You come back and say that my reply equalls to nothing but "nuh uh", but I've replyed with facts as to how the government's actions precipitated an instability. I don't see how you can disagree at this point. And if you do recall it was brought to the attention of Congress in 2003. Also I don't see how you can say that it was the lack of regulation when there was no dismanteling of regulations prior to the crisis, and in fact there was an increase in regulations throughout the 90s, mandates and Federal Reserve actions in the early 2000s that fed the housing and financial crisis.

[iNow]

Also I don't see how you can say that it was the lack of regulation when there was no dismanteling of regulations prior to the crisis, and in fact there was an increase in regulations throughout the 90s, mandates and Federal Reserve actions in the early 2000s that fed the housing and financial crisis.

I think that perhaps part of your problem is that your "facts" are fairly consistently inaccurate. For example, regarding your point above suggesting that regulations increased from the 1990s forward... yeah, that's not even remotely true, and it misses the point that the regulations themselves were grossly inadequate and under enforced.

 

 

http://www.treasury.gov/initiatives/Documents/FinalReport_web.pdf

 

While this crisis had many causes, it is clear now that the government could have done more to prevent many of these problems from growing out of control and threatening the stability of our financial system. Gaps and weaknesses in the supervision and regulation of financial firms presented challenges to our government’s ability to monitor, prevent, or address risks as they built up in the system. No regulator saw its job as protecting the economy and financial system as a whole. Existing approaches to bank holding company regulation focused on protecting the subsidiary bank, not on comprehensive regulation of the whole firm. Investment banks were permitted to opt for a different regime under a different regulator, and in doing so, escaped adequate constraints on leverage. Other firms, such as AIG, owned insured depositories, but escaped the strictures of serious holding company regulation because the depositories that they owned were technically not “banks” under relevant law.

 

<snip>

 

Our supervisory framework was not equipped to handle a crisis of this magnitude. To be sure, most of the largest, most interconnected, and most highly leveraged financial firms in the country were subject to some form of supervision and regulation by a federal government agency. But those forms of supervision and regulation proved inadequate and inconsistent.

 

First, capital and liquidity requirements were simply too low. Regulators did not require firms to hold sufficient capital to cover trading assets, high-risk loans, and off-balance sheet commitments, or to hold increased capital during good times to prepare for bad times. Regulators did not require firms to plan for a scenario in which the availability of liquidity was sharply curtailed.

 

Second, on a systemic basis, regulators did not take into account the harm that large, interconnected, and highly leveraged institutions could inflict on the financial system and on the economy if they failed.

 

Third, the responsibility for supervising the consolidated operations of large financial firms was split among various federal agencies. Fragmentation of supervisory responsibility and loopholes in the legal definition of a “bank” allowed owners of banks and other insured depository institutions to shop for the regulator of their choice.

 

Fourth, investment banks operated with insufficient government oversight. Money market mutual funds were vulnerable to runs. Hedge funds and other private pools of capital operated completely outside of the supervisory framework.

 

<snip>

 

Prior to the current financial crisis, a number of federal and state regulations were in place to protect consumers against fraud and to promote understanding of financial products like credit cards and mortgages. But as abusive practices spread, particularly in the market for subprime and nontraditional mortgages, our regulatory framework proved inadequate in important ways. Multiple agencies have authority over consumer protection in financial products, but for historical reasons, the supervisory framework for enforcing those regulations had significant gaps and weaknesses. Banking regulators at the state and federal level had a potentially conflicting mission to promote safe and sound banking practices, while other agencies had a clear mission but limited tools and jurisdiction. Most critically in the run-up to the financial crisis, mortgage companies and other firms outside of the purview of bank regulation exploited that lack of clear accountability by selling mortgages and other products that were overly complicated and unsuited to borrowers’ financial situation. Banks and thrifts followed suit, with

disastrous results for consumers and the financial system.

 

<snip>

 

One clear lesson learned from the recent crisis was that competition among different government agencies responsible for regulating similar financial firms led to reduced regulation in important parts of the financial system. The presence of multiple federal supervisors of firms that could easily change their charter led to weaker regulation and became a serious structural problem within our supervisory system.

 

<snip>

 

The financial crisis was triggered by a breakdown in credit underwriting standards in subprime and other residential mortgage markets. That breakdown was enabled by lax or nonexistent regulation of nonbank mortgage originators and brokers.

 

<snip>

 

One of the most significant changes in the world of finance in recent decades has been the explosive growth and rapid innovation in the market for financial derivatives. Much of this development has occurred in the market for OTC derivatives, which are not executed on regulated exchanges. In 2000, the Commodity Futures Modernization Act (CFMA) explicitly exempted OTC derivatives, to a large extent, from regulation by the Commodity Futures Trading Commission. In addition, the law limited the SEC’s authority to regulate certain types of OTC derivatives. As a result, the market for OTC derivatives has largely gone unregulated. The downside of this lax regulatory regime for OTC derivatives – and, in particular, for credit default swaps (CDS) – became disastrously clear during the recent financial crisis.

 

 

 

 

Also, the CRA only applied to 10% of US mortgage lending during the period, and as for the Federal Housing Administration... I refer you to my previous question. How does that explain that this was a global crisis, or that the boom and bust in the US was smaller than that of other countries? Oh yeah, it can't. Neither can the CRA, FHA, HUD, Fannie or Freddie or Barney Frank or the FED whatever the hell other red herrings and scapegoats you've been fed by liars and propagandists. It's just a false narrative unsupported by the facts.

 

I think I'm probably about done with this thread. It's not rewarding when others don't approach the discussion in good faith and when solidly referenced and supported arguments are responded to with the equivalent of, "Nuh uh."

 

FYI - In support of the point that this was a global bubble:

 

[JustinW]

First, capital and liquidity requirements were simply too low. Regulators did not require firms to hold sufficient capital to cover trading assets, high-risk loans, and off-balance sheet commitments, or to hold increased capital during good times to prepare for bad times. Regulators did not require firms to plan for a scenario in which the availability of liquidity was sharply curtailed.

 

Second, on a systemic basis, regulators did not take into account the harm that large, interconnected, and highly leveraged institutions could inflict on the financial system and on the economy if they failed.

 

Third, the responsibility for supervising the consolidated operations of large financial firms was split among various federal agencies. Fragmentation of supervisory responsibility and loopholes in the legal definition of a “bank” allowed owners of banks and other insured depository institutions to shop for the regulator of their choice.

 

Fourth, investment banks operated with insufficient government oversight. Money market mutual funds were vulnerable to runs. Hedge funds and other private pools of capital operated completely outside of the supervisory framework.

 

Some of these points go toward proving my own, that government opened the door in the first place. And other points here, like the first one, have already shown that government mandated these types of low capital and liquidity business practices through the GSE's.

 

 

Prior to the current financial crisis, a number of federal and state regulations were in place to protect consumers against fraud and to promote understanding of financial products like credit cards and mortgages. But as abusive practices spread, particularly in the market for subprime and nontraditional mortgages, our regulatory framework proved inadequate in important ways. Multiple agencies have authority over consumer protection in financial products, but for historical reasons, the supervisory framework for enforcing those regulations had significant gaps and weaknesses. Banking regulators at the state and federal level had a potentially conflicting mission to promote safe and sound banking practices, while other agencies had a clear mission but limited tools and jurisdiction. Most critically in the run-up to the financial crisis, mortgage companies and other firms outside of the purview of bank regulation exploited that lack of clear accountability by selling mortgages and other products that were overly complicated and unsuited to borrowers’ financial situation. Banks and thrifts followed suit, with

disastrous results for consumers and the financial system.

 

I would say that there was a difference in goals between the state and federal levels where banking is concerned. The fed had an unsustainable goal of providing housing to low income people and at a state level we didn't see those kinds of mandates. Another thing that bothers me about the above paragraph is that it mentions that mortgage companies and other firms outside of the purview of bank regulation exploited that lack of clear accountability. For some reason GSE's come to mind again along with CRA securities that were necessary for some of these company's future growth.

 

 

One clear lesson learned from the recent crisis was that competition among different government agencies responsible for regulating similar financial firms led to reduced regulation in important parts of the financial system. The presence of multiple federal supervisors of firms that could easily change their charter led to weaker regulation and became a serious structural problem within our supervisory system.

 

Although I don't think this is exactly the case, wouldn't these two little lines here prove my point about government involvement having a negative effect on the economy? And also go back to what I said before about them having to regulate themselves?

 

Also, the CRA only applied to 10% of US mortgage lending during the period, and as for the Federal Housing Administration... I refer you to my previous question. How does that explain that this was a global crisis, or that the boom and bust in the US was smaller than that of other countries? Oh yeah, it can't. Neither can the CRA, FHA, HUD, Fannie or Freddie or Barney Frank or the FED whatever the hell other red herrings and scapegoats you've been fed by liars and propagandists. It's just a false narrative unsupported by the facts.

 

I haven't been trying to explain the global crisis. I've been laying down acts of government manipulation that opened doors for the crisis to happen in the first place and the link and graph you have given states the same. If you recall one of my above posts explained what the Federal Reserve did that started the whole thing. My other mentions of mandates, CRA's sharpened teeth, and the FHA's lowered requirements were just "icing on the cake" so to speak. It all boils down to government action promoting the instability.