The votes are being manipulated

[MyReality]

Anyone noticing something is incredibly off in this years election? Much more so than any time i can remember. The media is increasingly editing and censoring against Ron Paul and over 900 Dead People voted in South Carolina!

My question for debate is: Is it about time for another Revolution?

[WinePusher]

The obvious solution is to get the government out of the market, something you are vehemently opposed to. Guess what, businesses wouldn't go running to the government is they knew that the government wouldn't offer them any assistance or subsidizes. If you severed the line that exists between government and big business, business wouldn't be throwing around their money in the political arena because there would be no mutually beneficial relationship. If you want big money out of politics, get the government out of business.

One, it wouldn't work because even if you got the federal government out of the market, you would never be able to get state and local governments out.

Do you know why there is very little state and local regulation on businesses? Because a business could very easily get up and leave California who is regulating them to death and move their operations to Nevada, a state with very little regulations. Besides, why don't you ever see big businesses pouring huge amounts of money into elections for a state AG, Senator, Representative, Governor or Lieutenant Governer? Answer that question honestly and you probably won't be confused anymore.

Two, that particular solution is worse than the problem because it simply cedes all the power the monied interests are trying to take from voters and hands it over to the corporation. Applying that strategy to, say, traffic congestion would be burning all the automobiles to avoid gridlock.

You should probably stop with the analogies, they're clearly not your strongpoint. An apt analogy would be removing teacher supervision from the playground. If there were no teacher supervision (aka: Government) then if the kids (aka: Big Business) got hurt they wouldn't have anyone there to slap a bandaid on their sore. They would have to deal with it themselves.

What kind of information do consumers require? If I'm shopping around for a new television, I'm going to research the quality, durability and price of the television. That's all the information I need to know, and corporations don't stifle that kind of information, they make that type of information available. Information about the 'inner workings' of a multinational is information that I don't care about in my capacity as a consumer. What's interesting is that making irrelevant information available to the public is detrimental. What if I'm racist and refuse to purchase a product made by a black person? In your society, that type of information would have to be released and people who are prejudice could now discimrinate along those lines. In a society where only relevant information is released, I would never know the race of the individual who manufactured my television.

Thank you for so completely and thoroughly demonstrating exactly why the average consumers is not savvy enough to make a free market work. I couldn't have made up a strawman that so completely embodied my point as to what is wrong with your ideas.

[strike]The idea that things like conditions of employment, the environmental impact of the company, median wages, how the company makes its money,[/strike] where it acquires parts and equipment, who they are paying money to in political office, [strike]whether they are trading ethically,[/strike] the level of testing and safety standards that go into products, etc. are irrelevant is exactly why it's a short trip from a free market to an enslaved society. That these things would be hidden are why a free market is not compatible with a free and democratic society.

There you go Abraxas, I struck out everything that is irrelevant and underlined everything that is relevant. Do you know who should actually care about employment conditions and median wages? The employees of that company, not the consumers. If I'm looking for a new car, why should I give a damn about the working conditions of the car manufacturers and how much they're paid? As a consumer, that is totally irrelevant to me. And many consumers do care about the environment Abraxas. They care that a few environmental fundamentalists are holding Americans hostage at the gas pump. They care that they're paying egregious amounts for a gallon of gas because a few loudmouthed people start screaming everytime the government tries to tap into domestic supplies of oil. It's probably the funniest situation I've ever seen. We have environmental fundamentalists at home preventing domestic oil ventures, and we have anti war zealots crying about oil ventures abroad. We have two groups of people on the far left making lives miserable for many consumers due to their zealotry.

If property rights are upheld by the government, a corporation would only be able to poisoin the ground water on its own property. Do you know what would prevent a corporation from dumping waste into a lake or river? Property rights.

So I buy a corner of a river and dump stuff in it that poisons your kids. After all, they are your kids, not mine, and you'll never prove my chemicals gave them cancer as opposed to the hog farm up river from me or the chemical plant one state up.

Wow, you just made a massive jump. If you bought part of a river and dumped your garbage in it, why would you then proceed to put the contaminated water out for sale? Again, the analogies you're drawing are embarrasingly inept. If you contaminate a lake that belongs to the city, and the city has declared that the lake is safe for playing in, then you're liable. If the river belongs to you, then you can do whatever you want to it. If you want to contaminate it, go ahead, it would be my fault for allowing my kids to violate your property and allow them to play in your contaminated water. But aside from this, your post is loaded with one fallacy after another. No rational person would voluntarily destroy his or her own property. The destruction of property comes about when the property isn't owned by any single individual or collective group.

When you gut any and all government power to oversee these organizations, there is no reason to believe consumers can make informed choices about their purchases, never mind will.

As if the government somehow knows exactly what consumers need to make informed choices. Like the government just knows how many people ought to own a home, or how much a product should be sold for, or how much rent should be charged. The government just knows everything, doesn't it?

You demonstrated more aptly than I ever could the truth of what you quoted already. However, I do note you are now confusing regulation and oversight and inspection with control despite me never having said anything about setting prices or who ought to buy products.

Answer my question. How does the government know what consumers need to make informed choices?

Fact: the rich tend to save and invest while the middle class and the poor tend to consume. You cannot consume if there are no businesses producing things, you cannot consume if you don't have a job. The rich make this all possible. Their wealth does an enourmous amount of good for this country in their hands as opposed to it being in the governments hands.

An apt description of WHY trickle down economics is a flawed, broken, and useless theory that one might wipe themselves with but for the probability they would contract tetanus. The rich reinvest, the poor and middle classes have insufficient money to reinvest so their wealth stays stagnant and new wealth created stays only at the top. Contrary to your assertion, a combination of multiple small pools of money can be just as effective at creating jobs as one large pool; this is where co-ops and mutual companies come from.

If the rich didn't get a return on their investment, what incentive would they have to invest in the first place? Any new wealth that is generated is reinvested and the cycle continues. If I invest my money, that money is circulated throughout the economy and creates wealth for both myself and others. Your complaint isn't justified.

Ok, you want to explain this at all? Have you looked at an objective study of the crisis?

Yes, and when you look at an objective analysis, you find it was a result of deregulation, profit seeking, and subprime lending by private institutions that caused it. This being caused by the government only exists in right wing fantasies.

You're obviously not looking at any objective data because a profit seeking, deregulated lending institution would never engage in subprime financing. Subprime loans, Adjustable Rate loans and No Income, Assets or Job Loans would have never occured in a deregulated housing market because the borrowers these loans were targeted at would have been rejected prima facie. Legislation such as the Community Reinvestment Act destroyed any standard of lending banks adhered to and coerced them to lend to unworthy borrowers. And along with that you have these high risk loans being traded in for securities by Fannie and Freddie which nationalized the problem. The boom in housing prices wasn't a nationwide occurence, it was concentrated in places like California and Florida and the bust would have remained confined in those areas had the banks kept the loans.

By pushing down the interest rate, the federal reserve created a false demand for housing by making it cheaper for people to get a loan since the interest rate is the price of loans.

See, you're already wrong right there. The federal interest rates determine the rate at which banks borrow from each other, it is not the rate at which consumers borrow from banks.

Oh wow. Do you what determines the prime interest rate (the rate at which consumers borrow from banks)? The federal funds rate (the rate at which banks borrow from eachother).

Banks had the option to not make risky loans even when it was easy for them to borrow money. Funny, how agents of a free market have free will and are responsible for their own choices, but the moment they can borrow money more easily they are absolved of all responsibility for their actions.

This is another Libertarian fantasy with no basis in reality. The fact of the matter is representatives from pretty much every major economic school currently existent outside the so-called mainstream economic model saw the bubble coming. Austrians, Frankurts, Neo-Keynsians, etc. The idea this was a big surprise to everyone but the Austrians is simply inaccurate.

http://en.wikipedia.org/wiki/2008_finan ... orecasting

Let's be clear here, just because you can throw up a vague article from wikipedia doesn't mean you're right. Prior to the bubble in housing, we had liberals and keynesians like Barney Frank, Ben Bernanke, Alan Greenspan and the like shrugging off any concerns about the stability of housing prices. Here, we have the loner Ron Paul and a handful of other Free Market Economists warning that there would be a bubble. There are these things called economic indicators and because of the mindset Greenspan and Frank were set in, they disregarded the indicators.

This is great . In a free market, all transactions would be voluntarily made. Nobody would be forced to agree to any transactions that he or she didn't think would be beneficial.

Point being? Did any part of put options or short selling imply they didn't enter into them voluntarily?

Uh yea? I mean, if you're going to use specific examples as the basis for your argument you should at least know what they are. By what mechanism in a free market would an individual be forced to enter into a contract or buy a hundred shares of a company?

That's just not true. By insuring the deposits of consumers banks are shielded from risk. They have no incentive to engage in prudent lending practices because the risk has been eliminated by the FDIC.

Already shown to be wrong. The risk by the lender is unchanged, only the risk to the consumer is transferred to the FDIC, as the risk for the institution remains unchanged so too would their behavior.

This is the type of thing I'm talking about. You are gradually destroying your credibility by arguing against textbook facts. The risk is shared by the lender and the consumer. If there were no government insurance, the consumer would face a risk every time he or she put money into his deposit account and the bank would face a risk every time it issues out loans. You've managed to get at least one thing right in this thread, and that is the fact that the market is fueled by profits. Sadly, you ignore the other half of the equation. The drive for profits is tempered by the fear of losses. This isn't a profit system, it's a profit and loss system. You cannot have one without the other and hope to maintain stability. Banks are for profit institutions and they generate profits by providing a particular service, primarily financial loans. And just as any other for profit institution, they want to maximize profits and minimize losses. The FDIC doesn't simply mitigate the magnitude of losses, it completely eliminates the possibility of losses on the part of a bank. For you to say that the risk by the lender is unchanged just shows how wrong you are about this entire thing. Not only does the mere existence of the FDIC cause banks to behave differently then they would otherwise, there are these things called bank failures that are a consequence of this behavior. An interesting fact that you ought to know is that we have experienced long term recessions and depressions ever since the creation of the federal reserve and the enactment of financial regulatory legislation and institutions such as the FDIC.

If there were no FDIC, banks would have to compete with one another for the deposits of consumers and similarly, consumers would be more cautious and aware of where they deposit their money at.

Banks already have to compete for their deposits.

Oh really? Why would banks have to compete for deposits if all FDIC member deposits are insured? Consumers wouldn't care where they deposit their money at because the FDIC has poisioned the system. The idea of competition arises from consumers being able to choose between two things that are dissimilar. There is no difference between the Wells Fargo up my street or the Citibank down my street because both have their deposits insured. Wells Fargo has no incentive to gain a reputation

If you want historical examples of how the FDIC has screwed things up, I suggest you start with the Savings and Loans crisis which was a direct consequence of the moral hazard the FDIC created among banks.

Another statement where you manage to get essentially everything wrong. One, it was the FSLIC, not the FDIC caught in the S&L crisis, and two, the crisis was a direct result of deregulation to begin with, giving the thrifts most of the same powers as banks while no longer regulating them like banks. The moment they got their free market, they went profit hunting, engaged in risky loans, and promptly ran the economy into the ground. Here's what you don't seem to get, most of these regulations free marketeers hate, they came about for a reason. That reason has been primarily a failure of the free market to regulate itself, resulting in massive damage to the economy and consumers. The SEC, for example, was created because securities traders were engaged in shenanigans to such a degree it threatened the economy as a whole in an effort to make personal profit. This is what the free marketers are pushing us to go back to.

Other than the name, there is no difference between the defunct FSLIC and the FDIC. The role they both hold, insuring bank deposits, created a moral hazard which resulted in the Savings and Loans crisis. There is no conceivable scenario in a free market where a bank would enage in risky lending practices. There is an automatic fear of loss that deters this type of behavior, unfortunately government deposit insurance eliminates the possibility of any losses which results in risky and unethical practices which results in one crisis after another. And yea, I realize the justification people like offer for government intervention is because of a market failure. Luckily we've been living with your policies for nearly an entire century and we've experienced no type of economic bliss. Just look at history Abraxas, government intervention hasn't leveled out the business cycle, hasn't prevented widely spread bank failures, hasn't prevented stock market crashes, hasn't reduced pollution, hasn't increased the standard of living, hasn't reduced trade deficits, and hasn't reduced poverty.

I admire people who cling to beliefs that have been thoroughly discredited and debunked.

Of course, you couldn't take an Austrian school economist seriously if you didn't.

What specifically about Austrian economics has been discredited? You're confusing a 'discredited' theory with a 'heterodox' theory. Austrian economics is heterodox because liberals and keynesians have a monopoly on academia and marginalize individuals with opposing viewpoints. Redistributionism, especially on the scale you want, has been discredited every time it is implemented in a society. Yet people like you want to keep trying it despite the fact that every time it has been tried the result is failure and misery. This is called insanity.

If you actually think the rich are going to pay those taxes, you're looking at reality through a blurred lens. One of your biggest problems if that you can't understand that there is no such thing as a free lunch. If you tax the incomes of those who make over $250,000 annually at enourmous rates, they aren't going to take lying down. They'll transfer the wealth and income over to different countries since the 'rich' (like Romney) have the luxary of possessing foreign accounts. Your policy would force wealth to exit this country.

You know the US could do things to prevent that, right?

How? By restricting the freedoms of people who are successful? By having the government dictate to them what they can and can't do with their own money?

I don't have much more to add than has already been added to our one on one debate on this topic. When your own example for why the EPA was unnecessary was at its base a company mad because it wanted to dump mercury into the Florida Everglades but the government wouldn't let it, I think my point as already been made sufficiently.

Should I ask you to direct me to where I ever made this argument against the EPA? I mean, I already know you won't be able to since this is a distorted and gross caricature of my argument.

[MyReality]

Sorry for not responding to your posts, I just put in an 85 hour work week. I will try and catch up soon.

Also whoever mentioned that this thread is wrong needs to stop drinking the kool aid.

[Abraxas]

The obvious solution is to get the government out of the market, something you are vehemently opposed to. Guess what, businesses wouldn't go running to the government is they knew that the government wouldn't offer them any assistance or subsidizes. If you severed the line that exists between government and big business, business wouldn't be throwing around their money in the political arena because there would be no mutually beneficial relationship. If you want big money out of politics, get the government out of business.

One, it wouldn't work because even if you got the federal government out of the market, you would never be able to get state and local governments out.

Do you know why there is very little state and local regulation on businesses? Because a business could very easily get up and leave California who is regulating them to death and move their operations to Nevada, a state with very little regulations. Besides, why don't you ever see big businesses pouring huge amounts of money into elections for a state AG, Senator, Representative, Governor or Lieutenant Governer? Answer that question honestly and you probably won't be confused anymore.

The only thing that confuses me is how you can say big business doesn't poor large amounts of money into local races or that there isn't a lot of regulation at the state level. Sure, there isn't as much local regulation as federal, but that is because when you already have federal regulations it would be kind of redundant. If there already exists satisfactory air pollution or water pollution standards being enforced nationally, I don't need a second set of laws. There are some states that go above and beyond, like California, but largely additional state regulations are unnecessary and unhelpful. Remove the federal regulations, see state and local return. There are, however, substantial subsidies handed out on the local and state level.

Finally, on the claim that corporations don't donate to governors races:

http://www.boston.com/news/politics/art ... nors_race/
http://www.wisdc.org/pr020811.php
http://articles.latimes.com/2010/oct/06 ... y-20101006

Maybe you should tell corporations that, they haven't seemed to notice.

Two, that particular solution is worse than the problem because it simply cedes all the power the monied interests are trying to take from voters and hands it over to the corporation. Applying that strategy to, say, traffic congestion would be burning all the automobiles to avoid gridlock.

You should probably stop with the analogies, they're clearly not your strongpoint. An apt analogy would be removing teacher supervision from the playground. If there were no teacher supervision (aka: Government) then if the kids (aka: Big Business) got hurt they wouldn't have anyone there to slap a bandaid on their sore. They would have to deal with it themselves.

While I consider my analogy both on point and accurate, fine, in the effort to find some common ground, let's use yours. What happens when you get a bunch of vicious children together in one place with only minimal adult supervision?

http://www.gainesville.com/article/2012 ... /120129629

There might be a reason most school playgrounds have teacher supervision; just a thought.

What kind of information do consumers require? If I'm shopping around for a new television, I'm going to research the quality, durability and price of the television. That's all the information I need to know, and corporations don't stifle that kind of information, they make that type of information available. Information about the 'inner workings' of a multinational is information that I don't care about in my capacity as a consumer. What's interesting is that making irrelevant information available to the public is detrimental. What if I'm racist and refuse to purchase a product made by a black person? In your society, that type of information would have to be released and people who are prejudice could now discimrinate along those lines. In a society where only relevant information is released, I would never know the race of the individual who manufactured my television.

Thank you for so completely and thoroughly demonstrating exactly why the average consumers is not savvy enough to make a free market work. I couldn't have made up a strawman that so completely embodied my point as to what is wrong with your ideas.

[strike]The idea that things like conditions of employment, the environmental impact of the company, median wages, how the company makes its money,[/strike] where it acquires parts and equipment, who they are paying money to in political office, [strike]whether they are trading ethically,[/strike] the level of testing and safety standards that go into products, etc. are irrelevant is exactly why it's a short trip from a free market to an enslaved society. That these things would be hidden are why a free market is not compatible with a free and democratic society.

There you go Abraxas, I struck out everything that is irrelevant and underlined everything that is relevant. Do you know who should actually care about employment conditions and median wages? The employees of that company, not the consumers. If I'm looking for a new car, why should I give a damn about the working conditions of the car manufacturers and how much they're paid? As a consumer, that is totally irrelevant to me.

Which is why you and consumers like you are the reason a free market could never work. Pretty much by your own admission here, you don't care if sweatshop labor in dangerous, exploitative conditions, or even slave labor for that matter were used, so long as you get a cheap, durable, convenient product. It is that mentality precisely that makes it a short trip from a free market to an enslaved society. As a consumer, I want to know how companies treat their employees, an, if they treat them badly, I do not want to reward those companies with my money. While I'm at it, I want to call attention to your statement trade practices and how the company makes money don't matter, we will return to them shortly.

And many consumers do care about the environment Abraxas. They care that a few environmental fundamentalists are holding Americans hostage at the gas pump. They care that they're paying egregious amounts for a gallon of gas because a few loudmouthed people start screaming everytime the government tries to tap into domestic supplies of oil. It's probably the funniest situation I've ever seen. We have environmental fundamentalists at home preventing domestic oil ventures, and we have anti war zealots crying about oil ventures abroad. We have two groups of people on the far left making lives miserable for many consumers due to their zealotry.

Only among the fantasies of the right wing. The fact is drilling in places like ANWR would change the price of oil by less than 1% in all probability, 1.2% even at the most generous estimates. Saving Americans two bits at the pump isn't going to ease their pain. As for oil ventures abroad, we are conducting those anyway so you can't say opposition to them impacts the price of oil.

If property rights are upheld by the government, a corporation would only be able to poisoin the ground water on its own property. Do you know what would prevent a corporation from dumping waste into a lake or river? Property rights.

So I buy a corner of a river and dump stuff in it that poisons your kids. After all, they are your kids, not mine, and you'll never prove my chemicals gave them cancer as opposed to the hog farm up river from me or the chemical plant one state up.

Wow, you just made a massive jump. If you bought part of a river and dumped your garbage in it, why would you then proceed to put the contaminated water out for sale? Again, the analogies you're drawing are embarrasingly inept. If you contaminate a lake that belongs to the city, and the city has declared that the lake is safe for playing in, then you're liable. If the river belongs to you, then you can do whatever you want to it. If you want to contaminate it, go ahead, it would be my fault for allowing my kids to violate your property and allow them to play in your contaminated water. But aside from this, your post is loaded with one fallacy after another. No rational person would voluntarily destroy his or her own property. The destruction of property comes about when the property isn't owned by any single individual or collective group.

It is a shame you can't tell the difference between an example and an analogy, in particular while engaged in calling other people names like "embarrassingly inept" no less. Equally "shameful" is how you managed to read in random assertions into my post I did not make.

Where did I say anything about selling water? No, for the sake of this example I was speaking as a factory owner, one of many on a river I purchased a small part of to dump chemicals, say, methylmercury in. I produce it as a byproduct of the cheap, durable widgets you buy that you don't care where they come from. I dump it in my section of the river, I can't help it if the people up river had their part of the river push my portion out of the space I own and into the local aquifer, lake, and into the gulf where it contaminated the fish you eat, contributing an indeterminate amount to making you fatally sick. Doesn't hurt me though, as like the hundreds of other factories on that river you will never be able to prove my contaminants specifically caused your health problems and by the time I'd actually have to pay out on a judgment, the recipient would be long dead.

You can say this would never happen in a free market (just like segregation would never happen in a free market, right?) but when rivers in the US have a history of catching on fire because of this kind of behavior, I'm going to have to side with reality over your "theory".

http://en.wikipedia.org/wiki/Cuyahoga_R ... l_concerns

When you gut any and all government power to oversee these organizations, there is no reason to believe consumers can make informed choices about their purchases, never mind will.

As if the government somehow knows exactly what consumers need to make informed choices. Like the government just knows how many people ought to own a home, or how much a product should be sold for, or how much rent should be charged. The government just knows everything, doesn't it?

You demonstrated more aptly than I ever could the truth of what you quoted already. However, I do note you are now confusing regulation and oversight and inspection with control despite me never having said anything about setting prices or who ought to buy products.

Answer my question. How does the government know what consumers need to make informed choices?

Through democratic governance. If people need more information they can petition the government to pass a law, pass a ballot initiative themselves, or elect representatives to deal with inadequate information. More information is always better for meeting the wants and needs of the consumer.

Fact: the rich tend to save and invest while the middle class and the poor tend to consume. You cannot consume if there are no businesses producing things, you cannot consume if you don't have a job. The rich make this all possible. Their wealth does an enourmous amount of good for this country in their hands as opposed to it being in the governments hands.

An apt description of WHY trickle down economics is a flawed, broken, and useless theory that one might wipe themselves with but for the probability they would contract tetanus. The rich reinvest, the poor and middle classes have insufficient money to reinvest so their wealth stays stagnant and new wealth created stays only at the top. Contrary to your assertion, a combination of multiple small pools of money can be just as effective at creating jobs as one large pool; this is where co-ops and mutual companies come from.

If the rich didn't get a return on their investment, what incentive would they have to invest in the first place? Any new wealth that is generated is reinvested and the cycle continues. If I invest my money, that money is circulated throughout the economy and creates wealth for both myself and others. Your complaint isn't justified.

"And others" is precisely the problem. The wealth is not created for others, others get enough to not die between now and their next shift while the owners of the capital take all the surplus profits. It is not in the interests of the wealthy to create other investors to compete with them nor is it in their interests to get anything less than the maximum amount of wealth produced to them. This is why wealth never really trickles down but simply multiplies at the top.

Ok, you want to explain this at all? Have you looked at an objective study of the crisis?

Yes, and when you look at an objective analysis, you find it was a result of deregulation, profit seeking, and subprime lending by private institutions that caused it. This being caused by the government only exists in right wing fantasies.

You're obviously not looking at any objective data because a profit seeking, deregulated lending institution would never engage in subprime financing. Subprime loans, Adjustable Rate loans and No Income, Assets or Job Loans would have never occured in a deregulated housing market because the borrowers these loans were targeted at would have been rejected prima facie. Legislation such as the Community Reinvestment Act destroyed any standard of lending banks adhered to and coerced them to lend to unworthy borrowers. And along with that you have these high risk loans being traded in for securities by Fannie and Freddie which nationalized the problem. The boom in housing prices wasn't a nationwide occurence, it was concentrated in places like California and Florida and the bust would have remained confined in those areas had the banks kept the loans.

Well, it is becoming increasingly clear you haven't read any objective data. Engaging in risky subprime lending is exactly what they would do and exactly what they, in fact, did. If one were to, in fact, look at objective data regarding the crisis, they would not say things like "the CRA coerced them to lend to risky borrowers", but rather things like:

"An analysis by the Federal Reserve Bank of Dallas in 2009 concluded unequivocally that the CRA was not responsible for the mortgage loan crisis, pointing out that CRA rules have been in place since 1995 whereas the poor lending emerged only a decade later.[39] Furthermore, most sub-prime loans were not made to the LMI borrowers targeted by the CRA, especially in the years 2005-2006 leading up to the crisis. Nor did it find any evidence that lending under the CRA rules increased delinquency rates or that the CRA indirectly influenced independent mortgage lenders to ramp up sub-prime lending."

Further, an objective analysis would not blame Fannie and Freddie for the crisis, instead, they might observe things like:

"Some long-time critics of government and the GSEs, like American Enterprise Institute fellow Peter J. Wallison,[30] claim that the roots of the crisis can be traced directly to risky lending by government sponsored entities Fannie Mae and Freddie Mac. Although Wallison's claims have received widespread attention in the media and by policy makers, the majority report of the Financial Crisis Inquiry Commission, several studies by Federal Reserve Economists, and the work of independent scholars suggest that Wallison's claims are not supported by data.[6] In fact, the GSEs loans performed far better than loans securitized by private investment banks, and even then loans originated by institutions that held loans in their portfolios.[6] On the whole, the GSEs appear to have had a conservative influence on mortgage underwriting.

Wallison has been widely criticized for attempting to politicize the investigation of the Financial Crisis Inquiry Commission, and his critics include fellow Republican Commissioners.[31]" or "However, in 2011, the Federal Reserve, using statistical comparisons of geographic regions which were and were not subject to GSE regulations finds that GSEs played no significant role in the subprime crisis.[53]"

What they might also say is that a lack of regulation and deliberate fraud and predatory lending by financial institutions did cause the crisis, the very things that would become more prevalent under a market without regulators and without regulations. Did moral hazards play a role? Sure. Were they enabling, or even driving in the crisis? No. We have seen banks and businesses engage in this kind of behavior even without the safety nets created by the government, as with the Enron collapse. Thing of it is, businesses lie to themselves all the time, they justify taking risks because they figure, if they can just get through the quarter or get through the next project, or the next merger they can balance the books right again, but unless they take this one risky customer, or implement this one risky policy, they will lose market share and it will prevent them from getting on the right side again. They do what is expedient, they do what will look good for investors, they do what helps them play the financial game until they are in well past the lines of good judgment and sound business practice.

They need profits to stay ahead in the game and in an increasingly competitive environment they need to take increasingly large risks to stay one step ahead of the competition. Companies make the biggest gains when the biggest risks pay off and they have ways to minimize their risk using techniques like credit default swaps and combining loans into funds and buying into those funds. These are the things that drive a market crisis, regulation is not among them.

http://en.wikipedia.org/wiki/Late-2000s ... me_lending
http://en.wikipedia.org/wiki/Government ... age_crisis
http://en.wikipedia.org/wiki/Causes_of_ ... regulation

By pushing down the interest rate, the federal reserve created a false demand for housing by making it cheaper for people to get a loan since the interest rate is the price of loans.

See, you're already wrong right there. The federal interest rates determine the rate at which banks borrow from each other, it is not the rate at which consumers borrow from banks.

Oh wow. Do you what determines the prime interest rate (the rate at which consumers borrow from banks)? The federal funds rate (the rate at which banks borrow from eachother).

Incorrect. The prime interest rates are set individually by each bank, now, most will set it at approximately 300 points higher than the fed rate, the official prime rate being set by the WSJ when 70% of bank assets agree on at least a certain percent. More to the point, however, this is all irrelevant because, guess what, most lenders can't get the prime rate, they get a rate tailored by the bank to their specific risk level.

Please stop saying things a minute and a half on Wikipedia can show to be wrong.

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

Banks had the option to not make risky loans even when it was easy for them to borrow money. Funny, how agents of a free market have free will and are responsible for their own choices, but the moment they can borrow money more easily they are absolved of all responsibility for their actions.

This is another Libertarian fantasy with no basis in reality. The fact of the matter is representatives from pretty much every major economic school currently existent outside the so-called mainstream economic model saw the bubble coming. Austrians, Frankurts, Neo-Keynsians, etc. The idea this was a big surprise to everyone but the Austrians is simply inaccurate.

http://en.wikipedia.org/wiki/2008_finan ... orecasting

Let's be clear here, just because you can throw up a vague article from wikipedia doesn't mean you're right. Prior to the bubble in housing, we had liberals and keynesians like Barney Frank, Ben Bernanke, Alan Greenspan and the like shrugging off any concerns about the stability of housing prices. Here, we have the loner Ron Paul and a handful of other Free Market Economists warning that there would be a bubble. There are these things called economic indicators and because of the mindset Greenspan and Frank were set in, they disregarded the indicators.

Yes, Greenspan and Frank being part of that mainstream we talked about earlier, not relevant. Further, neither was my article vague, and your quick jump to dismiss evidence that disagrees with your position should serve as a warning to you you are wrong. Going down the list of economists that predicted it, we have:

Dean Baker - Post-Keynesian School
Wynne Godley - Unclear
Fred Harrison - Georgeist
Michael Hudson - Post Keynesian School
Eric Janszen - Unclear
Steve Keen - Post Keynesian School
Jakob Brøchner Madsen - Unclear
Jens Kjaer Sørensen - Unclear
Kurt Richebächer - Austrian
Nouriel Roubini - Neo Keynesian
Peter Schiff - Austrian
Robert Shiller - Neo Keynesian

Further, I was able to find at least two Post-Marxists, Cesar Ugo and Nick Beams who also predicted the collapse. You can reject the evidence all you like, but the fact is reality holds that you are absolutely wrong in your assertion that only the Austrians predicted the collapse.

"]This is great . In a free market, all transactions would be voluntarily made. Nobody would be forced to agree to any transactions that he or she didn't think would be beneficial.

Point being? Did any part of put options or short selling imply they didn't enter into them voluntarily?

Uh yea? I mean, if you're going to use specific examples as the basis for your argument you should at least know what they are. By what mechanism in a free market would an individual be forced to enter into a contract or buy a hundred shares of a company?
[/QUOTE] They are hardly specific examples, they are broadly implemented market mechanisms. Because they agree to buy into or sell into that contract to begin with. I sell you the promise to buy at a certain rate within a certain period of time. When I sell it I expect the stock price to remain high or go up so that I keep the price of the contract for nothing. However, if you can run the company into the ground, I still have to buy it back at the original price. This is simply how they work. Unless you are going to argue that people don't short sell and don't use put options, your most flagrant denial of reality thusfar, I don't see how you can contest this.

That's just not true. By insuring the deposits of consumers banks are shielded from risk. They have no incentive to engage in prudent lending practices because the risk has been eliminated by the FDIC.

Already shown to be wrong. The risk by the lender is unchanged, only the risk to the consumer is transferred to the FDIC, as the risk for the institution remains unchanged so too would their behavior.

This is the type of thing I'm talking about. You are gradually destroying your credibility by arguing against textbook facts. The risk is shared by the lender and the consumer. If there were no government insurance, the consumer would face a risk every time he or she put money into his deposit account and the bank would face a risk every time it issues out loans.

Would you put down the strawman for a moment and come over to the argument I'm actually making? I never said anything about the consumer not having risk when they make a deposit. Never said anything. You damage your credibility when you continually hurl your spears into claims that exist nowhere outside your distortions of my remarks.

Once more, the point was the risk to the consumer does not change the behavior of the bank. They don't care if the consumer loses their money, they don't care if the consumer risks losing their money. Regardless of whether they would owe the money to the FDIC or to the consumer, they owe the same amount of money and so their behavior will not change.

You've managed to get at least one thing right in this thread, and that is the fact that the market is fueled by profits. Sadly, you ignore the other half of the equation. The drive for profits is tempered by the fear of losses. This isn't a profit system, it's a profit and loss system. You cannot have one without the other and hope to maintain stability. Banks are for profit institutions and they generate profits by providing a particular service, primarily financial loans. And just as any other for profit institution, they want to maximize profits and minimize losses. The FDIC doesn't simply mitigate the magnitude of losses, it completely eliminates the possibility of losses on the part of a bank.

Wrong. Wrong, wrong, wrong. Once again, Econ 101, ground floor banking, the bank incurs the same debt either way. This is because if a bank were ever to have to use the FDIC, the FDIC reserves the right to seize the assets of the banks to sell off to recover the loss. The FDIC in no way, shape, or form mitigates the chance of loss from the bank. It only mitigates the loss from consumers.

For you to say that the risk by the lender is unchanged just shows how wrong you are about this entire thing. Not only does the mere existence of the FDIC cause banks to behave differently then they would otherwise, there are these things called bank failures that are a consequence of this behavior. An interesting fact that you ought to know is that we have experienced long term recessions and depressions ever since the creation of the federal reserve and the enactment of financial regulatory legislation and institutions such as the FDIC.

Really? We've had recessions and depressions the entire time since all the way back then? I must be really misremembering the 90s then. The 50s probably never happened either.

Interesting, then that both the Fed and the FDIC were created in response to economic crises of various sorts, and that there were all kinds of economic crises before their creation too. What evidence do you have to support either the Fed or the FDIC have had any influence in either causing or prolonging economic downturns or that they have become significantly worse since their creation? Indeed, if you look at the history, there was a bank panic almost every decade from the founding of the US up to the point the Federal Reserve was created, at which point they stopped. How do you think modern economics would work if every decade or two the market lost half its value?

If there were no FDIC, banks would have to compete with one another for the deposits of consumers and similarly, consumers would be more cautious and aware of where they deposit their money at.

Banks already have to compete for their deposits.

Oh really? Why would banks have to compete for deposits if all FDIC member deposits are insured? Consumers wouldn't care where they deposit their money at because the FDIC has poisioned the system. The idea of competition arises from consumers being able to choose between two things that are dissimilar. There is no difference between the Wells Fargo up my street or the Citibank down my street because both have their deposits insured. Wells Fargo has no incentive to gain a reputation

Yes, I suppose banks all started giving away toasters because they felt the world was toast deficient.

Are you somehow operating under the impression that the riskiness of the lender is the only way banks compete for customers? Things like convenience, fee structures, service levels, perks, benefits, etc. no longer matter because of the FDIC? Do you actually believe this or do you merely feel obligated to say it out of dedication to your chosen economic model?

This brings me way back to the earlier point you made, you already said you don't need to know their trading practices, you don't need to know what kind of market activity they engage in to make money, and in an unregulated market, they are under no obligation to tell you. How could you possibly know if the institution that holds your money is good or not without knowing these things? Once again, you have further undermined the possibility of a free market.

If you want historical examples of how the FDIC has screwed things up, I suggest you start with the Savings and Loans crisis which was a direct consequence of the moral hazard the FDIC created among banks.

Another statement where you manage to get essentially everything wrong. One, it was the FSLIC, not the FDIC caught in the S&L crisis, and two, the crisis was a direct result of deregulation to begin with, giving the thrifts most of the same powers as banks while no longer regulating them like banks. The moment they got their free market, they went profit hunting, engaged in risky loans, and promptly ran the economy into the ground. Here's what you don't seem to get, most of these regulations free marketeers hate, they came about for a reason. That reason has been primarily a failure of the free market to regulate itself, resulting in massive damage to the economy and consumers. The SEC, for example, was created because securities traders were engaged in shenanigans to such a degree it threatened the economy as a whole in an effort to make personal profit. This is what the free marketers are pushing us to go back to.

Other than the name, there is no difference between the defunct FSLIC and the FDIC. The role they both hold, insuring bank deposits, created a moral hazard which resulted in the Savings and Loans crisis. There is no conceivable scenario in a free market where a bank would enage in risky lending practices.

And yet they did, and did so freely the moment the regulations that stopped them from doing so disappeared.

There is an automatic fear of loss that deters this type of behavior, unfortunately government deposit insurance eliminates the possibility of any losses which results in risky and unethical practices which results in one crisis after another.

Before these thing we were already in one crisis after another. Have you done any reading at all on the history of economics? What precisely do you think the bank panics were?

As for eliminates the possibility of losses, how about you check with the Lehman Brothers, Merrill Lynch, and Wachovia and see if there exists a possibility of loss in a regulated market.

And yea, I realize the justification people like offer for government intervention is because of a market failure. Luckily we've been living with your policies for nearly an entire century and we've experienced no type of economic bliss.

Really, the US remains the second rate industrial power now it was before WWI, does it?

Just look at history Abraxas, government intervention hasn't leveled out the business cycle,

True, but neither has deregulation.

hasn't prevented widely spread bank failures,

Relatively speaking, it has. That we haven't had another bank panic is good evidence of that

hasn't prevented stock market crashes,

Certainly not, but neither has deregulation.

hasn't reduced pollution,

The fact we no longer have flaming rivers is a pretty good sign this one is wrong.

hasn't increased the standard of living,

Really, we have the same standard of living now as a hundred years ago? GI Bill shows this one wrong too.

hasn't reduced trade deficits,

True, but deregulation made them worse.

and hasn't reduced poverty.

We both know this one is false, per the countless statistics I provided in our one on one.

I admire people who cling to beliefs that have been thoroughly discredited and debunked.

Of course, you couldn't take an Austrian school economist seriously if you didn't.

What specifically about Austrian economics has been discredited? You're confusing a 'discredited' theory with a 'heterodox' theory. Austrian economics is heterodox because liberals and keynesians have a monopoly on academia and marginalize individuals with opposing viewpoints. Redistributionism, especially on the scale you want, has been discredited every time it is implemented in a society. Yet people like you want to keep trying it despite the fact that every time it has been tried the result is failure and misery. This is called insanity.

No, it is heterodox because it falls outside conventional beliefs. It is discredited because it dogmatically rejects any kind of empirical analysis of the facts in favor of verbal arguments and praxeology, which at the most basic level in practice is making things up as one goes along. It relies on demonstrably false principles, such as many of the ones you have espoused here regarding government intervention in markets, and where we have put the principles into practice it has almost always ended badly. That is why it is a discredited ideology. Pick any one of my posts in the one on one to see why.

If you actually think the rich are going to pay those taxes, you're looking at reality through a blurred lens. One of your biggest problems if that you can't understand that there is no such thing as a free lunch. If you tax the incomes of those who make over $250,000 annually at enourmous rates, they aren't going to take lying down. They'll transfer the wealth and income over to different countries since the 'rich' (like Romney) have the luxary of possessing foreign accounts. Your policy would force wealth to exit this country.

You know the US could do things to prevent that, right?

How? By restricting the freedoms of people who are successful? By having the government dictate to them what they can and can't do with their own money?

No more so than when we pass any other law determining what is and is not acceptable to us as a people, what is and is not fair play in our society. Law is by definition giving up some freedom for order and civilization, and if the rich can't handle being part of that civilization, they can lose access to the mechanism that civilization created and maintained that allows them to maintain their wealth in the first place. Taxes are not punishment, they are the fair allocation of resources necessary to maintain the overall structure of society and if certain segments are not willing to pay their fair share, society reserves the right to use legal measures to retrieve those resources.

I don't have much more to add than has already been added to our one on one debate on this topic. When your own example for why the EPA was unnecessary was at its base a company mad because it wanted to dump mercury into the Florida Everglades but the government wouldn't let it, I think my point as already been made sufficiently.

Should I ask you to direct me to where I ever made this argument against the EPA? I mean, I already know you won't be able to since this is a distorted and gross caricature of my argument.

Example two of your arguments against the EPA in the one on one thread. The example you cited of excess government regulation was this:

http://www.seolawfirm.com/2011/05/flori ... verglades/

Government failed to bring it back while it was being fought by the regional large businesses so they could continue polluting. This was your best shot about how the EPA was unnecessary, yours. When that is your example for how the EPA is unnecessary, because it stops Big Sugar from pumping the Everglades full of mercury, I consider the case closed.

[WinePusher]

The only thing that confuses me is how you can say big business doesn't poor large amounts of money into local races or that there isn't a lot of regulation at the state level.

I only said it because it's true. All you have to do is ask yourself the question Why do corporations make political donations? Because the people they donate to are politicians who have control over matters such as the level they'll be taxed at and the level they'll be regulated at. Corporations have no interest in state politics because state governments have very little power over them. Did you miss the part in my last post where I said that businesses can move from state to state? There is nothing that forces a company to remain in one particular state. We see the same thing happening at the federal level, where many companies are moving operations abroad to avoid to avoid federal regulations and taxes.

Sure, there isn't as much local regulation as federal, but that is because when you already have federal regulations it would be kind of redundant. If there already exists satisfactory air pollution or water pollution standards being enforced nationally, I don't need a second set of laws.

Ok then, I agree. This supports what I'm saying though, that corporations have no interest in state politics.

Remove the federal regulations, see state and local return. There are, however, substantial subsidies handed out on the local and state level.

Alright, I see what you're saying now. My argument against this would be what I said above. You yourself mentioned it in our head to head debate. Remember race to the bottom? States want businesses to come into their borders and do business on their soil. Where is a business most likely to go? A state that puts heavy environmental and financial regulations on them, and imposes a high tax on them? Or a state with little to no regulations and a low tax? The fact that states compete with eachother for business pretty much means that they won't impose regulations or taxes on business. So, back to the original point, if you want big business out of the federal government, get the government out of big business. The state and local government objection you raised is a non-issue.

You should probably stop with the analogies, they're clearly not your strongpoint. An apt analogy would be removing teacher supervision from the playground. If there were no teacher supervision (aka: Government) then if the kids (aka: Big Business) got hurt they wouldn't have anyone there to slap a bandaid on their sore. They would have to deal with it themselves.

While I consider my analogy both on point and accurate, fine, in the effort to find some common ground, let's use yours. What happens when you get a bunch of vicious children together in one place with only minimal adult supervision?

http://www.gainesville.com/article/2012 ... /120129629

There might be a reason most school playgrounds have teacher supervision; just a thought.

What's your point? The market is a little bit more sophisticated than your conception of it. I don't know what you're referring to exactly, but (1) companies are constantly being merged and acquired by other companies, (2) in a free market monopolies don't exist and (3) predatory pricing doesn't exist.

There you go Abraxas, I struck out everything that is irrelevant and underlined everything that is relevant. Do you know who should actually care about employment conditions and median wages? The employees of that company, not the consumers. If I'm looking for a new car, why should I give a damn about the working conditions of the car manufacturers and how much they're paid? As a consumer, that is totally irrelevant to me.

Which is why you and consumers like you are the reason a free market could never work.

Why do consumers need to know these things? You've made absolutely no logical case as to why consumers should care about the environment or working conditions or trade practices.

Pretty much by your own admission here, you don't care if sweatshop labor in dangerous, exploitative conditions, or even slave labor for that matter were used, so long as you get a cheap, durable, convenient product.

Well let's say that a company actually did engage in these types of things. How do you figure consumers would find out about it? Would the company advertise the fact that they use dangerous sweatshop labor and treat their workers like garbage? No. Would the government force the company to make this information available? No, because if the government found out they would intervene due to so called 'labor laws.'

Only among the fantasies of the right wing. The fact is drilling in places like ANWR would change the price of oil by less than 1% in all probability, 1.2% even at the most generous estimates. Saving Americans two bits at the pump isn't going to ease their pain. As for oil ventures abroad, we are conducting those anyway so you can't say opposition to them impacts the price of oil.

Right, I mean it's not like the United States has the fifthteenth largest amount of oil reserves in the world. And while expanding the supply of oil would bring down prices, that wasn't my point. You wrongly assume that consumers care about the environment, share your opinion that industrial growth should be limited to preserve ecosystems and believe that industries should avoid manufacturing methods that cause the environment harm. Unlike you, I care more about humanity than the environment. Corporate expansion means more jobs for people despite the fact that a rainforest might have to be burned down, I care about employing people than the rainforests. Fully utilizing our domestic oil supplies would bring down oil prices which would make life easier for many Americans, I care more about that than potential oil catastrophes that environmentalists are obsessed about. I mean, I'm sure you're overjoyed to see the huge spike in gas prices within the recent weeks Abraxas, but the rest of society isn't.

Answer my question. How does the government know what consumers need to make informed choices?

Through democratic governance. If people need more information they can petition the government to pass a law, pass a ballot initiative themselves, or elect representatives to deal with inadequate information. More information is always better for meeting the wants and needs of the consumer.

First of all, how many people are there are petitioning the government for the disclosure of the types of information you put up? You know, stuff like work conditions, or median wages, or the profits earned by the company, or whether they're trading ethically? Second of all, Congress doesn't regulate anything. Specific government bureaus and agencies do. They are not accountable to the people in the same way Congress is. If consumers want a specific thing, whether it be information or something else, they can demand it without going through government. Remember when banks were going to start charging us for the use of debit cards? Where was the government in that situation? I didn't see people rallying Congress for a new law to prohibit these fees. The people expressed demand to the bank directly and guess what, the banks backed off this incredibly unpopular idea.

If the rich didn't get a return on their investment, what incentive would they have to invest in the first place? Any new wealth that is generated is reinvested and the cycle continues. If I invest my money, that money is circulated throughout the economy and creates wealth for both myself and others. Your complaint isn't justified.

"And others" is precisely the problem. The wealth is not created for others, others get enough to not die between now and their next shift while the owners of the capital take all the surplus profits. It is not in the interests of the wealthy to create other investors to compete with them nor is it in their interests to get anything less than the maximum amount of wealth produced to them. This is why wealth never really trickles down but simply multiplies at the top.

Really? Why do you think there are things called pay raises? The fact is when profits and wealth are created for the executives of a corporation, the workers of that corporation also share in the wealth creation through things like bonuses, pay raises and benefits.

You're obviously not looking at any objective data because a profit seeking, deregulated lending institution would never engage in subprime financing. Subprime loans, Adjustable Rate loans and No Income, Assets or Job Loans would have never occured in a deregulated housing market because the borrowers these loans were targeted at would have been rejected prima facie. Legislation such as the Community Reinvestment Act destroyed any standard of lending banks adhered to and coerced them to lend to unworthy borrowers. And along with that you have these high risk loans being traded in for securities by Fannie and Freddie which nationalized the problem. The boom in housing prices wasn't a nationwide occurence, it was concentrated in places like California and Florida and the bust would have remained confined in those areas had the banks kept the loans.

Well, it is becoming increasingly clear you haven't read any objective data. Engaging in risky subprime lending is exactly what they would do and exactly what they, in fact, did. If one were to, in fact, look at objective data regarding the crisis, they would not say things like "the CRA coerced them to lend to risky borrowers", but rather things like:

"An analysis by the Federal Reserve Bank of Dallas in 2009 concluded unequivocally that the CRA was not responsible for the mortgage loan crisis, pointing out that CRA rules have been in place since 1995 whereas the poor lending emerged only a decade later.[39]

Considering the federal reserve was itself a culprit, this isn't objective data. And your sources point regarding the CRA is absolutely idiotic because the CRA did not become law in 1995, it became law in 1977, and since then it has undergone thousands of changes nearly every other year. The legislation itself gained actual teeth in the early 2000s, which is when lending standards became irrelevant because an adherence to lending standards would have undermined the purpose of the CRA, which was to encourage home ownership amoung minorities and impoverished individuals.

Further, an objective analysis would not blame Fannie and Freddie for the crisis, instead, they might observe things like:

"Some long-time critics of government and the GSEs, like American Enterprise Institute fellow Peter J. Wallison,[30] claim that the roots of the crisis can be traced directly to risky lending by government sponsored entities Fannie Mae and Freddie Mac. Although Wallison's claims have received widespread attention in the media and by policy makers, the majority report of the Financial Crisis Inquiry Commission, several studies by Federal Reserve Economists, and the work of independent scholars suggest that Wallison's claims are not supported by data.[6] In fact, the GSEs loans performed far better than loans securitized by private investment banks, and even then loans originated by institutions that held loans in their portfolios.[6] On the whole, the GSEs appear to have had a conservative influence on mortgage underwriting.

Wallison has been widely criticized for attempting to politicize the investigation of the Financial Crisis Inquiry Commission, and his critics include fellow Republican Commissioners.[31]" or "However, in 2011, the Federal Reserve, using statistical comparisons of geographic regions which were and were not subject to GSE regulations finds that GSEs played no significant role in the subprime crisis.[53]"

75% of mortgages were securitized by the GSE's Fannie and Freddie, not private investement banks. You can't say the bubble was caused by a moral hazard created by private investment banks because private investment banks securitized only a small portion of the loans.

What they might also say is that a lack of regulation and deliberate fraud and predatory lending by financial institutions did cause the crisis, the very things that would become more prevalent under a market without regulators and without regulations. Did moral hazards play a role? Sure. Were they enabling, or even driving in the crisis? No. We have seen banks and businesses engage in this kind of behavior even without the safety nets created by the government, as with the Enron collapse. Thing of it is, businesses lie to themselves all the time, they justify taking risks because they figure, if they can just get through the quarter or get through the next project, or the next merger they can balance the books right again, but unless they take this one risky customer, or implement this one risky policy, they will lose market share and it will prevent them from getting on the right side again. They do what is expedient, they do what will look good for investors, they do what helps them play the financial game until they are in well past the lines of good judgment and sound business practice.

The fact that you would say this pretty much shows you don't have an adequate understand of what a free market is, or what moral harzards are. But most importantly, what you don't get is that there was no lack of regulation. Just because Glass-Steagal and Commodity Futures Modernizations is repealed does not mean the industry has been deregulated. I'll repeat this for the last time. Subprime mortgages, NINJA loans, ARMs and the like contain a higher amount of risk than an average loan. In a free market governed by Profit and Loss, there would not have been an excessive amount of subprime lending. The only reason why there was an excessive amount of subprime lending is because banks were pressured by politicians, who encouraged homeownership, to make owning a home more affordable. This came in the form of the CRA and other dumb laws like the American Dream Downpayment Assistance Act. So that's the first part. The second part has to do with securitization. These loans were securitized mostly by Fannie and Freddie, and yea, some were securitized by investment banks and turned over into CDS that ultimately led to the financial crisis. That doesn't matter though, had the government not interfered in the housing market there would have been no housing bubble and ergo, no financial crisis.

Oh wow. Do you what determines the prime interest rate (the rate at which consumers borrow from banks)? The federal funds rate (the rate at which banks borrow from eachother).

Incorrect. The prime interest rates are set individually by each bank, now, most will set it at approximately 300 points higher than the fed rate, the official prime rate being set by the WSJ when 70% of bank assets agree on at least a certain percent. More to the point, however, this is all irrelevant because, guess what, most lenders can't get the prime rate, they get a rate tailored by the bank to their specific risk level.

Please stop saying things a minute and a half on Wikipedia can show to be wrong.

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

Please start saying things that are true. How do you follow the news if you actually believe the stuff you're writing? When people say the fed controls interest rates, they're ultimately talking about the rate consumer banks charge for loans. However, the fed has absolutely no power over the prime rate of interest. They don't control that. They control the federal funds rate, which ultimately determines the prime interest rate. You said that the prime rate is set 300 points above the federal funds rate. Do you even know what that means? It means that the prime rate is directly tied to the federal funds rate. If the federal funds rate was changed from 8% to 6%, the prime rate wouldn't just stay the same. The prime rate would be adjusted to the change in the federal funds rate at a 300 point difference.

Banks had the option to not make risky loans even when it was easy for them to borrow money. Funny, how agents of a free market have free will and are responsible for their own choices, but the moment they can borrow money more easily they are absolved of all responsibility for their actions.

Banks and other actors and agents in the economy behave according to their environments. Interest rates, which is merely the price of a loan, were pushed and held at all time lows leading up to the bubble. That's why we saw housing prices rise, because the low interest rates made it more attractive to take out mortgages. The arbitrary control the federal reserve has over interest rates is a government regulation, although it may be indirect.

Let's be clear here, just because you can throw up a vague article from wikipedia doesn't mean you're right. Prior to the bubble in housing, we had liberals and keynesians like Barney Frank, Ben Bernanke, Alan Greenspan and the like shrugging off any concerns about the stability of housing prices. Here, we have the loner Ron Paul and a handful of other Free Market Economists warning that there would be a bubble. There are these things called economic indicators and because of the mindset Greenspan and Frank were set in, they disregarded the indicators.

Yes, Greenspan and Frank being part of that mainstream we talked about earlier, not relevant. Further, neither was my article vague, and your quick jump to dismiss evidence that disagrees with your position should serve as a warning to you you are wrong. Going down the list of economists that predicted it, we have:

Dean Baker - Post-Keynesian School
Wynne Godley - Unclear
Fred Harrison - Georgeist
Michael Hudson - Post Keynesian School
Eric Janszen - Unclear
Steve Keen - Post Keynesian School
Jakob Brøchner Madsen - Unclear
Jens Kjaer Sørensen - Unclear
Kurt Richebächer - Austrian
Nouriel Roubini - Neo Keynesian
Peter Schiff - Austrian
Robert Shiller - Neo Keynesian

Further, I was able to find at least two Post-Marxists, Cesar Ugo and Nick Beams who also predicted the collapse. You can reject the evidence all you like, but the fact is reality holds that you are absolutely wrong in your assertion that only the Austrians predicted the collapse.

Alright, I'll give you that point. It wasn't only austrians who predicted the collapse. But look down your list of economists and tell me the reasoning behind each prediction? What factors did people like Robert Shiller and Dean Baker consider when making their prediction? What did they base their prediction on? The reasoning behind austrian economists like Peter Schiff and Ron Paul was very simple: easy credit, low interest rates, moral hazards and the GSE's Fannie and Freddie. They realized that because of a combination of these unhealthy factors home prices would fall and delinquency rates would rise. My point was that it would be impossible for someone such as Frank and Greenspan, who didn't adhere to teh austrian worldview, who didn't see the fed or F&F as a culprit, to predict the collapse.

This is the type of thing I'm talking about. You are gradually destroying your credibility by arguing against textbook facts. The risk is shared by the lender and the consumer. If there were no government insurance, the consumer would face a risk every time he or she put money into his deposit account and the bank would face a risk every time it issues out loans.

Would you put down the strawman for a moment and come over to the argument I'm actually making? I never said anything about the consumer not having risk when they make a deposit. Never said anything. You damage your credibility when you continually hurl your spears into claims that exist nowhere outside your distortions of my remarks.

You know what, I said the risk is shared by both the lender and the consumer, and the FDIC eliminates the risk for both the lender and the consumer. This isn't a strawman I've made up, this is the fact that you keep denying. My only advice for you would be to go look up what moral hazards are.

You've managed to get at least one thing right in this thread, and that is the fact that the market is fueled by profits. Sadly, you ignore the other half of the equation. The drive for profits is tempered by the fear of losses. This isn't a profit system, it's a profit and loss system. You cannot have one without the other and hope to maintain stability. Banks are for profit institutions and they generate profits by providing a particular service, primarily financial loans. And just as any other for profit institution, they want to maximize profits and minimize losses. The FDIC doesn't simply mitigate the magnitude of losses, it completely eliminates the possibility of losses on the part of a bank.

Wrong. Wrong, wrong, wrong. Once again, Econ 101, ground floor banking, the bank incurs the same debt either way. This is because if a bank were ever to have to use the FDIC, the FDIC reserves the right to seize the assets of the banks to sell off to recover the loss. The FDIC in no way, shape, or form mitigates the chance of loss from the bank. It only mitigates the loss from consumers.

Here's the problem. Let's say you're actually right, and you're not by the way, but let's just say you are. If you're right, we'd have to go back and rewrite modern economic theory because modern economics has always associated a moral hazard with the FDIC. Have you looked at an econ text? I own several, and in the section of the book that discusses moral hazards the FDIC is used as a common example. Are the authors of these texts wrong when they say the FDIC fosters a moral hazard amoung the banking sector? If you're right that the FDIC does not mitigate losses or insulate banks from risks, then why are moral hazards constantly assocaited with the FDIC?

For you to say that the risk by the lender is unchanged just shows how wrong you are about this entire thing. Not only does the mere existence of the FDIC cause banks to behave differently then they would otherwise, there are these things called bank failures that are a consequence of this behavior. An interesting fact that you ought to know is that we have experienced long term recessions and depressions ever since the creation of the federal reserve and the enactment of financial regulatory legislation and institutions such as the FDIC.

Really? We've had recessions and depressions the entire time since all the way back then? I must be really misremembering the 90s then. The 50s probably never happened either.

You're the one who's attacking strawmen now Abraxas. I never said we've had recessions and depressions for the entire time period after the fed. I've said we've experienced long term recessions and depressions, and these plunges in the economy have been far more severe than they were prior to the creation of the fed.

Interesting, then that both the Fed and the FDIC were created in response to economic crises of various sorts, and that there were all kinds of economic crises before their creation too. What evidence do you have to support either the Fed or the FDIC have had any influence in either causing or prolonging economic downturns or that they have become significantly worse since their creation?

Have you read anything about the Great Depression? The mainstream consensus is that the depression was the result of an inept fed. The very basic function of the fed to is to act as a last resort lender to banks, and that is exactly what the fed did not do during the depression. The fed was created in order to prevent bank failures, the rate of private bank failures increases after the inception of the fed, and as people are running on the banks in the early 1930's the fed does absolutely nothing. Once again, the government creates an environment that encourages banks to fail because of an explicit gurantee, because of this gurantee the rate of bank failures increases and the fed who is tasked with lending to banks doesn't.

Oh really? Why would banks have to compete for deposits if all FDIC member deposits are insured? Consumers wouldn't care where they deposit their money at because the FDIC has poisioned the system. The idea of competition arises from consumers being able to choose between two things that are dissimilar. There is no difference between the Wells Fargo up my street or the Citibank down my street because both have their deposits insured. Wells Fargo has no incentive to gain a reputation.

Yes, I suppose banks all started giving away toasters because they felt the world was toast deficient.

???

Are you somehow operating under the impression that the riskiness of the lender is the only way banks compete for customers? Things like convenience, fee structures, service levels, perks, benefits, etc. no longer matter because of the FDIC? Do you actually believe this or do you merely feel obligated to say it out of dedication to your chosen economic model?

Of course those things matter. And unfortunately right now those things are all that matter. Consumers pick their banks based upon these vain factors you just outlined, they'll choose their bank based upon worthless issues like convenience, service and perks. Preferably, consumers should choose their bank because they believe the institution will reliably manage their money. Again, if you didn't have a government gurantee on nearly every single deposit account, depositors would flock to banks that have a good reputation with managing deposits. But because of deposit insruance consumers are totally indifferent and could care less where they deposit their money. Government insurance distorts this and essentially diverts money away from good, reputable firms to riskier firms.

This brings me way back to the earlier point you made, you already said you don't need to know their trading practices, you don't need to know what kind of market activity they engage in to make money, and in an unregulated market, they are under no obligation to tell you. How could you possibly know if the institution that holds your money is good or not without knowing these things? Once again, you have further undermined the possibility of a free market.

Well I was hoping you knew that banks are different than most other companies. They provide financial services. They provide credit, loans and savings. The way they operate as an institution requires them to do things that may or may not put your money in jeophardy. An auto company operates totally differently than a financial services company, so your argument is bogus.

Other than the name, there is no difference between the defunct FSLIC and the FDIC. The role they both hold, insuring bank deposits, created a moral hazard which resulted in the Savings and Loans crisis. There is no conceivable scenario in a free market where a bank would enage in risky lending practices.

And yet they did, and did so freely the moment the regulations that stopped them from doing so disappeared.

Because the market wasn't free. I don't know how to simplfy this any further for you. The S&L market was not free. The monetary control act along with the FDIC, the FSLIC at that time, were two huge regulatory behemoths in the room that caused the S&L crisis. The regulation of S&L market never 'disappeared', stop making things up.

There is an automatic fear of loss that deters this type of behavior, unfortunately government deposit insurance eliminates the possibility of any losses which results in risky and unethical practices which results in one crisis after another.

Before these thing we were already in one crisis after another. Have you done any reading at all on the history of economics? What precisely do you think the bank panics were?

What are you talking about? What's your point with bringing up bank panics?

As for eliminates the possibility of losses, how about you check with the Lehman Brothers, Merrill Lynch, and Wachovia and see if there exists a possibility of loss in a regulated market.

Fine. Let's look at Lehman Brothers, Merrill Lynch and Wachovia. First of all, they weren't regulated. Second of all, all three of those firms collapsed because of subprime mortgages. Firms like Lehman Brothers made poor decisions regarding their investments in mortgage backed securities and CDO's and when these subprime loans went bad, they incurred loss. They incurred massive losses because they did stupid things and were acquired by other firms. The free market functioned correctly in this case. Stupidity wasn't rewarded, it was punished. But that's merely a symptom of the disease. The disease itself were the lenders originating these subprime and adjustable rate mortgages because nearly 75% of them were backed Fannie and Freddie.

And yea, I realize the justification people like offer for government intervention is because of a market failure. Luckily we've been living with your policies for nearly an entire century and we've experienced no type of economic bliss.

Really, the US remains the second rate industrial power now it was before WWI, does it?

I wasn't referring to this, but if you want to talk about industrial growth why don't you look at the situation between China and America. While China is a politically communist country, their markets are much more free than the markets in the United States. By any measure, they are about to surpass us when it comes to industrial growth. Are you starting to see a pattern here Abraxas? Places that operate under a framework of free markets tend to experience more economic growth and development than those places subject to government control and tyranny.

Just look at history Abraxas, government intervention hasn't leveled out the business cycle,

True, but neither has deregulation.

If you had ever cared to glance at the economic history of America, you would realize this is wrong. Prior to the creation of the Federal Reserve, one of the most significant government interventions in the economy, there were no depressions or recessions. There were panics, and they were panics because the initial downward plunge in the economy was dealt with in a relatively free market fashion. I'll go out on a limb and guess that you've never heard of the Panic of 1819. It was one of Americas first major crisis, and it was dealt in a free market fashion, and it was shortlived. Remember the Great Depression? It began with a Stock Market crash, and since you are apparently a staunch supporter of using empirical analysis, had the crash been dealt with in the same way the Panic of 1819 was dealt with, we would have seen the same results. A short lived economic panic. Instead of adhering to empirical analysis, we did unconventional things. Not only did we have the Federal Reserve intervening monetarily, we have the government intervene in the form of a tariff designed to combat unemployment after the crash. The tariff passed, and despite it's purpose to reduce unemployment, unemployment rose. Then of course we have this thing called the New Deal that prolonged it drastically.

hasn't increased the standard of living

Really, we have the same standard of living now as a hundred years ago? GI Bill shows this one wrong too.

You misread me. The standard of living has increased, but the increase can't be attributed to government intervention. The standard of living has increased despite of government intervention. I don't even know why you're bringing up the GI bill. What's that supposed to prove? That people who put their lives on hold to defend this country should recieve government assistance to get back on their feet once the combat has ended? I don't see a problem with that.

hasn't reduced trade deficits

True, but deregulation made them worse.

Well I and many other people don't think trade deficits are much of a problem. Only the protectionist crowds, who push for tariffs and quotas, do and based on the track record trade deficits haven't been reduced. I mean, if I could only cite only one example of where government fails it would be international trade and the international economy overall. Fixed exchange rates, tariffs and managed trade are all failed government interventions in this sector of the economy.

What specifically about Austrian economics has been discredited? You're confusing a 'discredited' theory with a 'heterodox' theory. Austrian economics is heterodox because liberals and keynesians have a monopoly on academia and marginalize individuals with opposing viewpoints. Redistributionism, especially on the scale you want, has been discredited every time it is implemented in a society. Yet people like you want to keep trying it despite the fact that every time it has been tried the result is failure and misery. This is called insanity.

No, it is heterodox because it falls outside conventional beliefs.

Yea, you know why it falls outside the conventional beliefs? Because the so called 'conventional belief' is dominated by a different worldview. You can't say a belief is wrong because the majority of people don't share it. As much as I hate to say it, you're committing a classic ad populum fallacy.

It is discredited because it dogmatically rejects any kind of empirical analysis of the facts in favor of verbal arguments and praxeology, which at the most basic level in practice is making things up as one goes along.

Um all of economics, all of the social sciences as a matter of fact, is based upon praxeology. The basic axiom is that under certain conditions, rational human beings will behave in a predictable and uniform way. You see Abraxas, this is where I get the feeling that you're a hard left socialist. You're not making an argument in favor of keynesianism. Keynesianism is merely a philosophical economic belief that expenditures drives the economy, but it is still based upon the fundamental social science axiom. You're making an argument in favor of socialism and government control of markets and human behavior which is itself heterodox because it rejects the basic principle of the social sciences, praxeology.

How? By restricting the freedoms of people who are successful? By having the government dictate to them what they can and can't do with their own money?

No more so than when we pass any other law determining what is and is not acceptable to us as a people, what is and is not fair play in our society. Law is by definition giving up some freedom for order and civilization, and if the rich can't handle being part of that civilization, they can lose access to the mechanism that civilization created and maintained that allows them to maintain their wealth in the first place. Taxes are not punishment, they are the fair allocation of resources necessary to maintain the overall structure of society and if certain segments are not willing to pay their fair share, society reserves the right to use legal measures to retrieve those resources.

If you're going to appeal to the 'Law', I suggest you read a book called The Law which demolishes your argument. If you're suggesting that individuals are free to take the life of another individual, or do things that inhibit the liberty of another individual, or break a contract, then you're wrong. According to the libertarian maxim, one is not free to do things that inhibit the freedom of others. Law doesn't force people to give up freedom, law by definition defends people's freedoms, rights and liberties. Laws are merely the mode of operation by which a government exercises it's power, and the only power a government has is the defense of life (Criminal Law) liberty (Constitutional Law) and property (Contract Law). Tax law can be seen as a type of law that is necessary and property for the government to impose in order to enforce the other laws.

Example two of your arguments against the EPA in the one on one thread. The example you cited of excess government regulation was this:

http://www.seolawfirm.com/2011/05/flori ... verglades/

Government failed to bring it back while it was being fought by the regional large businesses so they could continue polluting. This was your best shot about how the EPA was unnecessary, yours. When that is your example for how the EPA is unnecessary, because it stops Big Sugar from pumping the Everglades full of mercury, I consider the case closed.

Look through our debate again. The only argument I lodged specifically against the EPA was regarding the air quality in NYC after 9/11. The case of the Florida everglades is an example general government incompetence. The reason why the law is being litigated in the first place is because the intiatives are doing nothing to restore the ecosystem, they are merely impeding economic growth.

[WinePusher]

The only thing that confuses me is how you can say big business doesn't poor large amounts of money into local races or that there isn't a lot of regulation at the state level.

I only said it because it's true. All you have to do is ask yourself the question Why do corporations make political donations? Because the people they donate to are politicians who have control over matters such as the level they'll be taxed at and the level they'll be regulated at. Corporations have no interest in state politics because state governments have very little power over them. Did you miss the part in my last post where I said that businesses can move from state to state? There is nothing that forces a company to remain in one particular state. We see the same thing happening at the federal level, where many companies are moving operations abroad to avoid to avoid federal regulations and taxes.

Sure, there isn't as much local regulation as federal, but that is because when you already have federal regulations it would be kind of redundant. If there already exists satisfactory air pollution or water pollution standards being enforced nationally, I don't need a second set of laws.

Ok then, I agree. This supports what I'm saying though, that corporations have no interest in state politics.

Remove the federal regulations, see state and local return. There are, however, substantial subsidies handed out on the local and state level.

Alright, I see what you're saying now. My argument against this would be what I said above. You yourself mentioned it in our head to head debate. Remember race to the bottom? States want businesses to come into their borders and do business on their soil. Where is a business most likely to go? A state that puts heavy environmental and financial regulations on them, and imposes a high tax on them? Or a state with little to no regulations and a low tax? The fact that states compete with eachother for business pretty much means that they won't impose regulations or taxes on business. So, back to the original point, if you want big business out of the federal government, get the government out of big business. The state and local government objection you raised is a non-issue.

You should probably stop with the analogies, they're clearly not your strongpoint. An apt analogy would be removing teacher supervision from the playground. If there were no teacher supervision (aka: Government) then if the kids (aka: Big Business) got hurt they wouldn't have anyone there to slap a bandaid on their sore. They would have to deal with it themselves.

While I consider my analogy both on point and accurate, fine, in the effort to find some common ground, let's use yours. What happens when you get a bunch of vicious children together in one place with only minimal adult supervision?

http://www.gainesville.com/article/2012 ... /120129629

There might be a reason most school playgrounds have teacher supervision; just a thought.

What's your point? The market is a little bit more sophisticated than your conception of it. I don't know what you're referring to exactly, but (1) companies are constantly being merged and acquired by other companies, (2) in a free market monopolies don't exist and (3) predatory pricing doesn't exist.

There you go Abraxas, I struck out everything that is irrelevant and underlined everything that is relevant. Do you know who should actually care about employment conditions and median wages? The employees of that company, not the consumers. If I'm looking for a new car, why should I give a damn about the working conditions of the car manufacturers and how much they're paid? As a consumer, that is totally irrelevant to me.

Which is why you and consumers like you are the reason a free market could never work.

Why do consumers need to know these things? You've made absolutely no logical case as to why consumers should care about the environment or working conditions or trade practices.

Pretty much by your own admission here, you don't care if sweatshop labor in dangerous, exploitative conditions, or even slave labor for that matter were used, so long as you get a cheap, durable, convenient product.

Well let's say that a company actually did engage in these types of things. How do you figure consumers would find out about it? Would the company advertise the fact that they use dangerous sweatshop labor and treat their workers like garbage? No. Would the government force the company to make this information available? No, because if the government found out they would intervene due to so called 'labor laws.'

Only among the fantasies of the right wing. The fact is drilling in places like ANWR would change the price of oil by less than 1% in all probability, 1.2% even at the most generous estimates. Saving Americans two bits at the pump isn't going to ease their pain. As for oil ventures abroad, we are conducting those anyway so you can't say opposition to them impacts the price of oil.

Right, I mean it's not like the United States has the fifthteenth largest amount of oil reserves in the world. And while expanding the supply of oil would bring down prices, that wasn't my point. You wrongly assume that consumers care about the environment, share your opinion that industrial growth should be limited to preserve ecosystems and believe that industries should avoid manufacturing methods that cause the environment harm. Unlike you, I care more about humanity than the environment. Corporate expansion means more jobs for people despite the fact that a rainforest might have to be burned down, I care about employing people than the rainforests. Fully utilizing our domestic oil supplies would bring down oil prices which would make life easier for many Americans, I care more about that than potential oil catastrophes that environmentalists are obsessed about. I mean, I'm sure you're overjoyed to see the huge spike in gas prices within the recent weeks Abraxas, but the rest of society isn't.

Answer my question. How does the government know what consumers need to make informed choices?

Through democratic governance. If people need more information they can petition the government to pass a law, pass a ballot initiative themselves, or elect representatives to deal with inadequate information. More information is always better for meeting the wants and needs of the consumer.

First of all, how many people are there are petitioning the government for the disclosure of the types of information you put up? You know, stuff like work conditions, or median wages, or the profits earned by the company, or whether they're trading ethically? Second of all, Congress doesn't regulate anything. Specific government bureaus and agencies do. They are not accountable to the people in the same way Congress is. If consumers want a specific thing, whether it be information or something else, they can demand it without going through government. Remember when banks were going to start charging us for the use of debit cards? Where was the government in that situation? I didn't see people rallying Congress for a new law to prohibit these fees. The people expressed demand to the bank directly and guess what, the banks backed off this incredibly unpopular idea.

If the rich didn't get a return on their investment, what incentive would they have to invest in the first place? Any new wealth that is generated is reinvested and the cycle continues. If I invest my money, that money is circulated throughout the economy and creates wealth for both myself and others. Your complaint isn't justified.

"And others" is precisely the problem. The wealth is not created for others, others get enough to not die between now and their next shift while the owners of the capital take all the surplus profits. It is not in the interests of the wealthy to create other investors to compete with them nor is it in their interests to get anything less than the maximum amount of wealth produced to them. This is why wealth never really trickles down but simply multiplies at the top.

Really? Why do you think there are things called pay raises? The fact is when profits and wealth are created for the executives of a corporation, the workers of that corporation also share in the wealth creation through things like bonuses, pay raises and benefits.

You're obviously not looking at any objective data because a profit seeking, deregulated lending institution would never engage in subprime financing. Subprime loans, Adjustable Rate loans and No Income, Assets or Job Loans would have never occured in a deregulated housing market because the borrowers these loans were targeted at would have been rejected prima facie. Legislation such as the Community Reinvestment Act destroyed any standard of lending banks adhered to and coerced them to lend to unworthy borrowers. And along with that you have these high risk loans being traded in for securities by Fannie and Freddie which nationalized the problem. The boom in housing prices wasn't a nationwide occurence, it was concentrated in places like California and Florida and the bust would have remained confined in those areas had the banks kept the loans.

Well, it is becoming increasingly clear you haven't read any objective data. Engaging in risky subprime lending is exactly what they would do and exactly what they, in fact, did. If one were to, in fact, look at objective data regarding the crisis, they would not say things like "the CRA coerced them to lend to risky borrowers", but rather things like:

"An analysis by the Federal Reserve Bank of Dallas in 2009 concluded unequivocally that the CRA was not responsible for the mortgage loan crisis, pointing out that CRA rules have been in place since 1995 whereas the poor lending emerged only a decade later.[39]

Considering the federal reserve was itself a culprit, this isn't objective data. And your sources point regarding the CRA is absolutely idiotic because the CRA did not become law in 1995, it became law in 1977, and since then it has undergone thousands of changes nearly every other year. The legislation itself gained actual teeth in the early 2000s, which is when lending standards became irrelevant because an adherence to lending standards would have undermined the purpose of the CRA, which was to encourage home ownership amoung minorities and impoverished individuals.

Further, an objective analysis would not blame Fannie and Freddie for the crisis, instead, they might observe things like:

"Some long-time critics of government and the GSEs, like American Enterprise Institute fellow Peter J. Wallison,[30] claim that the roots of the crisis can be traced directly to risky lending by government sponsored entities Fannie Mae and Freddie Mac. Although Wallison's claims have received widespread attention in the media and by policy makers, the majority report of the Financial Crisis Inquiry Commission, several studies by Federal Reserve Economists, and the work of independent scholars suggest that Wallison's claims are not supported by data.[6] In fact, the GSEs loans performed far better than loans securitized by private investment banks, and even then loans originated by institutions that held loans in their portfolios.[6] On the whole, the GSEs appear to have had a conservative influence on mortgage underwriting.

Wallison has been widely criticized for attempting to politicize the investigation of the Financial Crisis Inquiry Commission, and his critics include fellow Republican Commissioners.[31]" or "However, in 2011, the Federal Reserve, using statistical comparisons of geographic regions which were and were not subject to GSE regulations finds that GSEs played no significant role in the subprime crisis.[53]"

75% of mortgages were securitized by the GSE's Fannie and Freddie, not private investement banks. You can't say the bubble was caused by a moral hazard created by private investment banks because private investment banks securitized only a small portion of the loans.

What they might also say is that a lack of regulation and deliberate fraud and predatory lending by financial institutions did cause the crisis, the very things that would become more prevalent under a market without regulators and without regulations. Did moral hazards play a role? Sure. Were they enabling, or even driving in the crisis? No. We have seen banks and businesses engage in this kind of behavior even without the safety nets created by the government, as with the Enron collapse. Thing of it is, businesses lie to themselves all the time, they justify taking risks because they figure, if they can just get through the quarter or get through the next project, or the next merger they can balance the books right again, but unless they take this one risky customer, or implement this one risky policy, they will lose market share and it will prevent them from getting on the right side again. They do what is expedient, they do what will look good for investors, they do what helps them play the financial game until they are in well past the lines of good judgment and sound business practice.

The fact that you would say this pretty much shows you don't have an adequate understand of what a free market is, or what moral harzards are. But most importantly, what you don't get is that there was no lack of regulation. Just because Glass-Steagal and Commodity Futures Modernizations is repealed does not mean the industry has been deregulated. I'll repeat this for the last time. Subprime mortgages, NINJA loans, ARMs and the like contain a higher amount of risk than an average loan. In a free market governed by Profit and Loss, there would not have been an excessive amount of subprime lending. The only reason why there was an excessive amount of subprime lending is because banks were pressured by politicians, who encouraged homeownership, to make owning a home more affordable. This came in the form of the CRA and other dumb laws like the American Dream Downpayment Assistance Act. So that's the first part. The second part has to do with securitization. These loans were securitized mostly by Fannie and Freddie, and yea, some were securitized by investment banks and turned over into CDS that ultimately led to the financial crisis. That doesn't matter though, had the government not interfered in the housing market there would have been no housing bubble and ergo, no financial crisis.

Oh wow. Do you what determines the prime interest rate (the rate at which consumers borrow from banks)? The federal funds rate (the rate at which banks borrow from eachother).

Incorrect. The prime interest rates are set individually by each bank, now, most will set it at approximately 300 points higher than the fed rate, the official prime rate being set by the WSJ when 70% of bank assets agree on at least a certain percent. More to the point, however, this is all irrelevant because, guess what, most lenders can't get the prime rate, they get a rate tailored by the bank to their specific risk level.

Please stop saying things a minute and a half on Wikipedia can show to be wrong.

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

Please start saying things that are true. How do you follow the news if you actually believe the stuff you're writing? When people say the fed controls interest rates, they're ultimately talking about the rate consumer banks charge for loans. However, the fed has absolutely no power over the prime rate of interest. They don't control that. They control the federal funds rate, which ultimately determines the prime interest rate. You said that the prime rate is set 300 points above the federal funds rate. Do you even know what that means? It means that the prime rate is directly tied to the federal funds rate. If the federal funds rate was changed from 8% to 6%, the prime rate wouldn't just stay the same. The prime rate would be adjusted to the change in the federal funds rate at a 300 point difference.

Banks had the option to not make risky loans even when it was easy for them to borrow money. Funny, how agents of a free market have free will and are responsible for their own choices, but the moment they can borrow money more easily they are absolved of all responsibility for their actions.

Banks and other actors and agents in the economy behave according to their environments. Interest rates, which is merely the price of a loan, were pushed and held at all time lows leading up to the bubble. That's why we saw housing prices rise, because the low interest rates made it more attractive to take out mortgages. The arbitrary control the federal reserve has over interest rates is a government regulation, although it may be indirect.

Let's be clear here, just because you can throw up a vague article from wikipedia doesn't mean you're right. Prior to the bubble in housing, we had liberals and keynesians like Barney Frank, Ben Bernanke, Alan Greenspan and the like shrugging off any concerns about the stability of housing prices. Here, we have the loner Ron Paul and a handful of other Free Market Economists warning that there would be a bubble. There are these things called economic indicators and because of the mindset Greenspan and Frank were set in, they disregarded the indicators.

Yes, Greenspan and Frank being part of that mainstream we talked about earlier, not relevant. Further, neither was my article vague, and your quick jump to dismiss evidence that disagrees with your position should serve as a warning to you you are wrong. Going down the list of economists that predicted it, we have:

Dean Baker - Post-Keynesian School
Wynne Godley - Unclear
Fred Harrison - Georgeist
Michael Hudson - Post Keynesian School
Eric Janszen - Unclear
Steve Keen - Post Keynesian School
Jakob Brøchner Madsen - Unclear
Jens Kjaer Sørensen - Unclear
Kurt Richebächer - Austrian
Nouriel Roubini - Neo Keynesian
Peter Schiff - Austrian
Robert Shiller - Neo Keynesian

Further, I was able to find at least two Post-Marxists, Cesar Ugo and Nick Beams who also predicted the collapse. You can reject the evidence all you like, but the fact is reality holds that you are absolutely wrong in your assertion that only the Austrians predicted the collapse.

Alright, I'll give you that point. It wasn't only austrians who predicted the collapse. But look down your list of economists and tell me the reasoning behind each prediction? What factors did people like Robert Shiller and Dean Baker consider when making their prediction? What did they base their prediction on? The reasoning behind austrian economists like Peter Schiff and Ron Paul was very simple: easy credit, low interest rates, moral hazards and the GSE's Fannie and Freddie. They realized that because of a combination of these unhealthy factors home prices would fall and delinquency rates would rise. My point was that it would be impossible for someone such as Frank and Greenspan, who didn't adhere to teh austrian worldview, who didn't see the fed or F&F as a culprit, to predict the collapse.

This is the type of thing I'm talking about. You are gradually destroying your credibility by arguing against textbook facts. The risk is shared by the lender and the consumer. If there were no government insurance, the consumer would face a risk every time he or she put money into his deposit account and the bank would face a risk every time it issues out loans.

Would you put down the strawman for a moment and come over to the argument I'm actually making? I never said anything about the consumer not having risk when they make a deposit. Never said anything. You damage your credibility when you continually hurl your spears into claims that exist nowhere outside your distortions of my remarks.

You know what, I said the risk is shared by both the lender and the consumer, and the FDIC eliminates the risk for both the lender and the consumer. This isn't a strawman I've made up, this is the fact that you keep denying. My only advice for you would be to go look up what moral hazards are.

You've managed to get at least one thing right in this thread, and that is the fact that the market is fueled by profits. Sadly, you ignore the other half of the equation. The drive for profits is tempered by the fear of losses. This isn't a profit system, it's a profit and loss system. You cannot have one without the other and hope to maintain stability. Banks are for profit institutions and they generate profits by providing a particular service, primarily financial loans. And just as any other for profit institution, they want to maximize profits and minimize losses. The FDIC doesn't simply mitigate the magnitude of losses, it completely eliminates the possibility of losses on the part of a bank.

Wrong. Wrong, wrong, wrong. Once again, Econ 101, ground floor banking, the bank incurs the same debt either way. This is because if a bank were ever to have to use the FDIC, the FDIC reserves the right to seize the assets of the banks to sell off to recover the loss. The FDIC in no way, shape, or form mitigates the chance of loss from the bank. It only mitigates the loss from consumers.

Here's the problem. Let's say you're actually right, and you're not by the way, but let's just say you are. If you're right, we'd have to go back and rewrite modern economic theory because modern economics has always associated a moral hazard with the FDIC. Have you looked at an econ text? I own several, and in the section of the book that discusses moral hazards the FDIC is used as a common example. Are the authors of these texts wrong when they say the FDIC fosters a moral hazard amoung the banking sector? If you're right that the FDIC does not mitigate losses or insulate banks from risks, then why are moral hazards constantly assocaited with the FDIC?

For you to say that the risk by the lender is unchanged just shows how wrong you are about this entire thing. Not only does the mere existence of the FDIC cause banks to behave differently then they would otherwise, there are these things called bank failures that are a consequence of this behavior. An interesting fact that you ought to know is that we have experienced long term recessions and depressions ever since the creation of the federal reserve and the enactment of financial regulatory legislation and institutions such as the FDIC.

Really? We've had recessions and depressions the entire time since all the way back then? I must be really misremembering the 90s then. The 50s probably never happened either.

You're the one who's attacking strawmen now Abraxas. I never said we've had recessions and depressions for the entire time period after the fed. I've said we've experienced long term recessions and depressions, and these plunges in the economy have been far more severe than they were prior to the creation of the fed.

Interesting, then that both the Fed and the FDIC were created in response to economic crises of various sorts, and that there were all kinds of economic crises before their creation too. What evidence do you have to support either the Fed or the FDIC have had any influence in either causing or prolonging economic downturns or that they have become significantly worse since their creation?

Have you read anything about the Great Depression? The mainstream consensus is that the depression was the result of an inept fed. The very basic function of the fed to is to act as a last resort lender to banks, and that is exactly what the fed did not do during the depression. The fed was created in order to prevent bank failures, the rate of private bank failures increases after the inception of the fed, and as people are running on the banks in the early 1930's the fed does absolutely nothing. Once again, the government creates an environment that encourages banks to fail because of an explicit gurantee, because of this gurantee the rate of bank failures increases and the fed who is tasked with lending to banks doesn't.

Oh really? Why would banks have to compete for deposits if all FDIC member deposits are insured? Consumers wouldn't care where they deposit their money at because the FDIC has poisioned the system. The idea of competition arises from consumers being able to choose between two things that are dissimilar. There is no difference between the Wells Fargo up my street or the Citibank down my street because both have their deposits insured. Wells Fargo has no incentive to gain a reputation.

Yes, I suppose banks all started giving away toasters because they felt the world was toast deficient.

???

Are you somehow operating under the impression that the riskiness of the lender is the only way banks compete for customers? Things like convenience, fee structures, service levels, perks, benefits, etc. no longer matter because of the FDIC? Do you actually believe this or do you merely feel obligated to say it out of dedication to your chosen economic model?

Of course those things matter. And unfortunately right now those things are all that matter. Consumers pick their banks based upon these vain factors you just outlined, they'll choose their bank based upon worthless issues like convenience, service and perks. Preferably, consumers should choose their bank because they believe the institution will reliably manage their money. Again, if you didn't have a government gurantee on nearly every single deposit account, depositors would flock to banks that have a good reputation with managing deposits. But because of deposit insruance consumers are totally indifferent and could care less where they deposit their money. Government insurance distorts this and essentially diverts money away from good, reputable firms to riskier firms.

This brings me way back to the earlier point you made, you already said you don't need to know their trading practices, you don't need to know what kind of market activity they engage in to make money, and in an unregulated market, they are under no obligation to tell you. How could you possibly know if the institution that holds your money is good or not without knowing these things? Once again, you have further undermined the possibility of a free market.

Well I was hoping you knew that banks are different than most other companies. They provide financial services. They provide credit, loans and savings. The way they operate as an institution requires them to do things that may or may not put your money in jeophardy. An auto company operates totally differently than a financial services company, so your argument is bogus.

Other than the name, there is no difference between the defunct FSLIC and the FDIC. The role they both hold, insuring bank deposits, created a moral hazard which resulted in the Savings and Loans crisis. There is no conceivable scenario in a free market where a bank would enage in risky lending practices.

And yet they did, and did so freely the moment the regulations that stopped them from doing so disappeared.

Because the market wasn't free. I don't know how to simplfy this any further for you. The S&L market was not free. The monetary control act along with the FDIC, the FSLIC at that time, were two huge regulatory behemoths in the room that caused the S&L crisis. The regulation of S&L market never 'disappeared', stop making things up.

There is an automatic fear of loss that deters this type of behavior, unfortunately government deposit insurance eliminates the possibility of any losses which results in risky and unethical practices which results in one crisis after another.

Before these thing we were already in one crisis after another. Have you done any reading at all on the history of economics? What precisely do you think the bank panics were?

What are you talking about? What's your point with bringing up bank panics?

As for eliminates the possibility of losses, how about you check with the Lehman Brothers, Merrill Lynch, and Wachovia and see if there exists a possibility of loss in a regulated market.

Fine. Let's look at Lehman Brothers, Merrill Lynch and Wachovia. First of all, they weren't regulated. Second of all, all three of those firms collapsed because of subprime mortgages. Firms like Lehman Brothers made poor decisions regarding their investments in mortgage backed securities and CDO's and when these subprime loans went bad, they incurred loss. They incurred massive losses because they did stupid things and were acquired by other firms. The free market functioned correctly in this case. Stupidity wasn't rewarded, it was punished. But that's merely a symptom of the disease. The disease itself were the lenders originating these subprime and adjustable rate mortgages because nearly 75% of them were backed Fannie and Freddie.

And yea, I realize the justification people like offer for government intervention is because of a market failure. Luckily we've been living with your policies for nearly an entire century and we've experienced no type of economic bliss.

Really, the US remains the second rate industrial power now it was before WWI, does it?

I wasn't referring to this, but if you want to talk about industrial growth why don't you look at the situation between China and America. While China is a politically communist country, their markets are much more free than the markets in the United States. By any measure, they are about to surpass us when it comes to industrial growth. Are you starting to see a pattern here Abraxas? Places that operate under a framework of free markets tend to experience more economic growth and development than those places subject to government control and tyranny.

Just look at history Abraxas, government intervention hasn't leveled out the business cycle,

True, but neither has deregulation.

If you had ever cared to glance at the economic history of America, you would realize this is wrong. Prior to the creation of the Federal Reserve, one of the most significant government interventions in the economy, there were no depressions or recessions. There were panics, and they were panics because the initial downward plunge in the economy was dealt with in a relatively free market fashion. I'll go out on a limb and guess that you've never heard of the Panic of 1819. It was one of Americas first major crisis, and it was dealt in a free market fashion, and it was shortlived. Remember the Great Depression? It began with a Stock Market crash, and since you are apparently a staunch supporter of using empirical analysis, had the crash been dealt with in the same way the Panic of 1819 was dealt with, we would have seen the same results. A short lived economic panic. Instead of adhering to empirical analysis, we did unconventional things. Not only did we have the Federal Reserve intervening monetarily, we have the government intervene in the form of a tariff designed to combat unemployment after the crash. The tariff passed, and despite it's purpose to reduce unemployment, unemployment rose. Then of course we have this thing called the New Deal that prolonged it drastically.

hasn't increased the standard of living

Really, we have the same standard of living now as a hundred years ago? GI Bill shows this one wrong too.

You misread me. The standard of living has increased, but the increase can't be attributed to government intervention. The standard of living has increased despite of government intervention. I don't even know why you're bringing up the GI bill. What's that supposed to prove? That people who put their lives on hold to defend this country should recieve government assistance to get back on their feet once the combat has ended? I don't see a problem with that.

hasn't reduced trade deficits

True, but deregulation made them worse.

Well I and many other people don't think trade deficits are much of a problem. Only the protectionist crowds, who push for tariffs and quotas, do and based on the track record trade deficits haven't been reduced. I mean, if I could only cite only one example of where government fails it would be international trade and the international economy overall. Fixed exchange rates, tariffs and managed trade are all failed government interventions in this sector of the economy.

What specifically about Austrian economics has been discredited? You're confusing a 'discredited' theory with a 'heterodox' theory. Austrian economics is heterodox because liberals and keynesians have a monopoly on academia and marginalize individuals with opposing viewpoints. Redistributionism, especially on the scale you want, has been discredited every time it is implemented in a society. Yet people like you want to keep trying it despite the fact that every time it has been tried the result is failure and misery. This is called insanity.

No, it is heterodox because it falls outside conventional beliefs.

Yea, you know why it falls outside the conventional beliefs? Because the so called 'conventional belief' is dominated by a different worldview. You can't say a belief is wrong because the majority of people don't share it. As much as I hate to say it, you're committing a classic ad populum fallacy.

It is discredited because it dogmatically rejects any kind of empirical analysis of the facts in favor of verbal arguments and praxeology, which at the most basic level in practice is making things up as one goes along.

Um all of economics, all of the social sciences as a matter of fact, is based upon praxeology. The basic axiom is that under certain conditions, rational human beings will behave in a predictable and uniform way. You see Abraxas, this is where I get the feeling that you're a hard left socialist. You're not making an argument in favor of keynesianism. Keynesianism is merely a philosophical economic belief that expenditures drives the economy, but it is still based upon the fundamental social science axiom. You're making an argument in favor of socialism and government control of markets and human behavior which is itself heterodox because it rejects the basic principle of the social sciences, praxeology.

How? By restricting the freedoms of people who are successful? By having the government dictate to them what they can and can't do with their own money?

No more so than when we pass any other law determining what is and is not acceptable to us as a people, what is and is not fair play in our society. Law is by definition giving up some freedom for order and civilization, and if the rich can't handle being part of that civilization, they can lose access to the mechanism that civilization created and maintained that allows them to maintain their wealth in the first place. Taxes are not punishment, they are the fair allocation of resources necessary to maintain the overall structure of society and if certain segments are not willing to pay their fair share, society reserves the right to use legal measures to retrieve those resources.

If you're going to appeal to the 'Law', I suggest you read a book called The Law which demolishes your argument. If you're suggesting that individuals are free to take the life of another individual, or do things that inhibit the liberty of another individual, or break a contract, then you're wrong. According to the libertarian maxim, one is not free to do things that inhibit the freedom of others. Law doesn't force people to give up freedom, law by definition defends people's freedoms, rights and liberties. Laws are merely the mode of operation by which a government exercises it's power, and the only power a government has is the defense of life (Criminal Law) liberty (Constitutional Law) and property (Contract Law). Tax law can be seen as a type of law that is necessary and property for the government to impose in order to enforce the other laws.

Example two of your arguments against the EPA in the one on one thread. The example you cited of excess government regulation was this:

http://www.seolawfirm.com/2011/05/flori ... verglades/

Government failed to bring it back while it was being fought by the regional large businesses so they could continue polluting. This was your best shot about how the EPA was unnecessary, yours. When that is your example for how the EPA is unnecessary, because it stops Big Sugar from pumping the Everglades full of mercury, I consider the case closed.

Look through our debate again. The only argument I lodged specifically against the EPA was regarding the air quality in NYC after 9/11. The case of the Florida everglades is an example general government incompetence. The reason why the law is being litigated in the first place is because the intiatives are doing nothing to restore the ecosystem, they are merely impeding economic growth.

[BillC]

My last post re. election manipulation got lost somewhere in the ether.

But I keep hearing that Ron Paul is "irrelevant" and a vote for him is "wasted". The theory (and its probably true ) is that a vote for Paul is one less vote for Romney or whoever the Rep. candidate is. I'm no Romney supporter and even less of an Obama supporter - as a matter of fact I have changed my party registration to Independent.

The point is our country is going to hell in a handbasket financially and only Paul has the guts to actually deal with the issue. The Reps and Dems just have to stop buying votes from unions, minorities, big business and thus assuring that the insanity continues whoever is in power.

Listen to Paul. Ask if he makes sense in today's environment. Ask if the others are really ready and willing to make the hard choices in terms of entitlements, military, foreign aid,etc. If your answers are positive vote for him - two things might happen:
1- He gets elected and the country begins to turn around. And that turnaround can actually be the revolution that was asked about.
2- He doesn't get elected and Frick or Frack say the country has spoken. Back to business as usual. The revolution becomes more of probability.

[Alueshen]

I think I've come into the debate a little late to address the debaters so I'll just make a few general comments...

FACT: More money is being funneled to the upper class (the top 1%) then ever before.

The idea of the "invisible hand" (a term use to describe the self-regulating nature of the marketplace) has been corrupted by self-interest. Interests that serve a few individuals at a substantial negative cost to many others and the economic "experts" within our Government who's duty it is to create a better financial system for our nation are often former members of the very same financial institutions, or have been paid enormous sums by the very same institutions that we're allowed to run free and caused the economic crisis we're in today...

Now derivatives and speculation, a legalized form of corporate gambling, where an investment firm can hedge bets against derivatives they are selling their customers. Then we can watch industry lobbyists tell us to our faces they don't see conflicts of interest.

In America corporations are playing hot potato with high risk investments as they pass it around until the bomb explodes and the government deems the repercussions of the bad decisions to be so great as to make the governemnt use tax dollars to solve the problem ....Another epidemic is naked short selling that counterfeits stock allowing brokers to profit without actually doing anything meaningful. Short selling (stock) for those who aren't familiar....

It's the same as pulling up to a gas station in a tanker truck, pumping 10,000 gallons of gas (at a value of $3 per gal) and paying with an IOU that looks just like a real dollar and holding on to the gas and selling it later when it goes up in price ($3.50). Then in the best cases, the seller slips the real bills ($30,000) back into the register (where he took the gas) and takes the fake bills back....Keeping his profit ($5,000)...
The worst case, he just lets those fake bills (that can't be identified as fake) sit in the register and keeps all $35,000. This devalues all the bills in circulation, but unlike money, stock is backed by a real tangible asset. If there is more stock then tangible asset, then someone is going to get "shorted" at some point, not to mention it dilutes the value of all the other stocks in circulation.


the top 1% now control (38%-42%)....You can't have great concentrations of wealth at one end of the scale and have democracy.....

The top 1% use that money to buy influence. That influence corrupts our system to the point that the government is willing to borrow money to prevent natural cycles of failure. The failure to regulate derivatives (which arguably was the vehicle for the global economic crash) or investigate illegal short selling because doing so might uncover that as much as 37% of the stock on the stock market is counterfeit and would lead to decreased investor confidence and another crash of our financial system...

Paul, for all his misgivings, seems to me to be the most genuine....

I agree with some of the things Paul says....And others I don't, overall I think he's the most genuine candidate out there, and for that I think he is, at the very least, relevant, I know he has my attention....
.

[Abraxas]

The only thing that confuses me is how you can say big business doesn't poor large amounts of money into local races or that there isn't a lot of regulation at the state level.

I only said it because it's true. All you have to do is ask yourself the question Why do corporations make political donations? Because the people they donate to are politicians who have control over matters such as the level they'll be taxed at and the level they'll be regulated at. Corporations have no interest in state politics because state governments have very little power over them. Did you miss the part in my last post where I said that businesses can move from state to state? There is nothing that forces a company to remain in one particular state. We see the same thing happening at the federal level, where many companies are moving operations abroad to avoid to avoid federal regulations and taxes.

Sure, there isn't as much local regulation as federal, but that is because when you already have federal regulations it would be kind of redundant. If there already exists satisfactory air pollution or water pollution standards being enforced nationally, I don't need a second set of laws.

Ok then, I agree. This supports what I'm saying though, that corporations have no interest in state politics.

Remove the federal regulations, see state and local return. There are, however, substantial subsidies handed out on the local and state level.

Alright, I see what you're saying now. My argument against this would be what I said above. You yourself mentioned it in our head to head debate. Remember race to the bottom? States want businesses to come into their borders and do business on their soil. Where is a business most likely to go? A state that puts heavy environmental and financial regulations on them, and imposes a high tax on them? Or a state with little to no regulations and a low tax? The fact that states compete with eachother for business pretty much means that they won't impose regulations or taxes on business. So, back to the original point, if you want big business out of the federal government, get the government out of big business. The state and local government objection you raised is a non-issue.

Firstly, let me point out you completely ignored the evidence provided showing they do in fact contribute a lot of money to races for governor around the country. I provided multiple links showing they in fact pay in millions of dollars to these local races, how you can now claim further that they don't contribute to local races is simple denial of reality and nothing else. You are aware it happens, I put the numbers in front of you, if you choose to continue to pretend it never happened, I can only provide my thanks for allowing me to differentiate myself from you by me being on the side that doesn't ignore reality. I'd simply like to point out, again, that when your worldview requires the explicit rejection of evidence, there might be an issue with your worldview.

Secondly, you completely failed to address subsidies which are, in fact, numerous and frequent at the local level.

Thirdly, a race to the bottom is a bad thing. What it ends up being is a match between states to see who can cut protections for workers and for the environment and the services that tax money fund more quickly. We've seen situations like this before, they result in a profoundly damaged society. They get in the way of doing things like breathing or being able to drink water that is not poisonous or not being killed by faulty machinery at work. The reason we have national standards is explicitly to prevent a race to the bottom, to prevent employers from being able to have states compete by creating ever lower standards of living between one another to produce the cheapest, most desperate labor they possibly can.

You should probably stop with the analogies, they're clearly not your strongpoint. An apt analogy would be removing teacher supervision from the playground. If there were no teacher supervision (aka: Government) then if the kids (aka: Big Business) got hurt they wouldn't have anyone there to slap a bandaid on their sore. They would have to deal with it themselves.

While I consider my analogy both on point and accurate, fine, in the effort to find some common ground, let's use yours. What happens when you get a bunch of vicious children together in one place with only minimal adult supervision?

http://www.gainesville.com/article/2012 ... /120129629

There might be a reason most school playgrounds have teacher supervision; just a thought.

What's your point?

My point is we have rules for a reason, in that people don't always play nice and are often willing to use their power to hurt others.

The market is a little bit more sophisticated than your conception of it. I don't know what you're referring to exactly, but (1) companies are constantly being merged and acquired by other companies,

True.

(2) in a free market monopolies don't exist and

In a free market, monopolies don't exist. Well, except when you buy up all the natural resources required to operate in the sector (land with oil, timber, rare minerals, etc.) But other than that. Well, except for those cases where they patent the technology necessary to compete, or the processes. Or when they hold an industry standard they can easily manipulate to be incompattible with competitors (Microsoft Windows). Or if they can afford to hire lawyers to litigate potential rivals out of existence. Or if they were to control enough infrastructure so as to be able to prevent anyone outside their product from being able to get anywhere (early railroads, Ma Bell). But apart from the sanitation, the medicine, education, viniculture, public order, irrigation, roads, the fresh-water system, and public health, what have the Romans ever done for us?

Wait, what was I saying?

(3) predatory pricing doesn't exist.

Sometimes it does, if there are high enough natural market barriers it can be more efficient to price the competitor out of the market quickly than deal with them over a long term basis. Any kind of capital intensive industry is vulnerable to this, provided the monopoly has the assets on hand to scoop up the leftovers of the fallen would be competitor. Certainly this is unusual, but not unheard of. Plus, if you can convince any potential market competition you will do anything to destroy them by making a couple early examples, you can make potential competitors look to easier market sectors.

There you go Abraxas, I struck out everything that is irrelevant and underlined everything that is relevant. Do you know who should actually care about employment conditions and median wages? The employees of that company, not the consumers. If I'm looking for a new car, why should I give a damn about the working conditions of the car manufacturers and how much they're paid? As a consumer, that is totally irrelevant to me.

Which is why you and consumers like you are the reason a free market could never work.

Why do consumers need to know these things? You've made absolutely no logical case as to why consumers should care about the environment or working conditions or trade practices.

Firstly, what business of yours is it why I feel I need to know things before making a purchase? If the name of the dog of the person who tightened the last screw on the widget is important to me, who are you, in a free market, to tell me I shouldn't make my purchasing decisions that way?

Secondly, as a consumer, I want to know my money is being directed to companies with whom I don't mind sharing this planet. If a company pollutes the air I breath and the water I drink, or abuses my fellow human beings, or investing in places that does the same, the last thing I want to do is provide them funding to keep doing that. If they are engaged in unethical business practices, I feel as a consumer I should know, so I can stop supporting them, even if they are a bit more convenient or durable. Further, trade practices are especially important to know for any company I might need for any kind of long term arrangement. If the company that built my computer went all in with their assets on Uncle Tim's Shady Auto Dealership, that could be incredibly detrimental to me if I need technical support or a replacement in a month, or six months, or a year.

Pretty much by your own admission here, you don't care if sweatshop labor in dangerous, exploitative conditions, or even slave labor for that matter were used, so long as you get a cheap, durable, convenient product.

Well let's say that a company actually did engage in these types of things. How do you figure consumers would find out about it? Would the company advertise the fact that they use dangerous sweatshop labor and treat their workers like garbage? No. Would the government force the company to make this information available? No, because if the government found out they would intervene due to so called 'labor laws.'

Yes, that's the point. They would put a stop to the bad practice. This is a good thing, this is the kind of thing we want to see happen. Take a step back for a moment and look at your argument. You just said in front of me, the audience, and Mod that a free market society is better because in a free market you won't know about bad things and with government regulation those bad things wouldn't even exist. Think about that for a moment.

Only among the fantasies of the right wing. The fact is drilling in places like ANWR would change the price of oil by less than 1% in all probability, 1.2% even at the most generous estimates. Saving Americans two bits at the pump isn't going to ease their pain. As for oil ventures abroad, we are conducting those anyway so you can't say opposition to them impacts the price of oil.

Right, I mean it's not like the United States has the fifthteenth largest amount of oil reserves in the world.

14th, actually, if you look at estimated reserves, but that is beside the point. The point is, first of all, at the rate we are pumping, our entire oil reserve is going to be completely gone within ten years and it isn't coming back. Secondly, even ignoring that our oil is almost gone, the gap between the top countries and the bottom is titanic. Even at 14th on the list, we still control only 1.465 percent of the entire oil supply in the world. With that small of a supply, how much effect do you really think it would have on prices?

And while expanding the supply of oil would bring down prices, that wasn't my point. You wrongly assume that consumers care about the environment, share your opinion that industrial growth should be limited to preserve ecosystems and believe that industries should avoid manufacturing methods that cause the environment harm. Unlike you, I care more about humanity than the environment. Corporate expansion means more jobs for people despite the fact that a rainforest might have to be burned down, I care about employing people than the rainforests. Fully utilizing our domestic oil supplies would bring down oil prices which would make life easier for many Americans, I care more about that than potential oil catastrophes that environmentalists are obsessed about. I mean, I'm sure you're overjoyed to see the huge spike in gas prices within the recent weeks Abraxas, but the rest of society isn't.

I'm rather indifferent on the topic, honestly. I'm more concerned with the rising cost of food.

I will say, however, you cannot care about people while not caring about the environment. The two are inseparable, and, until we have Star Trek level technology, they forever will be. People require air to breathe, when that air is polluted, they die. People require water to drink, when that water is contaminated, they die. People require soil to plant crops, when that soil is depleted, they die. When the environment is damaged, the people who live in that environment are damaged. Further, there is only so much damage that can be done to a planet and still have it suitable to host large populations of humans and right now are inflicting damage far more quickly than it can recover. The free market will doom the species if left unregulated and allowed to continue expanding without regard for the long term ramifications as you and those like you would allow it to do. If you care about people, as you so dramatically put it, you would care about making sure we have a planet that people can live on.

Answer my question. How does the government know what consumers need to make informed choices?

Through democratic governance. If people need more information they can petition the government to pass a law, pass a ballot initiative themselves, or elect representatives to deal with inadequate information. More information is always better for meeting the wants and needs of the consumer.

First of all, how many people are there are petitioning the government for the disclosure of the types of information you put up? You know, stuff like work conditions, or median wages, or the profits earned by the company, or whether they're trading ethically?

A lot of that stuff they already legally have to disclose.

Second of all, Congress doesn't regulate anything. Specific government bureaus and agencies do. They are not accountable to the people in the same way Congress is. If consumers want a specific thing, whether it be information or something else, they can demand it without going through government. Remember when banks were going to start charging us for the use of debit cards? Where was the government in that situation? I didn't see people rallying Congress for a new law to prohibit these fees. The people expressed demand to the bank directly and guess what, the banks backed off this incredibly unpopular idea.

Firstly, what Congress regulates is a contingent feature of our society and subject to change. Secondly, using your example, I'd like to point out there were a lot of calls to and threats of government action being used against BoA. Certainly consumer power carried the day, but let us not forget what tools they were using when they did it. Further, it was only because of regulation they disclosed the fee to begin with.

If the rich didn't get a return on their investment, what incentive would they have to invest in the first place? Any new wealth that is generated is reinvested and the cycle continues. If I invest my money, that money is circulated throughout the economy and creates wealth for both myself and others. Your complaint isn't justified.

"And others" is precisely the problem. The wealth is not created for others, others get enough to not die between now and their next shift while the owners of the capital take all the surplus profits. It is not in the interests of the wealthy to create other investors to compete with them nor is it in their interests to get anything less than the maximum amount of wealth produced to them. This is why wealth never really trickles down but simply multiplies at the top.

Really? Why do you think there are things called pay raises?

And how often do pay raises push someone from working class to investing class? Approximately never, right?

The fact is when profits and wealth are created for the executives of a corporation, the workers of that corporation also share in the wealth creation through things like bonuses, pay raises and benefits.

Or not, when they don't. Once more your point would be better received if real wages had not remained stagnant while corporate profits continue to soar. That we actually track this kind of thing and have statistics on it rather undercuts your claim.

You're obviously not looking at any objective data because a profit seeking, deregulated lending institution would never engage in subprime financing. Subprime loans, Adjustable Rate loans and No Income, Assets or Job Loans would have never occured in a deregulated housing market because the borrowers these loans were targeted at would have been rejected prima facie. Legislation such as the Community Reinvestment Act destroyed any standard of lending banks adhered to and coerced them to lend to unworthy borrowers. And along with that you have these high risk loans being traded in for securities by Fannie and Freddie which nationalized the problem. The boom in housing prices wasn't a nationwide occurence, it was concentrated in places like California and Florida and the bust would have remained confined in those areas had the banks kept the loans.

Well, it is becoming increasingly clear you haven't read any objective data. Engaging in risky subprime lending is exactly what they would do and exactly what they, in fact, did. If one were to, in fact, look at objective data regarding the crisis, they would not say things like "the CRA coerced them to lend to risky borrowers", but rather things like:

"An analysis by the Federal Reserve Bank of Dallas in 2009 concluded unequivocally that the CRA was not responsible for the mortgage loan crisis, pointing out that CRA rules have been in place since 1995 whereas the poor lending emerged only a decade later.[39]

Considering the federal reserve was itself a culprit, this isn't objective data.

Whether the federal reserve was a "culprit" or not does not change whether the data is objective. Once more, if your world view requires you to dismiss data, you might have a problem with your worldview.

And your sources point regarding the CRA is absolutely idiotic because the CRA did not become law in 1995, it became law in 1977, and since then it has undergone thousands of changes nearly every other year.

So? That it became law in 1977 doesn't mean it couldn't have had changes in how it operated or was applied in 1995. And guess what? The CRA was, in fact, amended in the mid 90s.

The legislation itself gained actual teeth in the early 2000s, which is when lending standards became irrelevant because an adherence to lending standards would have undermined the purpose of the CRA, which was to encourage home ownership amoung minorities and impoverished individuals.

And yet an objective analysis found this had nothing to do with the crash. Imagine that.

Further, an objective analysis would not blame Fannie and Freddie for the crisis, instead, they might observe things like:

"Some long-time critics of government and the GSEs, like American Enterprise Institute fellow Peter J. Wallison,[30] claim that the roots of the crisis can be traced directly to risky lending by government sponsored entities Fannie Mae and Freddie Mac. Although Wallison's claims have received widespread attention in the media and by policy makers, the majority report of the Financial Crisis Inquiry Commission, several studies by Federal Reserve Economists, and the work of independent scholars suggest that Wallison's claims are not supported by data.[6] In fact, the GSEs loans performed far better than loans securitized by private investment banks, and even then loans originated by institutions that held loans in their portfolios.[6] On the whole, the GSEs appear to have had a conservative influence on mortgage underwriting.

Wallison has been widely criticized for attempting to politicize the investigation of the Financial Crisis Inquiry Commission, and his critics include fellow Republican Commissioners.[31]" or "However, in 2011, the Federal Reserve, using statistical comparisons of geographic regions which were and were not subject to GSE regulations finds that GSEs played no significant role in the subprime crisis.[53]"

75% of mortgages were securitized by the GSE's Fannie and Freddie, not private investement banks. You can't say the bubble was caused by a moral hazard created by private investment banks because private investment banks securitized only a small portion of the loans.

75% of mortgages, maybe, but of the subprime mortgages they held a much smaller share. They weren't the ones originating the risky loans, those were, in fact created by private investment banks trying to gain market share.

What they might also say is that a lack of regulation and deliberate fraud and predatory lending by financial institutions did cause the crisis, the very things that would become more prevalent under a market without regulators and without regulations. Did moral hazards play a role? Sure. Were they enabling, or even driving in the crisis? No. We have seen banks and businesses engage in this kind of behavior even without the safety nets created by the government, as with the Enron collapse. Thing of it is, businesses lie to themselves all the time, they justify taking risks because they figure, if they can just get through the quarter or get through the next project, or the next merger they can balance the books right again, but unless they take this one risky customer, or implement this one risky policy, they will lose market share and it will prevent them from getting on the right side again. They do what is expedient, they do what will look good for investors, they do what helps them play the financial game until they are in well past the lines of good judgment and sound business practice.

The fact that you would say this pretty much shows you don't have an adequate understand of what a free market is, or what moral harzards are. But most importantly, what you don't get is that there was no lack of regulation. Just because Glass-Steagal and Commodity Futures Modernizations is repealed does not mean the industry has been deregulated. I'll repeat this for the last time. Subprime mortgages, NINJA loans, ARMs and the like contain a higher amount of risk than an average loan. In a free market governed by Profit and Loss, there would not have been an excessive amount of subprime lending. The only reason why there was an excessive amount of subprime lending is because banks were pressured by politicians, who encouraged homeownership, to make owning a home more affordable. This came in the form of the CRA and other dumb laws like the American Dream Downpayment Assistance Act. So that's the first part. The second part has to do with securitization. These loans were securitized mostly by Fannie and Freddie, and yea, some were securitized by investment banks and turned over into CDS that ultimately led to the financial crisis. That doesn't matter though, had the government not interfered in the housing market there would have been no housing bubble and ergo, no financial crisis.

I'm sorry, but repeating profoundly ignorant statements that ignore evidence and reality does not make them true. I never said it was completely deregulated, just deregulated. The rules were loosened and in loosening them, the financial institutions were allowed to engage in behavior they were never allowed to before. It was at this point they started making risky loans because they were in a large untapped market with high potential profit if they paid off. Nothing required them to make the loans, certainly not at subprime rates. They chose to and chose to freely.

I'll post here what Sheila Bair had to say about it. "Let me ask you: where in the CRA does it say: make loans to people who can't afford to repay? No-where! And the fact is, the lending practices that are causing problems today were driven by a desire for market share and revenue growth ... pure and simple." Or, how about Randall Kroszner, "First, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA-related loans appear to perform comparably to other types of subprime loans. Taken together… we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis. Only 6% of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas, the local geographies that are the primary focus for CRA evaluation purposes." Oh, and one more point, per Wikipedia, "A study, by a legal firm which counsels financial services entities on Community Reinvestment Act compliance, found that CRA-covered institutions were less likely to make subprime loans (only 20-25% of all subprime loans), and when they did the interest rates were lower. The banks were half as likely to resell the loans to other parties."

The effect of politicians encouraging home ownership was minimal at worst. If it was a poor business decision, the banks were under no obligation to comply. Further, every study done by anyone remotely credible on this has shown government regulation was not a significant factor in the crisis and indeed removing government regulation was. I have provided links, I have provided sources, and all you have provided is talking points borrowed from right wing think tanks like CATO that have demonstrated they much prefer ideology to reality. Where's your evidence?

Oh wow. Do you what determines the prime interest rate (the rate at which consumers borrow from banks)? The federal funds rate (the rate at which banks borrow from eachother).

Incorrect. The prime interest rates are set individually by each bank, now, most will set it at approximately 300 points higher than the fed rate, the official prime rate being set by the WSJ when 70% of bank assets agree on at least a certain percent. More to the point, however, this is all irrelevant because, guess what, most lenders can't get the prime rate, they get a rate tailored by the bank to their specific risk level.

Please stop saying things a minute and a half on Wikipedia can show to be wrong.

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

Please start saying things that are true. How do you follow the news if you actually believe the stuff you're writing? When people say the fed controls interest rates, they're ultimately talking about the rate consumer banks charge for loans. However, the fed has absolutely no power over the prime rate of interest. They don't control that. They control the federal funds rate, which ultimately determines the prime interest rate. You said that the prime rate is set 300 points above the federal funds rate. Do you even know what that means? It means that the prime rate is directly tied to the federal funds rate. If the federal funds rate was changed from 8% to 6%, the prime rate wouldn't just stay the same. The prime rate would be adjusted to the change in the federal funds rate at a 300 point difference.

Do you know why the prime is set 300 points above the fed? Is it because of a law, a regulation, a government mandate? No, it is because that is what the banks CHOOSE to set it at. They could set it 500 points higher, they could set it 100 points higher, they could set it even or lower. The Fed rate determines the prime rate in the same sense your financial adviser controls your investments, they offer a suggestion you can take or leave at your choosing.

Banks had the option to not make risky loans even when it was easy for them to borrow money. Funny, how agents of a free market have free will and are responsible for their own choices, but the moment they can borrow money more easily they are absolved of all responsibility for their actions.

Banks and other actors and agents in the economy behave according to their environments. Interest rates, which is merely the price of a loan, were pushed and held at all time lows leading up to the bubble. That's why we saw housing prices rise, because the low interest rates made it more attractive to take out mortgages. The arbitrary control the federal reserve has over interest rates is a government regulation, although it may be indirect.

It isn't a regulation because banks are under no obligation to go along with it. Further, you completely missed the point. The point was the banks did not have to offer loans, and did not have to offer them below the prime rate. They CHOSE to, and chose to freely.

Let's be clear here, just because you can throw up a vague article from wikipedia doesn't mean you're right. Prior to the bubble in housing, we had liberals and keynesians like Barney Frank, Ben Bernanke, Alan Greenspan and the like shrugging off any concerns about the stability of housing prices. Here, we have the loner Ron Paul and a handful of other Free Market Economists warning that there would be a bubble. There are these things called economic indicators and because of the mindset Greenspan and Frank were set in, they disregarded the indicators.

Yes, Greenspan and Frank being part of that mainstream we talked about earlier, not relevant. Further, neither was my article vague, and your quick jump to dismiss evidence that disagrees with your position should serve as a warning to you you are wrong. Going down the list of economists that predicted it, we have:

Dean Baker - Post-Keynesian School
Wynne Godley - Unclear
Fred Harrison - Georgeist
Michael Hudson - Post Keynesian School
Eric Janszen - Unclear
Steve Keen - Post Keynesian School
Jakob Brøchner Madsen - Unclear
Jens Kjaer Sørensen - Unclear
Kurt Richebächer - Austrian
Nouriel Roubini - Neo Keynesian
Peter Schiff - Austrian
Robert Shiller - Neo Keynesian

Further, I was able to find at least two Post-Marxists, Cesar Ugo and Nick Beams who also predicted the collapse. You can reject the evidence all you like, but the fact is reality holds that you are absolutely wrong in your assertion that only the Austrians predicted the collapse.

Alright, I'll give you that point. It wasn't only austrians who predicted the collapse. But look down your list of economists and tell me the reasoning behind each prediction? What factors did people like Robert Shiller and Dean Baker consider when making their prediction? What did they base their prediction on? The reasoning behind austrian economists like Peter Schiff and Ron Paul was very simple: easy credit, low interest rates, moral hazards and the GSE's Fannie and Freddie. They realized that because of a combination of these unhealthy factors home prices would fall and delinquency rates would rise. My point was that it would be impossible for someone such as Frank and Greenspan, who didn't adhere to teh austrian worldview, who didn't see the fed or F&F as a culprit, to predict the collapse.

Well, we can look up their articles and find out. Keen held there was too much borrowing in general, Shiller and Baker seemed to base their predictions out of stock prices inflating wildly beyond earnings, Harrison has an 18 year cycle theory based on using real estate as a market driver, Hudson made his prediction based on the inflation rate being too low, Roubini made his prediction on there being no reason for housing prices to increase at the rate they were increasing which lead him to the conclusion it was a bubble, Cesar Uco made his predictions on the basis of increasing housing prices but stagnant payment rates for borrowers. Turns out there were lots of reasons, real or imagined, to predict the crisis.

This is the type of thing I'm talking about. You are gradually destroying your credibility by arguing against textbook facts. The risk is shared by the lender and the consumer. If there were no government insurance, the consumer would face a risk every time he or she put money into his deposit account and the bank would face a risk every time it issues out loans.

Would you put down the strawman for a moment and come over to the argument I'm actually making? I never said anything about the consumer not having risk when they make a deposit. Never said anything. You damage your credibility when you continually hurl your spears into claims that exist nowhere outside your distortions of my remarks.

You know what, I said the risk is shared by both the lender and the consumer, and the FDIC eliminates the risk for both the lender and the consumer. This isn't a strawman I've made up, this is the fact that you keep denying. My only advice for you would be to go look up what moral hazards are.

I know what moral hazards are, you seem to think it is a word for "magic libertarianism validating argument" because how you are using the phrase seems to have no relevance to what it means. It means by offsetting the consequence of loss you encourage behavior that creates a risk in creating a loss. However, because the bank incurs the same possibility of loss with or without the FDIC, the FDIC is not a moral hazard for banks. In no way does the FDIC eliminate the risk to lenders.

You've managed to get at least one thing right in this thread, and that is the fact that the market is fueled by profits. Sadly, you ignore the other half of the equation. The drive for profits is tempered by the fear of losses. This isn't a profit system, it's a profit and loss system. You cannot have one without the other and hope to maintain stability. Banks are for profit institutions and they generate profits by providing a particular service, primarily financial loans. And just as any other for profit institution, they want to maximize profits and minimize losses. The FDIC doesn't simply mitigate the magnitude of losses, it completely eliminates the possibility of losses on the part of a bank.

Wrong. Wrong, wrong, wrong. Once again, Econ 101, ground floor banking, the bank incurs the same debt either way. This is because if a bank were ever to have to use the FDIC, the FDIC reserves the right to seize the assets of the banks to sell off to recover the loss. The FDIC in no way, shape, or form mitigates the chance of loss from the bank. It only mitigates the loss from consumers.

Here's the problem. Let's say you're actually right, and you're not by the way, but let's just say you are. If you're right, we'd have to go back and rewrite modern economic theory because modern economics has always associated a moral hazard with the FDIC. Have you looked at an econ text? I own several, and in the section of the book that discusses moral hazards the FDIC is used as a common example. Are the authors of these texts wrong when they say the FDIC fosters a moral hazard amoung the banking sector? If you're right that the FDIC does not mitigate losses or insulate banks from risks, then why are moral hazards constantly assocaited with the FDIC?

Probably because those texts are based on how the FDIC operated 30 years ago instead of today that does things like risk based pricing to banks and liquidates bank assets to pay off debts should they need to?

For you to say that the risk by the lender is unchanged just shows how wrong you are about this entire thing. Not only does the mere existence of the FDIC cause banks to behave differently then they would otherwise, there are these things called bank failures that are a consequence of this behavior. An interesting fact that you ought to know is that we have experienced long term recessions and depressions ever since the creation of the federal reserve and the enactment of financial regulatory legislation and institutions such as the FDIC.

Really? We've had recessions and depressions the entire time since all the way back then? I must be really misremembering the 90s then. The 50s probably never happened either.

You're the one who's attacking strawmen now Abraxas. I never said we've had recessions and depressions for the entire time period after the fed. I've said we've experienced long term recessions and depressions, and these plunges in the economy have been far more severe than they were prior to the creation of the fed.

You said "ever since", which does, in fact, mean the entire time since. Also, you are just plain wrong even with your clarification. The bank panics of the 1800s and early 1900s were much more severe, given the relative size of the economy. As I mentioned earlier, which you quickly omitted from the material you quoted, many of the bank panics did things like halve the value of the stock market. Even the worst declines never came close to that since the creation of the Fed, including the Great Depression.

Interesting, then that both the Fed and the FDIC were created in response to economic crises of various sorts, and that there were all kinds of economic crises before their creation too. What evidence do you have to support either the Fed or the FDIC have had any influence in either causing or prolonging economic downturns or that they have become significantly worse since their creation?

Have you read anything about the Great Depression? The mainstream consensus is that the depression was the result of an inept fed. The very basic function of the fed to is to act as a last resort lender to banks, and that is exactly what the fed did not do during the depression. The fed was created in order to prevent bank failures, the rate of private bank failures increases after the inception of the fed, and as people are running on the banks in the early 1930's the fed does absolutely nothing. Once again, the government creates an environment that encourages banks to fail because of an explicit gurantee, because of this gurantee the rate of bank failures increases and the fed who is tasked with lending to banks doesn't.

So in other words, no evidence, just more unsupported assertion.

Also, if you gather that there is consensus the Fed is the cause of the Great Depression, you need to expand your reading list to include things other than Austrian School propaganda. Even among those who held the Fed had a role, most still think the Fed is necessary, just that they made poor decisions. For the most part, the Fed did prevent bank failures, if you look at the failure rate of banks over time, the only reason the post Fed period slightly edges out the pre-Fed period is because the period between 1978 and 1994 during the savings and loan crisis when non-banking institutions, Thrifts, started lending like banks due to deregulation. With the one exception of the Great Depression and the most recent crisis, the number of bank failures in the US has been essentially flat since the creation of the FDIC and Fed.

http://www.bankrate.com/financing/banki ... ure-spike/

On the other hand, prior to it, there were large spikes every couple decades.

http://eh.net/encyclopedia/article/wick ... .panics.us

Oh really? Why would banks have to compete for deposits if all FDIC member deposits are insured? Consumers wouldn't care where they deposit their money at because the FDIC has poisioned the system. The idea of competition arises from consumers being able to choose between two things that are dissimilar. There is no difference between the Wells Fargo up my street or the Citibank down my street because both have their deposits insured. Wells Fargo has no incentive to gain a reputation.

Yes, I suppose banks all started giving away toasters because they felt the world was toast deficient.

???

Are you somehow operating under the impression that the riskiness of the lender is the only way banks compete for customers? Things like convenience, fee structures, service levels, perks, benefits, etc. no longer matter because of the FDIC? Do you actually believe this or do you merely feel obligated to say it out of dedication to your chosen economic model?

Of course those things matter. And unfortunately right now those things are all that matter. Consumers pick their banks based upon these vain factors you just outlined, they'll choose their bank based upon worthless issues like convenience, service and perks. Preferably, consumers should choose their bank because they believe the institution will reliably manage their money. Again, if you didn't have a government gurantee on nearly every single deposit account, depositors would flock to banks that have a good reputation with managing deposits. But because of deposit insruance consumers are totally indifferent and could care less where they deposit their money. Government insurance distorts this and essentially diverts money away from good, reputable firms to riskier firms.

On reputation, How do you expect this to workt? Can you point to one of the major financial institutions that failed in this crisis that didn't have a good reputation? Here's a news flash, your average consumer doesn't have clue one about how to properly risk assess banks, and, under your free market, they wouldn't have the information available if they wanted to even if they could. Of the people who lost everything in banks because the bank went under during a bank panic, do you think they deliberately chose a bank that was stretched too thin? Get real, the complexity of financial instruments has increased exponentially since even then when it was too complicated for your average consumer. Now even the industry regulators are having trouble because they have difficulty finding people capable of doing the level of math to actually determine what is taking place in the more esoteric financial vehicles.

This brings me way back to the earlier point you made, you already said you don't need to know their trading practices, you don't need to know what kind of market activity they engage in to make money, and in an unregulated market, they are under no obligation to tell you. How could you possibly know if the institution that holds your money is good or not without knowing these things? Once again, you have further undermined the possibility of a free market.

Well I was hoping you knew that banks are different than most other companies. They provide financial services. They provide credit, loans and savings. The way they operate as an institution requires them to do things that may or may not put your money in jeophardy. An auto company operates totally differently than a financial services company, so your argument is bogus.

On the contrary, nobody is forced to use a bank and so they only put your money at risk if you choose to let them. So, who gets to be in charge of who needs to know what for what purpose, now that you have abandoned libertarian principles in favor of government mandated control over what information banks must reveal?

Other than the name, there is no difference between the defunct FSLIC and the FDIC. The role they both hold, insuring bank deposits, created a moral hazard which resulted in the Savings and Loans crisis. There is no conceivable scenario in a free market where a bank would enage in risky lending practices.

And yet they did, and did so freely the moment the regulations that stopped them from doing so disappeared.

Because the market wasn't free. I don't know how to simplfy this any further for you. The S&L market was not free. The monetary control act along with the FDIC, the FSLIC at that time, were two huge regulatory behemoths in the room that caused the S&L crisis. The regulation of S&L market never 'disappeared', stop making things up.

I'm not making it up, I just seem to be the only in this conversation with more than a passing familiarity with the S&L crisis. The kinds of speculation that caused the crisis were expressly illegal until right before it, then they were legalized, then the thrifts went out and did them, then they promptly collapsed. Another definition for you, "simplify" does not mean "present factually wrong information".

There is an automatic fear of loss that deters this type of behavior, unfortunately government deposit insurance eliminates the possibility of any losses which results in risky and unethical practices which results in one crisis after another.

Before these thing we were already in one crisis after another. Have you done any reading at all on the history of economics? What precisely do you think the bank panics were?

What are you talking about? What's your point with bringing up bank panics?

That our financial system was extremely unstable prior to the creation of the FDIC and Fed and so there were constant crises created by a lack of security in lending institutions. You are moving to go back to this.

As for eliminates the possibility of losses, how about you check with the Lehman Brothers, Merrill Lynch, and Wachovia and see if there exists a possibility of loss in a regulated market.

Fine. Let's look at Lehman Brothers, Merrill Lynch and Wachovia. First of all, they weren't regulated.

Right. That's the problem.

Second of all, all three of those firms collapsed because of subprime mortgages. Firms like Lehman Brothers made poor decisions regarding their investments in mortgage backed securities and CDO's and when these subprime loans went bad, they incurred loss. They incurred massive losses because they did stupid things and were acquired by other firms. The free market functioned correctly in this case. Stupidity wasn't rewarded, it was punished. But that's merely a symptom of the disease. The disease itself were the lenders originating these subprime and adjustable rate mortgages because nearly 75% of them were backed Fannie and Freddie.

I'll again ask for a source on the backing figures, but more than that, this is a big red herring. The point is and remains that you claimed the current environment eliminates the possibility of loss for lending institutions. I pointed out three industry titans that got taken out by losses that you claim couldn't have happened. Bottom line is your moral hazard argument is completely bogus, these companies can and do lose money and can and do make incredibly risky loans and bad decisions in the face of potential loss.

And yea, I realize the justification people like offer for government intervention is because of a market failure. Luckily we've been living with your policies for nearly an entire century and we've experienced no type of economic bliss.

Really, the US remains the second rate industrial power now it was before WWI, does it?

I wasn't referring to this, but if you want to talk about industrial growth why don't you look at the situation between China and America. While China is a politically communist country, their markets are much more free than the markets in the United States. By any measure, they are about to surpass us when it comes to industrial growth. Are you starting to see a pattern here Abraxas? Places that operate under a framework of free markets tend to experience more economic growth and development than those places subject to government control and tyranny.

Are you serious? China has one of the most protectionist economies on the planet, going after foreign competition and devaluing their currency to make it harder to import goods but easier to export them, constant government intervention and subsidy are also present. Further, they have a labor four times the size of the US, that we are ahead of them at all tells a lot. There is a reason they rank 91st down the ease of doing business list vs the US is 4. Are you seeing a pattern, that places where the government intervenes in the market can and do grow efficiently?

Just look at history Abraxas, government intervention hasn't leveled out the business cycle,

True, but neither has deregulation.

If you had ever cared to glance at the economic history of America, you would realize this is wrong. Prior to the creation of the Federal Reserve, one of the most significant government interventions in the economy, there were no depressions or recessions. There were panics, and they were panics because the initial downward plunge in the economy was dealt with in a relatively free market fashion. I'll go out on a limb and guess that you've never heard of the Panic of 1819. It was one of Americas first major crisis, and it was dealt in a free market fashion, and it was shortlived. Remember the Great Depression? It began with a Stock Market crash, and since you are apparently a staunch supporter of using empirical analysis, had the crash been dealt with in the same way the Panic of 1819 was dealt with, we would have seen the same results. A short lived economic panic. Instead of adhering to empirical analysis, we did unconventional things. Not only did we have the Federal Reserve intervening monetarily, we have the government intervene in the form of a tariff designed to combat unemployment after the crash. The tariff passed, and despite it's purpose to reduce unemployment, unemployment rose. Then of course we have this thing called the New Deal that prolonged it drastically.

The Great Depression wasn't even a remotely similar situation to the 1819 panic, which, by the way, lasted four years. Or the Panic of 1893 that caused a five year depression. Or the five year "Long Depression" from 1873-1878 before recovery began, one year longer than it took for things to start to turn around from the Great Depression. That you can sit there and claim we had no depressions and that they were extremely short lived before the FDIC and Fed just shows me you don't understand the history of US economics.

Also, to note, one bad policy does not invalidate the concept of government regulation.

hasn't increased the standard of living

Really, we have the same standard of living now as a hundred years ago? GI Bill shows this one wrong too.

You misread me. The standard of living has increased, but the increase can't be attributed to government intervention. The standard of living has increased despite of government intervention. I don't even know why you're bringing up the GI bill. What's that supposed to prove? That people who put their lives on hold to defend this country should recieve government assistance to get back on their feet once the combat has ended? I don't see a problem with that.[/quote] That massive government assistance raised an entire nation into the middle class through education and industry. We owe the existence of the middle class in America to the GI Bill which was an act of government acting on the market.

hasn't reduced trade deficits

True, but deregulation made them worse.

Well I and many other people don't think trade deficits are much of a problem. Only the protectionist crowds, who push for tariffs and quotas, do and based on the track record trade deficits haven't been reduced. I mean, if I could only cite only one example of where government fails it would be international trade and the international economy overall. Fixed exchange rates, tariffs and managed trade are all failed government interventions in this sector of the economy.[/QUOTE] Then why mention them?

What specifically about Austrian economics has been discredited? You're confusing a 'discredited' theory with a 'heterodox' theory. Austrian economics is heterodox because liberals and keynesians have a monopoly on academia and marginalize individuals with opposing viewpoints. Redistributionism, especially on the scale you want, has been discredited every time it is implemented in a society. Yet people like you want to keep trying it despite the fact that every time it has been tried the result is failure and misery. This is called insanity.

No, it is heterodox because it falls outside conventional beliefs.

Yea, you know why it falls outside the conventional beliefs? Because the so called 'conventional belief' is dominated by a different worldview. You can't say a belief is wrong because the majority of people don't share it. As much as I hate to say it, you're committing a classic ad populum fallacy.

I never did. I simply pointed out it was heterodox.

It is discredited because it dogmatically rejects any kind of empirical analysis of the facts in favor of verbal arguments and praxeology, which at the most basic level in practice is making things up as one goes along.

Um all of economics, all of the social sciences as a matter of fact, is based upon praxeology. The basic axiom is that under certain conditions, rational human beings will behave in a predictable and uniform way.

No, sorry, not the case. Most social sciences treat issues with empiricism, only Austrian economics actively uses praxeology, and indeed founds itself on it. The reason nobody else uses it is because it has no value, no use, no merit.

You see Abraxas, this is where I get the feeling that you're a hard left socialist. You're not making an argument in favor of keynesianism. Keynesianism is merely a philosophical economic belief that expenditures drives the economy, but it is still based upon the fundamental social science axiom. You're making an argument in favor of socialism and government control of markets and human behavior which is itself heterodox because it rejects the basic principle of the social sciences, praxeology.

Praxeology is not the basic principle of social sciences. See above.

How? By restricting the freedoms of people who are successful? By having the government dictate to them what they can and can't do with their own money?

No more so than when we pass any other law determining what is and is not acceptable to us as a people, what is and is not fair play in our society. Law is by definition giving up some freedom for order and civilization, and if the rich can't handle being part of that civilization, they can lose access to the mechanism that civilization created and maintained that allows them to maintain their wealth in the first place. Taxes are not punishment, they are the fair allocation of resources necessary to maintain the overall structure of society and if certain segments are not willing to pay their fair share, society reserves the right to use legal measures to retrieve those resources.

If you're going to appeal to the 'Law', I suggest you read a book called The Law which demolishes your argument. If you're suggesting that individuals are free to take the life of another individual, or do things that inhibit the liberty of another individual, or break a contract, then you're wrong. According to the libertarian maxim, one is not free to do things that inhibit the freedom of others. Law doesn't force people to give up freedom, law by definition defends people's freedoms, rights and liberties. Laws are merely the mode of operation by which a government exercises it's power, and the only power a government has is the defense of life (Criminal Law) liberty (Constitutional Law) and property (Contract Law). Tax law can be seen as a type of law that is necessary and property for the government to impose in order to enforce the other laws.

Get to the part where any portion of this is relevant to my argument about social contract.

In any case, in a state of nature, one has the right to kill or lie or whatever. In order to prevent these behaviors, we form societies that create laws which restrict our freedom. The Libertarian maxim is absurd and self contradictory, I have little interest in what it says. The fact is to have civilization is to sacrifice some freedom for order, if Libertarianism disputes this then it is all the more reason not to take it seriously.

Example two of your arguments against the EPA in the one on one thread. The example you cited of excess government regulation was this:

http://www.seolawfirm.com/2011/05/flori ... verglades/

Government failed to bring it back while it was being fought by the regional large businesses so they could continue polluting. This was your best shot about how the EPA was unnecessary, yours. When that is your example for how the EPA is unnecessary, because it stops Big Sugar from pumping the Everglades full of mercury, I consider the case closed.

Look through our debate again. The only argument I lodged specifically against the EPA was regarding the air quality in NYC after 9/11. The case of the Florida everglades is an example general government incompetence. The reason why the law is being litigated in the first place is because the intiatives are doing nothing to restore the ecosystem, they are merely impeding economic growth.

Except, as demonstrated, they were doing something and the economic growth would come at the cost of dumping mercury into public waterways.

[WinePusher]

I've been really busy with life the past few months so I don't know when I'll be able to respond to your entire post, but I did want to address this small section quickly. Also, I been working on our head to head a little bit every day but I really don't know when I'll be able to post up my next two posts. Like I said I've been really busy, sorry.

Um all of economics, all of the social sciences as a matter of fact, is based upon praxeology. The basic axiom is that under certain conditions, rational human beings will behave in a predictable and uniform way.

No, sorry, not the case. Most social sciences treat issues with empiricism, only Austrian economics actively uses praxeology, and indeed founds itself on it. The reason nobody else uses it is because it has no value, no use, no merit.

Oh really? Let's test your claim to see how true it is. I realize you don't care to much about what economics textbooks say, but if you open an econ text written by even a neoclassical keynesian it will affirm the truth that a price ceiling, rent control, leads to shortages in housing units because the government sets the price of rent below the equilibrium price. The logic behind this truth is sound because by decreasing the rent the government increases the demand for housing units while decreasing the supply of housing units. Now, if social sciences were based on empiricism we would have to throw ot this truth and rewrite every economics text. Let's say Los Angeles implements rent control laws for a period of five years and we see no shortage in housing units. A strict empiricist would say that because of this one specific example in LA, rent control laws obviously do nothing to affect the availability of housing units. However, that is not the case because based upon the law of supply and demand, a law derived from studying human action, rent control laws do create shortages. One empirical example does not refute a theoritical truth.

The same goes for minimum wage laws. Go look at an econ text and you'll see that the consensus amoung economists is that minimum wages create unemployment because the government sets the price of labor above the equilibrium price. The reasoning behind this truth is also sound because by increasing the amount it costs to hire someone you decrease the amount of hiring an employer does. However, let's say Seattle implements minimum wage laws over a period of 2 years and we see the unemployment rate remain constant. You, being a strict empiricist would say that because Seattle implemented minimum wage laws and unemployment hasn't increased, the truth that minimum wages creates unemployment is wrong and then we'd have to go back and rewrite every single econ textbook. But what you don't get is that one empirical case example does not refute a theoritical truth based on an accumulation of studying human action and behavior. Economics and the social sciences aren't based on empiricism, they're based on theoritical truths proven by logic and studying human behavior.

If that's not good enough for you, let's look at the natural sciences. A logical truth in biology is that unrelated species will evolve convergently if they inhabit the same environment, or that in the general evolutionary process species tend to converge with one another. But then an empiricist comes along and attempts to refute this logical truth by citing an empirical example. Stephan Jay Gould proposes that if life were rewound we would see totally different species arise and he bases this on the extremely diverse fauna found in the Burgess Shale. But like I've been saying, one empirical example does not refute a refute a logical truth based on years of study.

[Abraxas]

I've been really busy with life the past few months so I don't know when I'll be able to respond to your entire post, but I did want to address this small section quickly. Also, I been working on our head to head a little bit every day but I really don't know when I'll be able to post up my next two posts. Like I said I've been really busy, sorry.

Don't sweat it, I left it sit for months when I was out for surgery, I know as well as anyone that life gets in the way. Get to it when you get to it, make sure it is of a quality you are happy with (don't rush it up there just to get it up if you are going to regret what you said later) and post it when it is ready, however long that may take.

Um all of economics, all of the social sciences as a matter of fact, is based upon praxeology. The basic axiom is that under certain conditions, rational human beings will behave in a predictable and uniform way.

No, sorry, not the case. Most social sciences treat issues with empiricism, only Austrian economics actively uses praxeology, and indeed founds itself on it. The reason nobody else uses it is because it has no value, no use, no merit.

Oh really? Let's test your claim to see how true it is. I realize you don't care to much about what economics textbooks say, but if you open an econ text written by even a neoclassical keynesian it will affirm the truth that a price ceiling, rent control, leads to shortages in housing units because the government sets the price of rent below the equilibrium price. The logic behind this truth is sound because by decreasing the rent the government increases the demand for housing units while decreasing the supply of housing units. Now, if social sciences were based on empiricism we would have to throw ot this truth and rewrite every economics text. Let's say Los Angeles implements rent control laws for a period of five years and we see no shortage in housing units. A strict empiricist would say that because of this one specific example in LA, rent control laws obviously do nothing to affect the availability of housing units. However, that is not the case because based upon the law of supply and demand, a law derived from studying human action, rent control laws do create shortages. One empirical example does not refute a theoritical truth.

No, but no empiricist would form a scientific law on the basis of a single data point either. They would look at a multitude of examples, not just LA, but also other places that have implemented price controls and looked at the results there. They can make predicitions, test those predicitions, and gather more data. They can implement different price control measures and test the outcomes of each. They can combine all this data into a coherent economic theory that can then be tested against the real world and more nuance can be added dependent upon real world conditions. You wouldn't see a biologist arguing all mammals lay eggs on account of just the Echidna, why would you see an economist arguing all rent control laws do not effect the availability of housing on the basis of Los Angeles?

The Austrian School rejects one can do this even in principle, and instead just makes verbal arguments with complete disregard for data. A strict adherent to the Austrian school wouldn't consider LA or any other specific data point, nor would they consider any other set of data points, they would just assert it must be the case that rent controls decrease housing availability and call it a day. They may turn out to be right sometimes, but without any kind of testing or controls, it is just like any other unsupported assertion.

The same goes for minimum wage laws. Go look at an econ text and you'll see that the consensus amoung economists is that minimum wages create unemployment because the government sets the price of labor above the equilibrium price. The reasoning behind this truth is also sound because by increasing the amount it costs to hire someone you decrease the amount of hiring an employer does. However, let's say Seattle implements minimum wage laws over a period of 2 years and we see the unemployment rate remain constant. You, being a strict empiricist would say that because Seattle implemented minimum wage laws and unemployment hasn't increased, the truth that minimum wages creates unemployment is wrong and then we'd have to go back and rewrite every single econ textbook. But what you don't get is that one empirical case example does not refute a theoritical truth based on an accumulation of studying human action and behavior. Economics and the social sciences aren't based on empiricism, they're based on theoritical truths proven by logic and studying human behavior.

Not getting into the minimum wage portion of this, what you don't get is you just described the opposite of praxeology. Praxeology, by definition, is the reduction of economic modeling to a state of axioms supported, by, well, themselves. When you start talking about study of human behavior, you've already gone beyond what praxeology is about, what praxeology says we can learn from.

If that's not good enough for you, let's look at the natural sciences. A logical truth in biology is that unrelated species will evolve convergently if they inhabit the same environment, or that in the general evolutionary process species tend to converge with one another. But then an empiricist comes along and attempts to refute this logical truth by citing an empirical example. Stephan Jay Gould proposes that if life were rewound we would see totally different species arise and he bases this on the extremely diverse fauna found in the Burgess Shale. But like I've been saying, one empirical example does not refute a refute a logical truth based on years of study.

First, I think you missed his point. His point was not that convergence doesn't take place, his point was that the high amount of randomness involved in evolutionary processes (indeed, the entire thing is an exercise in proabilities) would result in slightly different traits at first, (maybe instead of early ocean going bacteria evolving to grow in say colder climates, they evolve to move faster to get to warmer ones or something) those changes will, over time, compound until the entire biosphere is completely different. Part of that is going to be because the environment an organism exists in is, in part, determined by the condition of the biosphere in which it inhabits and so the ecological niches open will be different depending upon the other life present. His use of the Burgess Shale was to show how a relatively isolated ecosystem can develop, in his view, in an extremely different fashion.

Again, nobody who does scientific analysis for a living is going to claim a single data point is the end all, be all. However, any good scientific theory is going to make room for other data points. When you get one outside the norm, like the Burgess Shale, the empiricist doesn't go "gee, this doesn't fit with the billion other data points, time to throw all that out and start over", they say "this one is different, what circumstances made this one different than all the other ones? Are we sure this data point was measured correctly? Are we sure we accounted for all the variables? Is there another variable that we need to account for in the theory at large to cover both possible outcomes? Etc.". Praxeology, by contrast, refuses to take into account evidence, which means the axiom could exist long past the point of even remote accuracy because it rejects testing what it claims against the real world in any form. This refusal to submit to scientific analysis is why praxeology dogmatically clings to ideas long since unsupported by evidence and indeed refuted by it.