15 ms·

But what was the alternative to the bailouts? Another depression? I feel we made it across fairly well.

by nafey 8y ago

freddie_mercury 8y ago
This comment reads like a hot-take based solely on the subject without reading the article because you don't really engage substantively with any of the nuances the article talks about. As such, I'm not sure it really contributes as much to the discussion as if you did engage substantively with the details of the article. For example: Even if there was no alternative, that doesn't mean a clear understanding of the costs & downstream consequences is a bad thing. Even if some kind of bailout was necessary, bailouts can take many forms. Do you think the bailout chosen was the best form? There wasn't, actually, one bailout. There were many ad hoc choices made along the way. Why was Lehman allowed to fail? It was purely an ideological choice; the Fed clearly had the ability to save it, they just underestimated the pain it would. Why were swaps extended to some countries but not others? Why didn't the ECB help out Hungary or even Austria? For that matter, why was the Federal Reserve acting as a global lender of last resort without telling anyone, not even Congress. (It required a Freedom of Information lawsuit that went all the way to the Supreme Court for the Federal Reserve to turn over details on the full scope of their swaps with other central banks.) Maybe the bailouts should have happened exactly as they did but the optics & politics should have been done in a more transparent fashion? But taking such a non-nuanced, instrumental view I feel like you make the discussion less interesting than it could otherwise have been. And because it was a "first comment", it then warped much of the entire discussion on the topic. This thread has 80 replies and 55 of them are to you.
- chimeracoder 8y ago
  > But taking such a non-nuanced, instrumental view I feel like you make the discussion less interesting than it could otherwise have been. And because it was a "first comment", it then warped much of the entire discussion on the topic. This thread has 80 replies and 55 of them are to you. You are entirely correct, but unfortunately, I suspect that this is inevitable. Discussions of economic policy on Hacker News almost always end up in this same place.
brobdingnagians 8y ago
We haven't escaped the depression; the bailouts and quantitative easing simply delayed it for a bit, and the more it is delayed, the worse it will be. It would be far better to have economic corrections along the way with little dips than to keep the house of cards going on worse and worse foundations until it all falls apart in a large depression. Little distortions can be corrected in the short term, but keeping those distortions in the economy long enough can make some very bad effects in the long term. So, we may get the worst of both worlds. Even if the government had simply paid off everyones' mortgages, it would be better for the average person; but instead they transferred the approximate amount required to do exactly that to the banks directly in bailouts. Which means people got stuck with bill for the bailouts [from taxes] and the mortgages; which is rather unfair to the average Joe.
- thecopy 8y ago
  > We haven't escaped the depression; the bailouts and quantitative easing simply delayed it for a bit, and the more it is delayed, the worse it will be. How so?
  - TheOtherHobbes 8y ago
    The economy has become an absolutely horrific place for most of the population. Financial security is an unrealisable dream for most workers. Bailouts saved the economy for the proverbial 1%, who are doing wonderfully. But no one else is. (I'm including many HN readers in the 1% because they work in a privileged and relatively highly paid part of the job market.) When the mountain of debt finally implodes, it's going to be far worse than 2008. This is very different to - say - the 50s and 60s - when ordinary working people could accumulate significant assets by working hard and saving.
    - pas 8y ago
      A no-bailout crash would have hurt the 99% even more. We all can kumbayaa about how the Fed enriched the asset holders, and how unfair that is, but they did what they were able to, while Congress did nothing. (The Obama stimulus was too small, and no reform followed, the 2010 Dodd-Frank Act was a mere correction of something that should have been there all along.) The mountain of debt imploded in 2008, and since then financial regulation is very much systemic stress test based. The next crisis will be at least different. Bankers can just sit back, relax, and watch as the world burns around them.
simplemts 8y ago
Debt is worse now than in 2008. We haven't / didn't escape anything, just passed it on to future generation(s). Future generations will be paying the bill for mistakes of their parents.
- wiz21c 8y ago
  As a parent, I fail to see exactly how I'm guilty of anything here. I used the banks because I had to, I listened to their advice because I can't possibly become an expert on their subjects, etc. I even voted for people who want to regulate them. I don't play on the stock exchange (pension funds do, with my money). I didn't do anything wrong. My children will pay for the mess a few made by pushing unreasonable expectations and by not listening to people like me. There are some fights that must be fought by others. Now if you can provide me with decent alternatives, I'd be glad to here from them. But remember, I have to live in the system.
  - icu 8y ago
    I'm with you on decent alternatives of which I think a non-Fed based monetary system as well as the end of crony capitalism (not capitalism itself) would probably be a decent alternative. However, the biggest problem is the education of the wider public and garnering the democratic will of the people to make necessary changes. Economics, for all its show of being empirical is really just politics, and politics is really just philosophy. In the daily struggle, hustle and bustle of life, few have the time and desire to learn these subjects, let alone pay the price to apply themselves politically to make the necessary changes. Are you willing to? I'm not... at least for now, willing to do anything. Charity starts at home and before I contemplate doing anything political I must ensure my family is well off. However if you are willing, and able to do something, I strongly encourage you to.
    - pas 8y ago
      > a non-Fed based monetary system Could you elaborate on that please? > Economics, for all its show of being empirical is really just politics, and politics is really just philosophy. That's very-very incorrect. Economics is about models, and understanding the past, and maybe trying to peek at the future. But at its core, it's about modeling. And it helps us understand what works and what doesn't. Politics should be about giving the parameters to those models. And philosophy (logic) is about finding the inconsistencies in our politics. And as you say, nowadays people don't care about logic, they care about their beliefs. Even if they are inconsistent. They are too busy to notice that they are wrong.
teekert 8y ago
Icelands seems to be doing well, just Google Iceland and banks, for example: [0] [0] https://www.bloomberg.com/news/features/2016-03-31/welcome-to-iceland-where-bad-bankers-go-to-prison https://www.bloomberg.com/news/features/2016-03-31/welcome-t...
sampo 8y ago
The Wikipedia article has a list of proposed alternatives. https://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008#Alternative_proposals https://en.wikipedia.org/wiki/Emergency_Economic_Stabilizati... Especially I'd like to point out the one proposed by Paul Krugman. Instead of injecting money into the banks, the government invests the money in the banks, diluting the previous shares. After the crisis, the government starts selling their shares, getting at least part of the money back. https://en.wikipedia.org/wiki/Swedish_banking_rescue https://en.wikipedia.org/wiki/Swedish_banking_rescue
- pas 8y ago
  > After the crisis, the government starts selling their shares, getting at least part of the money back. Wasn't TARP repaid?
- m_st 8y ago
  To my (amateur) understanding, that's what they did in Switzerland and it turned out pretty well for the national bank. Personally I also made some smallish stock investments during that time. I only regret that I didn't invest just a little more... the profit is/was huge.
- chimeracoder 8y ago
  > Especially I'd like to point out the one proposed by Paul Krugman. Instead of injecting money into the banks, the government invests the money in the banks, diluting the previous shares. After the crisis, the government starts selling their shares, getting at least part of the money back. You are basically describing TARP, which is what happened (and netted over $11 billion in returns).
michaelt 8y ago
But what was the alternative to the bailouts? The bailouts, but engaging with the narrative of a rigged game and applying substantial and highly visible reforms to prevent another financial crisis. I mean, when your ship hits rocks you gotta patch the holes so you don't drown - but then you also gotta stop the captain navigating you into rocks. We did an OK job at the first, but did practically nothing about the second.
- pas 8y ago
  There were "reforms" (or at least important fixes, like the stress test based financial sector oversight, and other stuff enacted in 2010 as the Dodd-Frank Act), but visibility was and still is shit. (And now Dodd-Frank is being reversed bit-by-bit, but again, nobody really cares, which is not surprising when there are new disasters every day in US politics.) The Obama stimulus was too small, and it simply took too much time for the economy to recover.
  - michaelt 8y ago
    There were reforms to address banks not holding enough cash - but there wasn't anything to address the misaligned incentives and short-term-ism that rewarded people for mispricing assets.
    - pas 8y ago
      > misaligned incentives and short-term-ism that rewarded people for mispricing assets. Yes, absolutely, agreed. But this is the classic problem of not pricing in externalities, like every kind of pollution (climate change), delayed effect on human health, and various second- and higher order consequences. Legislation should demand better goals (sustainability, health friendliness, inequality-decreasing). As long as tax incentives are broken, we'll continue to see the race for the quarterly profit.
tokyodude 8y ago
I haven't a clue about the whether the bailouts were important or not. What I feel like I would have liked is for the bailouts to happen AND the top 20 to 100 people from every financial institution to have gone to prison for at least 10 years. The president of Goldman Sachs, the president (or ex-President) of Lehman, etc... etc... What it seems like from the outside is they screwed the world over and completely got away with it on our dime. I don't know if my impression is right or what would convince me the fact that there seemed to be no repercussions for their actions is somehow the right thing. Just saying that's how it seems. I don't believe for a second those people were irreplaceable as some have suggested. People are replaced at giant companies all the time and the companies keep on functioning. If we need one example Steve Jobs death certainly shows that. Could pick any other CEO that left or was shoved out or past away.
- oh_sigh 8y ago
  Did those people do anything wrong or were they just essentially incompetent or not adequate for the job? Bonus clawbacks after government bailout are one thing but jailing people who probably didn't do anything criminal is a dangerous precedent.
  - s3krit 8y ago
    There exists the concept of criminal negligence. I would say being in the wrong and being incompetent are not mutually exclusive.
  - heavenlyblue 8y ago
    If they are incompetent and they have consciously taken the positions they hold - then they are liable. Finance isn't "revolutionary" tech - there isn't much you can do that requires high risks and actually rewards you in the long run. I would wonder what you'd say about a general who didn't know that using chemical warfare is a possible tribunal scenario. We have a similar legal case in maritime law, where captains can be sued for anything that happens on their ships. If you can't take on that role and it's liability - then you shouldn't be the captain.
imtringued 8y ago
If there was no bailout then even people who were paying their mortgages on time would be affected. The bank needs money now so it will have to sell some of it's assets such as the house you're living in but 5 years later it is probably swimming in money.The government effectively acts as a very large insurance company by giving the bank a loan.
- cjg 8y ago
  The bank doesn't own your house. The asset it has is the mortgage on your house. The bank could could sell the mortgage, but the only impact to you is that your mortgage payments go to someone else.
- dragonwriter 8y ago
  > If there was no bailout then even people who were paying their mortgages on time would be affected. People who were paying their mortgages were effected by the general economic downturn, collapse of home values, and credit crunch, for some parts of which the bank bailouts were an ineffective remedy. (Bailing out troubled homeowners probably would have been more effective.) > The bank needs money now so it will have to sell some of it's assets such as the house you're living in Unless you are renting from a bank, it's not going to sell your house, because it doesn't own it; particularly, that's not how most mortgages work (there are some that are callable early where that would be a theoretical possibility, but they are almost never used for owner-occupied residential property.) > The government effectively acts as a very large insurance company by giving the bank a loan. No, it was acting as a very large bank. An insurance company would have recieved premiums in advance and not given loans, but just paid out money.
pjc50 8y ago
Actual bankruptcy could have resulted in a chain of collapses that might have left large areas of the Western economy without functional banking for weeks or even months. But the bailout should have had a lot more "never again" in it, rather than "how can we get back to the old normal of bubble finance as quickly as possible".
- pas 8y ago
  > a lot more "never again" What do you have in mind? Could you explain this?
  - pjc50 8y ago
    Ideally when there is a sufficiently large disaster an inquiry is held which suggests measures to prevent the disaster, and these measures are implemented and enforced. Air safety is closest to the ideal on this. Politics and political economy is often very far from it, especially when it's possible to profit from a disaster. Part of the explicit aim of the bailout was to preserve the finance industry status quo, one of very unequal incomes and widespread effects on people by forces outside their control. In the long run this has turned into a sort of formless populist anger that's been successfully transmuted into racial hatred, but there is a real and persistent sense of injustice that needs to be addressed. Turning this into specific plans is too big a question for me. All that has really been done to prevent it happening again has been a raising of European regulatory capital requirements.
    - pas 8y ago
      > Politics and political economy is often very far from it, especially when it's possible to profit from a disaster. Sure, but financial services oversight is not that far from air safety (NTSB, FAA). The SEC, FDIC, CFTC, FSOC (established in 2010 via the Dodd-Frank Act), the Fed, and a few others are rather technical agencies. If they have enough power to request certain kinds of data from financial institutions and fine them if they are deemed not secure/stable/compliant enough, they can and will prevent any similar upcoming crisis. The problem is, of course, that rules are gradually rolled back due to politics, and the oversight agencies understaffed and underbudgeted. Thus they are not proactive, they are reactive, and there was nothing they could have done in 2008 when it was already too late. (So the Fed stepped in with QE, and Congress with TARP, and with ARRA - but that was too small, so recovery took too long.) That said, yes, absolutely the incentives aligned toward preserving the status quo. Which is not necessarily wrong, as doing something radical was likely unhelpful. What needs to be done is clear (better effective proactive expert oversight) but it's politicized. Just like the FCC regulation with the TelComms industry. And so on.
andrepd 8y ago
The bailouts are controversial, but it's the bailouts AND the complete absence of criminal responsibility that's inexcusable. It is well known and documented that the financial crisis was no accident; everybody who headed the financial services industry to the state it was in did so knowingly, knowing full well the inevitable consequences, but not giving a damn because the arrangement let them to become handsomely wealthy, beyond our imagination. They masked everything with a mixture of stacking the regulators with their ilk, stacking the universities with their ilk (economics as a field has zero credibility to me since I discovered how many theses "greenlighting" CDOs were written in clear conflict of interest), stacking the government with their ilk. Then while we (working class) were dealing with the fallout, tithing part of our work to reimburse their losses, not ONE of those criminals (with the blood of millions across the globe on their hands, make no mistake) was prosecuted or in any way made to answer for their actions. Much to the contrary, they went on enjoying the same mind-boggling luxurious elite lifestyle they always did. It's feudalism with extra steps.
- dhimes 8y ago
  complete absence of criminal responsibility that's inexcusable This is what gets me- and they were even given relative anonymity in the press so they could duck some social repercussions of their horrid behavior. I want Brad Pitt to carve a dollar sign on their foreheads. tithing part of our work to reimburse their losses I'm stealing this.
- asta42 8y ago
  And not only is there absence of criminal responsibility, but the regulation that made banking stable for 100 years and was taken away in 90s (like the Glass-Steagall Act) cannot be put back in place. Seems like people that caused the GFC are the ones in charge of 'fixing' it.
  - rhino369 8y ago
    Glass Steagal didn’t make banking stable. Most countries (including those who weathered the storm much better than the US) don’t have a similar law. In fact, marrying investment and commercial banks during the crisis was a key part of stopping a banking collapse. And the whole crash started by investment only banks failing.
KarlRutnick 8y ago
Both US and EU should have done the same as Norwegian Government did during our banking crisis in the 90s. Let the banks fail, stocks to zero, no bailout of investors or paper/derivatives holders etc... then nationalize their brick and mortar operation so the real economy keeps functioning
- pas 8y ago
  Much of the economy is not brick and mortar anymore. And wasn't in 2008 either. Sure, Congress could have created an Uncle Sam bank, but that wouldn't have solved anything. Stocks, investors, bondholders are important, because they underlie much of US pension plans, social security account, and so on. And even if the day to day operations could have been somehow continued, someone would had to arbitrate what is okay to save, and what is okay to let it perish. And that would have been a much harder and basically impossible task.
- seppin 8y ago
  Norway is a small country, and in the 90s had very little exposure elsewhere. What you are implying is a meltdown of global assets, to prove a point.
UncleSlacky 8y ago
Nationalising the banks, perhaps? Some were, at least partially, like RBS.
hndamien 8y ago
Nationalisation was the alternative. Government acquires the failed banks. Manages the issue (even almost the same way the did). Profits flow back to the public. When happy, privatise again with a healthy profit. Maybe keep one as a public asset.
- chimeracoder 8y ago
  > Nationalisation was the alternative. Government acquires the failed banks. Manages the issue (even almost the same way the did). Profits flow back to the public. When happy, privatise again with a healthy profit. Maybe keep one as a public asset. Are you unaware that TARP happened?
  - hndamien 8y ago
    I'm aware, and it was a joke. "purchasing the illiquid MBS, and through that, reducing the potential losses of the institutions that owned them. Later, it was modified slightly to allow the government to buy equity stakes in banks and other financial institutions" Why would any rational investor purchase dog crap knowingly for the good of society, by spending that society's money on dog crap. Instead, buy the dog, discounted by the amount of dog crap it has, and squeezed by how desperate the seller is of what is left. No financial mercy should be shown to the institutions that put themselves in that position. Nobody has ever shed a tear for anybody else financially squeezed, and in this case it would have been good for society and fitting capitalistic justice. Instead, we pumped their bags, regained the value of equity and then had the debts repaid from the equity that was saved. Its a nice story, we got paid back, but the reality is, the Gov/ people should have made out like bandits while those bankers were kicked to the curb. This is how capitalism is supposed to work.
    - chimeracoder 8y ago
      > Why would any rational investor purchase dog crap knowingly for the good of society, by spending that society's money on dog crap. Instead, buy the dog, discounted by the amount of dog crap it has, and squeezed by how desperate the seller is of what is left. I don't think you understand how TARP worked if you think that's even remotely applicable as an analogy > This is how capitalism is supposed to work. Maybe you should learn a little more about the system you claim to be critiquing, so your criticisms don't fall so completely flat.
apo 8y ago
The alternative was to let capitalism administer its punishment to reckless speculators. Instead, they were made whole again at the cost of years worth of future demand pulled forward by easy money policies. Worse, the sense that "we made it across" has caused way too many people to jump back on the risk/debt wagon with gleeful abandon. The crisis wasn't resolved, but merely postponed.
pjmorris 8y ago
If we're going to be capitalistic, apply Bagehot's dictum (from 1873) "in times of financial crisis central banks should lend freely to solvent depository institutions, yet only against sound collateral and at interest rates high enough to dissuade those borrowers that are not genuinely in need" [0] I feel like, jail or no, the financial executives who got us into the mess - and who haven't really gotten us out yet - ought to be former financial executives that are working as, e.g., baristas. Instead, a decision was made that the bloated mortgages that had been issued, would be turned from bad collateral into 'sound collateral', keeping asset prices high. It's like resolving Ford's problems with exploding gas tanks back in the 70's by arranging to buy all the bad cars. [0] https://en.wikipedia.org/wiki/Walter_Bagehot https://en.wikipedia.org/wiki/Walter_Bagehot
- danharaj 8y ago
  We shouldn't get any banking advice from anyone from the 1800's.
  - pjmorris 8y ago
    You should weigh any advice on its merits.
  - pjmorris 8y ago
    If you're seeking to broaden your perspective, you might find "Bagehot's Dictum in Practice: Formulating and Implementing Policies to Combat the Financial Crisis", written by a director at the Fed, to be worth your time. [0] https://www.federalreserve.gov/newsevents/speech/madigan20090821a.htmhttps://www.federalreserve.gov/newsevents/speech/madigan20090821a.htm https://www.federalreserve.gov/newsevents/speech/madigan2009...
  - seppin 8y ago
    That's like saying we shouldn't pay attention to the lessons of the great depression because it was in the 1930s.
    - danharaj 8y ago
paulddraper 8y ago
> But what was the alternative to the bailouts? Nothing. > Another depression? Recession/depression/whatever, that's exactly what we had. At that stage of things, it was essentially unavoidable. > I feel we made it across fairly well. The billions and billions and billions spent by the federal government didn't come from nowhere. They came from taxes (which didn't increase) or deficit financing (which did increase), thus crowding out the investment market and making the recovery much longer.
InclinedPlane 8y ago
False dichotomy. The problem was letting it get that bad to start with, and letting any single bank get so huge. If banks had been kept smaller and limited from taking on such crazy risks then it would have been far easier to just let some banks go out of business and let the market adjust itself. Additionally, the fact that people in the street got screwed while hedge funds got their profit margins protected by tax payers is something that shouldn't have been allowed to happen. Much of the pain for the top 1% from the crash was socialized away and absorbed by tax payers and the working class. There should have been much more financial assistance to the working class.
tootie 8y ago
Less generous bailouts for one. A lot of creditors were just straight up reimbursed for making bad investments with no penalty. Having them be wiped out would be a disaster, but asking to accept losses in exchange for not being wiped out would have been a good compromise. The other option, which we didn't have at the time but do now, is for the federal government to take over failing banks to keep them afloat long enough to be dismantled. It's called orderly liquidation.
andrewla 8y ago
Late to the discussion, but the alternative to the bailouts was to not bailout, and let the problems unwind. As mortgages were sold at firesale prices to attempt to remain solvent, it would be in the interest of the purchasers to lower the effective rates on the mortgages, because they could still book a profit at the lower rates. The net effect would have been to cripple most of the national banks to the point where they would have to be liquidated and purchased piecemeal by smaller banks and local credit unions that managed to behave responsibly during the crisis. The FDIC already exists and has a mandate to draw unlimited funds to make customers whole up to the limits. This is already priced in. As to what would happen as companies failed to make payroll as their banking arrangements failed, it's likely that there would have been problems along the way, but the existing credit markets, especially short-term consumer credit (i.e. credit cards) would have allowed most households to stay solvent while the banks reorganized around the new reality. I'm far from convinced that there would have been a depression -- for the most part I believe that it would have self-corrected on an individual or company basis except for the finance sector, which created the crisis in the first place.
howard941 8y ago
I believe too many made out fairly well and by not wiping out the shareholders we've created a gaping maw of a moral hazard. Corporate governance is in tatters, has been since roughly the 80s when the goal became quarterly earnings at all costs. Wiping out the shareholders when bailing out would have incentivized the next set of shareholders to police their investment. Now the only disincentives are executive compensation and some additional express limits on dividends.

But what was the alternative to the bailouts? Another depression? I feel we made it across fairly well.

by nafey 8y ago

But what was the alternative to the bailouts? Another depression? I feel we made it across fairly well.

This comment reads like a hot-take based solely on the subject without reading the article because you don't really engage substantively with any of the nuances the article talks about. As such, I'm not sure it really contributes as much to the discussion as if you did engage substantively with the details of the article. For example: Even if there was no alternative, that doesn't mean a clear understanding of the costs & downstream consequences is a bad thing. Even if some kind of bailout was necessary, bailouts can take many forms. Do you think the bailout chosen was the best form? There wasn't, actually, one bailout. There were many ad hoc choices made along the way. Why was Lehman allowed to fail? It was purely an ideological choice; the Fed clearly had the ability to save it, they just underestimated the pain it would. Why were swaps extended to some countries but not others? Why didn't the ECB help out Hungary or even Austria? For that matter, why was the Federal Reserve acting as a global lender of last resort without telling anyone, not even Congress. (It required a Freedom of Information lawsuit that went all the way to the Supreme Court for the Federal Reserve to turn over details on the full scope of their swaps with other central banks.) Maybe the bailouts should have happened exactly as they did but the optics & politics should have been done in a more transparent fashion? But taking such a non-nuanced, instrumental view I feel like you make the discussion less interesting than it could otherwise have been. And because it was a "first comment", it then warped much of the entire discussion on the topic. This thread has 80 replies and 55 of them are to you.

chimeracoder 8y ago
> But taking such a non-nuanced, instrumental view I feel like you make the discussion less interesting than it could otherwise have been. And because it was a "first comment", it then warped much of the entire discussion on the topic. This thread has 80 replies and 55 of them are to you. You are entirely correct, but unfortunately, I suspect that this is inevitable. Discussions of economic policy on Hacker News almost always end up in this same place.

brobdingnagians 8y ago

We haven't escaped the depression; the bailouts and quantitative easing simply delayed it for a bit, and the more it is delayed, the worse it will be. It would be far better to have economic corrections along the way with little dips than to keep the house of cards going on worse and worse foundations until it all falls apart in a large depression. Little distortions can be corrected in the short term, but keeping those distortions in the economy long enough can make some very bad effects in the long term. So, we may get the worst of both worlds. Even if the government had simply paid off everyones' mortgages, it would be better for the average person; but instead they transferred the approximate amount required to do exactly that to the banks directly in bailouts. Which means people got stuck with bill for the bailouts [from taxes] and the mortgages; which is rather unfair to the average Joe.

thecopy 8y ago
> We haven't escaped the depression; the bailouts and quantitative easing simply delayed it for a bit, and the more it is delayed, the worse it will be. How so?
- TheOtherHobbes 8y ago
  The economy has become an absolutely horrific place for most of the population. Financial security is an unrealisable dream for most workers. Bailouts saved the economy for the proverbial 1%, who are doing wonderfully. But no one else is. (I'm including many HN readers in the 1% because they work in a privileged and relatively highly paid part of the job market.) When the mountain of debt finally implodes, it's going to be far worse than 2008. This is very different to - say - the 50s and 60s - when ordinary working people could accumulate significant assets by working hard and saving.
  - pas 8y ago
    A no-bailout crash would have hurt the 99% even more. We all can kumbayaa about how the Fed enriched the asset holders, and how unfair that is, but they did what they were able to, while Congress did nothing. (The Obama stimulus was too small, and no reform followed, the 2010 Dodd-Frank Act was a mere correction of something that should have been there all along.) The mountain of debt imploded in 2008, and since then financial regulation is very much systemic stress test based. The next crisis will be at least different. Bankers can just sit back, relax, and watch as the world burns around them.

simplemts 8y ago

Debt is worse now than in 2008. We haven't / didn't escape anything, just passed it on to future generation(s). Future generations will be paying the bill for mistakes of their parents.

wiz21c 8y ago
As a parent, I fail to see exactly how I'm guilty of anything here. I used the banks because I had to, I listened to their advice because I can't possibly become an expert on their subjects, etc. I even voted for people who want to regulate them. I don't play on the stock exchange (pension funds do, with my money). I didn't do anything wrong. My children will pay for the mess a few made by pushing unreasonable expectations and by not listening to people like me. There are some fights that must be fought by others. Now if you can provide me with decent alternatives, I'd be glad to here from them. But remember, I have to live in the system.
- icu 8y ago
  I'm with you on decent alternatives of which I think a non-Fed based monetary system as well as the end of crony capitalism (not capitalism itself) would probably be a decent alternative. However, the biggest problem is the education of the wider public and garnering the democratic will of the people to make necessary changes. Economics, for all its show of being empirical is really just politics, and politics is really just philosophy. In the daily struggle, hustle and bustle of life, few have the time and desire to learn these subjects, let alone pay the price to apply themselves politically to make the necessary changes. Are you willing to? I'm not... at least for now, willing to do anything. Charity starts at home and before I contemplate doing anything political I must ensure my family is well off. However if you are willing, and able to do something, I strongly encourage you to.
  - pas 8y ago
    > a non-Fed based monetary system Could you elaborate on that please? > Economics, for all its show of being empirical is really just politics, and politics is really just philosophy. That's very-very incorrect. Economics is about models, and understanding the past, and maybe trying to peek at the future. But at its core, it's about modeling. And it helps us understand what works and what doesn't. Politics should be about giving the parameters to those models. And philosophy (logic) is about finding the inconsistencies in our politics. And as you say, nowadays people don't care about logic, they care about their beliefs. Even if they are inconsistent. They are too busy to notice that they are wrong.

teekert 8y ago

Icelands seems to be doing well, just Google Iceland and banks, for example: [0] [0] https://www.bloomberg.com/news/features/2016-03-31/welcome-to-iceland-where-bad-bankers-go-to-prison https://www.bloomberg.com/news/features/2016-03-31/welcome-t...

sampo 8y ago

The Wikipedia article has a list of proposed alternatives. https://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008#Alternative_proposals https://en.wikipedia.org/wiki/Emergency_Economic_Stabilizati... Especially I'd like to point out the one proposed by Paul Krugman. Instead of injecting money into the banks, the government invests the money in the banks, diluting the previous shares. After the crisis, the government starts selling their shares, getting at least part of the money back. https://en.wikipedia.org/wiki/Swedish_banking_rescue https://en.wikipedia.org/wiki/Swedish_banking_rescue

pas 8y ago
> After the crisis, the government starts selling their shares, getting at least part of the money back. Wasn't TARP repaid?
m_st 8y ago
To my (amateur) understanding, that's what they did in Switzerland and it turned out pretty well for the national bank. Personally I also made some smallish stock investments during that time. I only regret that I didn't invest just a little more... the profit is/was huge.
chimeracoder 8y ago
> Especially I'd like to point out the one proposed by Paul Krugman. Instead of injecting money into the banks, the government invests the money in the banks, diluting the previous shares. After the crisis, the government starts selling their shares, getting at least part of the money back. You are basically describing TARP, which is what happened (and netted over $11 billion in returns).

michaelt 8y ago

But what was the alternative to the bailouts? The bailouts, but engaging with the narrative of a rigged game and applying substantial and highly visible reforms to prevent another financial crisis. I mean, when your ship hits rocks you gotta patch the holes so you don't drown - but then you also gotta stop the captain navigating you into rocks. We did an OK job at the first, but did practically nothing about the second.

pas 8y ago
There were "reforms" (or at least important fixes, like the stress test based financial sector oversight, and other stuff enacted in 2010 as the Dodd-Frank Act), but visibility was and still is shit. (And now Dodd-Frank is being reversed bit-by-bit, but again, nobody really cares, which is not surprising when there are new disasters every day in US politics.) The Obama stimulus was too small, and it simply took too much time for the economy to recover.
- michaelt 8y ago
  There were reforms to address banks not holding enough cash - but there wasn't anything to address the misaligned incentives and short-term-ism that rewarded people for mispricing assets.
  - pas 8y ago
    > misaligned incentives and short-term-ism that rewarded people for mispricing assets. Yes, absolutely, agreed. But this is the classic problem of not pricing in externalities, like every kind of pollution (climate change), delayed effect on human health, and various second- and higher order consequences. Legislation should demand better goals (sustainability, health friendliness, inequality-decreasing). As long as tax incentives are broken, we'll continue to see the race for the quarterly profit.

tokyodude 8y ago

I haven't a clue about the whether the bailouts were important or not. What I feel like I would have liked is for the bailouts to happen AND the top 20 to 100 people from every financial institution to have gone to prison for at least 10 years. The president of Goldman Sachs, the president (or ex-President) of Lehman, etc... etc... What it seems like from the outside is they screwed the world over and completely got away with it on our dime. I don't know if my impression is right or what would convince me the fact that there seemed to be no repercussions for their actions is somehow the right thing. Just saying that's how it seems. I don't believe for a second those people were irreplaceable as some have suggested. People are replaced at giant companies all the time and the companies keep on functioning. If we need one example Steve Jobs death certainly shows that. Could pick any other CEO that left or was shoved out or past away.

oh_sigh 8y ago
Did those people do anything wrong or were they just essentially incompetent or not adequate for the job? Bonus clawbacks after government bailout are one thing but jailing people who probably didn't do anything criminal is a dangerous precedent.
- s3krit 8y ago
  There exists the concept of criminal negligence. I would say being in the wrong and being incompetent are not mutually exclusive.
- heavenlyblue 8y ago
  If they are incompetent and they have consciously taken the positions they hold - then they are liable. Finance isn't "revolutionary" tech - there isn't much you can do that requires high risks and actually rewards you in the long run. I would wonder what you'd say about a general who didn't know that using chemical warfare is a possible tribunal scenario. We have a similar legal case in maritime law, where captains can be sued for anything that happens on their ships. If you can't take on that role and it's liability - then you shouldn't be the captain.

imtringued 8y ago

If there was no bailout then even people who were paying their mortgages on time would be affected. The bank needs money now so it will have to sell some of it's assets such as the house you're living in but 5 years later it is probably swimming in money.The government effectively acts as a very large insurance company by giving the bank a loan.

cjg 8y ago
The bank doesn't own your house. The asset it has is the mortgage on your house. The bank could could sell the mortgage, but the only impact to you is that your mortgage payments go to someone else.
dragonwriter 8y ago
> If there was no bailout then even people who were paying their mortgages on time would be affected. People who were paying their mortgages were effected by the general economic downturn, collapse of home values, and credit crunch, for some parts of which the bank bailouts were an ineffective remedy. (Bailing out troubled homeowners probably would have been more effective.) > The bank needs money now so it will have to sell some of it's assets such as the house you're living in Unless you are renting from a bank, it's not going to sell your house, because it doesn't own it; particularly, that's not how most mortgages work (there are some that are callable early where that would be a theoretical possibility, but they are almost never used for owner-occupied residential property.) > The government effectively acts as a very large insurance company by giving the bank a loan. No, it was acting as a very large bank. An insurance company would have recieved premiums in advance and not given loans, but just paid out money.

pjc50 8y ago

Actual bankruptcy could have resulted in a chain of collapses that might have left large areas of the Western economy without functional banking for weeks or even months. But the bailout should have had a lot more "never again" in it, rather than "how can we get back to the old normal of bubble finance as quickly as possible".

pas 8y ago
> a lot more "never again" What do you have in mind? Could you explain this?
- pjc50 8y ago
  Ideally when there is a sufficiently large disaster an inquiry is held which suggests measures to prevent the disaster, and these measures are implemented and enforced. Air safety is closest to the ideal on this. Politics and political economy is often very far from it, especially when it's possible to profit from a disaster. Part of the explicit aim of the bailout was to preserve the finance industry status quo, one of very unequal incomes and widespread effects on people by forces outside their control. In the long run this has turned into a sort of formless populist anger that's been successfully transmuted into racial hatred, but there is a real and persistent sense of injustice that needs to be addressed. Turning this into specific plans is too big a question for me. All that has really been done to prevent it happening again has been a raising of European regulatory capital requirements.
  - pas 8y ago
    > Politics and political economy is often very far from it, especially when it's possible to profit from a disaster. Sure, but financial services oversight is not that far from air safety (NTSB, FAA). The SEC, FDIC, CFTC, FSOC (established in 2010 via the Dodd-Frank Act), the Fed, and a few others are rather technical agencies. If they have enough power to request certain kinds of data from financial institutions and fine them if they are deemed not secure/stable/compliant enough, they can and will prevent any similar upcoming crisis. The problem is, of course, that rules are gradually rolled back due to politics, and the oversight agencies understaffed and underbudgeted. Thus they are not proactive, they are reactive, and there was nothing they could have done in 2008 when it was already too late. (So the Fed stepped in with QE, and Congress with TARP, and with ARRA - but that was too small, so recovery took too long.) That said, yes, absolutely the incentives aligned toward preserving the status quo. Which is not necessarily wrong, as doing something radical was likely unhelpful. What needs to be done is clear (better effective proactive expert oversight) but it's politicized. Just like the FCC regulation with the TelComms industry. And so on.

andrepd 8y ago

The bailouts are controversial, but it's the bailouts AND the complete absence of criminal responsibility that's inexcusable. It is well known and documented that the financial crisis was no accident; everybody who headed the financial services industry to the state it was in did so knowingly, knowing full well the inevitable consequences, but not giving a damn because the arrangement let them to become handsomely wealthy, beyond our imagination. They masked everything with a mixture of stacking the regulators with their ilk, stacking the universities with their ilk (economics as a field has zero credibility to me since I discovered how many theses "greenlighting" CDOs were written in clear conflict of interest), stacking the government with their ilk. Then while we (working class) were dealing with the fallout, tithing part of our work to reimburse their losses, not ONE of those criminals (with the blood of millions across the globe on their hands, make no mistake) was prosecuted or in any way made to answer for their actions. Much to the contrary, they went on enjoying the same mind-boggling luxurious elite lifestyle they always did. It's feudalism with extra steps.

dhimes 8y ago
complete absence of criminal responsibility that's inexcusable This is what gets me- and they were even given relative anonymity in the press so they could duck some social repercussions of their horrid behavior. I want Brad Pitt to carve a dollar sign on their foreheads. tithing part of our work to reimburse their losses I'm stealing this.
asta42 8y ago
And not only is there absence of criminal responsibility, but the regulation that made banking stable for 100 years and was taken away in 90s (like the Glass-Steagall Act) cannot be put back in place. Seems like people that caused the GFC are the ones in charge of 'fixing' it.
- rhino369 8y ago
  Glass Steagal didn’t make banking stable. Most countries (including those who weathered the storm much better than the US) don’t have a similar law. In fact, marrying investment and commercial banks during the crisis was a key part of stopping a banking collapse. And the whole crash started by investment only banks failing.

KarlRutnick 8y ago

Both US and EU should have done the same as Norwegian Government did during our banking crisis in the 90s. Let the banks fail, stocks to zero, no bailout of investors or paper/derivatives holders etc... then nationalize their brick and mortar operation so the real economy keeps functioning

pas 8y ago
Much of the economy is not brick and mortar anymore. And wasn't in 2008 either. Sure, Congress could have created an Uncle Sam bank, but that wouldn't have solved anything. Stocks, investors, bondholders are important, because they underlie much of US pension plans, social security account, and so on. And even if the day to day operations could have been somehow continued, someone would had to arbitrate what is okay to save, and what is okay to let it perish. And that would have been a much harder and basically impossible task.
seppin 8y ago
Norway is a small country, and in the 90s had very little exposure elsewhere. What you are implying is a meltdown of global assets, to prove a point.

UncleSlacky 8y ago

Nationalising the banks, perhaps? Some were, at least partially, like RBS.

hndamien 8y ago

Nationalisation was the alternative. Government acquires the failed banks. Manages the issue (even almost the same way the did). Profits flow back to the public. When happy, privatise again with a healthy profit. Maybe keep one as a public asset.

chimeracoder 8y ago
> Nationalisation was the alternative. Government acquires the failed banks. Manages the issue (even almost the same way the did). Profits flow back to the public. When happy, privatise again with a healthy profit. Maybe keep one as a public asset. Are you unaware that TARP happened?
- hndamien 8y ago
  I'm aware, and it was a joke. "purchasing the illiquid MBS, and through that, reducing the potential losses of the institutions that owned them. Later, it was modified slightly to allow the government to buy equity stakes in banks and other financial institutions" Why would any rational investor purchase dog crap knowingly for the good of society, by spending that society's money on dog crap. Instead, buy the dog, discounted by the amount of dog crap it has, and squeezed by how desperate the seller is of what is left. No financial mercy should be shown to the institutions that put themselves in that position. Nobody has ever shed a tear for anybody else financially squeezed, and in this case it would have been good for society and fitting capitalistic justice. Instead, we pumped their bags, regained the value of equity and then had the debts repaid from the equity that was saved. Its a nice story, we got paid back, but the reality is, the Gov/ people should have made out like bandits while those bankers were kicked to the curb. This is how capitalism is supposed to work.
  - chimeracoder 8y ago
    > Why would any rational investor purchase dog crap knowingly for the good of society, by spending that society's money on dog crap. Instead, buy the dog, discounted by the amount of dog crap it has, and squeezed by how desperate the seller is of what is left. I don't think you understand how TARP worked if you think that's even remotely applicable as an analogy > This is how capitalism is supposed to work. Maybe you should learn a little more about the system you claim to be critiquing, so your criticisms don't fall so completely flat.

apo 8y ago

The alternative was to let capitalism administer its punishment to reckless speculators. Instead, they were made whole again at the cost of years worth of future demand pulled forward by easy money policies. Worse, the sense that "we made it across" has caused way too many people to jump back on the risk/debt wagon with gleeful abandon. The crisis wasn't resolved, but merely postponed.

pjmorris 8y ago

If we're going to be capitalistic, apply Bagehot's dictum (from 1873) "in times of financial crisis central banks should lend freely to solvent depository institutions, yet only against sound collateral and at interest rates high enough to dissuade those borrowers that are not genuinely in need" [0] I feel like, jail or no, the financial executives who got us into the mess - and who haven't really gotten us out yet - ought to be former financial executives that are working as, e.g., baristas. Instead, a decision was made that the bloated mortgages that had been issued, would be turned from bad collateral into 'sound collateral', keeping asset prices high. It's like resolving Ford's problems with exploding gas tanks back in the 70's by arranging to buy all the bad cars. [0] https://en.wikipedia.org/wiki/Walter_Bagehot https://en.wikipedia.org/wiki/Walter_Bagehot

danharaj 8y ago
We shouldn't get any banking advice from anyone from the 1800's.
- pjmorris 8y ago
  You should weigh any advice on its merits.
- pjmorris 8y ago
  If you're seeking to broaden your perspective, you might find "Bagehot's Dictum in Practice: Formulating and Implementing Policies to Combat the Financial Crisis", written by a director at the Fed, to be worth your time. [0] https://www.federalreserve.gov/newsevents/speech/madigan20090821a.htmhttps://www.federalreserve.gov/newsevents/speech/madigan20090821a.htm https://www.federalreserve.gov/newsevents/speech/madigan2009...
- seppin 8y ago
  That's like saying we shouldn't pay attention to the lessons of the great depression because it was in the 1930s.
  - danharaj 8y ago

paulddraper 8y ago

> But what was the alternative to the bailouts? Nothing. > Another depression? Recession/depression/whatever, that's exactly what we had. At that stage of things, it was essentially unavoidable. > I feel we made it across fairly well. The billions and billions and billions spent by the federal government didn't come from nowhere. They came from taxes (which didn't increase) or deficit financing (which did increase), thus crowding out the investment market and making the recovery much longer.

InclinedPlane 8y ago

False dichotomy. The problem was letting it get that bad to start with, and letting any single bank get so huge. If banks had been kept smaller and limited from taking on such crazy risks then it would have been far easier to just let some banks go out of business and let the market adjust itself. Additionally, the fact that people in the street got screwed while hedge funds got their profit margins protected by tax payers is something that shouldn't have been allowed to happen. Much of the pain for the top 1% from the crash was socialized away and absorbed by tax payers and the working class. There should have been much more financial assistance to the working class.

tootie 8y ago

Less generous bailouts for one. A lot of creditors were just straight up reimbursed for making bad investments with no penalty. Having them be wiped out would be a disaster, but asking to accept losses in exchange for not being wiped out would have been a good compromise. The other option, which we didn't have at the time but do now, is for the federal government to take over failing banks to keep them afloat long enough to be dismantled. It's called orderly liquidation.

andrewla 8y ago

Late to the discussion, but the alternative to the bailouts was to not bailout, and let the problems unwind. As mortgages were sold at firesale prices to attempt to remain solvent, it would be in the interest of the purchasers to lower the effective rates on the mortgages, because they could still book a profit at the lower rates. The net effect would have been to cripple most of the national banks to the point where they would have to be liquidated and purchased piecemeal by smaller banks and local credit unions that managed to behave responsibly during the crisis. The FDIC already exists and has a mandate to draw unlimited funds to make customers whole up to the limits. This is already priced in. As to what would happen as companies failed to make payroll as their banking arrangements failed, it's likely that there would have been problems along the way, but the existing credit markets, especially short-term consumer credit (i.e. credit cards) would have allowed most households to stay solvent while the banks reorganized around the new reality. I'm far from convinced that there would have been a depression -- for the most part I believe that it would have self-corrected on an individual or company basis except for the finance sector, which created the crisis in the first place.

howard941 8y ago

I believe too many made out fairly well and by not wiping out the shareholders we've created a gaping maw of a moral hazard. Corporate governance is in tatters, has been since roughly the 80s when the goal became quarterly earnings at all costs. Wiping out the shareholders when bailing out would have incentivized the next set of shareholders to police their investment. Now the only disincentives are executive compensation and some additional express limits on dividends.