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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

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.
simonh 8y ago
Sure, but allowing half the banks to fail would not have lead to a little dip. The collapse of Lehmans was very damaging for many perfectly healthy, well managed firms that depended on them. The only reason the effects were not worse was that there were other banks around to pick up the pieces, but if the domino effect had been allowed to play itself out the dramatic loss of capacity in the banking sector would have been truly catastrophic. Note that the bailout money wasn't simply gifted with no strings, it was leant and paid back with a profit to the tax payer. Of course QE had it's costs and they were very high, there were other costs as well, but they're often exaggerated. Paying off everyone's mortgages sounds lovely, how nice. In reality everyone would have rushed out and re-mortgaged their properties again, attempted to re-invest or spend their wind fall leading to massive house price inflation and a titanic credit binge the likes of which the world has never seen. The consequences would have been apocalyptic.
- swarnie_ 8y ago
  > Note that the bailout money wasn't simply gifted with no strings, it was leant and paid back with a profit to the tax payer. I can't comment if this is true in America but in the UK we've been selling off bailed out assets at a loss. Sales seem to be timed for political points not to maximize profit.
  - tonyedgecombe 8y ago
    Not much, we dumped Lloyds because it was profitable, we can't let go of RBS because we will make a loss. This is loss aversion on a nationwide scale.
- petra 8y ago
  I don't think we've even begun seeing the terrible results of QE , at least in Europe. QE's long-term effect on housing prices will probably be terrible on many people wanting to purchase an appartment, possibly leaving many without one. And on the other hand, QE created such a boom in startup investing, which will greatly increase the rate which jobs will be automated. I can't see how this ends well over the long term.
jondubois 8y ago
Agreed, by delaying crashes, the problems pile up and they compound. You're not allowing the population to update their skills and targets to meet real economic needs because reality has been distorted by the bailouts. For example, maybe one reason for the crash is that the economy couldn't support so many people working in finance. Because of the bailouts however, it's now probably more lucrative than ever to work in finance; so we probably have even more people working in finance today than in 2008. People who are succeeding in business today don't actually know how to fulfil real economic needs. They only know how to fulfil artificial economic needs in this make-believe economy that the Fed has created.
- compcoffee 8y ago
  >Agreed, by delaying crashes Uh, what crash was delayed? 2008 was the worst since the Great Depression. >Because of the bailouts however, it's now probably more lucrative than ever to work in finance This is simply incorrect. >so we probably have even more people working in finance today than in 2008 We have slightly more now than 12 years ago. Why would we not?
compcoffee 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's this mentality which is going to cost you in the long run. People have been saying "the next one is around the corner" for 10 years, and missed the biggest bull run in history. If you bought prior to the Lehman collapse you'd still be up 130%. >Even if the government had simply paid off everyones' mortgages, it would be better for the average person I disagree. I'm not going to pay the mortgage for someone else because someone decided they needed way more house than they could afford.
- deleted 8y ago
  [deleted]
brainwad 8y ago
The banks paid back their bailout loans, with interest. There was no way the borrowers who got those no-doc loans in the mid-00s could have ever paid off those loans. Bailing out the borrowers would have actually cost money, and would have created enormous moral hazard.
- bradleyjg 8y ago
  How about the moral hazard of teaching an entire generation of bankers that picking up nickels in front of a steamroller is a great career move with virtually no risk of personal consequences?
  - brainwad 8y ago
    It's bad, which is why after the crisis the Dodd-Frank act was passed to reduce the chances of too-big-to-fail entities failing. So while we taught them they'd be bailed out, it's much less likely they can get themselves into that situation again.
    - bradleyjg 8y ago
      Do you really believe that? Because I certainly don’t.
      - brainwad 8y ago
        They are required to hold enough liquid capital that they won't need to be bailed out next time. As far as I can tell, it did work, yes.
tootie 8y ago
In the long run, we're all dead.
- DesiLurker 8y ago
  I hear that tongue in cheek response many times but that's not true in its spirit, we will be survived by our next generation & they by theirs. Unless you are talking about ultimate heat death of universe. but then if you truly are that fatalistic then why bother commenting?
  - tootie 8y ago
    Idk what Keynes really meant honestly, but I like to think it means we can only plan so far ahead. Every action we take is to push Armageddon back another 5 years. Having disaster be just over the horizon is our constant state of being.

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.

simonh 8y ago

Sure, but allowing half the banks to fail would not have lead to a little dip. The collapse of Lehmans was very damaging for many perfectly healthy, well managed firms that depended on them. The only reason the effects were not worse was that there were other banks around to pick up the pieces, but if the domino effect had been allowed to play itself out the dramatic loss of capacity in the banking sector would have been truly catastrophic. Note that the bailout money wasn't simply gifted with no strings, it was leant and paid back with a profit to the tax payer. Of course QE had it's costs and they were very high, there were other costs as well, but they're often exaggerated. Paying off everyone's mortgages sounds lovely, how nice. In reality everyone would have rushed out and re-mortgaged their properties again, attempted to re-invest or spend their wind fall leading to massive house price inflation and a titanic credit binge the likes of which the world has never seen. The consequences would have been apocalyptic.

swarnie_ 8y ago
> Note that the bailout money wasn't simply gifted with no strings, it was leant and paid back with a profit to the tax payer. I can't comment if this is true in America but in the UK we've been selling off bailed out assets at a loss. Sales seem to be timed for political points not to maximize profit.
- tonyedgecombe 8y ago
  Not much, we dumped Lloyds because it was profitable, we can't let go of RBS because we will make a loss. This is loss aversion on a nationwide scale.
petra 8y ago
I don't think we've even begun seeing the terrible results of QE , at least in Europe. QE's long-term effect on housing prices will probably be terrible on many people wanting to purchase an appartment, possibly leaving many without one. And on the other hand, QE created such a boom in startup investing, which will greatly increase the rate which jobs will be automated. I can't see how this ends well over the long term.

jondubois 8y ago

Agreed, by delaying crashes, the problems pile up and they compound. You're not allowing the population to update their skills and targets to meet real economic needs because reality has been distorted by the bailouts. For example, maybe one reason for the crash is that the economy couldn't support so many people working in finance. Because of the bailouts however, it's now probably more lucrative than ever to work in finance; so we probably have even more people working in finance today than in 2008. People who are succeeding in business today don't actually know how to fulfil real economic needs. They only know how to fulfil artificial economic needs in this make-believe economy that the Fed has created.

compcoffee 8y ago
>Agreed, by delaying crashes Uh, what crash was delayed? 2008 was the worst since the Great Depression. >Because of the bailouts however, it's now probably more lucrative than ever to work in finance This is simply incorrect. >so we probably have even more people working in finance today than in 2008 We have slightly more now than 12 years ago. Why would we not?

compcoffee 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's this mentality which is going to cost you in the long run. People have been saying "the next one is around the corner" for 10 years, and missed the biggest bull run in history. If you bought prior to the Lehman collapse you'd still be up 130%. >Even if the government had simply paid off everyones' mortgages, it would be better for the average person I disagree. I'm not going to pay the mortgage for someone else because someone decided they needed way more house than they could afford.

deleted 8y ago
[deleted]

brainwad 8y ago

The banks paid back their bailout loans, with interest. There was no way the borrowers who got those no-doc loans in the mid-00s could have ever paid off those loans. Bailing out the borrowers would have actually cost money, and would have created enormous moral hazard.

bradleyjg 8y ago
How about the moral hazard of teaching an entire generation of bankers that picking up nickels in front of a steamroller is a great career move with virtually no risk of personal consequences?
- brainwad 8y ago
  It's bad, which is why after the crisis the Dodd-Frank act was passed to reduce the chances of too-big-to-fail entities failing. So while we taught them they'd be bailed out, it's much less likely they can get themselves into that situation again.
  - bradleyjg 8y ago
    Do you really believe that? Because I certainly don’t.
    - brainwad 8y ago
      They are required to hold enough liquid capital that they won't need to be bailed out next time. As far as I can tell, it did work, yes.

tootie 8y ago

In the long run, we're all dead.

DesiLurker 8y ago
I hear that tongue in cheek response many times but that's not true in its spirit, we will be survived by our next generation & they by theirs. Unless you are talking about ultimate heat death of universe. but then if you truly are that fatalistic then why bother commenting?
- tootie 8y ago
  Idk what Keynes really meant honestly, but I like to think it means we can only plan so far ahead. Every action we take is to push Armageddon back another 5 years. Having disaster be just over the horizon is our constant state of being.