13 ms·

The Audacity of Doing Nothing

159 points by peter123 18y ago

profgubler 18y ago
I have heard and thought the same thing. Who wants to deal with a market right now, knowing that any second the government might quickly change the game on you. It is like in school, when the kid who started loosing started changing the rules, everyone else didn't want to play any more.
pj 18y ago
Nothing is exactly the right thing to do.
- jacquesm 18y ago
  Maybe. How about repossessing some of that money that got removed from the economy by the people that got us in to this mess in the first place. Makes you wonder how much of that '2 trillion' came out of the system in an illicit way in the first place. After all, all that money missing must have gone somewhere.
  - jacquesm 18y ago
    If you disagree with me I'd be much obliged to hear why.
    - mattmaroon 18y ago
      I don't think its disagreement so much as you're confusing what happened. $2 trillion in wealth disappeared, not money. There's a big difference, it doesn't "come out of the system". It's simply people valuing things at less than they did before. It's not stolen, they way dollar bills would be if $2 trillion in money disappeared.
  - hackinthebochs 18y ago
    That money never existed in the first place. The "value" of the assets were based on people's confidence in it continuing to rise. Once that confidence evaporated, so did the "value". The problem is how connected the financial system became to these bubble assets.
    - jacquesm 18y ago
      I don't think that's the whole of it. Especially in the case of the resale of the bad debt packages real money changed hands for future revenue based on a misrepresentation of the facts about these packages on the part of the seller. That money should be recoverable.
- calambrac 18y ago
  Stupid grammar, making that sentence ambiguous. I can't decide if I'm annoyed that you would post one sentence saying you agreed with the article (there's a little arrow for that), or if I'm cowed into meditating on the idea that quests for perfection are doomed.
  - jeremyw 18y ago
    The grammar is perfect. Do we want chance of extended pain or foreshortened? Given the purportedly uncharted macroeconomics, each solution could give us either outcome. It's a many-worlds interpretation (http://en.wikipedia.org/wiki/Many-worlds_interpretation http://en.wikipedia.org/wiki/Many-worlds_interpretation). But boy, if will be wonderful wasteful fireworks, 2 trillion manically disbursed.
- kubrick 18y ago
  Isn't that saying "let them eat cake?"
  - laut 18y ago
    No.
  - laut 18y ago
    Please explain how you think it is like the french expression you are referring to.
    - kubrick 18y ago
      French revolution, a certain Marie A. is said to have responded to the question of the fate of the masses with "let them eat cake". It's paralleled here by this guy's suggestion that we should just let the market do its work, human consequences be damned.
earl 18y ago
Oh please. Contracts get modified in bankruptcy all the time -- in fact, the inability to modify mortgages is the exception. In a standard business reorganization all contracts are capable of being modified by the judge or by consensus of the creditors. There's really no good reason for homes to be an exception and it's one of the more direct ways to keep people in homes. Frankly, this is probably better for all of us considering the massive overallocation of resources to housing investment and the current existence of too much housing stock. Either we help people stay in them and they cover a percent of the mortgage or we kick them out and sell the house to... oh wait. Yeah. I'm more scared of the knockon effects of allowing a massive devaluation in housing than the potential knockon effects of judges modifying mortgages in bankruptcy just like they modify all other obligations in bankruptcy. Further, Phil was talking to people with $2 TRILLION to invest? Um, maybe, but that's 15 percent of US GDP. Pretty rare air there, and the idea that all these people (and perhaps Phil, too) weren't simply talking their book is nonsense.
- dantheman 18y ago
  Oh Please, your worried about a massive devaluation in housing. Almost everyone admits housing is currently overvalued, everyone refers to it as a housing bubble. I'm concerned that housing values will be stabilized at an above market rate with the help of my tax dollars making it more difficult for me to one day purchase a house of my own.
- newt0311 18y ago
  "Oh please. Contracts get modified in bankruptcy all the time -- in fact, the inability to modify mortgages is the exception. In a standard business reorganization all contracts are capable of being modified by the judge or by consensus of the creditors." Way to go on comparing apples and oranges. Bankruptcy does lead to modified contracts but the process of these modifications has been known for decades. It is well known and bankruptcy law has been relatively stable. If Obama et al. decided to change bankruptcy law every month in ill-defined ways then you will see the same cry for the same well-justified reason: the government induced uncertainty is far more harmful as compared to the benefits. "There's really no good reason for homes to be an exception and it's one of the more direct ways to keep people in homes." Pure bullshit. There is an excellent reason to have special rules regarding housing when it comes to bankruptcy and mortgages. Namely, if lenders are assured that their claim to the property will not be removed during a bankruptcy, the loan is a lower risk loan and will therefore result in lower interest payments. Historically, this has been correct. The current housing glut is partly due to the over-exuberance of bankers (for which they should be allowed to go bankrupt) and partly due to government action like Fannie Mae and Freddy Mac which subsidized housing for years, excessively loose monetary policy which reduced the price of debt in general (and since housing is already is nice market for debt due to bankruptcy law, this hit housing very hard), community-reinvestment act and friends, etc... "Frankly, this is probably better for all of us considering the massive overallocation of resources to housing investment and the current existence of too much housing stock." So houses are overvalued. Yeah, but the problem lies with the other congressional regulation which indeed needs to go down the drain but now we are dreaming. "Either we help people stay in them and they cover a percent of the mortgage or we kick them out and sell the house to... oh wait. Yeah. I'm more scared of the knockon effects of allowing a massive devaluation in housing than the potential knockon effects of judges modifying mortgages in bankruptcy just like they modify all other obligations in bankruptcy." Um... either way, the value of houses decline. Just that one way, home owners are still stuck under what is possibly crushing debt and we have just established a precedent that Irresponsible debt = GOOD and by implication Responsibility and financial planning = BAD and in a society which already has too much debt, do you really want to do that? In contrast, with the other path, we allow the banks to do what they do best: deal with mortgages. "Further, Phil was talking to people with $2 TRILLION to invest? Um, maybe, but that's 15 percent of US GDP. Pretty rare air there, and the idea that all these people (and perhaps Phil, too) weren't simply talking their book is nonsense." Um... the US economy has ~$150 trillion of capital (by some reliable counts. This is a difficult variable to determine). GDP is how much that increases. You do realize that $2 Trillion is nowhere close to what these people will earn. Furthermore, the second part is ad hominem (which is not complete unjustified as these people rely heavily on their reputation in the article). Still their basic point that investors are scared shitless of an overly active (and in this case, confused) government. This has actually been demonstrated in the past. In particular, it is very interesting to look at investor confidence surveys during ~1938 (when FDR was Mr. Anti-Business) and ~1942-3 (when FDR was Mr. Win-The-War). Investment and gdp numbers also closely follow. Lastly, this is not the first time that I have heard this sentiment. Look here: http://www.smartmoney.com/investing/stocks/government-intervention-instills-chaos-not-calm/ http://www.smartmoney.com/investing/stocks/government-interv... . Whats really interesting about this article is that it was written in September 2008. The article predicts that as long as government keeps meddling in the markets, prices will remain low and uncertain. Lo-and-behold, a forward looking prediction that came to be true. Admittedly, this could be coincidence but then again this is the most plausible thing that I have seen in the last 6 months of this entire affair.
calambrac 18y ago
Wait, the people who figured out how to capture all the money out of the existing system don't want to see that system changed? I'm confused... it's almost as if they were speaking in their self-interest.
- dmix 18y ago
  If the government did nothing companies such as JPMorgan would nearly go bankrupt. The investors at the top would be responsible for bringing down 100+ year old companies. On top of destroy legacies, they would personally lose a serious amount of money. The difference is that there will be consequences to their actions; they and the majority of the country will suffer. With that precedent, would it be likely that it would happen again? From my impression, the main goal tends not to be whether they can come out of this with a much better system instead its how the they can reduce the amount of damage that will be done.
  - calambrac 18y ago
    Anyone who's saying "let it all fall down" either thinks that they're outside of the drop zone, or has a serious martyr complex. Their argument is that making (other) people just bend over and take it is better for the overall economy (i.e., them). I don't think these people should care about destroying legacies (a company shouldn't be sacred just because it's old, that's pointless sentimentalism), but it seems that they would care about losing a serious amount of money, so the obvious conclusion is that they see themselves losing more in the bailout (the article says as much). The important question is: do we believe them (they are pretty good with money, after all), or do we try it another way? I personally think we should try it another way, but (from my current relatively comfortable observation post) that's probably more out of curiosity than any reasoned belief.
    - dmix 18y ago
      He may not just be outside the "drop zone". You could argue his motivation for taking that position is because he trusts his ability to rebuild himself in an free market recovering from the ground up, instead of an economy that is stabilized by government intervention but has limited growth potential. Both approaches involved regular people "bending over", either through a bad economy or through taxes/inflation.
mattmaroon 18y ago
Does anyone else see the irony here? Big corporations, the very pinnacle of capitalism, are lobbying the government to take control away from the market that spawned them.
- helveticaman 18y ago
  It's a collective action problem.
- calambrac 18y ago
  I don't think big corporations are the pinnacle of capitalism; the phrase "corporate bullshit" exists for good reason. They can be bloated with bureaucracy, have pockets of people that are paid do essentially nothing, be wrung through the hands of executives who make a personal killing while the company goes down in flames. They have a tendency of morphing away from providing real value and into preserving their own existence by any means necessary (see: lobbying the government to take control away from the market that spawned them).
  - mattmaroon 18y ago
    I wouldn't claim they're perfect by any means, just as humans are the pinnacle of evolution yet are still far from it. But they're the final result. They're the biggest and best (from a survival standpoint) of the ecosystem.
    - calambrac 18y ago
      Again, interesting analogy. Big lumbering dinosaurs were the peak of their evolutionary line, too, but the small rodents are who survived and thrived after the asteroid hit.
      - mattmaroon 18y ago
        In this case the dinosaurs are their own asteroid.
TomOfTTB 18y ago
Dear Libertarian Types (of which I consider myself one) Please stop arguing against the Obama strategy. There’s nothing you can do to stop it and its failure (if it does fail) will make your point better than if you wrote a billion blog posts. Beyond that if he does succeed you could write a billion blog posts saying he was wrong and they aren’t going to convince people. One way or the other it’s out of your hands. More importantly...you have a bigger problem. Right now there are a lot of people out there arguing that libertarian principles got us into this mess. That is simply not the case and arguing against that is where you should be putting your effort. Because assuming President Obama does fail you’ll want people to be open to libertarian principles in the future. Fiscal policy is like a game of chess right now and you should be looking three moves down and not at the very next encounter (which you already lost almost 3 months ago) Sincerely, Tom
- donniefitz2 18y ago
  Amen, brother. Speaking the truth.
  - adnam 18y ago
    Praise the lard
- rudyfink 18y ago
  I think if someone believes what we, as a country, are doing is wrong they should speak out. The sums and future commitments involved in all of this are absolutely enormous and if someone thinks it is being misspent this is the time to say so. You are right that there is practically little anyone can do and that politics is usually played several moves down the road. The recent election will be taken as a mandate for whatever is passed and that will be that. That said I still think that if someone believes they should speak their mind. I don't say this because I'm a libertarian or especially in any given political camp. I just do not want to see political opinion or participation discouraged. I think the long term solution is more people aware and interested in policy and not less.
  - 18y ago
donniefitz2 18y ago
We are going to learn, one way or another, that government can't fix our problems. Government causes problems, they don't fix anything.
- calambrac 18y ago
  Anarchy, dawg. Right on. Anyways, I'm reminded of the time in kindergarten when I brought my piggy bank to school for show-and-tell, and dropped it like a stupid fucking clumsy five-year-old. My teacher, a government employee, glued that shit back together good as new. So, anytime you find yourself glum about the ineffectiveness of government, about their chronic inability to fix anything, please remember my piggy bank and take heart. They fixed that good.
JesseAldridge 18y ago
'We, the Economists Without Answers, are sick and tired of being asked about what caused the current global economic crisis and when it might end. The short answer is: we don’t know. We had nothing to do with its onset and we don’t know how to end it, either. If we knew anything, we’d be rich and wouldn’t share the information freely. But we’re not rich. Our asset portfolios have taken the same hit as those of everyone else. One thing we DO know is that the economists who claim to know something about the current economic situation don’t have a clue. In the immortal words of William Goldman (writing about why certain movies become blockbusters and others bombs): "Nobody Knows Anything".' http://www.facebook.com/group.php?gid=50432051369&ref=mf http://www.facebook.com/group.php?gid=50432051369&ref=mf
mwerty 18y ago
I don't get the first point: Were the banks forced by law to be bailed out in terms attractive to the government? Or did the CEOs of these banks take government money because they were the only lenders available. If it's the latter (which is what I thought it was), these guys should look for better investments. The only way I see government using force here is by taxation and devaluing currency by printing more of it. But that's not what these guys are whining about.
dilanj 18y ago
Comparing rudimentary 19th century financial system to present is quite absurd and misleading. Back then it was a very self contained economy fueled by production and agriculture. There were no billions of foreign bonds, volatile currency affairs or even electronic debt transfer, which can practically run the country bankrupt in a few hours if unsupervised. I don't think I've seen a more mundanely written and ill-supported essay on financial crisis at top of HN before.
danbmil99 18y ago
What the GOP needs to do is punt the social conservatives out of their party and take the middle to form a coalition. Bring back truly 'conservative' values such as self reliance, personal accountability etc., but also acknowledge that society has to function smoothly to avoid market chaos. That means leavening libertarian ideals with some realpolitik. Pure ideology almost always fails, no matter which one you choose. What works is starting with some core principles, but accepting that pragmatic decisions sometimes have to stray from those ideals.
dublinclontarf 18y ago
Who is John Galt?
- Allocator2008 18y ago
  Here is to whatever retards down voted this comment. If you do not happen to get a literary reference do not cause others to suffer from your ignorance. You parasites are not worthy to be on the same f*in planet as John Galt.
cia_plant 18y ago
Haven't we just rediscovered that "money management" is basically pseudoscience? These are the kinds of people who promise to beat the market using their special models or skills. On average they fail. When they seem to be doing well for a while, it is because they are playing the Martingale. When someone says "These people manage $2 trillion", it seems like we should take it in the same light as "These people are among the most successful peddlers of perpetual motion machines in the world". Your reaction should be to trust them less, not more, about economic and financial matters.
- ryanwaggoner 18y ago
  Haven't we just rediscovered that "money management" is basically pseudoscience? These are the kinds of people who promise to beat the market using their special models or skills. On average they fail. No. While they may fail on average, they certainly don't all fail. There are some money managers who are truly brilliant and have consistently had great returns. Granted, these people are few and far between, but that doesn't negate the value of the entire field. Using your logic, you could easily make the case that entrepreneurship is pseudoscience, since almost all entrepreneurs fail, therefore no one should invest with them or trust them.
  - nradov 18y ago
    Are they brilliant or just lucky? And how do you tell the difference?
    - deleted 18y ago
      [deleted]
    - ryanwaggoner 18y ago
      That's an entire discussion of its own. My point was that they're not all just lucky.
      - mattmaroon 18y ago
        You can't prove that, and even if you could, you couldn't prove which ones weren't just lucky so the statement is useless.
imichael 18y ago
Fine, do nothing to the guys Greenspun was talking to. A deal is a deal. But there were also guys selling insurance on those mortgages (in the form of CDOs). Let's think about them for a minute. Suppose you start a small company to sell earthquake insurance to people in California. You make a lot of money, more and more as the years go by with no earthquake. When the earthquake comes, you can't pay the policy holders. Should the government bail you out? Is it just too bad for the policy holders? Or did you commit fraud? I don't like regulation but fraudulent activity should be illegal. You certainly can't get away with this with earthquake insurance because the insurance industry is "regulated". The financial industry needs the same kind of regulation. Right now there are huge holes.
darose 18y ago
Stupidest thing I've ever heard. Man, people just get so focused on their own narrow ideological view that they can't see the big picture. He downplays the most important phrase in the whole essay: "investors are afraid of a prolonged depression". And damn well they should be. As should the rest of us - very afraid! He (and the investors he refers to) toss off that prospect like, oh, yeah, boo hoo hoo - we should all just let the market play itself out, if a depression comes so be it, and we'll all be better off for it on the other side. But a) I doubt very highly that we'd come out of it on the other side anywhere near to as good as we are now, and b) they never give any thought to the actual social consequences of that kind of policy. Let me tell you, if the government does nothing, lets foreclosures just run their course, and lets the banking system collapse it will destroy this country. Tens of millions of jobs will disappear, tens of millions of people will be homeless and/or in poverty. Crime will skyrocket. And the risks of the country descending into either anarchy, revolution, or embracing right-wing totalitarianism in a misguided effort to restore "safety" will be tremendous. Duh. Use your head, people! God I'm so tired of jaded rich people dishing out their out-of-touch laissez faire B.S. It's primarily the fault of laissez faire government policies that we're in this situation in the first place!
- DanielBMarkham 18y ago
  I guess there goes the "end of the politics of fear"
kubrick 18y ago
It must be nice to be so rich that you can afford to think this way.
josefresco 18y ago
Easy to say "let them wiped out and reset" when you have lots of money to invest and want to get back to making even more.
Allocator2008 18y ago
I have an idea. A public - private (government - investor) fund to buy toxic assets from banks was proposed as a way to get banks stable again. Why not have something like that but entirely private? No tax dollars involved. In a sense the investors buying into that would sort of be "taking one for the team". But it is like with high-risk jobs like fixing a telephone wire or something one can get hazard pay, incentives should be structured for those investors willing to take one for the team. Like FDIC insured "coupons" or something. So if I am an investor buying into the "toxic asset rescue fund" I can buy say a 1 million dollar "coupon", redeemable after some reasonable number of years at some reasonable but attractive interest rate (say 3%). And it is FDIC insured. So I am others like me buy a bunch of "coupons" in this toxic asset rescue fund. The money goes into the banks to help them stabilize. The assets bought are worthless and may not even be tangible, but the fund managers for this rescue fund can try and sell off or profit from the assets as best they can, but even so, they will probably be in the red still, but that doesn't matter so much. In 10 years when the coupons are redeemable, the banks will have money again, and the FDIC can insure the redeeming of the coupons. The fund can be managed basically by bank managers for the banks who are benefiting from it. All the government has to do is insure the coupons being bought to get enough investors to be confident enough to join the fund. But in 10 years hopefully the banks can pay back the coupons and the Feds won't have to pay any insurance out anyway. The toxic assets are the cancer eating the banks, which is eating the economy so it is imperative this be taken care of, in order to increase liquidity. The rescue fund proposed is a good idea. I'm saying why not make it all private. Keeps the burden off the tax payers, and still provides a way for banks to cover their asses.
Allocator2008 18y ago
I have an idea. A public - private (government - investor) fund to buy toxic assets from banks was proposed as a way to get banks stable again. Why not have something like that but entirely private? No tax dollars involved. In a sense the investors buying into that would sort of be "taking one for the team". But it is like with high-risk jobs like fixing a telephone wire or something one can get hazard pay, incentives should be structured for those investors willing to take one for the team. Like FDIC insured "coupons" or something. So if I am an investor buying into the "toxic asset rescue fund" I can buy say a 1 million dollar "coupon", redeemable after some reasonable number of years at some reasonable but attractive interest rate (say 3%). And it is FDIC insured. So I am others like me buy a bunch of "coupons" in this toxic asset rescue fund. The money goes into the banks to help them stabilize. The assets bought are worthless and may not even be tangible, but the fund managers for this rescue fund can try and sell off or profit from the assets as best they can, but even so, they will probably be in the red still, but that doesn't matter so much. In 10 years when the coupons are redeemable, the banks will have money again, and the FDIC can insure the redeeming of the coupons. The fund can be managed basically by bank managers for the banks who are benefiting from it. All the government has to do is insure the coupons being bought to get enough investors to be confident enough to join the fund. But in 10 years hopefully the banks can pay back the coupons and the Feds won't have to pay any insurance out anyway. The toxic assets are the cancer eating the banks, which is eating the economy so it is imperative this be taken care of, in order to increase liquidity. The rescue fund proposed is a good idea. I'm saying why not make it all private. Keeps the burden off the tax payers, and still provides a way for banks to cover their asses.
catfish 18y ago
As a middle class American who paid for my home for 24 years month after month, who did not speculate, nor took any risk, this guy pisses me off. They stole my equity. Period. Plain and simple. It was their fancy methods of making money that stole the money for my retirement, my children's education, and home improvements. I wish they would take their 2 trillion dollars and fly to the moon. These people are scum. Harvard is just a fancy school for thieves. You can dress up a pig, and its still a pig. When these folks wanted to make money they changed the bankruptcy laws, freed up credit, and started charging 30-40 percent interest on credit card loans. They freed up credit in the home loan markets and allowed speculators to drive up the price of homes 3-4 times their value. And then when the bust comes, they cry their eyes out because they are afraid to invest. They are fear based because the days of thievery are at an end. It sickens me to see someone post this stuff as if they are our only answer to the future. The real answer has several components: 1. Tie our money to a real standard. Gold. 2. Loan money to middle America from Banks ran by our country and limit interest earnings to 1 percent. This means housing, student loans, car loans with a cap of 1% payback for fiat money borrowed to pay for it. 3. Get rid of income tax. Sales tax only. 4. Eliminate sales of stocks which do not provide a minimum dividend payment monthly. You can't pay your dividends, you go bankrupt. Period. 5. No more funny money games with derivatives, credit swaps, bundling, blah bu blah. To hell with free wheeling economics. It does not work and it only helps the greedy bastards that continue to screw us middle Americans that only seek stability in our futures. 6. Money = Greed. Control how much any one entity is allowed to own based on productivity. Cap it based on ability to produce goods, services, or IP. No CEO should be paid more than 50 times the lowest level employee in the company. Think we would be talking about minimum wage if this were the law? 7. Force people to save by taking 1% of all sales tax paid every year and allocating it to a privatized social security account. 8. Eliminate Unemployment. If you can print money the way we do, then spend it on creating government jobs meant to help people. If money is not tied to a gold standard, then its really just perception anyway. Print it and give it directly to folks that will use it to live better than poverty levels. 9. Free Health Care for everyone. Pay doctors the same level you pay a money manager and the doctor shortage is gone in 6 years. HMO's? Private medicine? How do you justify this in the worlds richest country with 42 million men, women, and children, not able to afford it? It is only a matter of time before we eliminate money entirely. 500 years? A thousand? One day nano tech and robotics are going to completely eliminate labor required to fulfill our basic necessities. Star Trek Communism will replace this greed driven economy. Live long and prosper...

159 points by peter123 18y ago

I have heard and thought the same thing. Who wants to deal with a market right now, knowing that any second the government might quickly change the game on you. It is like in school, when the kid who started loosing started changing the rules, everyone else didn't want to play any more.

pj 18y ago

Nothing is exactly the right thing to do.

jacquesm 18y ago
Maybe. How about repossessing some of that money that got removed from the economy by the people that got us in to this mess in the first place. Makes you wonder how much of that '2 trillion' came out of the system in an illicit way in the first place. After all, all that money missing must have gone somewhere.
- jacquesm 18y ago
  If you disagree with me I'd be much obliged to hear why.
  - mattmaroon 18y ago
    I don't think its disagreement so much as you're confusing what happened. $2 trillion in wealth disappeared, not money. There's a big difference, it doesn't "come out of the system". It's simply people valuing things at less than they did before. It's not stolen, they way dollar bills would be if $2 trillion in money disappeared.
- hackinthebochs 18y ago
  That money never existed in the first place. The "value" of the assets were based on people's confidence in it continuing to rise. Once that confidence evaporated, so did the "value". The problem is how connected the financial system became to these bubble assets.
  - jacquesm 18y ago
    I don't think that's the whole of it. Especially in the case of the resale of the bad debt packages real money changed hands for future revenue based on a misrepresentation of the facts about these packages on the part of the seller. That money should be recoverable.
calambrac 18y ago
Stupid grammar, making that sentence ambiguous. I can't decide if I'm annoyed that you would post one sentence saying you agreed with the article (there's a little arrow for that), or if I'm cowed into meditating on the idea that quests for perfection are doomed.
- jeremyw 18y ago
  The grammar is perfect. Do we want chance of extended pain or foreshortened? Given the purportedly uncharted macroeconomics, each solution could give us either outcome. It's a many-worlds interpretation (http://en.wikipedia.org/wiki/Many-worlds_interpretation http://en.wikipedia.org/wiki/Many-worlds_interpretation). But boy, if will be wonderful wasteful fireworks, 2 trillion manically disbursed.
kubrick 18y ago
Isn't that saying "let them eat cake?"
- laut 18y ago
  No.
- laut 18y ago
  Please explain how you think it is like the french expression you are referring to.
  - kubrick 18y ago
    French revolution, a certain Marie A. is said to have responded to the question of the fate of the masses with "let them eat cake". It's paralleled here by this guy's suggestion that we should just let the market do its work, human consequences be damned.

earl 18y ago

Oh please. Contracts get modified in bankruptcy all the time -- in fact, the inability to modify mortgages is the exception. In a standard business reorganization all contracts are capable of being modified by the judge or by consensus of the creditors. There's really no good reason for homes to be an exception and it's one of the more direct ways to keep people in homes. Frankly, this is probably better for all of us considering the massive overallocation of resources to housing investment and the current existence of too much housing stock. Either we help people stay in them and they cover a percent of the mortgage or we kick them out and sell the house to... oh wait. Yeah. I'm more scared of the knockon effects of allowing a massive devaluation in housing than the potential knockon effects of judges modifying mortgages in bankruptcy just like they modify all other obligations in bankruptcy. Further, Phil was talking to people with $2 TRILLION to invest? Um, maybe, but that's 15 percent of US GDP. Pretty rare air there, and the idea that all these people (and perhaps Phil, too) weren't simply talking their book is nonsense.

dantheman 18y ago
Oh Please, your worried about a massive devaluation in housing. Almost everyone admits housing is currently overvalued, everyone refers to it as a housing bubble. I'm concerned that housing values will be stabilized at an above market rate with the help of my tax dollars making it more difficult for me to one day purchase a house of my own.
newt0311 18y ago
"Oh please. Contracts get modified in bankruptcy all the time -- in fact, the inability to modify mortgages is the exception. In a standard business reorganization all contracts are capable of being modified by the judge or by consensus of the creditors." Way to go on comparing apples and oranges. Bankruptcy does lead to modified contracts but the process of these modifications has been known for decades. It is well known and bankruptcy law has been relatively stable. If Obama et al. decided to change bankruptcy law every month in ill-defined ways then you will see the same cry for the same well-justified reason: the government induced uncertainty is far more harmful as compared to the benefits. "There's really no good reason for homes to be an exception and it's one of the more direct ways to keep people in homes." Pure bullshit. There is an excellent reason to have special rules regarding housing when it comes to bankruptcy and mortgages. Namely, if lenders are assured that their claim to the property will not be removed during a bankruptcy, the loan is a lower risk loan and will therefore result in lower interest payments. Historically, this has been correct. The current housing glut is partly due to the over-exuberance of bankers (for which they should be allowed to go bankrupt) and partly due to government action like Fannie Mae and Freddy Mac which subsidized housing for years, excessively loose monetary policy which reduced the price of debt in general (and since housing is already is nice market for debt due to bankruptcy law, this hit housing very hard), community-reinvestment act and friends, etc... "Frankly, this is probably better for all of us considering the massive overallocation of resources to housing investment and the current existence of too much housing stock." So houses are overvalued. Yeah, but the problem lies with the other congressional regulation which indeed needs to go down the drain but now we are dreaming. "Either we help people stay in them and they cover a percent of the mortgage or we kick them out and sell the house to... oh wait. Yeah. I'm more scared of the knockon effects of allowing a massive devaluation in housing than the potential knockon effects of judges modifying mortgages in bankruptcy just like they modify all other obligations in bankruptcy." Um... either way, the value of houses decline. Just that one way, home owners are still stuck under what is possibly crushing debt and we have just established a precedent that Irresponsible debt = GOOD and by implication Responsibility and financial planning = BAD and in a society which already has too much debt, do you really want to do that? In contrast, with the other path, we allow the banks to do what they do best: deal with mortgages. "Further, Phil was talking to people with $2 TRILLION to invest? Um, maybe, but that's 15 percent of US GDP. Pretty rare air there, and the idea that all these people (and perhaps Phil, too) weren't simply talking their book is nonsense." Um... the US economy has ~$150 trillion of capital (by some reliable counts. This is a difficult variable to determine). GDP is how much that increases. You do realize that $2 Trillion is nowhere close to what these people will earn. Furthermore, the second part is ad hominem (which is not complete unjustified as these people rely heavily on their reputation in the article). Still their basic point that investors are scared shitless of an overly active (and in this case, confused) government. This has actually been demonstrated in the past. In particular, it is very interesting to look at investor confidence surveys during ~1938 (when FDR was Mr. Anti-Business) and ~1942-3 (when FDR was Mr. Win-The-War). Investment and gdp numbers also closely follow. Lastly, this is not the first time that I have heard this sentiment. Look here: http://www.smartmoney.com/investing/stocks/government-intervention-instills-chaos-not-calm/ http://www.smartmoney.com/investing/stocks/government-interv... . Whats really interesting about this article is that it was written in September 2008. The article predicts that as long as government keeps meddling in the markets, prices will remain low and uncertain. Lo-and-behold, a forward looking prediction that came to be true. Admittedly, this could be coincidence but then again this is the most plausible thing that I have seen in the last 6 months of this entire affair.

calambrac 18y ago

Wait, the people who figured out how to capture all the money out of the existing system don't want to see that system changed? I'm confused... it's almost as if they were speaking in their self-interest.

dmix 18y ago
If the government did nothing companies such as JPMorgan would nearly go bankrupt. The investors at the top would be responsible for bringing down 100+ year old companies. On top of destroy legacies, they would personally lose a serious amount of money. The difference is that there will be consequences to their actions; they and the majority of the country will suffer. With that precedent, would it be likely that it would happen again? From my impression, the main goal tends not to be whether they can come out of this with a much better system instead its how the they can reduce the amount of damage that will be done.
- calambrac 18y ago
  Anyone who's saying "let it all fall down" either thinks that they're outside of the drop zone, or has a serious martyr complex. Their argument is that making (other) people just bend over and take it is better for the overall economy (i.e., them). I don't think these people should care about destroying legacies (a company shouldn't be sacred just because it's old, that's pointless sentimentalism), but it seems that they would care about losing a serious amount of money, so the obvious conclusion is that they see themselves losing more in the bailout (the article says as much). The important question is: do we believe them (they are pretty good with money, after all), or do we try it another way? I personally think we should try it another way, but (from my current relatively comfortable observation post) that's probably more out of curiosity than any reasoned belief.
  - dmix 18y ago
    He may not just be outside the "drop zone". You could argue his motivation for taking that position is because he trusts his ability to rebuild himself in an free market recovering from the ground up, instead of an economy that is stabilized by government intervention but has limited growth potential. Both approaches involved regular people "bending over", either through a bad economy or through taxes/inflation.

mattmaroon 18y ago

Does anyone else see the irony here? Big corporations, the very pinnacle of capitalism, are lobbying the government to take control away from the market that spawned them.

helveticaman 18y ago
It's a collective action problem.
calambrac 18y ago
I don't think big corporations are the pinnacle of capitalism; the phrase "corporate bullshit" exists for good reason. They can be bloated with bureaucracy, have pockets of people that are paid do essentially nothing, be wrung through the hands of executives who make a personal killing while the company goes down in flames. They have a tendency of morphing away from providing real value and into preserving their own existence by any means necessary (see: lobbying the government to take control away from the market that spawned them).
- mattmaroon 18y ago
  I wouldn't claim they're perfect by any means, just as humans are the pinnacle of evolution yet are still far from it. But they're the final result. They're the biggest and best (from a survival standpoint) of the ecosystem.
  - calambrac 18y ago
    Again, interesting analogy. Big lumbering dinosaurs were the peak of their evolutionary line, too, but the small rodents are who survived and thrived after the asteroid hit.
    - mattmaroon 18y ago
      In this case the dinosaurs are their own asteroid.

TomOfTTB 18y ago

Dear Libertarian Types (of which I consider myself one) Please stop arguing against the Obama strategy. There’s nothing you can do to stop it and its failure (if it does fail) will make your point better than if you wrote a billion blog posts. Beyond that if he does succeed you could write a billion blog posts saying he was wrong and they aren’t going to convince people. One way or the other it’s out of your hands. More importantly...you have a bigger problem. Right now there are a lot of people out there arguing that libertarian principles got us into this mess. That is simply not the case and arguing against that is where you should be putting your effort. Because assuming President Obama does fail you’ll want people to be open to libertarian principles in the future. Fiscal policy is like a game of chess right now and you should be looking three moves down and not at the very next encounter (which you already lost almost 3 months ago) Sincerely, Tom

donniefitz2 18y ago
Amen, brother. Speaking the truth.
- adnam 18y ago
  Praise the lard
rudyfink 18y ago
I think if someone believes what we, as a country, are doing is wrong they should speak out. The sums and future commitments involved in all of this are absolutely enormous and if someone thinks it is being misspent this is the time to say so. You are right that there is practically little anyone can do and that politics is usually played several moves down the road. The recent election will be taken as a mandate for whatever is passed and that will be that. That said I still think that if someone believes they should speak their mind. I don't say this because I'm a libertarian or especially in any given political camp. I just do not want to see political opinion or participation discouraged. I think the long term solution is more people aware and interested in policy and not less.
- 18y ago

donniefitz2 18y ago

We are going to learn, one way or another, that government can't fix our problems. Government causes problems, they don't fix anything.

calambrac 18y ago
Anarchy, dawg. Right on. Anyways, I'm reminded of the time in kindergarten when I brought my piggy bank to school for show-and-tell, and dropped it like a stupid fucking clumsy five-year-old. My teacher, a government employee, glued that shit back together good as new. So, anytime you find yourself glum about the ineffectiveness of government, about their chronic inability to fix anything, please remember my piggy bank and take heart. They fixed that good.

JesseAldridge 18y ago

'We, the Economists Without Answers, are sick and tired of being asked about what caused the current global economic crisis and when it might end. The short answer is: we don’t know. We had nothing to do with its onset and we don’t know how to end it, either. If we knew anything, we’d be rich and wouldn’t share the information freely. But we’re not rich. Our asset portfolios have taken the same hit as those of everyone else. One thing we DO know is that the economists who claim to know something about the current economic situation don’t have a clue. In the immortal words of William Goldman (writing about why certain movies become blockbusters and others bombs): "Nobody Knows Anything".' http://www.facebook.com/group.php?gid=50432051369&ref=mf http://www.facebook.com/group.php?gid=50432051369&ref=mf

mwerty 18y ago

I don't get the first point: Were the banks forced by law to be bailed out in terms attractive to the government? Or did the CEOs of these banks take government money because they were the only lenders available. If it's the latter (which is what I thought it was), these guys should look for better investments. The only way I see government using force here is by taxation and devaluing currency by printing more of it. But that's not what these guys are whining about.

dilanj 18y ago

Comparing rudimentary 19th century financial system to present is quite absurd and misleading. Back then it was a very self contained economy fueled by production and agriculture. There were no billions of foreign bonds, volatile currency affairs or even electronic debt transfer, which can practically run the country bankrupt in a few hours if unsupervised. I don't think I've seen a more mundanely written and ill-supported essay on financial crisis at top of HN before.

danbmil99 18y ago

What the GOP needs to do is punt the social conservatives out of their party and take the middle to form a coalition. Bring back truly 'conservative' values such as self reliance, personal accountability etc., but also acknowledge that society has to function smoothly to avoid market chaos. That means leavening libertarian ideals with some realpolitik. Pure ideology almost always fails, no matter which one you choose. What works is starting with some core principles, but accepting that pragmatic decisions sometimes have to stray from those ideals.

dublinclontarf 18y ago

Who is John Galt?

Allocator2008 18y ago
Here is to whatever retards down voted this comment. If you do not happen to get a literary reference do not cause others to suffer from your ignorance. You parasites are not worthy to be on the same f*in planet as John Galt.

cia_plant 18y ago

Haven't we just rediscovered that "money management" is basically pseudoscience? These are the kinds of people who promise to beat the market using their special models or skills. On average they fail. When they seem to be doing well for a while, it is because they are playing the Martingale. When someone says "These people manage $2 trillion", it seems like we should take it in the same light as "These people are among the most successful peddlers of perpetual motion machines in the world". Your reaction should be to trust them less, not more, about economic and financial matters.

ryanwaggoner 18y ago
Haven't we just rediscovered that "money management" is basically pseudoscience? These are the kinds of people who promise to beat the market using their special models or skills. On average they fail. No. While they may fail on average, they certainly don't all fail. There are some money managers who are truly brilliant and have consistently had great returns. Granted, these people are few and far between, but that doesn't negate the value of the entire field. Using your logic, you could easily make the case that entrepreneurship is pseudoscience, since almost all entrepreneurs fail, therefore no one should invest with them or trust them.
- nradov 18y ago
  Are they brilliant or just lucky? And how do you tell the difference?
  - deleted 18y ago
    [deleted]
  - ryanwaggoner 18y ago
    That's an entire discussion of its own. My point was that they're not all just lucky.
    - mattmaroon 18y ago
      You can't prove that, and even if you could, you couldn't prove which ones weren't just lucky so the statement is useless.

imichael 18y ago

Fine, do nothing to the guys Greenspun was talking to. A deal is a deal. But there were also guys selling insurance on those mortgages (in the form of CDOs). Let's think about them for a minute. Suppose you start a small company to sell earthquake insurance to people in California. You make a lot of money, more and more as the years go by with no earthquake. When the earthquake comes, you can't pay the policy holders. Should the government bail you out? Is it just too bad for the policy holders? Or did you commit fraud? I don't like regulation but fraudulent activity should be illegal. You certainly can't get away with this with earthquake insurance because the insurance industry is "regulated". The financial industry needs the same kind of regulation. Right now there are huge holes.

darose 18y ago

Stupidest thing I've ever heard. Man, people just get so focused on their own narrow ideological view that they can't see the big picture. He downplays the most important phrase in the whole essay: "investors are afraid of a prolonged depression". And damn well they should be. As should the rest of us - very afraid! He (and the investors he refers to) toss off that prospect like, oh, yeah, boo hoo hoo - we should all just let the market play itself out, if a depression comes so be it, and we'll all be better off for it on the other side. But a) I doubt very highly that we'd come out of it on the other side anywhere near to as good as we are now, and b) they never give any thought to the actual social consequences of that kind of policy. Let me tell you, if the government does nothing, lets foreclosures just run their course, and lets the banking system collapse it will destroy this country. Tens of millions of jobs will disappear, tens of millions of people will be homeless and/or in poverty. Crime will skyrocket. And the risks of the country descending into either anarchy, revolution, or embracing right-wing totalitarianism in a misguided effort to restore "safety" will be tremendous. Duh. Use your head, people! God I'm so tired of jaded rich people dishing out their out-of-touch laissez faire B.S. It's primarily the fault of laissez faire government policies that we're in this situation in the first place!

DanielBMarkham 18y ago
I guess there goes the "end of the politics of fear"

kubrick 18y ago

It must be nice to be so rich that you can afford to think this way.

josefresco 18y ago

Easy to say "let them wiped out and reset" when you have lots of money to invest and want to get back to making even more.

Allocator2008 18y ago

I have an idea. A public - private (government - investor) fund to buy toxic assets from banks was proposed as a way to get banks stable again. Why not have something like that but entirely private? No tax dollars involved. In a sense the investors buying into that would sort of be "taking one for the team". But it is like with high-risk jobs like fixing a telephone wire or something one can get hazard pay, incentives should be structured for those investors willing to take one for the team. Like FDIC insured "coupons" or something. So if I am an investor buying into the "toxic asset rescue fund" I can buy say a 1 million dollar "coupon", redeemable after some reasonable number of years at some reasonable but attractive interest rate (say 3%). And it is FDIC insured. So I am others like me buy a bunch of "coupons" in this toxic asset rescue fund. The money goes into the banks to help them stabilize. The assets bought are worthless and may not even be tangible, but the fund managers for this rescue fund can try and sell off or profit from the assets as best they can, but even so, they will probably be in the red still, but that doesn't matter so much. In 10 years when the coupons are redeemable, the banks will have money again, and the FDIC can insure the redeeming of the coupons. The fund can be managed basically by bank managers for the banks who are benefiting from it. All the government has to do is insure the coupons being bought to get enough investors to be confident enough to join the fund. But in 10 years hopefully the banks can pay back the coupons and the Feds won't have to pay any insurance out anyway. The toxic assets are the cancer eating the banks, which is eating the economy so it is imperative this be taken care of, in order to increase liquidity. The rescue fund proposed is a good idea. I'm saying why not make it all private. Keeps the burden off the tax payers, and still provides a way for banks to cover their asses.

Allocator2008 18y ago

catfish 18y ago

As a middle class American who paid for my home for 24 years month after month, who did not speculate, nor took any risk, this guy pisses me off. They stole my equity. Period. Plain and simple. It was their fancy methods of making money that stole the money for my retirement, my children's education, and home improvements. I wish they would take their 2 trillion dollars and fly to the moon. These people are scum. Harvard is just a fancy school for thieves. You can dress up a pig, and its still a pig. When these folks wanted to make money they changed the bankruptcy laws, freed up credit, and started charging 30-40 percent interest on credit card loans. They freed up credit in the home loan markets and allowed speculators to drive up the price of homes 3-4 times their value. And then when the bust comes, they cry their eyes out because they are afraid to invest. They are fear based because the days of thievery are at an end. It sickens me to see someone post this stuff as if they are our only answer to the future. The real answer has several components: 1. Tie our money to a real standard. Gold. 2. Loan money to middle America from Banks ran by our country and limit interest earnings to 1 percent. This means housing, student loans, car loans with a cap of 1% payback for fiat money borrowed to pay for it. 3. Get rid of income tax. Sales tax only. 4. Eliminate sales of stocks which do not provide a minimum dividend payment monthly. You can't pay your dividends, you go bankrupt. Period. 5. No more funny money games with derivatives, credit swaps, bundling, blah bu blah. To hell with free wheeling economics. It does not work and it only helps the greedy bastards that continue to screw us middle Americans that only seek stability in our futures. 6. Money = Greed. Control how much any one entity is allowed to own based on productivity. Cap it based on ability to produce goods, services, or IP. No CEO should be paid more than 50 times the lowest level employee in the company. Think we would be talking about minimum wage if this were the law? 7. Force people to save by taking 1% of all sales tax paid every year and allocating it to a privatized social security account. 8. Eliminate Unemployment. If you can print money the way we do, then spend it on creating government jobs meant to help people. If money is not tied to a gold standard, then its really just perception anyway. Print it and give it directly to folks that will use it to live better than poverty levels. 9. Free Health Care for everyone. Pay doctors the same level you pay a money manager and the doctor shortage is gone in 6 years. HMO's? Private medicine? How do you justify this in the worlds richest country with 42 million men, women, and children, not able to afford it? It is only a matter of time before we eliminate money entirely. 500 years? A thousand? One day nano tech and robotics are going to completely eliminate labor required to fulfill our basic necessities. Star Trek Communism will replace this greed driven economy. Live long and prosper...