There is an old saying that goes something along the lines of, "Better the devil you know than the devil you don't". At the risk of mixing metaphors, Wall Street is about to find out the consequences of choosing the devil we knew over the devil of our own design. Rather than risk the natural fallout from excessive exuberance, and the cleansing demise of firms too bloated and hopelessly entangled to survive on their own, we desperately clutched at the life ring that has become a millstone around our neck.
Like the drunkard who awakens to a bridge-and-tunnel Jersey skank lying next to him, Wall Street lies dead still -- postponing the inevitable moment when she wakes up and demands breakfast. And that moment has arrived. Only she's not just hungry; she's lying there making wedding plans. And now it burns when we pee.
We no longer have anything even closely resembling a free market. The federal government now underwrites 9 out of every 10 residential mortgages in America. Since the beginning of the crisis, more than $2 trillion has been pumped into the economy and still we're in the midst of yet another "jobless recovery" with unemployment holding steady over 10 percent. Last week the government agreed to cover unlimited losses for Fannie Mae and Freddie Mac through 2012.
We're in uncharted territory here, folks, at least as far as the U.S. is concerned. In times like this, I'm forced to ask myself, "Cui Bono?", and I don't like the answer. The only discernible beneficiaries I can find (aside from the power-lusting government drones) are the guys at the very top of the Wall Street banks. When you think about it, the bailout didn't even help the rank-and-file bankers except to save the majority of the their 90+ hour a week jobs and prevent them from doing something meaningful with their lives.
Adam Smith's "invisible guiding hand of the market regulating without outside interference" has been replaced by Uncle Sam's very visible ham fist -- and it's wearing brass knuckles. Banks still under TARP's thumb don't know whether to shit or go blind when it comes to compensation policy, among other things. But don't think re-paying TARP gets the monkey off your back. Just ask U.S. Bancorp, who felt the need to check with the feds before raising their dividend. Or Bank of America, whose plan to offer Robert Kelly the CEO job was not-so-subtly torpedoed by compensation cop Kenneth Feinberg.
In the interest of the self-preservation of a few fat cats (who actually deserve that title), Wall Street allowed a new kid into the sandbox, and that kid is retard-strong with the intellect to match. And it didn't take long for him to become the neighborhood bully.
John Taylor, a former Bush Treasury official who is now a Stanford University economist, says the government's role will be far greater than Mr. Summers suggests. "While we may be past the emergency, we're still in a mode that will create similar interventions for quite a while, even for minor emergencies," he says. "We have a bailout mentality in this country."
Now that the dust has settled and the smoke has cleared, we are faced with the consequences of the quick fix. Like the gambler who turns to a loan shark to bail him out, we're in deep. And I'm not sure we'll ever get free of this one.
frankly, and don't jump at my throat for saying this but think it over a sec, i think the developments could mean something good. think about it: the economy runs in hypermode in the usual super-liberal capitalism we've been used to. naturally, this is good for obvious reasons, including development and growth. however with everybody in the corporate world learning from each other, quality is now less of a factor in choosing products to buy. the market is slowly becoming saturated, and will be so once the developing economies will reach a decent level of per-capita gdp. so many resources are wasted on mindless competition and attempts to raise shareholder value that american culture is morphing into this ugly monster devouring everything it is offered. i think this issue had already been raised in a thread comparing obama to some bad guy or other, and i would reiterate my stance that the only way western economies such as the american one can stay ahead of the game in spite of growing and strengthening asian firms is to change the culture and work ethic of the market, especially the labor market. this calls for a drastic transformation of the entire market as we know it. namely, i'd say the advanced economies should focus on what they do best - labor and education intensive services and industries - and try and promote the more labor-intensive industries and services in the developing countries. a sort of give and take. in a utopian world i'd see highly qualified workers concentrated in business hubs around the world, regardless of nationality, and the less-qualified workers in the opposite situation. that would eliminate the pressure for salary struggles, coz there will be great elasticity in the job market, forcing equal salaries across the board (within each category, of course - with obvious considerations such as seniority, quality of worker, success of firm, etc) i realize this has a socialist ring to it, but even so, a lot of sound reasoning as well. any comments? :P
my bottom line point was supposed to be that the government taking over the corporate world could mean more sober competition and a possible migration towards that utopia. then again, it might do the exact opposite..... crap, now i'm confoozed.
I don't think government intervention is going to usher a new age of utopia no matter how you look at it
We just need to remove useless regulation and put forth better regulation that can prevent this stuff from happening again. Useless regulation would be something like regulating bonuses, taxing financial transactions, etc. Useful regulation would hopefully prevent things like the housing bubble. Why was it legal for anyone, regardless of financial stability, to be able to buy a huge house again? And then bundle those mortgage payments up into securities and have credit agencies rate them at the highest level possible? Ridiculous. Of course that destroyed the economy as soon as the inflated real estate prices went down. But it is very convenient during an election year to have all your constituents in huge houses they can't afford. Idiot politicians.
good point.
You sound surprised that the free market has an occasional crisis even though it has them often.
1973-74: Market crash 1987: Black Monday 1990-91: S&L Crisis + Fall of Junk Bonds 1997-98: East Asian Financial Crisis + Fall of LTCM 2000-2002: Tech bubble pops 2007-2009: Subprime mortgage bubble pops
The free market will always have its bubbles and bursting. It learns something new each time but it will always find another asset class to inflate and pop. The government will come in and try to regulate each time.
Somehow Buffet is the only source of fresh capital when these crises occur.
I think the arguments being posited here refer to the fact that no other crisis absent the great depression has been as systemic and far reaching. In this case the risk was that we wouldn't be around to learn something new from the current crisis without government intervention (not to say we'd all be extinct, but that the US would have been at a serious disadvantage to industrialized and even developing countries).
I agree that the bailout mentality needs to be discarded, but not until proper regulation is put in place. And I don't mean banning short selling or capping bonuses. I mean stricter, more transparent accounting standards, a regulated, exchange-based CDS market, and more accountability for regulators and auditors. Transparency and accountability are good things from the perspective of the capital markets. They make investors feel safe to invest in America and make raising capital cheaper for American businesses. The whims of a politically charged administration do not make US investors feel safe, and is part of the reason why the dollar carry trade is so prevalent these days. Planning an exit strategy is important, but I hope no one expects to return to the Smith-esque free market mentality as that paradigm is dated and unfit for the complexity of the current economic system.
You say this assuming that we had a free market all those years. We haven't had a free market since the Fed was created and started FIXING interest rates and manipulating the money supply.
^^True, but at least we don't have hyperinflation.
Uncle Eddie,
I told you a while back, I was naive to think I could run away from the Reds.
Now we get to live the Rooseveltian Dream, hopefully the public will learn by the next election, but alas I fear the Nation of Retardation and Mediocrity has won.
Squawkbox,
The only REAL factor staving of hyperinflation and the subsequent demise of the empire is the troops overseas.
Take it from me, I've lived through hyperinflation and with a squadron of Marines "guarding" my front door.
Banker 88,
Co-sign.
This thread is full of real talk. So many people are seriously in denial. Glad to see some good shit on here.
i'm curious as to people's views on the future of the economic world's balance of power. don't give me the usual "china's taking over the world" coz we all know that already. tell me why. personally i think it has a lot to do with work ethic and culture going down the drain in the fatass western world. soon enough we won't have an upper hand in anything. hell, soon enough the whole of western europe will be overflowing with 3rd world immigrants and will be just another afghanistan (muslim extremist rule), america will lose the upper hand in many industries (like the auto industry, many will follow, but for different reasons) and the rigidity of the labor market will prevent any real remedy. the hyper-democracy will prevent any nation from taking extreme measures to rectify the problems (this is relevant also to the iranian nuclear [nookeeler] crisis and muslim fundamentalism) and eventually we'll be forced into either a military operation with lots of riots and apocalyptic civil unrest (plus terrorist attacks if we wanna be realistic) or (and this is much more likely) the current trend will continue until THEY are the majority, hold all the WMD's they want, and unemployment in the western world will shoot through the roof in some places, and where it won't it'll be because minimum wage is lowered, causing growing inequality in standard of living (which is fine, as long as local prices are lowered accordingly, like a 3rd world country). any thoughts?
Eduardo...what were you thinking with that title? No one (well maybe those born in 1969) uses the word retarded any more. It's a slur. A slur that demeans people with special needs. You could have gotten your point across without that word and maybe not hurt others in the process. It's not about being p.c. and I certainly wouldn't want to take away your right to use the word retard or retarded. Just asking why you would knowing the pain you cause.
In a word, context. Big Brother Is Here, and He's Retarded was a hugely popular bumper sticker in the 80's and early 90's, and I unfortunately believe that American culture has been reduced to bumper sticker philosophy.
I'm guessing you were born in the early 90's and never saw these bumper stickers because the thought police were firmly in charge by the time you were reading.
But you're right, retard is insensitive. Big Brother is Here, and He's a SpEd.
dagro,
The KEY POINT most Americans do not understand in regards to economics and life in general is, "the state of nature". In spite of our best efforts to civilize ourselves, we are still only a few steps away from our animal brethren. The hysterical panic that accompanies most blips on the market radars of today, exemplifies this point well. Namely, in nature an organism functions based on the constant evolution and sharpening of its survival instincts and skills. If an organism (whether single-celled or multi-faceted) doesn't face challenges it gets lazy and eventually dies out. There was a really interesting story about Komodo Dragons attacking people due to hunger a few months ago. Since, they are endangered the local authorities refused to let people feed them, reasoning that the Komodo is a predator and must continue to sharpen its predatory instincts because if it gets "fat and lazy" it will eventually not be able to function or survive without CONSTANTLY BEING FED BY LOCAL VILLAGERS. I presume from your rational tone that you do not need further explanation...however...here's the human version of this story...
Most Americans don't realize that at the end of WW2 there were ONLY THREE LARGE NATIONS ON EARTH WHICH DID NOT EXPERIENCE CIVILIAN CASUALTIES ON THEIR OWN SOIL: Canada, Australia and the U.S. (fools would argue certain South American lands, but would then be ignoring where the bulk of Nazi capital and Nazis themselves were exported, largely due to the assistance of the Vatican which at the time was greatly influenced by a top Nazi official who I will allow you to research on your own time).
As a result, while almost THE ENTIRE WORLD had to rebuild itself from scratch WE PROSPERED.
Fast forward 65 years and you have the same third world people who were once MORE THAN HAPPY with a handfull of rice and half-a-cup of hard water a day, thinking about how THEY TOO CAN HAVE FILET MIGNON EVERY NIGHT OF THE WEEK.
As Christopher Walken said through the role of Frank White ("King of New York", 1990) "You got fat while everybody else schtaaarved (starved:))...now its my turn...a nickel bag gets sold in the park, I WANT IN!"
The reality most LIBERAL IDIOTS don't understand is that THAT PART OF THE WORLD...those 6+ BILLION people are "Frank White" and that WE ARE THE OLD MAFIA ESTABLISHMENT.
Perhaps the analysis is a bit jaded, but the points are obvious to anyone with brains and courage to look in the mirror.
Reality is just that. No more, no less....and the LIBERAL IDIOTS of today ARE NOTHING BUT THE COMMUNIST TURDS I RAN AWAY FROM 20 YEARS AGO...
I'm seeing the wall fall again...the question is "will WE be able to stop it?"
hmshore,
Being that you choose to pander with your first ever post, I can only deduct that you are a colossal pubescent master-debater who feels it is his "right" to banter from the pulpit to arguably the most important and respected poster on this board...OR...conversely you are a man-gina who has created an "alter ego" to launch beauty shop ad hominem attacks, because you know such cowardice is not tolerated here.
My friendly advice, is that you listen to those of us who have seen this before and LEARN something instead of repeating retarded nonsense which was the bread and butter of Leninists, Stalinists, Maoists, Zivkovs, Caucescus, etc throughout the early to middle parts of this unfortunate century which left hundreds of millions of lives destroyed.
There is nothing worse then adding to the destruction of the greatness you were blessed with at birth, and thinking that kiss-ass logic and social services methods will fill the emptiness within. Or as someone from your intellectual sphere would say, "KNOW YOUR ROLE AND SHUT YOUR MOUTH".
Haha owned.
But regarding a precipitous US decline in the eyes of the world sphere, I can't say I'm as pessimistic. I don't think American businesses are blind to the changing economic climate. Outsourcing (read: US job losses) isn't something that just cropped up out of the blue yesterday; it's been around for some time now and has been addressed proactively by a number of companies that are looking to divest non-core business units or lower costs. In terms of retooling the US economy, I think there will be a focus on high margin, service related business functions. There's no way we can keep up with the rest of the world in manufacturing, and no reason why we should try (lets not forget GM pre-bailout was paying blue collar workers $70+ an hour including benefits).
As a practical example, I imagine a company like GE divesting all its back-office and manufacturing responsibilities and focusing entirely on sales, service contracts, and commercial finance (its most lucrative businesses). Let the dozens of emerging market countries undercut the hell out of each other to score a manufacturing contract. As long as GE holds the patents they can charge customers as much as the market will allow and profit off the competitiveness of their suppliers.
true, true. good point. question is how much will be outsourced and what will the lower-end workers do? will they all be unemployed? will they find jobs at walmart and in public services? will they emigrate to developing countries to find jobs where they can afford life?
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