Things are looking up

[one...two...tree 2,762]

Meltdowns may be avoidable, economic contractions (even if they happen every 5-7 years) are not.

I know that is the conventional wisdom in Washington and Wall Street to just accept that we'll go through these large cycles even beyond the recent meltdown, but I'm inclined to believe that people like Elizabeth Warren are right, particularly when you look at how most of these bubbles are artificially created.

Warren is often asked why consumer protection creates financial stability. She responds that usurious interest rates, hidden fees, sky-high penalties, and fraudulent mortgages are not only harmful to consumers, but those products' unsustainable profits will come back to bite lenders in the form of high defaults and big losses -- causing another disastrous boom and bust.

"It's sort of like the airline industry," says Warren of high finance. "If we didn't have an FAA and suddenly a couple of airlines started posting very high profits, the investor would not know whether the high profits were the result of better business operations or shortcuts on safety," she asks. "So there are rules that force companies to compete based on products that are safe for consumers, rather than high-risk strategies, so that investors aren't hurt by bad practices blowing up in everyone's face."

....

...Warren's take is that she believes in markets, just not as they've been created over the last 30 years. Deregulation has allowed banks to change their business models, using the lack of oversight to take on unprecedented risk. The new bank model created incalculable risk and unimaginable profits, but taxpayers, not bank employees, paid for the inevitable mistakes. As she told Charlie Rose, "It will not save us if a handful of Wall Street banks prosper and the rest of America fails."

In its current incarnation, Warren says bank regulation encourages short-term profiteering that hurts banks when they blow up, and crushes Americans when their tax dollars must clean up the mess. She wants firms like JPMorgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500) to make money but not according to the current set of rules.

"She truly believes that markets can work, but she knows that participants in the market have strong incentives to rig things in their favor," says Adam Levitin, a former student of Warren's who specializes in bankruptcy law at Georgetown University. "If participants have a sweet deal, they'll be upset at anyone who wants to level the playing field."

http://money.cnn.com/2010/03/17/news/economy/elizabeth_warren.fortune/index.htm

[Obama 2012 1,714]

The size, length and economic impact of them though is what Elizabeth Warren believes are unnecessary. She's pointed to the Glass Steagall Act of 1933, which was repealed in 1999 thanks in large part to free market economist Phil Gramm, would have prevented the subprime crisis. That's why I believe that meaningful financial reform can prevent us from going through these 5 to 7 year busts.

Glass Steagall was part of the problem, the other part being the derivatives market which to this day is still completely unregulated.

There's always a way for people to 'abuse' the system and there's always market forces that are going to go up and down for whatever reason.

Every bubble is going to burst, it's how you handle that bubble bursting that makes the difference. If you simply let it 'pop' you'll recover much quicker than it you try and retrain it and patch it. If you patch the bubble, it's eventually going to burst and much larger/worse than it did before.

The problem with our economy today is we fail to recognize failure and don't let things die that should. GM, the airline indusry, the banks, etc.. all should have been let to fail. This 'entitlement' mentality we have as a nation today is what is killing us in the long run. If these companies/banks were to die, someone else would pick up the slack. Sure, people would lose their jobs, but that's how an economy works. It grows, then it corrects itself. It's all one big gamble in the grand scheme of things. Sometimes you win, sometimes you lose. It's being able to handle the loss that makes the economy of a nation work properly. If you're not willing to lose, then you're never truly going to win and every other aspect is just an illusion. The question becomes how long can you keep up the illusion until it all comes crumbling down on top of you.

[w¡n9Nµ7 §£@¥€r 123]

Steven,

If you think Elizabeth Warren is saying economic contractions can be wholly avoided, you've misunderstood her completely.

[one...two...tree 2,762]

Steven,

If you think Elizabeth Warren is saying economic contractions can be wholly avoided, you've misunderstood her completely.

No, that's not what I think. What I do think though is that most economic bubbles are artificially created - like the last housing bubble. People were being given mortgages that normally they would not have qualified for. I think we need to be cautious about rebuilding our economy that we aren't zealously chasing after the same kinds of market schemes that will set us up for another disastrous downturn. What is driving the new economy? Everyone's looking for the next bubble. We should instead be putting the emphasis on meaningful reform and then let the market work in better controlled environment.

[w¡n9Nµ7 §£@¥€r 123]

No, that's not what I think. What I do think though is that most economic bubbles are artificially created - like the last housing bubble. People were being given mortgages that normally they would not have qualified for. I think we need to be cautious about rebuilding our economy that we aren't zealously chasing after the same kinds of market schemes that will set us up for another disastrous downturn. What is driving the new economy? Everyone's looking for the next bubble. We should instead be putting the emphasis on meaningful reform and then let the market work in better controlled environment.

People, when confronted with the possibility of making money beyond their wildest dreams, will invariably become irrationally exuberant. This is not an entirely bad thing.

[one...two...tree 2,762]

People, when confronted with the possibility of making money beyond their wildest dreams, will invariably become irrationally exuberant. This is not an entirely bad thing.

That's why I'm hoping we'll have a Consumer Financial Protection Agency as part of the financial reform package.

[w¡n9Nµ7 §£@¥€r 123]

That's why I'm hoping we'll have a Consumer Financial Protection Agency as part of the financial reform package.

?

[one...two...tree 2,762]

?

The move this week to downgrade a proposed Consumer Financial Protection Agency to lure bipartisan support instead appears to be undermining the Obama administration's effort to overhaul the nation's regulation of the entire industry.

The overhaul, aimed at preventing a repeat of the economic meltdown that helped send the nation and world markets into a deep recession, now might be moving closer to the junk heap of congressional bills than to a significant new law.

Creating a powerful and independent consumer agency, which is strongly opposed by the financial industry and Republicans, has been the major roadblock in drafting a bill that could pass in the Senate.

http://articles.lati...form4-2010mar04

Edited April 26, 2010 by El Buscador

[mawilson 2,133]

WASHINGTON (AFP) — In his first television interview, Federal Reserve chairman Ben Bernanke predicted that America's worst recession in decades will likely end this year before a recovery gathers steam next year.

Bernanke has probably the worst track record of any economist when it comes to predictions.

Some of his "predictions" are documented here.

[w¡n9Nµ7 §£@¥€r 123]

Creating a powerful and independent consumer agency, which is strongly opposed by the financial industry and Republicans, has been the major roadblock in drafting a bill that could pass in the Senate.

The agency won't exist once Reid reintroduces it later this week (you know it was defeated today, right?).

[one...two...tree 2,762]

The agency won't exist once Reid reintroduces it later this week (you know it was defeated today, right?).

goddammit.

[scandal 951]

No, that's not what I think. What I do think though is that most economic bubbles are artificially created - like the last housing bubble. People were being given mortgages that normally they would not have qualified for. I think we need to be cautious about rebuilding our economy that we aren't zealously chasing after the same kinds of market schemes that will set us up for another disastrous downturn. What is driving the new economy? Everyone's looking for the next bubble. We should instead be putting the emphasis on meaningful reform and then let the market work in better controlled environment.

Steven, your heart is in the right place. I do agree that we need enlightened regulation - a regulatory framework that prevents excesses and abuses while not stifling creativity, entrepreneurship, and access to capital.

I'm doubtful though that you can prevent bubbles, or that there is any such thing as an "artificially created" bubble.

Regarding "mortgages that normally they would not have qualified for". What's "normal"? Normal only makes sense in the context of a certain period in time, with certain regulations and market interest rates and credit underwriting rules for access to capital. At the time, many (particularly those of us on the Left!) were justifiably praising the increased access to credit and housing being offered to new swathes of homeowners. Some of that was in fact welcome and deserved. Some new homeowners got access to more affordable mortgage programs because of America's efficient secondary mortgage market. Did it get abused? No kidding, but it's not like there's an obvious dividing line between "good" relaxed credit underwriting rules and "bad" ones that led to the abuses. It's not a sharp dividing line but rather a fuzzy gray border. One that is easy for an economy to cross time and time again, in bubble after bubble, in asset class after asset class. So long as there are people, who have human psychology, there will be exuberance and there will be panics.

During every boom (1998-99 quite famously) there are cries that "this time is different", and "this time, we've repealed the business cycle". We haven't. And we won't. And we shouldn't try. The business cycle is an inherent part of the creative destruction that is capitalism. It's what fuels the creativity of our inventors and starts new growth businesses.

What we can and should do is to ensure that there are reasonable safeguards against excessive risk that destabilizes key segments of the economy, and which offers (some, limited) protection to displaced workers. Not a cradle to grave welfare state, but also not a society that shows no compassion at all to those directly affected by job losses, plant closures, and the decline and loss of entire industries.

[Pinocchio Liberal 268]

"Things are looking up" Open your fvckin EYES! Go ahead argue with the bond king!

The trend promises to get worse, not better. The imminent passage of health care reform represents a continuing litany of entitlement legislation that will add, not subtract, to future deficits and unfunded liabilities. No investment vigilante worth their salt or outrageous annual bonus would dare argue that current legislation is a deficit reducer as asserted by Democrats and in fact the Congressional Budget Office. Common sense alone would suggest that extending health care benefits to 30 million people will cost a lot of money and that it is being “paid for” in the current bill with standard smoke, and all too familiar mirrors that have characterized such entitlement legislation for decades. An article by an ex-CBO director in The New York Times this past Sunday affirms these suspicions. “Fantasy in, fantasy out,” writes Douglas Holtz-Eakin who held the CBO Chair from 2003–2005. Front-end loaded revenues and back-end loaded expenses promote the fiction that a program that will cost $950 billion over the next 10 years actually reduces the deficit by $138 billion. After all the details are analyzed, Mr. Holtz-Eakin’s numbers affirm a vigilante’s suspicion – it will add $562 billion to the deficit over the next decade. Long-term bondholders beware.

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Rocking-Horse+Winner+April+2010+IO.htm