News Did the 2008 Financial Crisis Mark the End of Free-Market Economics?

[Gokul43201]

The point being that McCain attempted to restrict the GSEs, spoke against the GSE system on the floor, while Sen. Obama embraced them.

Obama was embracing GSEs back in '06. How?

Incidentally, someone else has been getting embraced by the top brass at Fannie/Freddie.

 

[mheslep]

Obama was embracing GSEs back in '06. How?

Incidentally, someone else has been getting embraced by the top brass at Fannie/Freddie.

Replied earlier:
https://www.physicsforums.com/showpost.php?p=1898191&postcount=140

 

[mheslep]

Obama was embracing GSEs back in '06. How?

Incidentally, someone else has been getting embraced by the top brass at Fannie/Freddie.

Regards this NYT contribution list: Mudd contributed $5k/year, every year, to the Fannie Mae PAC; it in turn has contributed heavily to Sen Obama as posted above.
http://www.newsmeat.com/ceo_political_donations/Daniel_Mudd.php

 

[chemisttree]

Food for thought...

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES
Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'' ...

 

[Greg Bernhardt]

Any thoughts on the supply of homes when baby boomers start dying or heading to old folks homes?

 

[BobG]

Any thoughts on the supply of homes when baby boomers start dying or heading to old folks homes?

Just one - reverse mortgages.

Talk about being committed to the idea that home prices will always rise no matter what.

 

[CaptainQuasar]

Regards this NYT contribution list: Mudd contributed $5k/year, every year, to the Fannie Mae PAC; it in turn has contributed heavily to Sen Obama as posted above.

If you're referring to the "Open Secrets" link in [post=1898191]this post[/post], you appear to be misquoting your own source. According to that page, almost all of the money donated to Obama came from individuals (employees of the GSE's, I guess? It doesn't say), NOT from PACs. (Apologies if you were referring to a different source.)

⚛​

 

[jal]

Just one - reverse mortgages.

Yep!
Spend every cent you have and don't give any $ to loved ones. Do a reverse mortgage and give everything to a stranger.

 

[mheslep]

If you're referring to the "Open Secrets" link in [post=1898191]this post[/post], you appear to be misquoting your own source. According to that page, almost all of the money donated to Obama came from individuals (employees of the GSE's, I guess? It doesn't say), NOT from PACs. (Apologies if you were referring to a different source.)

⚛​

Yes you are correct. My point was that the NYT table above is misleading, it shows contributions to Obama as zero from Mudd when obviously he has been sending money indirectly through Fannie Mae PACs.

 

[OrbitalPower]

Anti-Democratic Nature of Capitalied (failed system) being exposed:

http://www.commondreams.org/view/2008/10/10-4

The initial Bush proposals to deal with the crisis so reeked of totalitarianism that they were quickly modified. Under intense lobbyist pressure, they were reshaped as "a clear win for the largest institutions in the system . . . a way of dumping assets without having to fail or close", as described by James Rickards, who negotiated the federal bailout for the hedge fund Long Term Capital Management in 1998, reminding us that we are treading familiar turf. The immediate origins of the current meltdown lie in the collapse of the housing bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained the struggling economy through the Bush years by debt-based consumer spending along with borrowing from abroad. But the roots are deeper. In part they lie in the triumph of financial liberalisation in the past 30 years - that is, freeing the markets as much as possible from government regulation.

These were free-market liberalizations that caused the failures.

Such interventionism is a regular feature of state capitalism, though the scale today is unusual. A study by international economists Winfried Ruigrok and Rob van Tulder 15 years ago found that at least 20 companies in the Fortune 100 would not have survived if they had not been saved by their respective governments, and that many of the rest gained substantially by demanding that governments "socialise their losses," as in today's taxpayer-financed bailout. Such government intervention "has been the rule rather than the exception over the past two centuries", they conclude.

Government intervention is often employed in order to save failed conservative, market-oriented policies on the backs of the tax payers.

The task of financial institutions is to take risks and, if well-managed, to ensure that potential losses to themselves will be covered. The emphasis is on "to themselves". Under state capitalist rules, it is not their business to consider the cost to others - the "externalities" of decent survival - if their practices lead to financial crisis, as they regularly do.

Capitalist "externalities" -- their force and damage against individuals -- are ignored by capitalistic ideologues.

The Great Depression and the war had aroused powerful radical democratic currents, ranging from the anti-fascist resistance to working class organisation. These pressures made it necessary to permit social democratic policies. The Bretton Woods system was designed in part to create a space for government action responding to public will - for some measure of democracy.

...

But with the radicalisation of the general public during the Great Depression and the anti-fascist war, that luxury was no longer available to private power and wealth. Hence in the Bretton Woods system, "limits on capital mobility substituted for limits on democracy as a source of insulation from market pressures".

When Democracy increases, market forces and private tyrannies are decreased.

John Maynard Keynes, the British negotiator, considered the most important achievement of Bretton Woods to be the establishment of the right of governments to restrict capital movement.

Founder of modern economics held anti-capitalist sentiments.


Lots of wisdom from Chomsky and those scholars alone in that article.

The United States effectively has a one-party system, the business party, with two factions, Republicans and Democrats. There are differences between them. In his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels shows that during the past six decades "real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working-poor families have grown six times as fast under Democrats as they have under Republicans".

Democrats better than Republicans for families like mine:


http://www.commondreams.org/view/2008/10/10-4

 

[Ivan Seeking]

The United States effectively has a one-party system, the business party, with two factions, Republicans and Democrats. There are differences between them. In his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels shows that during the past six decades "real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working-poor families have grown six times as fast under Democrats as they have under Republicans".

Indeed. Has the great illusion of prosperity under Republicans finally been exposed?

Don't buy the lie that in two years the Dems managed to do all of this. It was a complete system failure.

Democrats better than Republicans for families like mine:

Indeed!

There is another facet to all of this: Corporations have no national loyalties. There is no reason to equate business health with personal wealth. My would-be money trickled down to China.

 

[Ivan Seeking]

Ivan Seeking has got his wish, we all live in Scandinavia now.

My wish? My wish was that the Republican model would not destroy the economy. Oh well.

I wish Reagan [David Stockman] had been right. I wish free-market fundamentalism worked. But we all know better now, don't we.

 

[Ivan Seeking]

...As I wrote last March: those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief. Such counterparty surveillance is a central pillar of our financial markets’ state of balance. If it fails, as occurred this year, market stability is undermined...

http://blogs.wsj.com/economics/2008/10/23/greenspan-testimony-on-sources-of-financial-crisis/

From Alan Greenspan's prepared remarks for the House Committee of Government Oversight and Reform.

 

[mheslep]

You conveniently left out the other part of McCain's schemes.

Its readily available - McCain calls for Guaranteed Access Plans (GAPs), or high risk pools. The idea is nobody gets left out with a pre-condition. The Fed steps into subsidize these policies (at about half). Lewin estimates Fed cost at about $23B/year.
http://www.lewin.com/content/Files/The_Lewin_Group_McCain-Obama_Health_Reform_Report_and_Appendix.pdf (Figure 13)

... And like McCain's other pet source of lobby money, banking, there will undoubtedly be another bailout event to deal with yet another crisis caused by this kind of thoughtless deregulation that McCain has romanced his public career.

How is the ability to buy insurance out of state 'thoughtless deregulation', which would allow people the ability to take their plans with them when they move?

There is a good parallel to the current credit bailout. In the case of health care, the government gets in the health business in the amount $300B/year for the employer based tax deduction, which reminds me of federal stimulation to the housing market provided by disaster masters Freddie Mac and Fannie Mae. Also add $500B/yr Medicare, $300B/yr Medicaid. Then it was housing, now it is health care that is the booming industry! Both have had unsustainable cost increases (9%/year health).

 

[LowlyPion]

Its readily available - McCain calls for Guaranteed Access Plans (GAPs), or high risk pools. The idea is nobody gets left out with a pre-condition.

Right that's the fig leaf of the idea anyway.

The fact remains, the Lewin 173 page letter notwithstanding, that if people can shop around, that very fact alone, the healthy low risk groups will inevitably pool themselves wherever they can and the public will be stuck with the burden of the higher risk. Water inevitably flows to the lowest potential.

I'm unconvinced by the letter. I continue to think that it's just another regime of privatizing profits and socializing costs - the very same kind of enabling that Bush has been engaging in these last 8 years.

Without wanting to sound any much more like an Obama commercial I don't think another 4 years of this kind of profiteering is what the country needs.

 

[mheslep]

Right that's the fig leaf of the idea anyway.

The fact remains, the Lewin 173 page letter notwithstanding, that if people can shop around, that very fact alone, the healthy low risk groups will inevitably pool themselves wherever they can and the public will be stuck with the burden of the higher risk. Water inevitably flows to the lowest potential.

I'm unconvinced by the letter. I continue to think that it's just another regime of privatizing profits and socializing costs - the very same kind of enabling that Bush has been engaging in these last 8 years.

Without wanting to sound any much more like an Obama commercial I don't think another 4 years of this kind of profiteering is what the country needs.

I'd say profiteering is what we have now w/ the employer based system. Nobody is watching the store, they just pay the $20 copay, they don't care what it costs.

I just don't see how one gets to the privatizing profits / socializing costs in this case. That is a description of when A takes a risk, upon success A takes the profits, but in the event of failure A is allowed to spread the loss around. In the case of health care/McCain plan A=insurance companies. If you stay healthy they win, if you get sick they pay, not the government. If the people buying the policies are healthier as a group, then the people can demand lower cost plans or just go somewhere else (under McCain) anywhere in the country. (Thats the key: for the costs to come down in health care people have got have cost transparency and shop around). The chronically ill, which by definition should not be buying 'insurance', would be covered by the government backed GAPs - they're not a win/lose 'risk', they're condition is already known.

 

[turbo]

Please talk to a doctor about health insurance. Insurance companies are middle-men. They provide no services apart from a distribution of risk. They are a HUGE drag on health-care because the longer they can delay or deny payment of claims, the more money they make on their investments. Doctors in private practice have to hire coding specialists who familiarize themselves with the coding requirements for each insurance company whose coverage they agree to accept. If these coding specialists do not do their job correctly (and it can be daunting), insurance payments fall behind, and the practice's receivables get aged to the point at which banks will no longer loan the practice money to repair equipment, pay staff, buy supplies, etc.

The cost of health-care will fall if the US goes to a single-payer system with ONE set of coding standards, and ONE payment schedule. Private medical practices will be more profitable, even with lower payment schedules because their administrative overhead will be slashed. Every industrialized country regards health insurance as a right, except the US. Nay-sayers claim that we can't afford it, when the opposite is true. Universal health-care coverage, including preventive care, would save the US a fortune.

 

[LowlyPion]

Nobody is watching the store, they just pay the $20 copay, they don't care what it costs.

You can't be serious. I think you have to have an MD to be able to "watch the store".

Deciding health issues "on shopping around" is just a silly idea. What price do you put on a good outcome when you go shopping for your health? Just how informed do you think people can possibly be about care they have yet to receive, and then it's too late when they actually get stricken?

How is someone to assess the differences between plans that place different emphasis on different benefits and procedures? There are so many subtle ways that insurance companies can shift risk and deny coverage. And in the end, those costs that fall out the bottom get socialized or those problems simply go unaddressed and people suffer.

 

[mheslep]

Hopefully the every other country claim will eventually end as knowledge of health systems elsewhere spreads. As far as I can tell, universal government health care does not exist anywhere in the world. Either government care coexists with a large private health system (as is the case currently in the US), or the government monopoly health system just starts rationing the system so that people are triaged out of the system or wait 4-6 months. Either way, there's nothing 'universal' about those systems.

 

[mheslep]

You can't be serious. I think you have to have an MD to be able to "watch the store".

Deciding health issues "on shopping around" is just a silly idea. What price do you put on a good outcome when you go shopping for your health? Just how informed do you think people can possibly be about care they have yet to receive, and then it's too late when they actually get stricken?

How is someone to assess the differences between plans that place different emphasis on different benefits and procedures? There are so many subtle ways that insurance companies can shift risk and deny coverage. And in the end, those costs that fall out the bottom get socialized or those problems simply go unaddressed and people suffer.

One does not require an MD to pick a health plan. Also, you're singling out all health choices as if they have no peer in importance. We make decisions about food purchases, choose spouses, sit on juries, and decide on on the upbringing of children everyday without exclaiming that its all to complicated and must be abdicated to the government. These things may all warrant some consultation with the wise, experts, to get 'Good Housekeeping' seals and the like, perhaps government guidelines and rules. There's evidence that people do quite well at this in health care - see the Rand study.

 

[turbo]

As I suggested, talk to a doctor in private practice about health insurance. Most doctors that I know would welcome a single-payer system. This is a rural area, and small practices (2-4 doctors) cannot afford to keep billing specialists on staff, so they have to contract their billing out to companies specializing in billing. The insurance companies get rich and the billing companies do very well, thank you, because they have the private practices by the short hairs. There is so much "friction" in the process of providing and paying for health care, that the ordinary person has no idea what the costs are. I was the network administrator for a large, multi-location ophthalmic practice for a number of years, and I have a pretty good understanding of the problem and the magnitude of its drain on the money available for health care. Medical practices are businesses, and they are forced into a business model in the US that is quite perverse.

 

[mheslep]

Please talk to a doctor about health insurance.

I have, and I read this doctor's book:
THE CURE, by David Gratzner
Gratzer has been an MD in both Canada and the US. He details the gulag like practice he saw in Canada. Testimony on the Hill
budget.house.gov/hearings/2008/07.16gratzer.pd

Insurance companies are middle-men.

Yes, exactly right. There's nothing wrong with middle men as long as there is price signals are past through them so they if attempt to get fat people squeeze them out. Right now they're not subject to any price discipline due to the employer tax deduction, and the middle men run amuck.

 

[mheslep]

As I suggested, talk to a doctor in private practice about health insurance. Most doctors that I know would welcome a single-payer system. This is a rural area, and small practices (2-4 doctors) cannot afford to keep billing specialists on staff, so they have to contract their billing out to companies specializing in billing. The insurance companies get rich and the billing companies do very well, thank you, because they have the private practices by the short hairs. ...

As I posted some time back, up in Maine that is in part the fault of the legislature that drove off most of the insurers. Now as I understand it, there's really only one large insurer left in Maine? I am sure you are right and that insurer is very expensive. Note that the state boundary/ monopoly goes away w/ the McCain proposal.

 

[LowlyPion]

One does not require an MD to pick a health plan. Also, you're singling out all health choices as if they have no peer in importance.

Oh, people can certainly make ignorant choices on their own and that's the point. They can certainly not have the wherewithal to properly assess their situations or understand what exactly the patch quilts of coverage terms may offer.

The one thing we do know though is that human nature being what it is and the gravitational constant towards profit being what it is, I think we can be certain that there will be no amount of regulation that will protect those that will have mistakenly thought they were covered only to find out they are homeless if they want to continue to live. McCain's love affair with lobbyist money simply insures that there will be no cops on the beat when people are getting mugged.

 

[mheslep]

Oh, people can certainly make ignorant choices on their own and that's the point. They can certainly not have the wherewithal to properly assess their situations or understand what exactly the patch quilts of coverage terms may offer.

The one thing we do know though is that human nature being what it is and the gravitational constant towards profit being what it is, I think we can be certain that there will be no amount of regulation that will protect those that will have mistakenly thought they were covered only to find out they are homeless if they want to continue to live. McCain's love affair with lobbyist money simply insures that there will be no cops on the beat when people are getting mugged.

I get you don't trust Sen. McCain. No problem. I hope if Sen. Obama were to come around to some kind health plan with less government involvement (dropping the employer tax deduction) that you would be open to it? I could vaguely see that happening way down the road if it were marketed as a copy of the Dutch system or similar.

 

[Al68]

With the failures of Freddie, Fannie, and now AIG, we have seen an earth-shaking failure of free-market economics.

I haven't read this whole thread, so forgive me if this has been addressed.

Why would you equate what happened with Freddie and Fanny with free-market economics? Not only wouldn't this problem happen in a free economy, it would be impossible.

The worst thing about a mixed economy(mix of capitalism and socialism) like the U.S. is that politicians will not only give credit to their socialist policies for the fruits of capitalism, they will also blame capitalism for failures caused by socialist policies. And most people, not understanding economics at all, will just believe anything.

 

[Ivan Seeking]

Specifically, "too big to fail" means that these are not free markets - they are free markets until they need to be bailed-out by the taxpayers. I have linked at least one discussion to more knowledgible people who discuss this in detail.

Note also that due to the complexity of the Freddie and Fannie structures, I specified AIG as the definitive indicator. Since then we have seen more examples than I care to mention.

Profits are privatized, risk is socialized.

 

[Ivan Seeking]

...and Darwinism no longer applies.

 

[cronxeh]

...and Darwinism no longer applies.

Come on man when did Darwinism apply these days? You have medical professionals who constantly upset the natural selection process, politicians who constantly upset sociological process, law enforcement who constantly upset the will of the people, religion who constantly judges people. Its like you can't get too drunk, get hit by a car and die from aspirating your own blood and vomit because suicide is a sin.

 

[Ivan Seeking]

I was talking about economic Darwinism.

 

[gravenewworld]

I haven't read this whole thread, so forgive me if this has been addressed.

Why would you equate what happened with Freddie and Fanny with free-market economics? Not only wouldn't this problem happen in a free economy, it would be impossible.

The worst thing about a mixed economy(mix of capitalism and socialism) like the U.S. is that politicians will not only give credit to their socialist policies for the fruits of capitalism, they will also blame capitalism for failures caused by socialist policies. And most people, not understanding economics at all, will just believe anything.

Free economics doesn't exist. I challenge you to find me a market completely run by free market economics.

The problem with free markets is that they can produce oligopolies and monopolies by natural barriers that come with certain markets.

 

[Al68]

Free economics doesn't exist. I challenge you to find me a market completely run by free market economics.

The problem with free markets is that they can produce oligopolies and monopolies by natural barriers that come with certain markets.

Well, I agree with your first statement, but how can oligopolies and monopolies be produced by something that doesn't exist?

And if the only intervention by govt in an otherwise free market was the prevention of oligopolies and monopolies, along with maintaining basic law and order, I think most economic Libertarians would be happy with that.

 

[ultimablah]

Well, I agree with your first statement, but how can oligopolies and monopolies be produced by something that doesn't exist?

And if the only intervention by govt in an otherwise free market was the prevention of oligopolies and monopolies, along with maintaining basic law and order, I think most economic Libertarians would be happy with that.

Can I please have a pretend-example of a monopoly? I want to see if a truly unshakable monopoly could actually form in a fully free market system.

 

[Al68]

Can I please have a pretend-example of a monopoly? I want to see if a truly unshakable monopoly could actually form in a fully free market system.

I can't give you one. Hence my belief that most economic libertarians would be happy with it.

 

[russ_watters]

Can I please have a pretend-example of a monopoly? I want to see if a truly unshakable monopoly could actually form in a fully free market system.

Isn't Microsoft a worthy real example? Due to tough trust-busting, Windows' market share is "only" 90%! IE is down to 70%, from it's peak of 95% in 2002 due to monopolistic bundling of the product with windows.

 

[CRGreathouse]

Isn't Microsoft a worthy real example? Due to tough trust-busting, Windows' market share is "only" 90%! IE is down to 70%, from it's peak of 95% in 2002 due to monopolistic bundling of the product with windows.

A tech magazine I am subscribed to predicted 'doom & gloom' for Microsoft because of the rapid fall in their OS market share (> 2% fall over the last few months, I think). This fall was entirely a market effect: many people have left Vista for some flavor of Linux (or Mac OS), which has/have seen good gains recently. This seems to point to Microsoft as a major oligopoly rather than a monopoly, especially since the competition seems to have affected Microsoft's pricing power. (Of course, a good case could be made that it is a monopoly -- but it's far from clear-cut.)

And what do you mean by "Windows' market share is 'only' 90%[...] due to a monopolistic bundling of its product with windows."? Are you suggesting that people are/were buying Internet Explorer in droves, and Windows was bundled with IE? The usual argument is that people wanted to buy Windows and IE was bundled with Windows, so MS was abusing monopoly power to get market share for IE -- but I think the market for browsers is yet more open than that for operating systems, IE's 80% share notwithstanding.

 

[CRGreathouse]

Specifically, "too big to fail" means that these are not free markets - they are free markets until they need to be bailed-out by the taxpayers.

I agree that "too big to fail" means that the market is not truly free. In addition to being (potentially/likely) a huge waste of taxpayer dollars, the bailouts are unwarrented government interference. I do support the essential libertarian ethos of free markets, and I'm sickened by the bailout plans.

 

[russ_watters]

A tech magazine I am subscribed to predicted 'doom & gloom' for Microsoft because of the rapid fall in their OS market share (> 2% fall over the last few months, I think). This fall was entirely a market effect: many people have left Vista for some flavor of Linux (or Mac OS), which has/have seen good gains recently. This seems to point to Microsoft as a major oligopoly rather than a monopoly, especially since the competition seems to have affected Microsoft's pricing power.

I think you missed my point: they may well be a "major oligopoly" but that is only because of aggressive anti-monopoly legislation. They would likely be a near 100% monopoly otherwise.

And what do you mean by "Windows' market share is 'only' 90%[...] due to a monopolistic bundling of its product with windows."?

You cut up and mixed together two separate quotes there. The 90% was the Windows market share, discussed above. The semi-separate issue is that MS was able to use the high market share of windows to leverage IE, destroying Netscape in a matter of a couple of years due to monopolistic practices.

Are you suggesting that people are/were buying Internet Explorer in droves, and Windows was bundled with IE?

No, I'm suggesting that people were not buying anything else because they got it "free" with Windows. In 1997, Netscape had a 72% market share. By 2000, they were down to 15%, by 2002, 5%. That was entirely due to Microsoft leveraging them out via bundling of IE with windows. See: browser wars: http://en.wikipedia.org/wiki/Browser_wars

The usual argument is that people wanted to buy Windows and IE was bundled with Windows, so MS was abusing monopoly power to get market share for IE...

Yes.

...but I think the market for browsers is yet more open than that for operating systems, IE's 80% share notwithstanding.

Open source is an interesting development and anti-MS backlash has a lot to do with people jumping ship. But note that the alternate browsers are now free.

 

[Ivan Seeking]

BILLIONAIRE investor George Soros said the economic upheaval had its roots in the financial deregulation of the 1980s and signalled the end of the free-market model that had since dominated capitalist countries.

Liberalisation of the financial industry begun by the Reagan administration had led to a series of crises forcing government intervention, Mr Soros told economists and bankers at a private dinner at Columbia University in New York on Friday.

The global recession, triggered by the collapse of the US housing market, had "damaged the financial system itself", he said. Regulators were in part to blame because they "abrogated" their responsibilities, Mr Soros, 78, said.

The philosophy of "market-fundamentalism" was now under question as financial markets had proved to be inefficient and affected by biases rather than driven by all the available information, he said...

http://business.smh.com.au/business/end-of-free-market-soros-20090223-8fux.html

 

[russ_watters]

I read a comment elsewhere that I agree with - he should be investigated for attempted market manipulation for these rediculous comments. People like him should have an obligation to be responsible for their words.

 

[Ivan Seeking]

I read a comment elsewhere that I agree with - he should be investigated for attempted market manipulation for these rediculous comments.

Of course; no other defense of the Republican model is left. When you are the cause of the near collapse of the world economy, blame the other guy!

Kill the messenger!

 

[russ_watters]

I made no comment whatsoever about "the republican model". But the idea that we are currently in an economic situation worse than the great depression is laughably silly and he's smart enough to know it. The GD had 25% unemployment for god's sake! It had people's life savings evaporating from savings accounts! It is important to note that when people say these things, they make no specific comparisons (because there aren't any), they just make the empty claim.

He's not a messenger, he's a profitteer.

But, regarding "the republican model", the current crisis has two (and a half) relatively specific causes that are only vaguely connected to conservative economic ideas. You like to create a false dichotomy by implying that republicans tend to favor an absolutely free market, but that just isn't the case. On the legislation side, this crisis was caused mostly by one particular republican leader (Phil Grahm) loostening one particular depression-era restriction. Had it gotten more press at the time, I am certain that republicans in general would not have been in favor of it. And it is also important to remember that it had the support of the President at the time: Bill Clinton.

The other major cause (which I call one and a half) is the credit/interest rate strategy of Alan Greenspan and how that influenced lending and spending practices. And though a republican appointee, he did, of course, have the full support of Bill Clinton, since his cheap credit fueled the economic boom that Clinton enjoyed while in office.

 

[kronon]

"Had it gotten more press at the time..."

Thats the interesting bit.

 

[mheslep]

...On the legislation side, this crisis was caused mostly by one particular republican leader (Phil Grahm) loostening one particular depression-era restriction. Had it gotten more press at the time, I am certain that republicans in general would not have been in favor of it. And it is also important to remember that it had the support of the President at the time: Bill Clinton.

Repeal of Glass-Steagal? I fairly strongly disagree. There's several arguments why it didn't (Europe never had a G-S, etc) and a good argument that the repeal kept the current situation from being worse.

The other major cause (which I call one and a half) is the credit/interest rate strategy of Alan Greenspan and how that influenced lending and spending practices. And though a republican appointee, he did, of course, have the full support of Bill Clinton, since his cheap credit fueled the economic boom that Clinton enjoyed while in office.

Agreed, but hard to avoid.

Senator/Dr Gramm believes the politicization of mortgages was the other cause:
http://online.wsj.com/article/SB123509667125829243.html

 

[Astronuc]

This would seem to be a clear case of the failure of free-market theory or practice. This also is an example of the need for better regulation, and just one more stark example of "What's wrong with the US Economy."

Buyout Firms Profited as a Company’s Debt Soared
http://www.nytimes.com/2009/10/05/business/economy/05simmons.html

Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.

For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.

But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.

How so many people could make so much money on a company that has been driven into bankruptcy is a tale of these financial times and an example of a growing phenomenon in corporate America.

Every step along the way, the buyers put Simmons deeper into debt. The financiers borrowed more and more money to pay ever higher prices for the company, enabling each previous owner to cash out profitably.

But the load weighed down an otherwise healthy company. Today, Simmons owes $1.3 billion, compared with just $164 million in 1991, when it began to become a Wall Street version of “Flip This House.”

. . . .
Twice after buying Simmons, THL borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.

A result: THL was guaranteed a profit regardless of how Simmons performed. It did not matter that the company was left owing far more than it was worth, just as many people profited from the mortgage business while many homeowners found themselves underwater.

. . . .

Talk about racketeering-influenced and corrupt organizations.

 

[Mattara]

This would seem to be a clear case of the failure of free-market theory or practice. This also is an example of the need for better regulation, and just one more stark example of "What's wrong with the US Economy."

Buyout Firms Profited as a Company’s Debt Soared
http://www.nytimes.com/2009/10/05/business/economy/05simmons.html
Talk about racketeering-influenced and corrupt organizations.

I find it absurd that you try to blame the failure of government interventions on the free market and then have the audacity to call for further government regulation.

The only reason that such behaviors is possible is because the government increased the printing of new currency to artificially inflate the market and taxation for making over a million dollars, thus shifting profit from salary to things like stock options, yearly bonuses, special bonuses, parachutes, golden handshakes, extra pensions and so. If you pay the directors in something else than hard cash for short term increase in stock price then you contribute to short term artificial value inflation rather than investing genuine value. There is an asymmetrical risk here, because their bonuses increase when the price of the stock increase, but they do not get penalized when it drops. There is no real counter weight to this increased risk taking. Obviously salaries is a more long term motivating factor to build value in a company. If you get paid in stocks and options, of course you are going to aim at manipulating the stock prices instead of investing real value.

There are of course other factors at work, such as different tax loopholes that you can use such as stock option accounting double standard. According to the IPS, this cost the American population around 10 billion dollars per year. If the board gives you a million dollars in stocks and options, they can deduct this at a later date when you cash these in, often when they have increased in value, so you can actually deduct more than your initial expense. At the start of the 1960s, with the Federal Williams Act, the rules have generally become more and more friendly towards the directors rather than the stock holders, which has reduced the possibility for hostile takeovers. Thus, it is not as easy to create change if the stock holders think the directors are earning too much. Normally, you would appoint an independent investigation and have them look at how the directors are actually performing and regulate his or her salary after a hostile takeover.

It is not a failure of free market economics or theory, it is a failure cased by government intervention. When government regulation fail, the solution is not more government regulation. It is not peace and voluntary contracts that cause economic instability, it is the central coercive power of an intervening state.

 

[Astronuc]

I find it absurd that you try to blame the failure of government interventions on the free market and then have the audacity to call for further government regulation.

I didn't "blame the failure of government interventions on the free market," so don't say that I did. I simply pointed out that it the 'absence of government regulation', i.e., when the market is left to its own devices, it failed.

Improper/inappropriate government regulation can be just as damaging as corruption/malfeasance in the marketplace.

Free market assumes honest participants.

 

[Mattara]

I didn't "blame the failure of government interventions on the free market," so don't say that I did. I simply pointed out that it the 'absence of government regulation', i.e., when the market is left to its own devices, it failed.

But the free market was not "left to its own devices" in this example.

Free market assumes honest participants.

That would be a perfect market, not a free market. A free market does not assume honest participants. In fact, it assumes that some participants are dishonest, otherwise an entire industry of various private security companies would be out of work.

 

[Astronuc]

But the free market was not "left to its own devices" in this example.

In the absence of government regulation and intervention, yet it was.

That would be a perfect market, not a free market. A free market does not assume honest participants. In fact, it assumes that some participants are dishonest, otherwise an entire industry of various private security companies would be out of work.

Now that is an absurd statement.

A free market describes a market without economic intervention and regulation by government except to regulate against force [coercion] or fraud.

http://en.wikipedia.org/wiki/Free_market - of course that's wikipedia, but I plan to poll some economists and find out the 'official' definition. I believe Adam Smith assumed market participants were honest and likely practiced Christian principles. I'll refer to my library on that.

 

[mheslep]

...That would be a perfect market, not a free market. A free market does not assume honest participants. In fact, it assumes that some participants are dishonest, otherwise an entire industry of various private security companies would be out of work.

.. Now that is an absurd statement.

The security company bit aside, per my reading Mattara is correct about free vs perfect[ly efficient] markets. Free market theory going back to Adam Smith do not assume or require everyone to be 100% honest. The amount of fraud or simply ill-informed decision making relates to the efficiency of the market, it doesn't do away away with them. Granted, high enough fraud or mass delusion will effectively kill market operation.