Socialism?

#102
#102
shootermcgavin7 said:
Not *THE* cause. But it certainly contributed, in a big way, yes.

The primary avenue was through commercial banks using their investment banking arms to peddle subprime mortgages to hedge funds.
So, yes, A cause. Not "THE" cause.
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I have no issue with banks failing for these reasons. In my opinion, a bank's failure resulting from overly risky activities is the desired outcome of a capitalistic economy. Nevertheless, I believe we share the same view on this matter - that regulation is warranted - only for different reasons. Specifically, my problem with the failure of these banks is that the FDIC insures their deposits. Because of this federal insurance, consumers do not have nearly the same incentive to be informed with respect to a bank's lending practices. They don't necessarily care what happens to their money, simply because the federal government backs it. When was the last time you walked into a bank and asked, "what types of actions do you do with the money that I lend you" or "what are your minimum reserves". Fankly, that isn't something that crosses the minds of bank customers anymore [although it did in the past]. Not saying I don't find comfort in my money being insured, but it distorts the incentives for the banking customer and has caused the need for more intervention. If there were no FDIC deposits, customers would be extra careful to what bank they loaned their money - likely only to banks with insurance on deposits and those that had significant internal restrictions on the use of deposited funds. Nevertheless, that isn't the situation we are in today and I see only two solutions for this problem: get rid of the FDIC (which would be a political nightmare because there is presently not much of a market for private deposit insurance) or regulate banks' uses of FDIC insured money.

As to your question about why we don't have legislatures running around screaming market failure all the time is fairly self-evident in my opinion. Market failure exists where the market produces a result that is not the most efficient possible. Most commonly, examples of market failure are non-competitive markets (such as monopolies), externalities (such as pollution), and public goods (such as national defense). According to many economists, market failures are the only reason to intervene in the market. The reason, I believe, that you don't hear legislatures running around screaming "market failure" for each and every project they choose to undertake is because - quite frankly - they have no idea what "market failure" even means (much less how to spot a true externality or public good). By introducing the topic into debate, they would open themselves up to a significant amount of criticism as much of our federal appropriations are not in response to any sort of market failure.
 
#103
#103
paul1454 said:
I have no issue with banks failing for these reasons. In my opinion, a bank's failure resulting from overly risky activities is the desired outcome of a capitalistic economy. Nevertheless, I believe we share the same view on this matter - that regulation is warranted - only for different reasons. Specifically, my problem with the failure of these banks is that the FDIC insures their deposits. Because of this federal insurance, consumers do not have nearly the same incentive to be informed with respect to a bank's lending practices. They don't necessarily care what happens to their money, simply because the federal government backs it. When was the last time you walked into a bank and asked, "what types of actions do you do with the money that I lend you" or "what are your minimum reserves". Fankly, that isn't something that crosses the minds of bank customers anymore [although it did in the past]. Not saying I don't find comfort in my money being insured, but it distorts the incentives for the banking customer and has caused the need for more intervention. If there were no FDIC deposits, customers would be extra careful to what bank they loaned their money - likely only to banks with insurance on deposits and those that had significant internal restrictions on the use of deposited funds. Nevertheless, that isn't the situation we are in today and I see only two solutions for this problem: get rid of the FDIC (which would be a political nightmare because there is presently not much of a market for private deposit insurance) or regulate banks' uses of FDIC insured money.

As to your question about why we don't have legislatures running around screaming market failure all the time is fairly self-evident in my opinion. Market failure exists where the market produces a result that is not the most efficient possible. Most commonly, examples of market failure are non-competitive markets (such as monopolies), externalities (such as pollution), and public goods (such as national defense). According to many economists, market failures are the only reason to intervene in the market. The reason, I believe, that you don't hear legislatures running around screaming "market failure" for each and every project they choose to undertake is because - quite frankly - they have no idea what "market failure" even means (much less how to spot a true externality or public good). By introducing the topic into debate, they would open themselves up to a significant amount of criticism as much of our federal appropriations are not in response to any sort of market failure.
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+1

:hi:
 
#104
#104
paul1454 said:
I have no issue with banks failing for these reasons. In my opinion, a bank's failure resulting from overly risky activities is the desired outcome of a capitalistic economy.
Click to expand...

Hey Paul.


I agree. But since lending activity (freely available capital) is the lifeblood of a capitalist economy, I think that commercial banks should be regulated.

Investment banks, which engaged in wild risk-taking activity, should not.

This is the primary reason that they were separated for almost 70 years before the more extreme Republicans and more moderate Democrats allowed the two groups to merge in the late 1990s.



The rest of your post I will need to think about, hopefully you will allow me the time. I appreciate your well-thought response.
 
#105
#105
Paul,

The other two major points in your post are also well-thought out.


Would you prefer a response in the public forum or through PM? I both agree and disagree with points through both of them. Your invoking of moral hazard was particularly nice.
 
#106
#106
shootermcgavin7 said:
A curious statement. Do you have any data? I'll start with the most recent one....investment banks underwriting mortgage securities were regulated?
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Sure they were. Don't pretend that the buyers' weren't regulated and that no regulators exis in conduit markets.

THE problem is that the credit default swap should have been classified as insurance and regulated as such. People biught that the swaps were good enough to qualify shoddily underwritten or shoddy borrowers qualified as investment grade.

Don't exonerate the buyers here. Investment banks were filling orders. Somebody thought the insurance was viable, including FDIC guys evaluating bank investment portfolios.
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#107
#107
shootermcgavin7 said:
Paul,

The other two major points in your post are also well-thought out.


Would you prefer a response in the public forum or through PM? I both agree and disagree with points through both of them. Your invoking of moral hazard was particularly nice.
Click to expand...

Thanks. A response on here is fine. I would like to hear your insight and I'm sure everyone else would as well.
 
#108
#108
shootermcgavin7 said:
I don't play semantics. I think it is a waste of time and inhibits learning.

I prefer to deal in plain English. However, I am unaware of day-after-day announcements of "market failures" by politicians outside financial and/or energy crises. Hence my curiosity.
Click to expand...

This is another example of what I was talking about. I did not say nor imply that there were day-after-day announcements of market failure.


Why make my statement more extreme then deride it?


shootermcgavin7 said:
Paul,

The other two major points in your post are also well-thought out.


Would you prefer a response in the public forum or through PM? I both agree and disagree with points through both of them. Your invoking of moral hazard was particularly nice.
Click to expand...

paul1454 said:
Thanks. A response on here is fine. I would like to hear your insight and I'm sure everyone else would as well.
Click to expand...

This represents the second part of my earlier comment. Why on earth would you not put your views out here? As it stands, your posts read like you are bestowing approval or disapproval of our arguments but rarely make one of your own - instead you offer up "questions" based in part on distortions of our comments. It may be a fun argument technique for you but it doesn't further the discussion.

I'll reiterate that I'd be glad to share my views in response to yours but if you plan to keep distorting my comments without offering any of your own then I'll politely decline.
 
#109
#109
Hi, my name is Volinbham and I am.............

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