The market, however, isn't the car, but the game itself. And the game failed to keep the car safe. We can argue about whether it was airbags, good directions or a lack of wings that was at the heart of it, but I think it's safe to say that the market - the game itself - didn't do much good when things went splat.

A better market would have done a better job of looking after long-term growth. This might or might not require more regulation.

Wrong, it was the legislatures who messed up the market in the first place.

blaming capitalism is bullshit. It was socialisitic bs like the "affordable housing" program that broke it.

If you go to a bank and get a loan to start a business, the business fails, and you go back to the bank for more money, they have every right to say 'ok we'll give you the money, but only if you let someone else run the business'.

What's done is done, there's nothing that can be done to change that - the bailout happened, and can't be reversed. However what can happen is that the government can still at least do some things better, such as forcing out the incompetant management if they ask for more money. Still not as good as just saying no to giving more money, but a lot better than giving them money for nothing. The arguments lately on these forums have been attacking the government for this though - with the implication that it would be better for the government to hand over the money with no strings attached than to give the money in return for new management.

It may be that some of those people wouldn't support the bail out in the first place, but the arguments that have been put forward have been focused against the government using it's position of power to force out the execs.

Blaming capitalism/the markets (in part) is what should happen, because they have failed. There's no getting around the fact that numerous companies operating under a profit maximising self-regulatory regime have failed spectacularly. Shareholders allowed the execs and other staff to have their rewards weighted in such a way as to encourage excessive risk taking, leading to the company pursuing loss-making activities because it was in the management's best interest.

The affordable housing program had little to do with the problem. It helped grow one of the things used to create financial products, sure, but that's neither here nor there. The real issue was that in a largely unregulated industry - as aeortar mentioned, there's not much regulation of derivatives and other even more exotic financial products - players in the market proved incapable of determining valuable goods from worthless ones. More than just failing to effectively assess risk, they actively helped to make extremely risky products a cornerstone of the financial system, so that when housing collapsed, the rest of the economy started to tank with it.

I doubt that greater regulation is the best solution, but I think governments are justified in being actively involved in the decision making processes of corporate entities they've bought a big stake in. While they could certainly do a worse job, you'd really have to hate democracy to think that the involvement of elected leaders and the system is definitely going to make things worse.

there WAS regulation, the affordable housing program had to REMOVE that regulation.

You are just tossing liberal slogans without any substance.

The bank can approve or deny someone a loan for appropriate risk-based reasons... unless it's a mortgage loan & you can't afford it, then they're required to lend you the money despite the risk.

And what was the 'raw material' of this 'unregulated' industry?  High-risk mortgages banks were required to write.

The law of unintended consequences is immutable.

I have to say you are woefully ignorant of that actually happened. I work in the real estate industry, and watched it happen from the inside out. Most people that have been around for a while saw what was coming and knew what would happen next. It happened in New York in the seventies and in Miami in the eighties, as well as in several cities in Texas in the eighties. Legislators made the laws that had to be followed or they would put you out of business. Then when the great idea failed they blamed the business men. The problem was over regulation not lack of regulation.

The banks were ordered by the congress to loan money to people that could not afford to repay the loans. If they refused they would be shut down because they were obviously racist and greedy. To make sure the banks had an out the congress wrote a law saying that the two semi government organizations can repackage the bad loans and sell them to spread the risk and get more money to make more bad loans. The banks followed suit doing the same thing. Because the government guaranteed the repackaged product. Just like with social security thirty years ago when congress raided it and left IOU’s in place of the money, when it came time to repay the IOU the congress said it was too much money and we have a crisis because of greedy business practices. To fix the problem they only needed to bail out the bad loans which was less than one hundred billion dollars nation wide. Instead the treasury asked for seven hundred billion dollars and all the pigs came to the trough. Let’s ignore the fact that President Bush pointed out two years earlier that the practice was flawed and on the verge of collapse. Let’s ignore the fact that the congress men responsible for these bad laws stood up and said that the laws were fine and the president was a racist. Let’s ignore the fact that those same congressmen told the American people that Fannie and Freddie were sound and safe. Let’s ignore the fact that the people in charge of Fannie and Freddie received tens of millions of dollars in bonuses while the organizations they ran were bleeding money and on the verge of failure. It was okay for them to do what AIG and the banks did and no one said a word. When the congress could not hide the fact that Freddie and Fannie were failing then it was the Bush administration that was at fault. It was the banks that were at fault it was everyone except the people that wrote bad laws in the first place. The Congress failed to live up to the obligations causing the banks to fail. The Congress guaranteed the bad loans during the Clinton administration, but failed to make them good. Instead the government came up with a bail out package seven and a half times larger than what was needed and wrote another bad law. None of that money went to the bad loans and again the Congress blamed the businesspeople for doing what they wanted. Had the Congress paid off the bad loans none of this would have happened and it would have cost US TAXPAYERS less money. The group that needs to be regulated is the Congress not business.

I'm glad you have those doubts - they are extraordinarily well-founded.  I'm very puzzled by that last statement, however, which seems to imply that reality should be suspended because elected officials are involved.  Well... on second thought, guess that goes without saying.  What do they know of reality?

Amen to that... they are completely out of control with their stupid failed social engineering.

If it hadn't been real estate I think it would have a derivative or loan package of some other form. Unsecured debt is a really, really bad thing to be trading around, and banks didn't have to do it. They chose to offer incentive-backed loans. They should have had more sense.

Unless of course you're saying that giving no-doc loans to everyone were legislatively required as part of revisions to the banking code. I hadn't heard that, so if that's the case, then you're right - you guys really need to vote more wisely.

What I mean is that if the people as a bloc own something, their elected representatives have a right to meddle with it. Whether they should or not is irrelevant. Public property is held in trust and cared for by the legislature.

I just happen to think CEOs are fair game for sacking if their performance is as woeful as in Detroit, and if the other shareholders won't do it, and the Government can harnass the votes, it has a responsibility to decide and act in the company's best interest just like any other share or equity holder.

The banks HAD to make the loan... what they didn't have to do was pass it on to the government... but that would be STUPID!

City bank actually TRIED avoiding it as much as possible and obama PERSONALLY filed a class action lawsuit against them, saying they are discriminating against african americans. Which resulted in a closed door settlements that was never made public (which smells like he got something personally out of it... aside from his 7 digit home with free mortgage that is)...

SOME bankers said "fuck it" and were happy to make more loans and sell them to the federal government... but really, who can blame them? If you see the commons being ravaged you better join in because there is nothing going to be left. 

Yes it was, it was called affordable housing and if banks didn't do it they faced fines and even being shut down... the idea was to increase the amount of minority owned homes by forcing banks to loan to people who could not afford it (the assumption was that most of those people will be black because they are naturally opressed and as such poorer)

The loans were backed by the government in the form of Fannie mae and Freddie mac. The banks had to make the loans and Fannie and Freddie would buy the loans from the banks. The problem was that there was too much bad debt going into Fannie and Freddie so the banks were stuck with some of the bad debt. People started to ask why Fannie and Freddie were not picking up the loans as they were supposed to and the cover up began.

The law states that the banks have to make a certain percentage of their loan money available to the poor so they can own a home. The banks required 20% of your own money in down payment. Poor people could not do that and the Congress said they had to make the loans available. The only way to do that is to lower the interest rate for a time and if you are responsible you will save your money and by the time the interest rates start to go up you are ready to deal with it. Well most poor people are ignorant of finance. Even though it states in big bold letters on the loan package that they need to reduce all their debt to just their home and car payments within the first three years so they can afford the rate hike they did not do this. Now they are going to lose their homes and it is the banks fault. Had the Congress not insisted that banks make a percentage of their loans for people that could not pay them we would not be in this fix. The banks had a choice no doc loans or go out of business. Had the Congress backed the bad debt as they said they would do in the law then we would not be in this fix. Instead they did nothing and allowed it to break the banks financial backs. Then turned around and blamed the banks for predatory lending. Well how else do you get your percentage up to Congressional percentages levels? If you are smart you don’t buy a house you can’t afford. If the poor people were smart the banks would not meet the percentages and get shut down for discriminatory practices.

This is what happens when you let ideology right business laws. The laws as written over thirty years told the banks to do what every business person knew was bad business. If you want to stay in business you have to risk your business, the Congress demanded that the banks take on more risk than was prudent. The congress then faulted the banks for bad business decisions but it was the Congress that forced this to happen.

I thought you worked in anti-terrorism or teaching (from other threads)?

Where were all banks forced to write them? And where were other entities forced to then buy those worthless (or near-worthless) mortgages? Also bear in mind this is almost all banks we're talking about, not just US based ones - European banks have had disastrous results, for example. Yet apparently this is all due to some piece of legislation encouraging loans to poorer people in the US and nothing to do with the more fundamental issue of the very framework capitalism relies on failing.

At least you got that part correct.  It was socially engineered & manipulated capitalism (i.e., socialism) that failed to foresee the risk.  The banks all knew it was a game of 'hot potato' but, if they wanted to continue operating as banks, those were the rules.

I can't blame them in the least for offloading high-risk loans when Fannie & Freddie were not just willing but obligated buyers.  That there was 'collateral damage' (if you want to call it that) in European banks doesn't change the underlying defect - a misguided (however well-intentioned) attempt at social engineering at the expense of sound risk-management, compounded by what may turn out to have been outright fraud at Fannie & Freddie.

Yes, yes they were... that is why citi bank was sued BY OBAMA in 2001 (remember, he is a lawyer)... because they tried to avoid giving loans to those who cannot pay them. (He made the claim that the banks were discriminating by race; which is bullshit)

Yes, yes they were... freddie and fannie are federal agencies that encourage lending by buying loans and then guarenteeing them... they are an arm of the federal government promoting such policies, this is what they do, and this is what they have to do.

Here you are getting a bit... well... deranged... what the hell are you talking about? What is "the framework of capitalism", why does it "fail" in the imaginary world you live in, and what the hell are you talking about in regards of european banks? You mean the fact that in europe they also have a recession now? because that is a function of globalization, if a major buyer like the US can't buy anymore then it hurts the economies of those who export to it.

http://www.youtube.com/watch?v=EdD1gsa8XPY&eurl=http://iusbvision.wordpress.com/&feature=player_embedded

If you read my threads then you would have seen this before, I am a consultant to DHS prior to that I was in the marines doing the grunt work. I have been in the real estate business since childhood. My mother was a broker and a NYC cop. I have been running my family business since the 70’s and even while I was in the service I worked in real estate. I teach bible study, and worked my way through school teaching. I also worked for a few airlines and casinos doing security. I also worked for a defense contractor. I like to keep busy so in my spare time I write books. Does that answer your challenge?

perish the thought, a person holding more than one job through his lifetime? learning more than one field? just holding any job instead of just living off of welfare? what has the world been coming to!

Yeah! Well if our current president continues on this path I may have to close down my businesses and fire my employees. I don't want him taxing my people at 90% the first thing one of my new hires asked me was if she would be able to keep her 2700 dollar bonus. Please don't laugh she is a liberal democrat and not used to the business world. The last democrat I hired has has a change of heart and is now a republican, she got a 7900 dollar bonus. This may be the last year we hold our annual corporate meeting in Vegas. As it stands now I was planning on starting two new businesses come June but it is looking doubtful.

Oh, I forgot to mention that my hobbies are astronomy and astrophysics

Wow, you really do take things too seriously. It wasn't a challenge, just a query!

Companies operating supposedly with a self-regulating profit maximising role actually operating in a way that not only isn't profit maximising, but will likely lead to the destruction of that company. As for European banks, they've too taken on near worthless assets and destroyed their value in many cases, just as US ones have. Last I checked the US didn't have the power to dictate how a bank based in and operating in another country is run.

The only imaginary world is one where you somehow believe it's not any of the banks fault, but all down to government "socialists".

Absolutely, some businessness don't operate with regards to profit, but with regards to their owner's individual schemes...

See, the "actually... lead to destruction of that company" part, that is the important part... there ARE companies that operate based on deranged principles of their owner and not profit maximizing, and those companies DO fail... and are replaced by smarter, better managed companies.

Do you honestly beleive that all the banks one day woke up and said "I know, lets make a bunch of bad loans that will statistically loose us a ton of money", ALL AT THE SAME TIME? That when they saw the first few banks get into trouble, that they all just kept on doing it? the amount of patronizing involved in making such assumptions is mind boggling.

This is simply not how things have happened.

Can you actually be specific? what assets did they take?

Why don't you step out of this imaginary world and check out the laws passed by our Congress since the Carter administration. it was done little by little till it came to a head. the same was done to the banks in the 80's. Congress told the S&L's that they could lend 20% of their assets so they could compete with banks. Then suddenly in the 80's while Mr. Reagan was in office they changed the law saying that the S&L's could only lend up to 10% of thier assets. Then to be helpful they ordered that any S&L that was not in compliance within 12 months would be taken over by any bank with the money to bring them into compliance. The S&L's were forced to foreclose on homes in order to stay in business. when the S&L's that could not do this fast enough the Congress (liberal democrats that wrote both laws) screamed about the greed of american business.

The Community Re-investment Act was the final nail in the banks coffen. It orders the banks to make a percentage of loans to low income people and if they did not comply they would be investigated for discrimination. If found guilty they would have to pay a huge fine for each occurance and have the bank taken over by federal regulators just like the S&L's were 20 years ago. So they made the loans they knew people could not pay back, with the hopes that the Congress would actually do what they promissed, to back the loans with federal dollars. When the banks said hey you need to help us here. The Congress said you bankers are greedy and took advantage of poor people, you should be shut down for predatory lending practices. That my friend is the REAL WORLD.

This is true but remember the repackaged loans in America were supposed to be backed by the full faith and credit of the Government. This made the loans very attractive to Europe and Asia. By the way part of the TARP money went to Europe to satisfy those bad loans. That was part of the money wasted by AIG that the Congress was bitching about.

Now do you see how the banks were not self regulated? They could not and can not make a profit as long as we have a Congress that writes stupid laws regulating businesses they have no clue as to the workings. Each time the liberals try to make life easier for people they hurt millions and blame everyone but themselves.