Some basic and simple truths regarding this bailout.

[kentuck]

The chicken or the egg? It's an age-old argument. There are some basic and simple truths we must realize before we can make any progress in this national crisis surrounding our economy and our capitalist free-market system.

First of all, we must realize that there is no such thing as a free lunch. We cannot fight two wars and cut taxes at the same time. Let us agree on that. Let us agree that both political Parties are to blame for the mess we are in.

The sub-prime mortgages are a central player in this crisis, but perhaps not the main villain. The legislation to repeal the Glass-Steagal Act is perhaps even a bigger villain. This law was over-turned by a Republican Congress and signed by a Democratic President, Bill Clinton.

This permitted the banks and investment firms to create all types of new financial schemes and they used the Fannie Mae model to guarantee their "securities" which they sold all around the world and guaranteed them with the backing of the US Government. These were what became known as "credit default swaps".

But where does it all end? In their zeal to drown our government in a bathtub and to create a country where the marketplace was king, have George W Bush and the neo-con Republicans created a monster with the total opposite ideas of governance and economy, namely socialism? How much more money can we shovel out to save this creature that has the misnomer of capitalism?

The reality is that it is worse than you think. This reality is creeping up on all of America very quickly. Simply throwing money at the problem will not solve it. We must understand that there are no "experts" on this crisis, because it is a terrain that is new to all of us. The solution may not be within the present system. We may need to think outside of this box of mirrors?

[Eric J in MN]

1. Did the Glass-Steagal Act ban credit default swaps? NT

NT

[kentuck]

4. The Glass-Steagal Act prevented banks from getting involved...

in many speculative areas. Banks had a certain role to play in our economy and the repeal of Glass Steagal permitted these banks to expand their investments into all areas of our economy.

[Horse with no Name]

2. Very rational.

Thank you. We are going to hit the skids. This scheme is untenable and unsustainable. Understanding the republicans ONLY want to prolong it until a Democrat is sitting in the oval office so they can point their crooked fingers at them.
That is all this money was good for. It bought a few weeks at best.

[Javaman]

3. You only state half the problem...

the credit freeze, netting and credit papers are the things that are now creating the crisis, we are soooooo far past the whole subprime thing it's a joke.

the subprime was merely a fuse at this point, it has grown to such epic proportions that just helping people out with their mortgages now won't do much at all.

check this out...

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4199991&mesg_id=4199991

[gopbuster]

5. MUCH of the root of our problem lies with the Federal Reserve

A private corporation backed by the global elite who have us by the balls. Get rid of this entity and stop relying on them so much and it would go a long way to helping to solve our national deficit.

[kentuck]

6. I would agree that would need to be considered.

At this point, they are an independent entity without any government control. I think there should be some oversight, at the very least.

[gopbuster]

7. "financiers are behind all the corruption in our Government"

to quote this short article:

Abraham Lincoln and John F. Kennedy

Two great presidents of the United States
Assassinated for the cause of justice


http://www.prolognet.qc.ca/clyde/pres.htm

Mayer Anselm Rothschild once said: "Permit me to issue and control the money of a nation, and I care not who makes its laws..."

[kentuck]

8. IS the culprit Big Business or Big Government ??

Or both? What is your opinion?

[gopbuster]

9. Unabated leverage in personal, corporate and government but it is debt slavery

that is a big piece of the puzzle.

[kentuck]

10. I noticed they were talking about "savings" this morning on TV

And said Germans were saving an average of 10% of their earnings and that Americans were in the minus territory. Is it any wonder when it took 10 years to raise the minimum wage from 5.15 per hour?? This country hates labor - always has.

[HamdenRice]

11. A few agreements and disagreements

"We cannot fight two wars and cut taxes at the same time."

Yes, if you look past all the smoke and mirrors, the current crisis is fundamentally caused by the instability in energy markets caused by the war and uncertainty about the dollar last year caused by the war deficits which caused uncertainty about whether foreigners would continue to purchase dollar denominated mortgage backed securities. Ultimately, the real, underlying cause is the war and the policies of the Bush administration.

"sub-prime mortgages are a central player in this crisis, but perhaps not the main villain."

The sub-prime sector is not a big factor in the current crisis. It was the canary in the coal mine, so to speak. Now, all kinds of mortgages are going into default. Fannie's and Freddie's standards defined "prime," so when the crisis spread to Fannie and Freddie, it was obviously no longer a sub prime problem, but a prime mortgage problem, and that's a much bigger market.

The underlying problem is that family budgets got stretched thin by high energy costs and people at many different income levels stopped paying their mortgages.

"The legislation to repeal the Glass-Steagal Act is perhaps even a bigger villain...

This permitted the banks and investment firms to create all types of new financial schemes and they used the Fannie Mae model to guarantee their "securities" which they sold all around the world and guaranteed them with the backing of the US Government. These were what became known as "credit default swaps"."

Although ideas like this are floating around, unfortunately, it is mostly wrong. Glass Steagal merely allowed investment banks to merge with commercial banks. G-S had no effect on permitting banks to create "new financial schemes." G-S is a red herring. Fannie has been packaging mortgages for decades, as has the private sector, so G-S did not "permit" these securities to exist nor cause Fannie to guarantee them.

Moreover, these are definitely not "credit default swaps." You have basically garbled and confused about five different issues here.

I'll be writing a somewhat long DU and blog entry about what credit default swaps actually are and what risks they pose, because 99% of what you read about them and precisely why they are bad, is wrong.

"monster with the total opposite ideas of governance and economy, namely socialism?"

The one good thing that may come out of this mess is that we get a nationalized financial system that pursues market socialism. I hardly see that as a monster.

[kentuck]

12. I agree that...

Fannie's and Freddie's standards defined "prime," so when the crisis spread to Fannie and Freddie, it was obviously no longer a sub prime problem, but a prime mortgage problem, and that's a much bigger market.
======================

I am trying to get a discussion going on this topic because I sense it is sneaking upon us very quickly and it is going to be very bad. I was being somewhat facetious with the "monster" comment. I basically agree with you on that point.

I am not so sure that commercial banks could get involved in these investment schemes under Glass Steagal? I was under the impression that there were standards and controls on the banking system that were no longer there once G-S was repealed?

What do you think should be the role of the FED?

[HamdenRice]

15. About G-S

It's true that the repeal of G-S allowed commercial banks to more efficiently sell mortgage backed securities. But they were doing it anyway. The only difference was that they had to hire an investment bank to do it for them. Using investment banks, banks had been selling mortgage backed securities since the 1970s. The repeal of G-S was inside baseball so to speak, an attempt by commercial banks to cut out the middle man, and horn in on the investment bankers' business. It worked, in that there are no more independent investment banks.

The system that regulated commercial banks remained in place after G-S, although commercial banks lobbied to get themselves deregulated -- but that would have happened anyway. In other words, when a commercial bank and investment bank merge, the investment bank comes under the more rigorous regulation of the commercial bank system; it does not mean the reverse, ie, the commercial getting unregulated like an investment bank. So ironically, G-S can be said to have led to more regulation of a bigger piece of the financial sector. That's why Goldman has announced it will "accept deposits" and transform itself into a regulated commercial bank.

As for socialism, I think that the bailout is our trojan horse. The entire system cannot resist regulation in the public interest at this point.

As for the fed, I think it's a lucky irony of history that Bernanke, who has spent his life as an academic trying to understand how to avoid a Great Depression arising from a financial crisis, is at this moment at the helm. He's a pragmatist and he's basically willing to do anything -- anything -- to prevent a depression, so there's no rule book but he really is doubling down. His announcement that the fed will buy commercial paper was stunning, but if you put ideology aside, and you're him, it makes sense. So the role of the fed at this point is to do anything with all means necessary to avoid a collapse. There are no rules at this point.

[leftofthedial]

13. deregulation is the culprit, like not washing your hands when cooking chicken.

blame the chicken farmers, blame the food distribution system, but without hand washing, you're gonna get sick eventually.

the genesis of the deregulation problem is the entire supply-side neocon (neoliberal) economic notions of the "conservative" movement. They are utterly devoid of any merit whatsoever. It is superstition and dogmatic zealotry at its worst.

the only economic philosophy that has ever worked in the US is a demand-side philosophy. make the middle and working classes prosperous enough to buy stuff.

[kentuck]

16. I tend to agree that de-regulation is the genesis of the problem...

When we consider that when Jimmy Carter left office, our entire national debt was less than $1 trillion dollars. That was thru the Revolution, the Civil War, two World Wars, the New Deal, the Great Society, the Vietnam War, etc...and our debt was less than $1 trillion dollars.

Now consider that we have spent more than $1 trillion dollars in less than 3 weeks on these bailouts...

[leftofthedial]

17. with more to come, according to nancy "poor little rich girl" pelosi

[bemildred]

14. The "Free Market" is an ass.

Until we stop thinking of economics as some sort of religion rather than a pragmatic enterprise, we will continue to periodically run ourselves into the ditch.