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Old 07-04-2010, 03:50 PM   #61
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The odd part about all of this is that companies need workers.

Our organization has lost many people over the last 3 years due to attrition. Yet they have a hiring freeze. We are down 5% in personnel. I know that we could replace 2% or 3% in a year if we get the approval. Our company has the money... yet they wait.

I have no doubt that this is the situation in many many organizations.

Part of the problem is in Washington. The stalemate on important legislation has cast a cloud of uncertainty.

If we get Financial Regulation behind us and that oil spill is at least plugged... the mood could change.
Corporations as a whole have more cash on hand than in a long time. Maybe ever.

Profits are good, mostly due to all the job cutting. Few are seeing the top line grow as much as they'd like, if at all.
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Old 07-04-2010, 03:59 PM   #62
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I think almost everyone believes in at least some basic form of a social safety net. Heck, just for starters think about how much worse this last meltdown would have been without trust in FDIC insurance.

The disagreements mostly come in terms of the size and the approach to building it: how big do we build it? And do we design it (and the rest of economic policy) in a way that those who fall into it will be more likely to use it like a trampoline instead of as a hammock?
It wouldn't be surprising if some members of the Tea Parties didn't believe in any kind of safety net.

FDIC came into being as a result of the Depression. So did capital reserve ratios and other regulations on banks.

But you heard such grousing about the financial reform bill. And when there was news that agreement was reached, the bank stocks rallied on that day.

Anyways, some of the opposition to stimulus or various reforms may be more political, about stopping anything from being passed than sincerely believing they're bad ideas which shouldn't be implemented.
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Old 07-04-2010, 04:03 PM   #63
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Where would we be if......? Now that is a question that will be answered in different ways by different folks depending on their point of view. However, IMHO, there is no true answer to this question. There is only where we are now. The folks that say we would be worse off have good arguments, the folks that say we would better off also make good arguments. If you manage to create a program that accurately maps human behavior, and economics then you might be able to get an answer. However, my guess is you will be so wealthy that you won't care about the answer.

I am more interested in where we are going than where we have gone.
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Old 07-04-2010, 04:13 PM   #64
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Right it was Lehman that started the cascade.

There was a palpable sense of panic in the air. Really can't imagine that any govt. that stood idly by, regardless of whatever ideology one subscribed to, would be tolerated in that scenario.

They wanted minimally to calm the markets and avoid panic. If the actions they took weren't taken as a serious attempt, the markets would have plunged farther.

Those who badmouth TARP and the stimulus now say we'd have been better off because we'd have bounced stronger after the plummet are pretty daring.

Or they didn't have any money in the market, although presumably, they might have been against the govt. attempts to shore up money market funds after bolstering the FDIC too.

So they kept their money in the mattress?
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Old 07-04-2010, 06:55 PM   #65
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What do you think would have happened in the fall of 2008 if the govt. did nothing, just let things fall where they may as some were advocating? Arguably, they should not have let Bear Stearns fail.

Andrew Ross Sorkin quotes some people as saying the carnage would have continued and would have hit sound companies like GE.

Where would we be if there wasn't a stimulus? As feeble as the economy is now, could it have been even worse if we decided to do the Austrian School experiement?
We will never find out.

Again, there is no evidence or examples that Keynesian theory of increasing deficit spending get an economy out of a recession/depression
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Old 07-05-2010, 10:04 AM   #66
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We will never find out.

Again, there is no evidence or examples that Keynesian theory of increasing deficit spending get an economy out of a recession/depression
Review U.S. economic history pre-1930 if you want to see how Austrian economics works. Not pretty.
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Old 07-05-2010, 10:14 AM   #67
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Those who badmouth TARP and the stimulus now say we'd have been better off because we'd have bounced stronger after the plummet are pretty daring.
A simple thought experiment helps to illustrate the folly of suggesting we'd be better off without TARP. And it goes like this . . .

What is the value of a house when no financing exists? Imagine the state of the economy in such a world.
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Old 07-05-2010, 10:22 AM   #68
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What is the value of a house when no financing exists? Imagine the state of the economy in such a world.
On the other hand, what's the strength and sustainability of an economy when "affordability" is measured in terms of monthly payments instead of what we have in the bank?

Wasn't it partially an overdependence on financing and the "monthly payment" (not just in housing but all over) which inflated the bubble that's only now popping?
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Old 07-05-2010, 10:30 AM   #69
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A simple thought experiment helps to illustrate the folly of suggesting we'd be better off without TARP. And it goes like this . . .

What is the value of a house when no financing exists? Imagine the state of the economy in such a world.

Don't need high finance to figure that out. It is worth whatever a qualified buyer is willing and able to pay.

A simplified version, financing by an incompetent buyer is like 4 wheel drive in incompetent driver's hands. The 4 wheel drive lets one get into the boonies much farther and get stuck much deeper than if one had a 2 wheel drive. It also lets a fool drive way too fast for conditons, no help in stopping, into the ditch the fool goes. Ditto with financing.

Disclaimer - our house is fully paid off, only had a mortgage for 2 years on it.

My opinion, TARP was one of the finest boondoggles foisted off on the population.
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Old 07-05-2010, 10:43 AM   #70
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Don't need high finance to figure that out. It is worth whatever a qualified buyer is willing and able to pay.
You need to flesh that out some more and see where it leads.

In a 10% down world, where the marginal buyer can afford a $2,000 per month payment, he can buy a house worth $390K at 5.5%. That's where the market was.

Without financing he can only afford $39K. That's where the market was potentially heading.
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Old 07-05-2010, 10:46 AM   #71
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Yeah, and the problem is?
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Old 07-05-2010, 11:04 AM   #72
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Yeah, and the problem is?
It's safe to say that a ~$20 trillion loss in just one asset market would have a profound impact on employment and even social stability.
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Old 07-05-2010, 11:21 AM   #73
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The question was about the value of a house sans financing. The fact that without financing someone can only afford 39K means the should buy what they can afford, or rent, save money to buy that 390K house when the can afford it.

No one should be obligated to participate in the "greater fool" game hoping for some other greater fool to come along. If one plays that game and looses. Too bad. Darwinism at its finest.

The quants created a system, that no one, even themselves clearly understood, let alone considered the consequences. Likely, considering the consequences was forbidden as idle useless non-moneymaking endeavor.

Ergo when the greater fool system collapsed TARP to the rescue.

Frankly nothing like a good crash, people starving, having to give up their cherished Ipods, to bring them back to understanding that living within your means is valuable.

TARP and the rest of the do-gooding measures just postpone the inevitable crash.


Wanna buy an apple?
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Old 07-05-2010, 11:36 AM   #74
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All this talk about depression is depressing me. Now, where's my cherry...
Here's one from Business Week. They're quoting John Paulson from a London speech to make it look like he's inviting a cage match with Krugman:
Krugman or Paulson: Who You Gonna Bet On? - BusinessWeek

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The debate over the economy can be thought of as a trade—Paulson taking one side, Krugman the other. Paulson's got real money on the table, but for both men, the main risk is reputational. Is Paulson another Wall Street one-hit wonder? Is Krugman another too-smart-for-his-own-good academic with no feel for animal spirits? Paulson may have an edge because he is just playing the market. Krugman is playing history, which is quite a bit trickier.
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Edit to add: Many of the projects resulting from that era are still in use today.
Our house overlooks a 1933 bridge on a twisty road through a gulch. The road has been upgraded many times over the last 77 years and is now four lanes on one side of the bridge and three on the other, but the bridge is only two lanes wide. Every year a half-dozen cars mess up the bridge approach or its crossing for various reasons, and the gulch's stream is eating away at the pilings. Over the last decade I've watched emergency concrete surgery performed a half-dozen times.

Clearly a new bridge is called for. However the only reason this project is still in service is because the replacement is too expensive for a state highway. The last estimate (1998) was over $100M, and the revised plan is pushing $200M.

So the "good" thing about deficit spending Keynesian economics is that it offers life's conveniences which otherwise no one would ever agree to pay for...

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A simple thought experiment helps to illustrate the folly of suggesting we'd be better off without TARP. And it goes like this . . .
What is the value of a house when no financing exists? Imagine the state of the economy in such a world.
A simple answer is that hundreds of financial entrepreneurs would see this as a fantastic business opportunity. Of course TARP leaped in before the free market could recover from its heart attack...

I think the idea of deficit spending is generally a good one. However the implementation of programs like TARP used a flamethrower to treat the cat's fleas, and I suspect the next decade's economic recovery is going to be just as messy. Hopefully no one has to start a world war to extract themselves from this situation.
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Old 07-05-2010, 11:50 AM   #75
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Frankly nothing like a good crash, people starving . . . to bring them back to understanding that living within your means is valuable.
I can see all reasonable lines of discussion are at an end.
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Old 07-05-2010, 11:56 AM   #76
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No problem.

Living with one's means is tough. LBYM is then out of the question.

Cheers.
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Old 07-05-2010, 11:59 AM   #77
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A simple answer is that hundreds of financial entrepreneurs would see this as a fantastic business opportunity.
And that is, of course, the line of reasoning that lead Keynes to quip . . . "We're all dead in the long run."

Yes, presumably a collapse of the world's financial system would provide great investment opportunities for anyone with any money left. But how long would it take to replace our existing multi-trillion dollar financial system? How much productive capacity (both labor skills and fixed plant) atrophies as that long process unfolds? What is the human toll? And we pay these wages for what gain?
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Old 07-05-2010, 12:36 PM   #78
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The CCC was voluntary.
I never said otherwise.........
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- What does it mean if I put 2x the number of laughing things at the end of my post? I never use them - just curious
I dunno..... Maybe that you have yourself convinced that your poop doesnt stink?

Folks interpret these things in their own ways. You'll have to make up your own mind.
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Old 07-05-2010, 01:08 PM   #79
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No problem.

Living with one's means is tough. LBYM is then out of the question.

Cheers.
Yep, subsistance farming is a great life.
So is having your entire family living in one room.

Credit is like wine- very nice in moderation but very destructive when overused. Five years ago, the whole world was drunk. Now, the WCTU wants everyone to completely quit, cold turkey.
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Old 07-05-2010, 01:11 PM   #80
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I can see all reasonable lines of discussion are at an end.
But it seems your line is about having your cake and eat it too, which it not reasonable either.

We rarely see a "crash" unless there was a preceding 'boom". We know that the economy goes in cycles, it just seems to be human nature - and there are reasons why business fall into the 'trap'. You can't let your competition gain market-share, so you end up in a race to expand as fast or faster than they do, but no one knows when the bubble pops. But if you don't keep up, you get left in the dust. I fear we are doomed to boom/bust cycles because of this.

If the govt was to do anything, I'd say they should have been raising requirements for loans during the boom. Not only would this have cut off some of the 'gasoline on the fire', but most people would be in a far better position to weather the crash. It would have been a stabilizing move.

The 10% margin requirement for stocks in the 20's payed a role in the sharp meltdown. So we now have a 50% margin requirement for stocks, but 10%, 5% or even 0% on a house in a bubble market? But it seems we wanted everyone to share in the good times, but nobody wants to pay the piper when they are hungover. Can't have your cake and eat it too - that leads to people 'starving' (maybe not literally, but I don't think the previous post was meant to be taken literally either).

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