First talk of the Crisis
I've been keeping quiet over this whole economy thing. Mostly because I get that this is a liquidity issue, and that the securities that are "troubled" are so because of a failure of the secondary market, not because of the underlying security. In other words, the problem is that short term costs make it so that people would normally borrow money or sell assets to meet short term cash needs. When no one is willing to buy assets (because they are uncertain of how easily they will unload them or what price is appropriate) or lend based on assets (for the same reason), then people can run into liquidity problems. It's like businesses and banks are consumers who are used to a cushion of a credit card that they pay off every month no longer having the credit card. The result is that more people default on their obligations. Sometimes that default rate turns into bankruptcy, or in the case of banks, mergers or failures.
Now, the actual price of these mortgage backed securities, and the credit default swaps based on them and the rest of the shadow financial system, is unknown. The land might be worth something, but the problem with a full free market economy is that nothing has any value except what people are willing to pay for it. You want "objective value"? You turn to gold? Even thinking to Ayn Rand and other proponents of the gold standard, I ask: what objective value does gold have other than a medium of exchange? It can be used in wires, yes. But I don't value gold except as a medium of exchange. If I don't want to use it, it has no value to me. An engine. Steel. Coal. Oil. These things are useful commodities and products. Gold, however, is not a valuable thing. It is a somewhat rare and shiney thing that is not useful except as a medium of exchange. Just think about that one, and we can argue it later when we've both thought about it more.
What I'm writing on this time is something else: the bailout bill. Now, setting the price on the secondary market by adding a market player with a mandate to buy is one way to go. Providing a way to let firms down easy when they fail due to liquiditiy issues might also help. Not doing anything, that can work if we're willing to go through longer and harder rough times.
How you do it, though, becomes an issue if you do anything at all. Some people are choosing anything at all, yes.
And then we get to the impetus for this post: http://www.dailypaul.com/node/66109
Now, this article presents some good analysis of a small part of the bill passed in the Senate. Here's the thing: this is coming from a Ron Paul website. These people are often the ones that rail against government involvement. Pay attention to what they're actually saying: previous law chartering these institutions required reserves at banks to make sure there was cash on hand, and the Senate loosened those restrictions, creating a situation that might be acceptable for the banks, but will be unacceptable for consumers. Now, there is essentially no way for consumers to band together and negotiate better contracts requiring reserve levels. The reason Regulation D and the other aspects of the reserve requirements were in place was because the people banded together and did negotiate the way they could: by requiring banks to follow that order through law.
So here's the thing: even this analsysis says, "have a rule of law that protects consumers by regulating banks." It also says don't use taxpayer money to pay foreign banks. Over all, I like this commentary. I'm still reserved about any specific bailout plan. But I just wanted to point out the tiny things that can change with a few words, and that in some cases regulation of financial institutions is the only thing that keeps everyone in our country from being raped by their financial institutions.
Just a few thoughts. Back to work with me.
Now, the actual price of these mortgage backed securities, and the credit default swaps based on them and the rest of the shadow financial system, is unknown. The land might be worth something, but the problem with a full free market economy is that nothing has any value except what people are willing to pay for it. You want "objective value"? You turn to gold? Even thinking to Ayn Rand and other proponents of the gold standard, I ask: what objective value does gold have other than a medium of exchange? It can be used in wires, yes. But I don't value gold except as a medium of exchange. If I don't want to use it, it has no value to me. An engine. Steel. Coal. Oil. These things are useful commodities and products. Gold, however, is not a valuable thing. It is a somewhat rare and shiney thing that is not useful except as a medium of exchange. Just think about that one, and we can argue it later when we've both thought about it more.
What I'm writing on this time is something else: the bailout bill. Now, setting the price on the secondary market by adding a market player with a mandate to buy is one way to go. Providing a way to let firms down easy when they fail due to liquiditiy issues might also help. Not doing anything, that can work if we're willing to go through longer and harder rough times.
How you do it, though, becomes an issue if you do anything at all. Some people are choosing anything at all, yes.
And then we get to the impetus for this post: http://www.dailypaul.com/node/66109
Now, this article presents some good analysis of a small part of the bill passed in the Senate. Here's the thing: this is coming from a Ron Paul website. These people are often the ones that rail against government involvement. Pay attention to what they're actually saying: previous law chartering these institutions required reserves at banks to make sure there was cash on hand, and the Senate loosened those restrictions, creating a situation that might be acceptable for the banks, but will be unacceptable for consumers. Now, there is essentially no way for consumers to band together and negotiate better contracts requiring reserve levels. The reason Regulation D and the other aspects of the reserve requirements were in place was because the people banded together and did negotiate the way they could: by requiring banks to follow that order through law.
So here's the thing: even this analsysis says, "have a rule of law that protects consumers by regulating banks." It also says don't use taxpayer money to pay foreign banks. Over all, I like this commentary. I'm still reserved about any specific bailout plan. But I just wanted to point out the tiny things that can change with a few words, and that in some cases regulation of financial institutions is the only thing that keeps everyone in our country from being raped by their financial institutions.
Just a few thoughts. Back to work with me.