Everyone does remember how we could have stopped this financial meltdown right at the get-go right?

Here's the two step solution that would have saved taxpayers trillions (literally now):

1. Bailout homeowners, not banks. "Pay" the sub-prime mortgages thus eliminating the bad debt, where "pay" can mean any kind of homeowner assistance plan that would help people stay in their homes and make their payments, or get out of their home but not default on their loan. Trickle-UP works. Trickle-DOWN does not.

2. reinstate the tax the America had for a very long time on stock sales, of 0.25% - this has several effects. One, it discourages speculation. Two, the revenue from the tax would be enough to have a pool of money to provide stability and liquidity to any teetering lending firm while the bad mortgages were being sorted out. In this way Wall Street would pay for its own insurance fund.

Done.

No credit to me - these ideas were proposed by other smarter people (Pete DeFozio, Hartmann to name a couple) but no one was listening.


So what have we had instead? This mess of trickle-down bailouts and wall street money dumps and we haven't even gotten around to clearing out toxic assets yet.

That mantra has driven the truck over the cliff. Now, that's it is off the cliff, the brakes are useless.

Time to reinstate all the regulatory authority that held this sort of nonsense off for nearly 50 years.

Anybody who even says the word "deregulation" should be Gitmo'd
GAC

It's impossible for me to agree any more than i do.
GAC

One guy wins, everyone else loses in the end. It is a lesson we once seemed to understand. I really wish we would learn from history. I use to believe we did.

I think it requires something BIG to happen to get people's attention. This might be big enough to get us to learn.
GAC

are talking "in theory". There is never just one "theory" out there....and those theories that haven't been tested cannot be considered absolute.

Clearing out Toxic Assets from the many banks will take time. Currently they are doing the stress test of the hundreds of banks out there.

The Government Paying people's mortgages is not an anwer, because there's a gap between the fair market value of the property and the amount owed on the mortgage. That is the gap that is causing the problems. How are you suggesting solving the "gap" problem? You want the Government to simply send a check for the mortgage amount to the homeowner or their bank every month?

What the administration has done thus far is what was needed to lower interest rates down below 5%, created the assistance program that you mentioned, and they are working on loosening up credit (because folks can't refinance if no one wants to write up the loan).

Program to help people lower their mortgage payments or restructure their loans.
http://www.makinghomeaffordable.gov/

As for raising the Capital Gains tax, Obama's proposed 2010 budget raises capital gains tax by 5% (from 15% to 20%). The problem is that folks are losing money in the stock market, so there is no capital gains.

I just want to remind you that this shit didn't happen overnight, and it won't be fixed overnight.

any longer, Frenchie. Hell, I trust you more than I trust any of them and you aren't one, are you? One doesn't have to be an economist to be able to make logical deductions.

I'm an accountant. I have a working knowledge.

I find that some folks talk like they know, but don't really know.
Economics is not a science, it is a philosophy, and there are more than two or even three.

My point is that it is easy to decide to trust one over the other,
but if they are dealing with untested theories, than it doesn't mean that
your chosen particular economist is going to get it right,
because based on the problem, what is important is the transition
of getting from one place to another, and doing it without screwing up as you go,
and not so much putting together something from scratch.

That's why Geithner and Summers were Obama's picks...because the process part of
taking what is broken and changing it to something that works is the challenge....
not what happens once you get there.

Many economic theories have been historically tested and modified, accepted or discredited through that process. Many economic theories continue to be spouted despite historical evidence that seems to repeatedly discredit them everywhere they are tried because of ideology.

Not everyone has the same goals, and thus different theories might "work" depending on what you define the goals as. For example, Friedmanite economics of the Chicago School works better than anything else out there for getting a small group of privileged elite fantastically wealthy and insulating that class against crisis at the expense of everyone else in the system. It is amazingly good at that. But those are not goals I accept as just or appropriate. Chicago School economics are historically demonstrated to be terrible at acheiving the goals that I believe are at the heart of democratic ideals.

I'm not saying that Obama is deliberately going full Chicago School-style. I think in the face of a crisis like no one else in recent times has ever seen before, everyone is a little lost about exactly what to do, and it is really exposing how much almost everyone in our political-economic game tend to default to funneling money to Wall Street as the answer. And I think we are seeing (and about to see more of) just how much that is not always the answer.

When I suggest that recovery should focus on main street instead, I'm absolutely advocating a theory - and I admit right up front we have less historical evidence to prove or disprove it because its so rarely been tried. I'm advocating it because I think it will be best. I don't know for sure. But all of the information, data, indicators and evidence I can look at - and I look at a lot - leaves me with this hypothesis that we've had things precisely backwards for the last three decades and we ought to try and flip it around.

but it is how to get there from where one is.

In the end, everyone pretty much wants to restore the system as it was pre 1999, in that they want seperate institutions selling unigue instruments, without the co-mingling, the selling of group derivatives, and they want strong regulations and oversight. Most want the banks with accurate Balance Sheets with a mix of liquid capital, safe bet assets, and sound management. The problem is how to get there. Those who want to nationalize the banks, don't want to keep them that way forever, I would guess.

So the whole argument here is not so much about economic theory, as it is process of turning nearly insolvent banks into a solvent ones.

That's why Obama chose Geithner and Summers; because they understand better than most how financial institutions work (Geithner worked at IMF and the Fed Reserve Board in NY and Summer was the last Sec. of State under Clinton)....

So someone like Krugman doesn't necessarily have a better working knowledge on how to transition a bank from a insolvency to solvency, although he may have some very good Nobel prize winning ideas on something like the issue of International Trade (which is what his Nobel Prize was for).

I don't think it was clandestine - I think you probably nailed the reasoning right on the head. And that reasoning is not like....crazy or anything.

But still, respectfully - I still think its ultimately wrong. Or to put a finer point on it, it might be that at this point we're facing a question of how to make insolvent banks solvent, but we shouldn't have gotten here. Now I'm looking beyond the Obama administration with what I'm about to say okay - we should have had a different focus when the economic crisis was a crisis in the housing market, and before it spread into the financial sector and banks stopped lending - which was really when everything hit the skids.

Since that time, while I do believe that the plan has to include working with banks and the financial sector - so I'm with G & S and Obama and you here - I have some issues with exactly HOW that is being done. It still feels to me that one of the weaknesses of G & S and their perspective is that they tend to see the problems mostly in terms of a lack of liquidity only. Get money flowing and everything will be rosey again. Sometimes its hard to separate what things have happened under the previous treasury sec and what have happened since Obama took office, but the whole handling of the TARP money has just been absolutely disgusting. The key flaw was the assumption that you could basically just hand money to busineses and that they would, in good faith, use that money in a charitable way by opening up credit avenues and starting to lend to other banks, etc.

Instead of course, what they did was look after themselves, try to line their own pockets and insulate themselves from the economic crisis, and not lend to anyone. So here we are 700 billion dollars later and almost absolutely nothing to show for it. NOTE: I recognize most of that is the work of a previous administration, but now it appears by all accounts that we are gearing up to do almost the exact same thing all over again with Bailout II.

Let me just say again, the urgent critical bailout that we were told absolutely had to pass congress without debate or time for critical reflection or we would all die has done next to NOTHING to solve anything. It was the biggest upward transfer of wealth in history, and it disgusts me to the core that it was allowed to happen. Therefore, anything that even smells a whiff like a repeat of that gets my dander up. Yes, fixing the economy will take time, yes we need to understand all the details of proposed plan, and hell I'll even give a yes to the fact that its only been two months. But dammit I am an engaged citizen man! I'm not going to sit on the sideline and NOT speak out about what my administration is doing, good OR bad.

Plus... this is a discussion board. I'm not changing anything by writing here. If I'm negative I guess it could be a downer to some, but then just don't read it. I'm not hurting Obama or impacting the world one bit by writing quasi-anonymously on the internet. In real life is where I have the chance to make some sort of actual impact with the steps I take. Here is a place mostly to vet (vett, vette?) ideas.

I get that negative nancies can be a downer -- but I think we should be happy to have them. I think they do more good for politics than do the cheerleader brigade, though I apologize for some of my more childish and nasty characterizations of you in the last 24 hours ... obviously my emotions have been running a bit high as I've been feeling frustrated.

Two of my published papers were on the subject of debunking conventional theories. (Mostly Austrian school stuff.) I'm certainly not the only one who has done so.

Yet, on nearly a daily basis, i hear people spout those theories.

They are no longer theories when the data already supports that those ideas can't support their own weight.
GAC

if there is one example of the system of "unfettered" capitalism working?

The drug trade comes to mind! LOL!

But, in reality, absent regulation, there has never been evidence that pure laissez faire principles will succeed on a grand scale.
GAC

That's part of the problem.

Here we have one country of 300,000,000 plus people... almost any socioeconomic system is going to have some major problems.

Political Economy is part of my job, training, degree and profession. My masters degree includes specialization in socioeconomic theory.

Having said that, I reject your notion that once must have a credential to be allowed to speak. If you have a problem with the ideas, name them. Otherwise, well... bite me. :)

Clearing out toxic assets will of course take time when you do it by process of bailing out banks, instead of making sure there are no toxic assets in the first place. This is one of those areas where the problem isn't competing theories as much as it is ideological interests. And its okay for you to agree with me here Frenchie, because all of this happened before Obama took office. The decisions were already made.

"The Government Paying people's mortgages is not an anwer, because there's a gap between the fair market value of the property and the amount owed on the mortgage. That is the gap that is causing the problems. How are you suggesting solving the "gap" problem?"

You are not an economist, Frenchie....etc. etc. Nevermind, I'm not going to do that to you. In a sense, yes the Government could "cover the gap" as you put it with funds collected from reinstating the stock transaction tax.

When you talk about there being competing economic theories out there, that is obvious and should go without saying. However, not all theories have the same historical evidence to support them. The trouble with right-wing trickle-down style economic approaches is that there's been a decades of historical evidence indicating all the negative effects associated with such an approach.

Most notably the decoupling of productivity from wages, a stagnation or decline in real wages for the bottom 80% of America over the last thirty years, the highest income disparity of any industrialized nation in the world (see State of Working America from the Economic Policy Institute, 2008-2009 - google it). Supply-side economics coupled with a Friedman adherence to deregulation principles has been tested. It's been put into practice and allowed to flourish for years. And the results offend my social and economic justice sensibilities.

This is why I argue (and see, it is an argument) that such theories have been discredited - not discredited because I wish it, but discredited by actual history.

I AM qualified to talk about this stuff. I do it on a daily basis.

The simple version Frenchie is this: I don't hate Obama. I actually am more happy with this President than at any other time in my life. I just believe that his approach to recovery could and should focus more on Main street with the belief that the benefits will filter up to Wall Street rather than on what seems to be to be a more discredited Top-Down approach - fix the financial markets by giving them everything they want with few or no conditions and hope that it trickles down to everyone else - that makes me uncomfortable.

I did the loan assistance program, and I didn't mention capital gains but I acknowledge the legitimacy of the point that there's no capital gains to be taxed. :)

I know things won't get fixed overnight. And I want to remind you that I don't blame Obama for the mess. I know who to blame for that. I do have concerns with how the recovery process is being undertaken, and I'd like to talk about those, and even - yes - make criticisms at times.

but people should know what they are talking about, still.

I think we agree on some things actually...other than the fact that I don't think we know enough as to what Obama's plan will be to nix it from the onset. I don't claim to be smarter in how to make a bank solvent again in the most efficient way, than does Geithner and Summers. I just know that their forte is understanding the banking industry as it is.

Not that this matters, or has anything to do with a point really... but it was just bugging me. If I made it sound like Defozio and Hartmann were economists it wasn't intentional.

Pete DeFozio is a Congressional Representative from Oregon, and he introduced this on the House floor as part of an alternative proposal to TARP. Thom Hartmann is an author, radio talk show host... I'm fairly sure you know who he is. He's pretty wise, though I don't know what if any credentials he has.

Particularly: "Bailout homeowners, not banks... Trickle-UP works. Trickle-DOWN does not."

:thumbsup: