The Free Market Debate

[nicomachus]

I know we aren't supposed to post links without any comment, but my friend John Medaille has done a fine job here showing the problems with free market capitalism:

content.isi.org/node/1257

It is worth noting that when free markets have reigned, so have recessions and (consequentially) government growth.

[neohguy]

I've read Medaille's response so far. I'll read the other guy later. Some excerpts from his debate (I think V_L would agree with the part i highlighted):
"It comes as no surprise that everybody was ready for Keynesian “demand management” under Roosevelt. This has been the policy for the last seventy years, regardless of the administration, left, right, or center. Indeed, it has been the policy of every industrialized country around the world, whether they call themselves socialist, capitalist, or social democratic. And it worked fairly well. Since World War II, we have been in recession only 15 percent of the time, and the recessions were, on average, half as deep and half as long as the pre-war ones. But there were problems. In the first place, everyone, from corporate CEOs to single mothers became wards of the state, receiving welfare in one form or another. This is certainly a recipe for destroying the social fabric. Further, it was a half-baked Keynesianism, since Keynes called for a stimulus in bad times and a repayment of the debt in good times. But the economy has become addicted to stimulus in good times or bad, and the politicians are averse to repayment. We have become stimulus junkies; this will end as junkies always end, with an empty bank account and a damaged psyche. It is unlikely the system will continue for much longer....
We seem to be caught in a trap: we can no longer “stimulate” the economy with government spending because the actual economy has been gutted. Yet no sensible person wants to return to the pre-war economic chaos.

The gargantuan structures of economic liberalism are becoming increasingly unstable and will not last long. The true task of conservatives will be to rebuild the economy from the ground up, the only real way a stable economy can be built. We will need to look around our communities to see what problems can be solved by local resources and in absence of government and corporate “supports,” and what problems will require trade with our nearest or more distant neighbors. But mostly, we must be true to our values and not succumb to the arguments of liberalism, even (or especially) a liberalism that masquerades as “conservative.”

We seem to be caught in a trap: we can no longer “stimulate” the economy with government spending because the actual economy has been gutted. Yet no sensible person wants to return to the pre-war economic chaos.

The gargantuan structures of economic liberalism are becoming increasingly unstable and will not last long. The true task of conservatives will be to rebuild the economy from the ground up, the only real way a stable economy can be built. We will need to look around our communities to see what problems can be solved by local resources and in absence of government and corporate “supports,” and what problems will require trade with our nearest or more distant neighbors. But mostly, we must be true to our values and not succumb to the arguments of liberalism, even (or especially) a liberalism that masquerades as “conservative.”

[reasonfreedom]

Wouldn't the reason that we were only in the recessions 15% of time be because we were constantly stimulating. If that is the case the Keynesianism would be just at bad if not worse than the pre-war. With the pre-war economics we at least knew that we failed and could clearly see the consequences, with the economy post war it just seems like it wasn't so bad because of the constant spending he mentioned.

[nicomachus]

The recessions and guts were also common pre-war, before the stimulus spending

[comokate]

Free market ? It isn't really "free" when corporate welfare is so freely given at tax-payer's expense.

[tyfighter3]

Kate, the last 10 years the Census says we grew 10% in population and now we have 9.2% unemployment. I wonder how many are Illegal emigrants getting free welfare and the list goes on and that isn't corporate welfare. Give me some examples of Corporate welfare that the Tax payers pay for other than subsidies that some of them do really good for the taxpayer. And some of them need to be cut, the ones that do no good for anybody.

[Aman A.K.A. Ahamburger]

I agree Ty. Free Market Capitalism is still the best path to prosperity.

WE the people need to turn it into a MORAL Capitalism. Consumers control 60-70% of the market place. Nothing speaks as loud as dollars.

Feeding 10 billion chance to restore ecosphere:
www.thestarphoenix.com/technology/Feeding+billion+chance+restore+ecosphere/4323552/story.html

Summit addresses local food economy:
www.thestarphoenix.com/business/Summit+addresses+local+food+economy/4375586/story.html

[tyfighter3]

K for WXYZ and AHB.

[itstippy]

Ronald Reagan greatly increased the size and scope of the Federal government and Federal programs. He loved big government. It was his life-blood. After his initial tax cuts, he started raising taxes to partially pay for all the big government he was creating.

He also adored deficit spending. He could raise taxes less and still grow government like crazy by running deficits, so that's what he did. The National Debt went from $700 billion to $3 trillion on his watch.

I'll never understand why people give Ronald Reagan credit for being low tax, small government, anti-deficit. He just plain wasn't. His administration wasn't.

[itstippy]

Oh, I'm not defending the Democrats. I'm a cynical S.O.B. who distrusts anyone and everyone in Washington. They all say whatever they need to say to sway public opinion and get the votes, then they do whatever they really set out to do once elected. The adoration of Ronald Reagan as a hero of Small Government drives me nuts. It is 100% media spin, it was at the time, and the legend persists to this day. Did he bankrupt the Soviets by engaging them in a military buildup race they couldn't win? You bet. Did he fight tirelessly to shrink Big Government? Absolutely not.

Ronald Reagan was a master of "image". He had great handlers and he could nail the sound bites. I remember being amazed during the 1980 Republican Primary that George H. Bush had to try to overcome "the wimp factor".

In the near corner, Bush:
* tall Texas oilman
* four years active service in WW2 including getting his torpedo bomber shot out from under him and being rescued at sea by a submarine.
* top spook for the CIA (if that ain't "tough enough" for you, I don't know what would be)

In the far corner, Reagan:
* tall Hollywood movie actor
* four years of inactive service in WW2 making films in Hollywood to support the war effort
* governor of the Weird Planet of California.

And yet, in public perception, Reagan was a "he-man" and Bush was a "wimp". Scary.

[itstippy]

Well shoot. Look at the crap we put up with. Here's a typical Washington "compromise":

Obama Administration to Republican Congress: "If we don't get Obamacare, you don't get your tax cut extension".

Republican Congress to Obama Administration: "Oh yeah? Well if we don't get our tax cut extension, you don't get your Obamacare".

After clouds of bombastic rhetoric and political posturing, the two sides agree to do both and just borrow the money to pay for them. Cripes. Imagine if you wanted a new truck and your wife wanted new living room furniture, and you couldn't afford either one. So you "compromise" and borrow enough money to buy both.

[itstippy]

The idiots running the Capital side of Capitalism believed that there was no limit to how much debt this country could support. That both the Government and the Electorate could borrow ever greater sums of money indefinitely and continue to make good on the ever-increasing interest forever. That eventually we would all live in big houses, drive big cars, pay no taxes, and make our livings by "servicing" each other. They loaned boatloads of money they didn't have to people who can't pay it back. Oops.

The idiots on the Labor side of Capitalism bought into this too, and eagerly borrowed the money. They voted for politicians who would promise to borrow money in their name and provide yet more free services. Whee!

I live within my means too, but we're at the mercy of those who do not/have not. And we're WAY outnumbered. Everyone from the Chairman of the Federal Reserve down to the minimum-wage worker has been borrowing and spending like crazy. The debate is no longer about how to equitably distribute our Nation's collective wealth and prosperity - it's about how to distribute our risk and debt!

[vl]

Government and more government is never the answer. Government is nearly always the problem.

Read more: notmsnmoney.proboards.com/index.cgi?board=moneytalk&action=display&thread=3887#ixzz1FjT7nBit

It isn't just government, it's organized sustained administration and bureaucracy. That encompasses much more than government. How about the mandatory "degree" aspect for white collar employment that exists today? That says-- you must be pre-programmed with university thinking before you can work here. Hardly an aspect of "free" or "freedom" especially considering the cost of college and the lack of warranty on the graduated output.

Some say- my call for the collapse of the financial sector and banks is lunacy. How so? Isn't that more a fear of the unknown? Before 1999, all aspects of finance were wholly different than after. Prior to 1986, it was unrecognizable in today's terms and yet- served the nation better and without as much control. If in fact we regressed back to post WWII banking, we had in-house portfolios and local credit decisioning. That aspect alone confines potential toxicity to a market- not a Too Big To Fail scenario we all know is the core of today's woes.
Of the MILLIONS of incorporations in business today (with more than 100 employees) few if any are controlled by Founders and/or next-generation relatives of the Founder. No Founder ever made more than 400 times the average personnel because the Founder hired competently to lift the business to where it grew to at his/her demise. Hiring-in new management is where we went wrong. There isn't a valid argument as to how this amassed power should be handed over FOR FREE to someone else and given an extraordinary compensation to play CEO.

I've read several impressions of our current situation and most agree that BIG must divest to salvage what's left. Does anyone believe it could be done voluntarily? Okay, stop laughing, I agree! It will not come easy nor freely. Three factors to consider today: over-worked personnel are exhausted, in debt and lack non-job life diversity (baby adults excluded). As the weather turns and gas prices increase, these folks stand a better chance of quitting or going on medical leave- than not. Given this, who will do the work? Of the 15 million "unemployed" rehiring and firing up to stress-levels currently in play won't work. Bosses don't know how to do what the staff does (hired in from college sans knowledge). That sets up 90% of Big Businesses to literally evaporate (or go Super Nova). Read up on 1983... this is a very relative year.

[frankq]

"Corporate welfare. What a joke. As said above the amount we spend on individual welfare is outrageous. The amount we spend on illegal aliens is even more outrageous. Want to whine about jobs and wages? Ok, a great number of the jobs you whine about not paying much anymore have been taken by illegals. The more illegals pour across our border the less American jobs are going to pay."

The U.S. Chamber of Commerce was against E-Verify and backs amnesty for illegals. What does that tell you?

The states in the worst financial shape are sanctuary states. Hmmm......

[itstippy]

Good stuff, V_L.

I'm old enough to recall a time when the American Capitalist Economic System didn't allow most working-class folks to hang themselves with too much debt. The credit simply wasn't extended. We used to lament, "The only way the bank will loan me the money is if I can prove I don't need it". That was the way it was up until about 1983.

We had a system where working-class folks would build up what we called our "life's savings". It was separate from equity in a house, or investments in stocks, or a family business, or a savings account earmarked to buying a new car, or for financing a kid's education. It was a liquid cash balance that we kept in the local bank in the form of Certificates of Deposit. We carefully guarded our life's savings, and added to it as we could, and hoped to have a nice balance in there to hand down to our heirs when we died. Hopefully our heirs would keep it intact and keep adding to it too. Build up a family stash that would ensure we'd stay solvent come what may.

The local banker would pool everyone's life savings and loan it to people as mortgages, car loans, business loans, etc. They could loan money at a 10:1 ratio - for every dollar of life's savings on deposit at their bank, they could loan out ten dollars. Bankers were very careful about who they loaned money to. They didn't want to lose it by being too risky. If, as happens, a bank made terrible investments and went kaput, the Federal Deposit Insurance Company (FDIC) would step in and make good on depositors' life savings. It was an archaic system by today's high-flying banking models, but we liked it and it worked fairly well.

Ah, those were the days. Nobody was given access to credit simply because they were an American citizen with a pulse. You had to earn access to credit by accumulating collateral and by building a sound reputation for honesty and prudence in financial matters.

[texasredneck]

itstippy This funding worked will until the early 1970's. Then the reduced savings rate and the increase in home sales caused it to freeze up every 2 or 3 years. Few people realized that their builder was having to leave 10% of the loan amount on deposit with the savings and loan for 7 years or so. The savings and loan collected the payments with interest and deposited them in a savings account for the builder. If the builder would not do this they would not make the loan. The builder soon had his working capital tied up and had to stop building. This problem lead to the formation of Freddy and fanny.

[Tesla_DC-meme]

Typical feel goodism, goody two shoes, progressive liberalism. Never works, never will.
Read more: notmsnmoney.proboards.com/index.cgi?board=moneytalk&action=display&thread=3887#ixzz1FkKuX0yb

Typical feel goodism, goody two shoes, progressive liberalism. Never works, never will.......

[vl]

"I'm old enough to recall a time..."

You might also be old enough to understand what an appraisal is really for. It's an 'opinion' that serves two masters- the investor and the lender, NOT the borrower. When we stopped directly analyzing the applicable data and shifted to shifty demographic data, we not only exposed the credit risk to adverse influence, we homogenized all property to a blind standard. "What the market will bear" is great on E-Bay, terrible in a portfolio. Automating a false system guarantees that history will repeat and with greater losses at each cycle.

As for your perspective on corporate vs. individual welfare, frank... individual welfare makes a consumer with modest liability. Corporate welfare makes a major liability existing without modesty. Regardless of what you've been taught or think you know about government giving... handicapping at the lowest level ensures a tax-payer and thus revenues. Forgiving tax liability for big business guarantees only that there will never be enough. Without a lowest level, the threshold of prosperity cannot be ascertained. The rich will set the bar higher and higher until anyone who is not outrageously rich is impoverished. Wealth does not buy all kinds of stuff broadly enough to carry an economy. Why do you think we're in the circumstance we are in?

[comokate]

Mar 5, 2011 12:18:59 GMT -5 Tesla_DC-meme said:

Typical feel goodism, goody two shoes, progressive liberalism. Never works, never will.
Read more: notmsnmoney.proboards.com/index.cgi?board=moneytalk&action=display&thread=3887#ixzz1FkKuX0yb

Typical feel goodism, goody two shoes, progressive liberalism. Never works, never will.......

A sociopath-like disregard for the human beings that live within your own society, for the massive base of people who support the few at the top, never ends well , never will...




A sociopath-like disregard for the human beings that live within your own society, for the massive base of people who support the few at the top, never ends well , never will...

[comokate]

Mar 5, 2011 15:28:01 GMT -5 @franktheimpaler said:

V_L I would like to show you the proposal that we are using in florida to negociate with the banks to write down the principal amount of their loan so people can stay in their homes...I think you'd be impressed. I took what we discussed and I predict you will see/hear about this all over the country very soon.

I'll scan it in and e it to you! boards.msn.com/Themes/default/emoticons/heart.gif

This is good news Frank-

[neohguy]

Lol. That'll certainly convince every underwater mortgage holder that are current on payments to stop paying so that they can get their principal reduced too.

[neohguy]

Imo, The best thing that the government can do is make foreclosed housing available to first time home buyers. Currently these people are locked out of these affordable deals because banks (including fannie, hud, fha) will sell these homes far below market value to cash buyers. If fannie is listing a house for 75k and a first time home buyer offers asking price, fannie will accept a bid for 60k from a cash buyer.

[itstippy]

Fannie & Freddie didn't come up with the concept of the "no documentation" loan. The Free Market did. How in Hades did the Free Market system get so discombobulated that it came up with "no doc" loans? They even wrote them with 0% down payment. The "NINJA" loan. No Income, No Job or Assets. How could there possibly have been investors willing to buy into something like that?

I can't imagine a single qualified borrower would need something like a NINJA loan. Even folks with big off-the-books income (drug dealers, tax dodgers, wealthy cash-only mariachi singers, ...) wouldn't want one. They want to turn piles of illicit cash into hard assets - they aren't trying to borrow money.

The Free Market system sure produces some ridiculous (but innovative!) financial products.

[neohguy]

Mar 5, 2011 15:52:51 GMT -5 @franktheimpaler said:

Exactly...with the exception that the home owner who is current can still get a review based on their appraised value validated by their county tax assessors office and get a reduce principal modification.

Congress is waking up to the fact that they they loaned the banks all that money without strings attached. They are hearing from their consituants...and are looking for a "global" solution...at the banks expense...."BAD BANKS...SHAME ON YOU!"

Always nice to see the positive thinkers out there contribute something!

It sounds like the county is trying to protect their tax base by using appraised bubble figures. The houses I'm involved with sold for less than half of appraised value. And I'm having them reappraised at current value, not bubble years value.
I'm extremely positive. Let first time homebuyers have a chance to buy foreclosed homes at realistic prices. It is a proposition that the Cleveland Fed is considering. It's being championed by a local S&L that specializes in home mortgages that wasn't hurt when the economy collapsed because they provide and service their loans. They were selective since they are servicing them. Now they want to provide loans to first timers that are responsible.

[neohguy]

Mar 5, 2011 16:12:54 GMT -5 @franktheimpaler said:

And there is the hook....my taxes went down based on the decrease in appraised value....my $500k house is now worth.....$285K?

If I were goining sell and expecting to make a profit I would be upset...but I am not going anywhere and am happy to pay $2k in taxes!!!

So someone here first time....refi....mod...whatever is going to get the apparasied value based on real time numbers.

I'm in a similar situation but at a lower appraised value. I'll be selling the house that I lived in for the last 20 yrs for a cost that will be 50% less than what I could have gotten for it in 2004. It's not a big deal for me because it was paid off a long time ago.
I planned on living in it until ~ 2017 but I picked up a great deal for a home that's more suitable for my later years. It's value may even fall further but again no big deal. It's paid for.

[neohguy]

I am a believer in the free market providing price discovery without government intervention. When a speculative bubble bursts then prices must fall even if its painfull for some. Others should be allowed the opportunity to buy a house that might not have been able to during the bubble stage.
I believe the same about any speculative bubble.

[vl]

V_L I would like to show you the proposal that we are using in Florida

Read more: notmsnmoney.proboards.com/index.cgi?board=moneytalk&action=display&thread=3887#ixzz1FlKX1XQr

Florida- a homestead state, could easily resolve all of its mortgage delinquency issues by encouraging homeowners in distress to protest foreclosure as the sole solution. Consider this-- any homeowner who cannot maintain payment breaches the mortgage terms but legitimately bears the right to keep the home IF there is another option. That option is-- a remedy credit First Mortgage (modified terms, not a rewrite). The judge orders it at a 6% APR for 5 years term and amortization based on a 45% single ratio debt-to-income (minimum 18-month validation). ALL other debt regardless of what it is, gets placed in an Indelible Second Lien. Much like a Chapter 13 wage-earner Bankruptcy, the Trustee cedes to the servicer who services that first mortgage for the 5 years. At 58 months, the homeowner and bank is notified to prepare a NEW remedy mortgage based on the same criteria, absorbing as much of the balance in the Indelible second as can be afforded. Using this method, most balances get paid completely out in about 12 years.
Why do it? First, to foreclose tacks on ForEx (foreclosure Expense) to an already deflated home value, thereby creating a negative position when the property is sold as an REO, so, not foreclosing, not incurring ForEx and not sitting on a failed asset through Florida's summer- literally cements the case for sitting on the debt in the second for years. Second, there isn't any cash exchanged. The creditors will all lose if a traditional foreclosure, bankruptcy or abandonment occurs. This way, they eventually recover the balance as it existed at the time of the remedy. Third, the 45% all-encompassing ratio leaves 25% of the household Net Income for living. It's likely MORE than what they had just prior to the default. A SMART judge orders budget classes to create a homeowner that can live within their means. By the second rewrite, the borrower could have enough going to be a financial customer with steady monies to save and invest.
Florida as a state, saves an absolutely incredible amount of money doing this, as opposed to traditional actions. There's also the aspect that once this starts working, people will want to buy homes in Florida (appreciating existing values and thus- tax revenues), create businesses and/or hire people because it helps keep tax levels stable. I am happy to review your materials and will respond once I have.

[vl]

Fannie & Freddie didn't come up with the concept of the "no documentation" loan. The Free Market did.

Read more: notmsnmoney.proboards.com/index.cgi?action=display&board=moneytalk&thread=3887&page=2#ixzz1FlPhE4no

Kind of. The "NINA" no-income-no-asset was a Subprime invention- which involved banks as investors. The original was a "LILA" limited-income-limited-asset and capped at 70% appraised loan-to-value. LILA was a no-brainer to criteria and market to investors (who lapped 'em up). Basically, if the liar defaulted, we had tons of room to protect the investor and did. When "we" stopped directly underwriting these loans, pass-through wholesalers used young girls to process them assembly-line fashion. There's a marked difference between me looking over your file quickly and a kid who still lived with mom and dad.
In 1994, a FNMA survey revealed that 60% of America no longer qualified for GSE static guidelines. All of them should have been folded up right then and there BUT... BANKS demanded otherwise. When the pimple became cancer, banks said it was mis-management. From late 1999 well into the bad years, banks used Federal Home Loan (Regional) Banks for funding and sold directly to Wall Street. Much of what went wrong with the GSEs was the BANK management it hired and a racketeering-level desperate attempt to remain viable a decade after safe usefulness evaporated. The GSEs were created to accommodate the overwhelming amount of wage-earner workers in America during the Manufacturing Era. When downsizing upset the bandwidth prospective customer, everything thereafter was done blindly.
I am not a fan of the GSEs, banks or ANY organized lending where size can exceed intelligent discipline. Too much to lose if fools rule it.

[texasredneck]

Fannie & Freddie were good for the market in the early years with no problems. They required 20% down or 10% down with mortgage insurance and documentation of income and enough cash in the bank to cover closing costs. Only when the liberals got involved with wanting everyone to own a home did the mortgage lenders take advantage of everything.

[texasredneck]

The lenders got paid for every loan they did good or bad. That was the problem.