Comments on: The $700 billion Bush proposal to bail out lenders http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/ Defending the liberal tradition in history, science, and philosophy. Sun, 12 Feb 2012 03:50:56 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Maniakes http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162623 Maniakes Tue, 23 Sep 2008 17:45:15 +0000 http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162623 No, you may be right. I'm just not seeing problems that can be traced back to GLB, but if I'm wrong, this won't be the first time. As for dissappearing comments, the spam filter is a bit overzealous and it tends to seemingly-randomly drop comments with links in them into the moderation queue. If you lose another comment, post a comment mentioning it in the thread, and someone with moderation privileges (usually Dean) will pull your original comment out of the queue. No, you may be right. I’m just not seeing problems that can be traced back to GLB, but if I’m wrong, this won’t be the first time.
As for dissappearing comments, the spam filter is a bit overzealous and it tends to seemingly-randomly drop comments with links in them into the moderation queue. If you lose another comment, post a comment mentioning it in the thread, and someone with moderation privileges (usually Dean) will pull your original comment out of the queue.

]]> By: Robert E. Lee http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162602 Robert E. Lee Tue, 23 Sep 2008 12:59:40 +0000 http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162602 I think my reply went bye-bye. Geesh. Basically I typed that the GLB Act is not a red herring. Yes, there are good point but there are also bad points. The previous failures like Lehman, are seperate from this $700B bailout. This bailout is about the Treasury buying near worthless securities from solvent institutions. Lending institutions made sub-prime loans, loans they probably wouldn't have made pre-GLB, and Freddie and Fanny purchased these sub-prime mortgages. When the housing market slowed down F&F couldn't remain liquid, not enough capital. My reply that went bye-bye was longer and explained it in better detail. Rob <a href="http://www.teasemeteas.com/robspersonalblog.htm" rel="nofollow">http://www.teasemeteas.com/robspersonalblog.htm</a> I think my reply went bye-bye. Geesh.

Basically I typed that the GLB Act is not a red herring. Yes, there are good point but there are also bad points.

The previous failures like Lehman, are seperate from this $700B bailout. This bailout is about the Treasury buying near worthless securities from solvent institutions. Lending institutions made sub-prime loans, loans they probably wouldn’t have made pre-GLB, and Freddie and Fanny purchased these sub-prime mortgages. When the housing market slowed down F&F couldn’t remain liquid, not enough capital.
My reply that went bye-bye was longer and explained it in better detail.
Rob
http://www.teasemeteas.com/robspersonalblog.htm

]]> By: Robert E. Lee http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162601 Robert E. Lee Tue, 23 Sep 2008 12:44:01 +0000 http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162601 Hmm. OK, I still don't think GLB is a read herring. But I will argee that it wasn't/isn't all bad. You make a great point and I will agree there are positive aspects to GLB. It is reckless to generalize. Shame on me! However, the original topic above is about the $700B bailout. This is not about the previous failures, like Lehman, this is about the desire to buy up nearly worthless securities from solvent institutions. I stand by my comment that the GLB Act did contribute to the banking crisis that the Treasury now wants to bailout. It did contribute to the sub-prime "situation" we are now in. Banks made loans they probably shouldn't have made and Freddie and Fanny purchased these sub-prime mortgages and they didn't have the capital to stay liquid. Rob<a href="http://www.teasemeteas.com/robspersonalblog.htm" rel="nofollow"> http://www.teasemeteas.com/robspersonalblog.htm</a> Hmm. OK, I still don’t think GLB is a read herring. But I will argee that it wasn’t/isn’t all bad. You make a great point and I will agree there are positive aspects to GLB. It is reckless to generalize. Shame on me!
However, the original topic above is about the $700B bailout. This is not about the previous failures, like Lehman, this is about the desire to buy up nearly worthless securities from solvent institutions.
I stand by my comment that the GLB Act did contribute to the banking crisis that the Treasury now wants to bailout. It did contribute to the sub-prime "situation" we are now in. Banks made loans they probably shouldn’t have made and Freddie and Fanny purchased these sub-prime mortgages and they didn’t have the capital to stay liquid.
Rob
http://www.teasemeteas.com/robspersonalblog.htm

]]> By: Maniakes http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162600 Maniakes Tue, 23 Sep 2008 07:44:46 +0000 http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162600 Gramm Leach Bliley is a red herring. The major insolvent institutions so far have been three pure investment banks (Bear Stearns, Lehman Brothers, and Merrill Lynch), one pure depositary bank (Countrywide Financial), one insurance company (AIG), and two government-sponsored enterprises (Fannie Mae and Freddie Mac), none of which would have been prohibited under Glass Steagall. Arguable, the current mess may have been worse without Gramm Leach Bliley -- three of the insolvent institutions were bought by private companies with no need for government intervention (Countrywide, Lehman, and Merrill Lynch), and one of those (Bank of America's purchase of Merrill Lynch) would have been prohibitted had Glass Steagall still been in effect. Two other pure investment banks (Morgan Stanley and Goldman Sachs) have just announced plans to restructure into hybrid investment/depositary banks in order to diversify their risk exposures. If Bank of America shows up at the Treasury's door with a begging bowl, then we can complain about Gramm Leach Bliley. Gramm Leach Bliley is a red herring. The major insolvent institutions so far have been three pure investment banks (Bear Stearns, Lehman Brothers, and Merrill Lynch), one pure depositary bank (Countrywide Financial), one insurance company (AIG), and two government-sponsored enterprises (Fannie Mae and Freddie Mac), none of which would have been prohibited under Glass Steagall.

Arguable, the current mess may have been worse without Gramm Leach Bliley — three of the insolvent institutions were bought by private companies with no need for government intervention (Countrywide, Lehman, and Merrill Lynch), and one of those (Bank of America’s purchase of Merrill Lynch) would have been prohibitted had Glass Steagall still been in effect. Two other pure investment banks (Morgan Stanley and Goldman Sachs) have just announced plans to restructure into hybrid investment/depositary banks in order to diversify their risk exposures.

If Bank of America shows up at the Treasury’s door with a begging bowl, then we can complain about Gramm Leach Bliley.

]]> By: Robert E. Lee http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162559 Robert E. Lee Mon, 22 Sep 2008 19:58:01 +0000 http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162559 What this IS similar to is <strong>The Great Depression</strong>. Think about history, very briefly stated, the banks back then put customers savings account money into the stock market. In otherwords, gambling with other peoples money. When the market crashed the banks didn't have the money to payback their customers. Therefore, in 1933 the FDR administration passed the Glass Steagall Act. This law seperated commercial banks and investment banks. Also the FDIC was born. This was all done to keep banks from playing the market with customers money. Jump forward to 1999, when Clinton was President. The republican senate (Gramm) was trying to repeal the above law. It was basically split down party lines and Clinton vowed to veto the law as written. In other words, this new bill would have died. However, Clinton asked the Senate to rewrite the bill and include wording about minorities. The new version easily passed both the senate and house. Clinton signed the Gramm Leach Bliley act into law in 1999. Now I am not blaming Clinton alone. After all Congress wrote the law. But all these people are now making millions and millions each year and we are getting screwed. Washington is broken and I don't see it getting fixed anytime soon. I keep asking myself, "Why should we give 1 trillion dollars to the very people that screwed this up, to fix it?" But what do I know? Rob <a href="http://www.teasemeteas.com/robspersonalblog.htm" rel="nofollow">http://www.teasemeteas.com/robspersonalblog.htm</a> What this IS similar to is The Great Depression.

Think about history, very briefly stated, the banks back then put customers savings account money into the stock market. In otherwords, gambling with other peoples money. When the market crashed the banks didn’t have the money to payback their customers.

Therefore, in 1933 the FDR administration passed the Glass Steagall Act. This law seperated commercial banks and investment banks. Also the FDIC was born. This was all done to keep banks from playing the market with customers money.

Jump forward to 1999, when Clinton was President. The republican senate (Gramm) was trying to repeal the above law. It was basically split down party lines and Clinton vowed to veto the law as written. In other words, this new bill would have died. However, Clinton asked the Senate to rewrite the bill and include wording about minorities. The new version easily passed both the senate and house. Clinton signed the Gramm Leach Bliley act into law in 1999.

Now I am not blaming Clinton alone. After all Congress wrote the law. But all these people are now making millions and millions each year and we are getting screwed.

Washington is broken and I don’t see it getting fixed anytime soon.

I keep asking myself, "Why should we give 1 trillion dollars to the very people that screwed this up, to fix it?" But what do I know?

Rob

http://www.teasemeteas.com/robspersonalblog.htm

]]> By: Maniakes http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162549 Maniakes Mon, 22 Sep 2008 16:23:05 +0000 http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162549 I agree with MikeCa and RogerR. As far as I know, the RTC was about handling the assets of insolvent S&Ls, not with propping up S&Ls still in business by buying bad assets off of them at inflated prices. Dave, in my mind it's always a good time to think about moral hazard, because there's always going to be a next time someone who is arguably too big to fail will fail. Moral hazard in these situations comes from firms counting on the assumption that if and when they need a bailout, the powers that be will decide that it's too late to be thinking about moral hazard. I agree with MikeCa and RogerR. As far as I know, the RTC was about handling the assets of insolvent S&Ls, not with propping up S&Ls still in business by buying bad assets off of them at inflated prices.
Dave, in my mind it’s always a good time to think about moral hazard, because there’s always going to be a next time someone who is arguably too big to fail will fail. Moral hazard in these situations comes from firms counting on the assumption that if and when they need a bailout, the powers that be will decide that it’s too late to be thinking about moral hazard.

]]> By: Random Thoughts on the Financial Crisis — Dean’s World http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162543 Random Thoughts on the Financial Crisis — Dean’s World Mon, 22 Sep 2008 13:45:54 +0000 http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162543 [...] I’ve been posting up a storm on the financial crisis that’s prompted a proposal for a whopping $700 billion intervention (or more) over at my place for the last week or so but I thought I’d post a few random observations here at least partially in reaction to Maniakes’s post. [...] [...] I’ve been posting up a storm on the financial crisis that’s prompted a proposal for a whopping $700 billion intervention (or more) over at my place for the last week or so but I thought I’d post a few random observations here at least partially in reaction to Maniakes’s post. [...]

]]> By: Dave Schuler http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162542 Dave Schuler Mon, 22 Sep 2008 12:40:15 +0000 http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162542 You might want to take a look at <a href="http://delong.typepad.com/sdj/2008/09/understanding-t.html" rel="nofollow">Brad DeLong's</a> mostly interesting post about strategies in dealing with financial crises, particularly his observations at the end of the post.  Basically, the time to have been thinking about moral hazard was before the problems not during them. You might want to take a look at Brad DeLong’s mostly interesting post about strategies in dealing with financial crises, particularly his observations at the end of the post.  Basically, the time to have been thinking about moral hazard was before the problems not during them.

]]> By: RogerR http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162541 RogerR Mon, 22 Sep 2008 09:49:25 +0000 http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162541 <em>The entire bailout was created to prevent this from happening, wasn’t it</em>? No, the RTC was created AFTER the S&L crisis to dispose of the assets from failed S&L's.  The feds had guaranteed those deposits and was attempting to recoup some of those costs by selling the assets. The major difference is that the feds had guarantees on the table BEFORE the S&L problems.  There is no Fed guarantee of free market investments in general. <em>I’m having trouble getting deeply interested in this. Seems to me the system’s basically working the way it’s supposed to. </em>That ain't the way the free market was explained to me.  Risk is essential for its proper functioning.  Getting bystanders to pay for one's bad investments  isn't in any economics text book I know of.  The entire bailout was created to prevent this from happening, wasn’t it?

No, the RTC was created AFTER the S&L crisis to dispose of the assets from failed S&L’s.  The feds had guaranteed those deposits and was attempting to recoup some of those costs by selling the assets.

The major difference is that the feds had guarantees on the table BEFORE the S&L problems.  There is no Fed guarantee of free market investments in general.

I’m having trouble getting deeply interested in this. Seems to me the system’s basically working the way it’s supposed to.

That ain’t the way the free market was explained to me.  Risk is essential for its proper functioning.  Getting bystanders to pay for one’s bad investments  isn’t in any economics text book I know of. 

]]> By: Dean Esmay http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162540 Dean Esmay Mon, 22 Sep 2008 08:45:28 +0000 http://deanesmay.com/2008/09/21/the-700-billion-bush-proposal-to-bail-out-lenders/#comment-162540 It's not completely the same but it certainly looks similar to me; the S&L crisis of the '80s was caused by problems with how Savings and Loans were handling mortgages, lending out far more money than they could safely cover. Also, where do you get the idea that that bailout was only done to S&Ls that went under? The entire bailout was created to prevent this from happening, wasn't it? The whole point was that something like 80% of the nation's S&Ls were insolvent, mostly due to loans they couldn't cover. The bailout was to prevent that 80% or so of S&Ls from going toes-up. It’s not completely the same but it certainly looks similar to me; the S&L crisis of the ’80s was caused by problems with how Savings and Loans were handling mortgages, lending out far more money than they could safely cover.

Also, where do you get the idea that that bailout was only done to S&Ls that went under? The entire bailout was created to prevent this from happening, wasn’t it? The whole point was that something like 80% of the nation’s S&Ls were insolvent, mostly due to loans they couldn’t cover. The bailout was to prevent that 80% or so of S&Ls from going toes-up.

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