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View Full Version : INCONVENIENT TRUTH OF THE DAY 02/07/12



LWW
02-07-2012, 09:33 AM
In the late 1990's a demokrook POTUS and a republichicken led kongress were bought and paid for by major Wall Street interests.

The banksters succeeded in getting the gubmint to socialize losses while profits remained private.

In essence we had made the banking industry into a risk free casino.

For all of the wailing and gnashing of teeth from the moonbat crazy left, the die had already been cast for this debacle before Dubya Bush ever took office.

For all of Dubya's faults, he was one of a very few who made any effort to reign in the gangster activities going on at FANNIE/FREDDIE.

<span style='font-family: Arial Black'><span style='font-size: 26pt'>LEARN (http://www.redlands.edu/docs/URSB/4_GLASS_STEAGALL_-_formatted__edited.pdf)</span></span>

Soflasnapper
02-07-2012, 01:17 PM
That argument is sketchy, and missing too many links to be logical.

There was nothing about the financial modernization reform that made their losses public. That was a later choice that was made.

It might very well have been that all those banks or Wall Street interests would be allowed to go down in bankruptcy.

As happened with Lehman Bros.

But the implicit guarantee of the government to their GSEs, and its explicit guarantees under FDIC and FSLIC (if the latter is still around?), were all done well before the late '90s.

LWW
02-07-2012, 04:39 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Soflasnapper</div><div class="ubbcode-body">That argument is sketchy, and missing too many links to be logical.

There was nothing about the financial modernization reform that made their losses public. That was a later choice that was made.

It might very well have been that all those banks or Wall Street interests would be allowed to go down in bankruptcy.

As happened with Lehman Bros.

But the implicit guarantee of the government to their GSEs, and its explicit guarantees under FDIC and FSLIC (if the latter is still around?), were all done well before the late '90s.

</div></div>

Your naivete' is mind boggling.

Lehman was an investment bank and not owned or merged with any commercial bank, and thus did not have FDIC protection.

Prior to GLB it was unlawful for a commercial bank to own an investment bank, following GLB commercial banks merged with investment banks routinely.

This placed the risk of the investment bank bringing down the commercial side under FDIC coverage ... hence catastrophic loss was socialized, while profits remained private.

What really killed Lehman was that after they were spun of from Shearson-Lehman-AMEX they had to compete against competition that had FDIC coverage when they did not.

Soflasnapper
02-09-2012, 10:21 PM
Pretty sure that is all mistaken. Theoretically, it was possible, but in reality, WHICH 'investment banks' went down, whether they were allowed to buy commercial banks or not?

The Clinton pushback when he denied that ending Glass-Steagall caused this problem was exactly to that point: none of those banks that behaved this way (merging commercial with investment banking activities) went broke, and all the banks that went broke weren't involved in the investment banking business either on their own behalf or related to banks that owned them.

Perhaps Clinton's word might be questioned as self-serving, but others make the same argument, and so far as I've seen, it happens to be absolutely correct.

What did Lehman in was vast volumes of naked shorting of the stock, illegal in this country, but legal in other bourses in which the stock was traded. It dried up their needed 'overnight funds' loans, and since about 75% of the entire capitalization of that institution was funded out of overnight loans, when that loan facility dried up (mainly as their stock was pummeled to the ground by the naked short selling), they couldn't keep their cash flow together and had to go out of business.

On the other hand, it's said that when the legend is better than the real story, print the legend. (H/t The Man Who Shot Liberty Valance).

So bitterly cling to whatever story makes you feel better. No worries.

But here's the pushback (Wiki):

<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">Defense

According to a 2009 policy report from the libertarian Cato Institute authored by one of the institute's directors, Mark A. Calabria, critics of the legislation feared that, with the allowance for mergers between investment and commercial banks, GLB allowed the newly-merged banks to take on riskier investments while at the same time removing any requirements to maintain enough equity, exposing the assets of its banking customers.[27][non-primary source needed] <span style='font-size: 14pt'>Calabria claimed that, prior to the passage of GLB in 1999, investment banks were already capable of holding and trading the very financial assets claimed to be the cause of the mortgage crisis, and were also already able to keep their books as they had.</span>[27] He concluded that greater access to investment capital as many investment banks went public on the market explains the shift in their holdings to trading portfolios.[27] <span style='font-size: 14pt'>Calabria noted that after GLB passed, most investment banks did not merge with depository commercial banks, and that in fact, the few banks that did merge weathered the crisis better than those that did not.</span>[27]

In February 2009, one of the act's co-authors, former Senator Phil Gramm, also defended his bill:

[I]f GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass–Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified. Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.[28]

Bill Clinton, as well as economists Brad DeLong and Tyler Cowen have all argued that the Gramm–Leach–Bliley Act softened the impact of the crisis.[29][30] Atlantic Monthly columnist Megan McArdle has argued that if the act was "part of the problem, it would be the commercial banks, not the investment banks, that were in trouble" and repeal would not have helped the situation.[31] <span style='font-size: 14pt'>An article in the conservative publication, National Review, has made the same argument, calling liberal allegations about the Act “folk economics.”</span>[32] </div></div>

'Folk economics' = myth.

LWW
02-10-2012, 03:49 AM
You love smoke and mirrors don't you.

Soflasnapper
02-11-2012, 07:34 PM
I prefer a factually grounded argument to hysterical hand-waving based on assumptions, more or less the opposite of your statement above.

What IS your answer to Phil Gramm's point listed above:

[I]f GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass–Steagall requirements to begin with.

Or the others?

That you know what you 'know' regardless of any confounding facts you cannot explain by your theories?

LWW
02-12-2012, 07:45 AM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Soflasnapper</div><div class="ubbcode-body">I prefer a factually grounded argument to hysterical hand-waving based on assumptions, more or less the opposite of your statement above.

What IS your answer to Phil Gramm's point listed above:

f GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass–Steagall requirements to begin with.

Or the others?

That you know what you 'know' regardless of any confounding facts you cannot explain by your theories? </div></div>

That's easy.

1 - Graham doesn't want to go down in history as being a large part of this problem.

2 - Europe was susceptible to numerous financial crises ... and never had to learn a hard lesson because the [i]<span style='font-size: 14pt'>EEEVILLL</span> USA kept bailing them out.

Soflasnapper
02-12-2012, 05:35 PM
False. (Name one).

Fact is that regular ordinary commercial banks may hold required reserves in AAA-rated securities, and with the fraudulent ratings from the rating agencies, the mortgage-backed securities had this triple-A rating.

Meaning, as has been said, even without the Gramm-sponsored financial modernization act which revoked Glass-Steagall, these same instruments could have been and would have been bought by commercial banks.

Banks like Washington Mutual and others didn't lose money investing as investment banks, or from losses of investment bank subsidiaries. They lost in the real estate mortgage business, and in these MBSs (and in the shadow banking system, which again had nothing to do with the repeal of G-S).

LWW
02-13-2012, 03:37 AM
The fall of the Fourth Republic ... in fact the Bretton Woods Agreement, which established the IMF, was done to keep the new Europe afloat.

http://upload.wikimedia.org/wikipedia/en/2/21/FrancEuro1944-1959.png

Soflasnapper
02-13-2012, 06:29 PM
Ha ha! That's rich.

Or rather, impoverished, as to its factual content.

Forcing other countries to maintain a constant value of their currency to the USD does not help them, it hurts them.

Because the normal way a country can balance its trade accounts is letting their currency fall in relative parity value to other currencies, so that their goods become relatively cheaper to other countries, and other countries' goods become relatively more expensive.

This is old school ("classic") economics, well understood from Ricardo's work forward. A net importer will export net capital (rather than even up the export/import equation with selling goods abroad), and hence drop the value of the currency, which will act to redress the imbalance.

As a country's goods become cheaper to others, they can sell more exports, and at the same time, imports are reduced by the normal supply/demand price curve.

This technique BECAME UNAVAILABLE to France and the rest of Europe as soon as the Bretton Woods Agreement was inked. Just as it is now unavailable to Greece, although it would help greatly, because they are locked into using the Euro,