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Trouble a question
Tweet Topic Started: Sep 27 2008, 12:51 AM (60 Views)
boilergrad01 Sep 27 2008, 12:51 AM Post #1
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Trouble,

I often disagree with you but I am not a big fan of the bailout. I am not an expert on the economy. I understand business but the economy is business multiplied across many different entities that is hard for one person to understand.

I have a theory and am wondering if you agree with it because you and Old School seem off the wall sometimes but do seem to believe you understand the American economy.

MY Theory

Materialism is the true crutch that has us in this mess. Americans myself included spend far to much time using television and the Internet for entertainment instead of having legitimate hobbies. Watching TV we somehow fall into a I need society. People have large LCD/Plasma TVs along with clothes and many things they do not need. It seems to me the average American shops to feel good and to impress others instead purchasing what they need. The banks are run by greedy people and having many well intended middle class employees became more concerned with making money than looking out for their clients. Getting a credit card became to easy and credit limits where set to high. The average American did not have the financial discipline to handle the credit extended to them. The credit encouraged people to buy more goods and drove up stock prices. Materialism is impairing many peoples reality on what they need and can afford.

I am not saying the Government has not made numerous mistakes and mishandled trillions of dollars putting us in a bad economic bind. Trade policies are one thing that hurt us and corporate taxes also helped. I only took probably two economic classes in college but I learned the principles where

Land- we have plenty and as a whole nation a low person to acre ratio compared to Europe. So i do not believe land is the problem
Labor- We have some of the most skilled educated and trained workers in the world. Labor is not the problem the economy is in the tank.

Capital- I was taught capital is not only money but buildings equipment and money. With some interesting trade policies and high corporate rates we have encouraged many manufacturing jobs to leave America. Thus when the materialistic greed sets in we buy products produced and that run on oil based energy products then send our money out of the country. I believe we might have outsourced our economy and some of the wealth this country built over the years.

to summarize

The Government fucked us but individual financial responsibility is also a big culprit in this meltdown. No politician would dare lecture the American people about financial responsibility because they are so irresponsible and wealthy themselves. I think the people have a role in this problem.

I little long winded but what do you think?
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troubleatiu Sep 27 2008, 10:21 AM Post #2
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"Materialism is the true crutch that has us in this mess."-boilergrad

materialism is only a contributing cause. the root of the problem is the monetary policies of the federal reserve. by lowering interest rates too low and infusioning billions of dollars into the system the financial industry could then prey upon peoples materialism. our banking system uses what is called "fractional lending." they are allowed to lend exponentionally more money than they actually hold in deposits, and are only required to actually hold on hand a fraction of their total deposits. a very simply example would be this.
bank "A" employs fractional lending by a power of 10. they are a small bank with only $100,000 in total deposits. they only have to hold $10,000 cash on hand, and in turn are allowed to lend out $1,000,000. as long as nobody defaults on their loan and the depositors dont "rush the bank" for their money all is fine. as you can see though, the problems lying at the surface with this system are inheritently dangerous. it wont take much for this bank to go under with a few defaults or a "run."
now factor in over 8,000 lending institutions in this country dealing with over $6 trillion ALL employing this technique and the enormity of the problem starts to come into focus. this is why banks used to closely scrutinize who they lent money to. the system clearly cant support too many loan defaults. now enter the federal reserve. by lowering interest rates and infusing "cheap money" for the banks into the system, the potential for enormous profits came about. but, banks needed a greater customer base to take advantage of this situation. (the more money they could loan, in theory, the more they could make.) this is where the sub-prime market was born. congress (government intervention) passed a law allowing for this back in the late '90's. initially banks made huge profits on these loans. at the same time, they realized some of these were going to default. this is where the credit default swap (CDS) and derivative markets were born. alot of these loans were divided up and repackaged and sold off as basically mutual funds (with ZERO value) to other institutions. other banks issued insurance against default while others still "bet" against
which ones would fail. the amount of money here is staggering. (the derivative market alone exceeds $500 trillion. the entire GDP of the US is about $16 trillion. the entire GDP of the WORLD is approx. $65 trillion.) when interest rates went up, (which was inevitable) ARM's reset and people started defaulting. there was so much debt born of this system that banks couldnt begin to cover their losses. (see fractional lending above.)
dont be misled by the claim that the system is sound because only 3-5% of housing loans were sub-prime. in the above banking example, 1 defaulted loan in excess of $10,000 out of perhaps 250 or more would be enough to put our bank under. this is less than 1/10 of 1% of all our loans.
also, at the HEIGHT of the housing bubble (2004-2005) when home values could only fall from existing levels and interest rates could only go up, then fed chairman alan greenspan encouraged people to take out ARM's (adjustable rate mortgages.) no infusion of cash to wall street is going to keep people from continuing to default. this must play out until the weak go under and the strong survive. its a terrible mess; i lay it at the feet of the federal reserve. without these horrible practices in place people WOULDNT HAVE BEEN ABLE to be sucked into taking on more than they can pay. and now, on top of all of this, paulson and bernanke want to put the taxpayers on the line for $trillions that quite honestly wont even fix the problem.
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troubleatiu Sep 27 2008, 11:59 PM Post #3
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bump. answer me man. i know youve been on tonight.
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"The illegal we do immediately. The unconstitutional takes a little longer."--Henry Kissinger
"What luck for rulers that men do not think."- Adolph Hitler
"Terrorists don't want your freedoms--they want your life. It's dictators and tyrants who want your freedoms."-author unidentified
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boilergrad01 Sep 28 2008, 12:23 AM Post #4
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Trouble,

I just wanted your opinion. I agree the fed and the lending institutions preyed on the people. I just think the people had some responsibilty. I appreciate your answer.
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troubleatiu Sep 28 2008, 12:34 AM Post #5
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boilergrad01
Sep 28 2008, 12:23 AM
Trouble,

I just wanted your opinion. I agree the fed and the lending institutions preyed on the people. I just think the people had some responsibilty. I appreciate your answer.
i agree materialism is a CONTRIBUTING cause. its everywhere as you stated. but damnit, if someone was throwing money at you today with the promise of paying later WHEN YOU FUCKING KNEW YOU COULDNT REPAY would you take it? im sure many people THOUGHT they could keep their payments up. the fucking deck was stacked against them. seriously. this was a concentrated effort (that went horribly wrong) to consolidate wealth out of the many into the few. it was a "roll of the dice" that initially won big, but like so many instances dealing with money, the winner couldnt get up and walk away. and now, that he's squandered his winnings from 3 hours ago and is deep in debt, is looking for someone with some cash to keep him in the game.
the bailout plan is akin to some security guard coming up to me (an innocent bystander) and demanding i fork over $100 so joe loser can stay in the game. no fucking way.
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"The illegal we do immediately. The unconstitutional takes a little longer."--Henry Kissinger
"What luck for rulers that men do not think."- Adolph Hitler
"Terrorists don't want your freedoms--they want your life. It's dictators and tyrants who want your freedoms."-author unidentified
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