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Edwynn -> RE: How low will major companies go? (11/11/2012 10:35:36 PM)
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quote:
ORIGINAL: fucktoyprincess
quote:
ORIGINAL: Edwynn
The financial industry is directly responsible for turning what would otherwise have been a normal downturn, a normal recession, into something much larger. The extent of damage to so many industries and municipalities, so many jobs lost, so many houses lost, such phenomenal destruction of national wealth, is directly on them.
Some extent of bailout to that industry was unfortunately unavoidable because liquidity was zero, no one had any clue the value of the assets on their books (and therefore capital requirements were impossible to calculate), this just following trillions of these toxic assets coming from off-balance sheet structured investment vehicles (SIVs) back onto the balance sheet. And it was LOTS more complicated than that; everybody making margin calls on each other at once, CDOs starting out as three tranches eventually mutating into as many as 128 tranches, CDOs, CDSs, etc. leveraged 40/1, 50/1, and even higher. At 40/1, a loss of 2.5% of the market value of the asset completely wipes out the equity.
The financial bailouts should have been limited strictly to the commercial banks. Because of the Financial Industry Modernization Act (Gramm-Leach-Bliley), this was not possible, as the investment banks, commercial banks, hedge funds, etc. were so intertwined that it was (still is) impossible to let the other entities twist in the wind without their demise likely causing the demise of the commercial banks. The vast majority of businesses, large and small, rely on revolving credit or short term loan turnover to function. That's not irresponsible, that's good cash management.
Is it fair that so many businesses outside the financial industry, large and small, should suffer the consequences of the unconscionable actions of that sector, to be driven to bankruptcy not because of their own actions, good or bad business decisions, but rather the recklessness of the bankers and recklessness of the lawmakers who allowed it to happen? The laxity of enforcement, the actual encouragement under several administrations and from the Fed?
To not bail out GM would only have been a further and, in light of the situation, reprehensible irresponsibility of a government who had been so irresponsibly caving in to the financial industry for so many years.
People need to think, and think hard, about what they are saying when they speak of "free markets," "onerous regulation," etc.
I'll take onerous regulation over onerous high unemployment rates and onerous high foreclosure rates and onerous business failure rates and onerous school closings any day.
PS
Regulations should indeed be structured so as to be significantly less onerous for the smallest businesses, and absolutely as onerous as possible for the likes of Goldman Sachs, who routinely hire the best and the brightest out of the universities and steal them away from other firms, and are well capable of stepping their away around almost any regulation.
Edwynn, I hear you. I do. But I do feel the financial industry bailout was a very different (and sadly necessary) bailout.
With the auto industry, I would have preferred seeing the administration pumping money into strengthened unemployment insurance for the workers who would have lost their jobs - giving them larger benefits, longer payouts and also giving them job retraining - as the industry restructures itself. I would have rather seen help for the individuals than for the industry as a whole. It just may be the case that the auto industry in the U.S. will never be what it once was. And that may just be a reality we all have to face. Then the important thing becomes retraining and redeploying the employees from that industry. And that strikes me as a more useful use of tax dollars and government intervention.
The financial industry is a bit different because the overall economy cannot function without the financial industry. I think Glass-Steagall and progeny were a huge mistake and created huge problems within the industry that contributed directly to the collapse. But part of the problem is that so many banking sectors are so intertwined that it became a very complicated issue from an overall economic perspective. You can't allow banks, but more importantly, insurance and re-insurance companies to fail because it results in a collapse of our entire business environment. Other businesses cannot function without the various roles that finance plays. I am angry (understatement) that tax money had to be used in that way, but at that moment in time I am at a complete loss for what other solution would have possibly worked to prevent complete economic collapse. Those of you who haven't seen the documentary Inside Job, yet, should check it out. The financial industry needs to be properly regulated. There is a huge role for government in finance - as a watchdog, so that taxpayers do not end up in this position again.
It perplexes me as to why you restate the facts in my post or paraphrase them in such manner as if you originated them to use as argument against what I stated in that post.
Be that as it may, I am well aware of the standard liberal argument, as you argue against the auto bailouts in favor of laying off the workers and instead increasing unemployment benefits, that we need to spend more money on band-aids and ambulances to deal with the car wrecks, just as I'm well aware of the standard neocon argument that we need less traffic lights and no speed limits (which cause the wrecks), as enabling drivers unfettered by such onerous government regulation allows us to achieve the Ayn Rand-ian ideal of allowing the best drivers in that situation to win, as is their destiny, for the glory of mankind.
Actually looking at cause of the problem, or mundane considerations such as cost effectiveness, etc., is something that neither ideology seems to be much interested in, from what I can see.
Yes, I've mentioned the Financial Industry Modernization Act (Gramm-Leach_Bliley) and Commodity Futures Trading Act about 50 times in these threads already, glad somebody finally noticed.
But it's much more than that. You need to look back into the Reagan era to see that corporate infiltration into government increased dramatically from that time on and that neither party has been able to stem the tide since, including this administration. Alan Greenspan's gross mismanagement of interest rates acted as a bellows to the conflagration resulting fro all the financial deregulation. Speaking of regulation, whatever congress passed in response to the S&L crisis was strictly not paid any attention to by Greenspan, i.e. not enforced, as if the law had never been made.
Bailing out GM and avoiding the significant increase in unemployment payouts, and more important, all the many effects on that region's economy beyond that, was MUCH more cost effective to the government and to society as a whole. Some of us pay attention to actual numbers, to actual effects and consequences.
Sorry, but we are already in dire financial and social straits from these ideologies as it is. We can't afford them any more.
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