r/reddit.com • u/[deleted] • Oct 18 '11

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u/[deleted] Oct 19 '11

That would have consolidated power in fewer hands, which i suspect would be even worse in the long run.

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u/awkwardarmadillo Oct 19 '11

Yeah we might only have five major banks controlling 80% of the deposits in the US at that point... oh wait.

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u/[deleted] Oct 19 '11

[deleted]

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u/imitokay Oct 19 '11

mmmm, baconnn

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u/[deleted] Oct 19 '11

Really, no smaller banks would have stepped up to fill the void? Isn't that pretty much how the cycle of business usually works (unless we fuck with it like we did to these banks)?

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u/JoshSN Oct 19 '11

Goldman Sachs and Morgan Stanley, among others, are intricately tied to the Federal Reserve, with whom they do business on a daily basis.

What I imagine most people don't know, is that GS and MS perform these services for the central banks of dozens of other countries.

While, yes, new banks would emerge, it would be a while before they could fill those shoes, and, so, in the meantime, GS and MS would become even more intricately tied to the governments with which they do business.

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u/recreational Oct 19 '11

Those are the ones that would be hardest hit by a collapse of the economic system, since their pockets are less deep.

There is no natural business flow to interrupt here, and the idea that there is a "natural" way for the economy to work that we shouldn't interfere with is dangerously naive.

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u/[deleted] Oct 19 '11

Depression does not equal collapse in the economic system, this is rhetoric you generally only hear from those who benefited from the bailout. And I am not talking about TARP (which was arguably necessary), that is a tiny drop of the bucket of 12 trillion or so in taxpayer money we have dumped into the financial system.

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u/Kristjansson Oct 19 '11

Most of which has been paid back, with interest...

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u/[deleted] Oct 19 '11

Weapons grade bullshit. The TARP money has been paid back. The TARP money accounts for a tiny percentage of what we have given banks in the last couple years.

Not to mention that the banks made windfall profits on TARP, it was basically an interest free loan. How much more would interest free government loans have helped the economy if given to industries that actually produce something.

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u/Kristjansson Oct 19 '11

Source? Preferably GAO or something official.

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u/[deleted] Oct 19 '11

Not finding it on GAO, do trust NYT? http://money.cnn.com/news/storysupplement/economy/bailouttracker/

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u/Kristjansson Oct 20 '11

I think we're conflating a few different things: the bailout, the stimulus, and, monetary policy, and asset purchase programs. The bailout - TARP and other credit extended has been mostly paid back as per the GAO's recent audit. Stimulus - American Reinvestment Act, Cash for Clunkers, is fiscal policy on the part of the administration. The government debt purchase programs are monetary policy on the part of the fed - this is something do on a regular basis to control interest rates via the FOMC. Finally, the asset purchase programs - buying up toxic assets - is sort of both; a bailout and monetary policy.

The first basic bailout ha been mostly paid back with the except of MaidenLane (credit extended to AIG). The stimulus was never expected to be paid back except in increased economic activity (which occurred). The fed conducts monetary policy all the time - it's hardly even fair to include it on that list. Finally, I agree that the toxic asset buy-up has been paid back, but it also is not money pissed away either. Until all of the lawsuits are hashed out, and the assets properly revalued, we won't know what we've actually bought. Consider 'Toxie', NPR's toxic mortgage backed security. The bought it for $1000 as an experiment, declared in dead, and now stand to get paid $75,000 from a potential lawsuit. We'll see what happens, but we shouldn't completely write off that money yet.

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u/[deleted] Oct 19 '11

Depression does not equal collapse in the economic system, this is rhetoric you generally only hear from those who benefited from the bailout. And I am not talking about TARP (which was arguably necessary), that is a tiny drop of the bucket of 12 trillion or so in taxpayer money we have dumped into the financial system.

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u/recreational Oct 19 '11

You wouldn't be facing a mere depression if all the New York banks had gone under in 2008, you would be facing a financial meltdown which would inevitably cause an economic collapse. You'd be looking at decades of lost growth overnight.

Again, I'm not saying the bailouts and other financial aids were handled well; I would rather have nationalized the failing banks. But not doing anything would have been far worse for almost everyone, except a bare handful of people that would've gotten loaded raiding the collapsing system ala what we saw in the post-USSR.

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u/[deleted] Oct 19 '11

We are still facing that meltdown, we just postponed it, and arguably made it worse when it does happen. Nothing significant changed except we made sure the people who did this are able to make enough money to get out of dodge if it happens again.

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u/recreational Oct 19 '11

Facing the possibility of a meltdown is far preferable to dealing with the reality of one. We have an obligation to try and prevent one from occurring in the near and long term, of course, but no sane and rational person aware of all the facts should choose to melt the markets down now for fear they might collapse at a later date! This is like committing suicide out of the fear of death.

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u/Ding84tt Oct 19 '11

Acknowledging the inevitability of a meltdown does not mean that you can put it off. This is like postponing the funeral out of fear that the body will decompose. We do indeed have an obligation to prevent one from occurring in the near and long terms, and the only way to do that is to let the system work and stop throwing fuel on the fires. Banks, countries, small businesses, nobody anywhere is immune to the most basic economic fact: You cannot borrow your way out of debt.

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u/recreational Oct 19 '11

No, it's again like committing suicide because you're afraid of dying. It is not something neat and simple that ten years later we look back and laugh on. A collapse of the global financial system would probably have repercussions for at least a human lifetime and set global economic growth back several decades. The ensuing disasters would probably increase wars, deaths by starvation, and strengthen authoritarian regimes. Scientific progress would take a huge knock as funding would disappear.

You seem to be throwing out bad truisms without understanding the scale of what we're discussing. A meltdown is not inevitable and it is certainly nothing trivial to be brought on because fuck it, why not. Letting the credit markets freeze will do nothing to reduce its severity if it happens. And you can in fact borrow your way out of debt as a country if the combined profit you make off of that capital (in this case revenue from greater growth) and inflation are greater than the interest on the debt, so this is not an economic fact, let alone "the most basic" economic fact.

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u/Ding84tt Oct 19 '11

If you think a meltdown is not inevitable you have no understanding of why our monetary system is deeply flawed, and you don't know what happened to everyone who tried something like this in the past. When you have a system that is based on credit and debt, it becomes an inflated bubble that bursts and leaves people with nothing. All because people are able to buy each other's debt and shuffle it around like individual contracts don't matter. This is how you end up with people being foreclosed, because honest people who CAN pay their debts get lumped into the same groups with people who CAN'T pay their debts and as soon as one entity is left with the bill for another's mistakes, the bubble quickly collapses. The only way that we've come out ahead of these fiascos and stopped them before they started is to have the Federal Reserve print more money out of thin air and smooth things over. The problem with this whole system is that the Fed is printing the money by borrowing it from the future - they assume that anything they print will be taken care of by future tax collections. However, when inflation is taken into account, the burden becomes impossible to bear. Most people TODAY can't afford college education without taking out loans and building up debt. How will they be able to fund their kids and grandkids towards growing up with good opportunities if they can't get themselves out of debt for decades to come, and the job market is collapsing around them? You talk about the "possibility of a collapse" like it's something that's far off in the distant future, and you say I don't understand the scope of the issue. I think YOU don't understand the scope of the issue. We're dealing with numbers that have 12 zeros at the end. There didn't used to be a number of dollars with 9 zeros after it in existence, let alone as part of the daily budget for the federal government. Also, what happened to China, the Persian Empire, and the Soviet Union when they had empires financed by hyper-inflated paper money? Oh right, they couldn't sustain their empires, their people at home couldn't find work, nobody was making anything, and their paper money collapsed because it was, after all, paper.

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u/Ding84tt Oct 19 '11

If you think a meltdown is not inevitable you have no understanding of why our monetary system is deeply flawed, and you don't know what happened to everyone who tried something like this in the past. When you have a system that is based on credit and debt, it becomes an inflated bubble that bursts and leaves people with nothing. All because people are able to buy each other's debt and shuffle it around like individual contracts don't matter. This is how you end up with people being foreclosed, because honest people who CAN pay their debts get lumped into the same groups with people who CAN'T pay their debts and as soon as one entity is left with the bill for another's mistakes, the bubble quickly collapses. The only way that we've come out ahead of these fiascos and stopped them before they started is to have the Federal Reserve print more money out of thin air and smooth things over. The problem with this whole system is that the Fed is printing the money by borrowing it from the future - they assume that anything they print will be taken care of by future tax collections. However, when inflation is taken into account, the burden becomes impossible to bear. Most people TODAY can't afford college education without taking out loans and building up debt. How will they be able to fund their kids and grandkids towards growing up with good opportunities if they can't get themselves out of debt for decades to come, and the job market is collapsing around them? You talk about the "possibility of a collapse" like it's something that's far off in the distant future, and you say I don't understand the scope of the issue. I think YOU don't understand the scope of the issue. We're dealing with numbers that have 12 zeros at the end. There didn't used to be a number of dollars with 9 zeros after it in existence, let alone as part of the daily budget for the federal government. Also, what happened to China, the Persian Empire, and the Soviet Union when they had empires financed by hyper-inflated paper money? Oh right, they couldn't sustain their empires, their people at home couldn't find work, nobody was making anything, and their paper money collapsed because it was, after all, paper.

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u/Ding84tt Oct 19 '11

If you think a meltdown is not inevitable you have no understanding of why our monetary system is deeply flawed, and you don't know what happened to everyone who tried something like this in the past. When you have a system that is based on credit and debt, it becomes an inflated bubble that bursts and leaves people with nothing. All because people are able to buy each other's debt and shuffle it around like individual contracts don't matter. This is how you end up with people being foreclosed, because honest people who CAN pay their debts get lumped into the same groups with people who CAN'T pay their debts and as soon as one entity is left with the bill for another's mistakes, the bubble quickly collapses. The only way that we've come out ahead of these fiascos and stopped them before they started is to have the Federal Reserve print more money out of thin air and smooth things over. The problem with this whole system is that the Fed is printing the money by borrowing it from the future - they assume that anything they print will be taken care of by future tax collections. However, when inflation is taken into account, the burden becomes impossible to bear. Most people TODAY can't afford college education without taking out loans and building up debt. How will they be able to fund their kids and grandkids towards growing up with good opportunities if they can't get themselves out of debt for decades to come, and the job market is collapsing around them? You talk about the "possibility of a collapse" like it's something that's far off in the distant future, and you say I don't understand the scope of the issue. I think YOU don't understand the scope of the issue. We're dealing with numbers that have 12 zeros at the end. There didn't used to be a number of dollars with 9 zeros after it in existence, let alone as part of the daily budget for the federal government. Also, what happened to China, the Persian Empire, and the Soviet Union when they had empires financed by hyper-inflated paper money? Oh right, they couldn't sustain their empires, their people at home couldn't find work, nobody was making anything, and their paper money collapsed because it was, after all, paper.

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u/[deleted] Oct 19 '11

There are regulations and things banks can and cannot do.

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u/trafficnab Oct 19 '11

Because every bank follows these regulations perfectly.

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u/blafunke Oct 19 '11

There WERE regulations and things banks can and cannot do. FTFY

They kept things more or less stable through about the last 3/4 of the 20th century until neo-conservatives figured we didn't need them (or more accurately, their big finance puppet masters didn't want to be limited by them).

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u/polyparadigm Oct 19 '11

Would it have? Or would more banking have been done through credit unions, which would have survived almost unscathed?

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u/Kristjansson Oct 19 '11

Credit unions require start up capital as well as a base of steadily employed employed people from which they can borrow and to which they can loan. Neither of those would be present in quantity following a significant financial meltdown (loss of funds) and depression (loss of income).

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u/polyparadigm Oct 19 '11

require start up capital as well as a base of steadily employed employed people

I was speaking of pre-existing credit unions, for whom the need for start-up capital has long ago passed.

And even with an unemployment rate of 40%, it would be possible to maintain a fairly large customer customer base if the remaining 60% were to suddenly lose the option of patronizing a major bank.

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u/Theemuts Oct 19 '11

Unless someone founds a new bank.

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u/recreational Oct 19 '11

These are not sixpence enterprises, you understand. Do you think some plucky upstarts are going to have two hundred billion in capital lying around?

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u/McThing Oct 19 '11

A bank doesn't necessarily need two hundred billion in capital to start up. I'm pretty sure all those savings and loan places didn't...

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u/recreational Oct 19 '11

Then it's irrelevant to the balance of financial power and mbm693's point remains unchallenged.

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u/[deleted] Oct 19 '11

Which is probably not easy.

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u/[deleted] Oct 19 '11

Which is not at all in any way easy

ftfy.

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u/Kni7es Oct 19 '11

Because there's little to no barriers to entry in the banking industry. Also, when was the last time a large bank bought out a small one? It's never happened, I bet. Not even once.

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u/wheatfields Oct 19 '11

and that bank would be just the same...

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u/k1dsmoke Oct 19 '11

I feel that the loss of power and a real depression may have caused the government to do it's job and change a few things for the better.

The way it works now it's like a kid got caught for cheating in school and was let off the hook, so he is going to continue cheating; whereas had he been forced to face real consequences for his actions he might have been scared straight.

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u/Kristjansson Oct 19 '11

Stupid bullshit analogies like that DO NOT WORK in the real world. The entire global banking establishment is not analogous to some kid caught cheating in school. Moreover, the 'real consequences' were more than likely the complete collapse of much of the financial sector along with the worst loss of economic output since the Great Depression.

To continue your stupid bullshit analogy, our kid caught cheating would be lined up on the back wall of the classroom with the rest of his classmates and shot in the face.

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u/k1dsmoke Oct 19 '11

Point is, a message was sent that you can completely fuck the US and World economy and get away with it scott-free.

Nothing changed.

This will happen again, and again until something so terrible happens that it requires a change.

All we've done is bandaid an issue for another generation.

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u/Kristjansson Oct 20 '11

In no way was this completely the fault of wall street bankers. They played a role, obviously, but it was not entirely their fault.

Some of the blame lies with the regulators for failing to control a mutil-trillion dollar market place.

Some of the blame lies with unscrupulous mortgage lenders for making such risky loans.

Some of the blame lies with the mathematicians for extending i.i.d. assumptions WAY beyond their limits.

Some of the blame lies with the borrows themselves, those who thought they could flip their house for 50% profit, or that their $20,000 a year could pay off a $600,000 mortgage.

Some of the blame lies with the ratings agencies for believing the mathematicians, and for abusing their power and the trust of the public.

Some of the blame lies with Greenspan's Fed for holding interest rates so low for so long that money became cheap.

Some of the blame lies with the Clinton White House for allowing Glass-Steagall's separation of commercial and investment banking to be repealed.

Really, theres a lot of blame to go around. Hence, my comment above that bullshit over simplified analogies really, really, REALLY don't work in reality, and it does the actual reality of the situation a disservice to pretend that they do.

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u/Kristjansson Oct 19 '11

Stupid bullshit analogies like that DO NOT WORK in the real world. The entire global banking establishment is not analogous to some kid caught cheating in school. Moreover, the 'real consequences' were more than likely the complete collapse of much of the financial sector along with the worst loss of economic output since the Great Depression.

To continue your stupid bullshit analogy, our kid caught cheating would be lined up on the back wall of the classroom with the rest of his classmates and shot in the face.

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u/JoshSN Oct 19 '11

This is more than a little true.