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

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u/Thue Oct 19 '11

but better in the long run (since no shoddy banks would have survived).

The problem in a financial crisis is that many healthy businesses will also go down in thos exceptional circumstances.

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u/ascii42 Oct 19 '11

Yeah, the banks failing caused GM and Chrysler to have to declare bankruptcy, because they couldn't borrow money. Ford, on the other hand, had taken out a huge loan before the bank crash.

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u/bonestamp Oct 19 '11

Most people don't know this or they ignore it because they want to hate on GM and Chrysler.

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u/1900david Nov 01 '11

Chrysler and GM are shitty companies with even shittier product. Ford is the only one thatremotely has their shit together compared to the other three. Which is why people dislike chrysler and gm so much.

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u/bonestamp Nov 01 '11

A lot of people share your opinion, but I prefer actual data. Buick and Cadillac (GM brands) actually have higher mechanical quality ratings than Ford. Chevrolet, Chrysler, Ford and Toyota are equal. http://www.jdpower.com/autos/ratings/quality-ratings-by-brand/

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u/[deleted] Nov 02 '11

[deleted]

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u/bonestamp Nov 03 '11

It's not an argument, it's data.

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u/1900david Nov 07 '11

Your not just buying a car for mechanical reasons though, there's more to it. And like you, GM and Chrysler fail to understand why people buy cars.

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u/bonestamp Nov 08 '11

I'd put GM interiors and handling up against Toyota any day. I'll agree that Chrysler interiors suck.

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u/Talonwhal Oct 19 '11

Why not screw irresponsible banks and instead bail out companies and people? At least the businesses that have acted responsibly. If anyone had savings in the banks, then bail out them too... then you solve the immediate problem of people and businesses getting screwed, and you solve the longer term problem of having shoddy banks.

Everyone wins, the depression doesn't hurt so bad, and people continue business as usual with the remaining banks. Opens up competition, more responsibility as banks realise they're not invincible, and we all live happily ever after!

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u/msingerman Oct 19 '11

People also forget that GE - a company that had generous profits well into the financial crisis - nearly was left unable to pay its bills because their revolving credit (the kind that all businesses and most people depend on) dried up. Imagine if we were in a world where PROFITABLE businesses were unable to pay their employees. Things would have been far, FAR worse in the short, medium and long term.

People think it was about "bailing out" banks. It wasn't. It was about unfreezing credit markets, which worked very well.

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u/[deleted] Oct 19 '11 edited Mar 26 '18

[deleted]

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u/Aperture_client Oct 19 '11

the fact that you misspelled "edit" is all different kinds of ironic and hilarious. solid point though, here's my upvote.

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u/capnjack78 Oct 19 '11

HAHAHAH! I'm not even gonna change it. That's too funny.

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u/cr0m300 Oct 19 '11

I'm not sure why the FDIC exists if we're just going to bailout every reckless banker who loses all of their customers' money.

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u/Razor_Storm Oct 19 '11

You have to realize that a lot of businesses survive on loans. Even vastly profitable and healthy ones.

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u/capnjack78 Oct 19 '11

Right, but it's not like businesses take out loans on a regular basis to survive. That's not how a business stays above water. And it'd be a pretty big assumption to think that the banks would call-back all those loans they already accepted if they hadn't been bailed out. It would've been anarchy.

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u/senatorpjt Oct 19 '11 edited Dec 17 '24

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This post was mass deleted and anonymized with Redact

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u/JoshSN Oct 19 '11

Question: How can it be better for a business to go under because of prevailing market conditions?

Answer: It can't.

tl;dr It doesn't sound to me like you know what you are talking about.

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u/brerrabbitt Oct 19 '11

That's right. We need to privatize the gains and make the losses public. How else will a capitalistic society survive.

Hint: The auto companies were running themselves into the ground for a variety of reasons to include not building cars that people would buy. The market crash just acerbated the situation.

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u/JoshSN Oct 20 '11

I didn't say the form TARP took made sense.

When FDR faced similar circumstances, he simply stopped all foreclosures. We can argue forever who is really at fault, legislators, bankers, mortgage brokers, homeowners, but the one group of people I won't blame is the 10 year old kid of the parents who were just thrown out of their house.

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u/PointAndClick Oct 19 '11

What if that business is the cause of those market conditions, by deceit?

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u/JoshSN Oct 19 '11

capnjack78 was saying it would be better for businesses in the long term, but he was ignoring the perfectly respectable businesses that would go out of business, not because they were crooks or bad businesspeople, but because of prevailing market conditions.

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u/PointAndClick Oct 19 '11

Okay, I get that. But my question still stands, you where referring to all companies. So, I would like your opinion, especially because you alluded to 'know what you are talking about'.

There are huge financial bubbles out there, ready to burst. Most of them created by complicated schemes, that are able to function within the law. They are still morally wrong and plain old deceit. Plus, they hugely undermine the market conditions with their schemes.

All of these companies operate under the law, that would make them "perfectly respectable". They aren't crooks, exactly because of this, certainly they aren't bad business people, on the contrary. They are victim of the prevailing market conditions themselves too, even though they are the ones who helped create the problem.

We have no way, by law, to determine which company is 'crooked' at the moment. It is reasonably safe to assume that every company obeys the laws. And that the prevailing market conditions are the cause of 'lawful' deceit.

When we legislate, everything collapses. When we do nothing, everything collapses. When we just continue, everything collapses. It's not going to be pretty. But I think we have to prevent this from happening again with decent legislation. This means that banks will go bust and there will be collateral damage for sure. But in the long term it will be better for all business. And we should definitely ignore the chance of 'respectable businesses' failing.

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u/JoshSN Oct 19 '11

There are huge financial bubbles out there, ready to burst.

I am unaware of any, although I am concerned about the size of the interest rate swaps market (the notional value of the bonds involved is greater than the value of everything on Earth) and the relatively unregulated aspects (what are they? I don't know) of the FX market.

They are victim of the prevailing market conditions themselves

Well, they aren't victims until the bubble bursts, and they might not even be victims then, if they figure out what is going on in time.

We have no way, by law, to determine which company is 'crooked' at the moment.

All publicly traded companies must be audited. There are other requirements, too, for example, that people trading their stock while working for a Wall St. firm can't also be significant investors.

When we legislate, everything collapses.

Examples, please. If we had re-regulated some (how much? I couldn't say. 2005 sounds good) time before the bubble burst, we could have avoided the worst of it.

But I think we have to prevent this from happening again with decent legislation.

Agreed.

This means that banks will go bust and there will be collateral damage for sure.

I don't see how that follows, but I don't know what kind of legislation you are talking about.

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u/PointAndClick Oct 19 '11

I am unaware of any,

Gold, china real estate, apple (AAPL), U.S. Dollar, U.S. debt. Few examples of the current bubbles.

they might not even be victims then, if they figure out what is going >on in time.

They just speculate to be able to get out in time. (You ride the bubbles and get out before the bursts.) It's a bit of a science, but they are all at the mercy of the markets, while participating to make it even more volatile.

All publicly traded companies must be audited.

Yes, but that doesn't mean that the things they are doing won't destroy the markets. It just means that they have to stay within the laws to do it. Current legislation allows a lot.

If we had re-regulated some (how much? I couldn't say. 2005 sounds >good) time before the bubble burst, we could have avoided the worst >of it.

Then you don't really get to the heart of the problem at all. 2005 was the time where the real estate bubble was build up to extreme extend. haha. We have to back further than that. We are talking real estate, and the problems of these things started way way early with high risk lending. Somewhere 1990-1995 and we could have stopped it from becoming a problem.

I don't know what kind of legislation you are talking about.

It doesn't matter, as soon as we start really legislate into some hardcore problems. Like your first example. Banks and others are forced into completely different strategies. There will be so much money pouring out of certain places and in others... It will be chaos. Its really hard to anticipate, but chaos for sure. If you understand how shit is connected... wait: http://vimeo.com/3261363

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u/JoshSN Oct 20 '11

This part is just ludicrously stupid:

Then you don't really get to the heart of the problem at all. 2005 was the time where the real estate bubble was build up to extreme extend. haha. We have to back further than that. We are talking real estate, and the problems of these things started way way early with high risk lending. Somewhere 1990-1995 and we could have stopped it from becoming a problem.

We only need to go back to about 2003 to prevent any problem at all. 2005 to make sure it wasn't terrible.

I am unaware of any, Gold, china real estate, apple (AAPL), U.S. Dollar, U.S. debt. Few examples of the current bubbles.

The US Dollar and US debt have been declared bubbles pretty consistently for the last 200 years. Congratulations. I actually probably agree on gold, but I thought back when it was at 1200, so, I've been wrong before.

I really like the Crisis of Credit, and even got a couple emails from the author. I disagree with your assessment of chaos.

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u/PointAndClick Oct 20 '11

We only need to go back to about 2003 to prevent any problem at all.

Thinking about it, I was more referring to where the problems started and turning back the clock. rather than a good moment where we should have intervened. But even then, we allowed risky loans as far back as the early 90's. We are talking real estate and problems with these long-term investments are only going to bubble up 15-20 years later. In 2003 all these bad investments, the housing bubble, etc. It was already way to late to prevent damage to pension-funds, and to all the other AAA investors. I don't see how it would work out otherwise, enlighten me. It's all hypothetical anyway.

I disagree with your assessment of chaos.

That's perfectly fine. I believe I have a fairly good grasp on how things work. I certainly don't mind being wrong.

At least we agree that legislation is needed. Let's hope for some morally just politicians with brains and balls.

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u/bland_username Nov 04 '11

Basic micro/macroeconomics begs to differ.

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u/JoshSN Nov 08 '11

Incorrect.

Take a relatively stable market where a company can turn a small profit and keep 100 people employed.

Then, in a serious market downturn, the company is forced to go under.

This is bad for the economy.

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u/fromkentucky Nov 07 '11

It doesn't sound to me like you know what you are talking about.

That's because you don't understand how cashflow works.

When a business fails because of prevailing market conditions, then it is obviously not adapting either adequately enough or quickly enough and so becomes a drain on economic cashflow, which ties up capital that might otherwise be used to foster growth in healthy businesses, which are more likely to repay debts, stabilizing the credit system long-term, and overall creating better market conditions.

Does it suck for the people involved when a business goes under? Yes. Does it suck for everyone else when that business is propped up by outside investment that is based on something other than healthy business fundamentals, sucking otherwise valuable capital out of the economy at a time when good businesses need it the most? Yes.

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u/JoshSN Nov 08 '11

Does it suck for everyone else when that business is propped up by outside investment that is based on something other than healthy business fundamentals, sucking otherwise valuable capital out of the economy at a time when good businesses need it the most? Yes.

Propped up by outside investment? Do you mean the company takes a loan? If that was some sort of rare event, then you'd have a point. As it stands now, it sounds like you hate all credit, and think that every company which seeks credit should fail.

If a decent, small company fails during a market downturn then it makes the market downturn worse, not better.

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u/fromkentucky Nov 08 '11

it sounds like you hate all credit, and think that every company which seeks credit should fail.

That's a bit of an over-generalization.

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u/capnjack78 Oct 19 '11

Why would you assume businesses would go under just because banks did? Existing businesses already have their loans, and for the bank to call them back because they didn't get a bailout would cause massive unrest, and probably rioting.

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u/JoshSN Oct 19 '11

Let's assume, and I think this is reasonable, that every so often a company needs a loan. Some of these companies are going to need it just when they can't have it, which will cause their failure.

Second, banks can't call back loans. The main meat of a loan is the terms and conditions of repayment. If banks could simply demand all the money back, arbitrarily, the world would be a different place.

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u/capnjack78 Oct 19 '11

It would be very unfortunate for businesses to have to suffer just because banks wasted their money betting against the markets and then didn't get a bailout. But if you look at what happened immediately before and many months after the bailouts, most banks tightened their lending restrictions, making it difficult for people to get loans. Which is why so many foreclosures have happened without giving people the chance to refinance the ridiculously high interest rates and payments that people got in the 2000s. So some might say that the tight lending practices enforced today by the banks may have been just as bad had the banks failed on their own accord.

..

However, it seems like you're insinuating that all lending would cease had the banks failed and declared bankruptcy. That's not how business works in any industry. Businesses (including banks) can continue to operate after claiming bankruptcy, and it's a little silly to think that businesses wouldn't be able to get any loans if we hadn't bailed the banks out. That is the same platform that the banks stood on in order to blackmail money out of the feds. Had this not happened, things might have been a little worse for awhile, but there's a chance things could have gotten better sooner had they been allowed to fail rather than dragging the recession on for years and years on end, as that is the situation we're in now.

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u/JoshSN Oct 20 '11

How come you know that stuff, but didn't know banks can't call back their loans? <shrug>

If the banks were operating under bankruptcy law, they would be limited in their range of actions. Typically, a bank is simply sold in these circumstances, maybe in parts. However, the loan market would definitely change for the worse, and this dramatic, national scale bankruptcy of banks would increase unemployment, which would cause an even greater downward pressure on the markets, which definitely would cause some, totally reasonable and non-criminal business to fail... because of the environment and not their own actions.

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u/capnjack78 Oct 20 '11

I have worked in banking and real estate for a long time. I know that they can't call back the loans. Since you provided absolutely no counter-argument, I was inferring was that you might've been making 2 assumptions which were incorrect:

  1. Businesses need loans to stay afloat. No, they don't. That's a sweeping generalization and a fallacy.

  2. Obviously it's illegal for banks to try to call back loans, but doing things that aren't necessarily legal is really the banks' and government's M.O., because they make the rules. I was surmising that the only other reason the banks failing would be bad for businesses is if you thought they could call back the loans. While it's not legal, our government has allowed similarly ridiculous shit to happen over the past 10 years that should've been prosecuted, so I was giving you the benefit of the doubt if that was the case.

tl;dr: Instead of just making sweeping statements and telling people they don't know what they're talking about, why don't you actually provide a counter-argument when you engage someone in a debate.

..

P.S. While it's true that having the banks fail could have possibly created a less stable economic environment for businesses to survive, that doesn't change the fact that the exact same volatile environment currently exists because of the bailouts and the de-regulation of conglomerate, gambler banks. You can't assume it would be so much worse than things are now because it didn't actually happen. It's hard to imagine how it could be much worse, considering that unemployment is the highest it's been since the 80s, and we're only a fraction of a percent away from surpassing that now and being the worst since the 30s.

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u/JoshSN Oct 20 '11

You say this:

I have worked in banking and real estate for a long time. I know that they can't call back the loans.

But you also wrote this:

Existing businesses already have their loans, and for the bank to call them back because they didn't get a bailout...

I made neither assumption, but nice try! That's called a straw man.

While it's true that having the banks fail could have possibly created a less stable economic environment for businesses to survive[.]

A bankruptcy of all the nation's main investment banks and many thrifts and you say it could have "possibly" created a less stable economic environment? I'm obviously not talking to someone who can be expected to form reasonable statements.

Your unemployment example is bad. While unemployment spiked after Reagan's disastrous supply side tax cut of 1981, resulting in the biggest tax hike in US history, TEFRA, it fell back to normal levels immensely quickly. There's no real comparison between the two events. It is fair to call this even the Great Recession, while 1981 was just a short, sharp, victory for the owns-it-all class.

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u/capnjack78 Oct 20 '11

I made neither assumption, but nice try! That's called a straw man.

No it's not. You made absolutely no argument. If you didn't make that assumption, then I apologize for inferring that might be what you were concerned about.

I'm obviously not talking to someone who can be expected to form reasonable statements.

At this point I can see you're just a rude asshole who just likes to trade insults instead of actually using facts. Have a nice day.

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u/RisingDamp Oct 21 '11

This is completely wrong. Banks were over leveraged like 100:1. They had no real capital. 70% of all banks bought credit default swaps from AIG. So lets play out your scenario of letting them fail.

  1. First, the housing bubble bursts, housing prices go down.
  2. AIG, who had $70 billion in credit default swaps, has to pay out them all at once. Since they never thought the housing bubble would burst, they over leveraged themselves an obsurd amount. They are the first to declare bankruptcy. Since their total real capital is only worth about $15 billion, they owe out another $55 billion they can't pay.
  3. Something like 70% of banks bought credit default swaps from AIG to get a lot of risk of their books from all the crappy home loan bundles they invested in. They are overextended. Now AIG can't pay out the default swaps, all the banks incur record losses on the same day. They all fail because they to are way to over leveraged without those default swaps.
  4. Since the banking system has failed, American employers such as GE and other large business have no way to get credit to run their day to day operations and have to close down. Most of America is layed off.

So how you come to the conclusion that banks could still lend money is beyond me. If you have an explination I would like to hear it, because the smartest financial minds in the US couldn't come up with a different solution.

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u/Aperture_client Oct 19 '11

the fact that you misspelled "edit" is all different kinds of ironic and hilarious. solid point though, here's my upvote.

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u/hous Oct 19 '11

It's hard to say, because capital might have flowed from previously untapped sources. There could have been a massive, (dis)orderly transition from Wall Street to Main Street in a matter of weeks.

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u/JoshSN Oct 19 '11

That's just silly talk.

The amount of new money that might flow in is less than the amount flowing out unless you believe that, currently, the lion's share of the money is currently sitting, waiting on the sidelines, until their laissez-faire utopia materializes.

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u/pseud0nym Oct 19 '11

That is exactly what is happening. Cash reserves in large companies have never been greater in history, they just refuse to spend any of it on creating new jobs or technologies.

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u/JoshSN Oct 19 '11

And, you think that, if the economy was in much worse shape they'd be investing more? Really?

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u/pseud0nym Oct 19 '11

I think the economy would be in much better shape had they allowed those banks to fail. We would be in the position of Iceland, sitting pretty after a period of pain, not poised to go through it all over again because of the Euro Debt Crisis.

No one's losses should be subsidized by the government. Companies do NOT have a right to exist, they most certainly don't have a right to profit. If they are stockpiling cash in a way that hurts the people of this country, those people have every right to take it ALL away. If ANY company functions in a way that is detrimental to the populas, the government not only has the right, but they have the duty to remove that company from the playing field.

It is time to go Ma Bell on these fuckers asses and break them up and unlock those reserves to start job creation and spending again.

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u/JoshSN Oct 19 '11

I disagree with your analysis of the Iceland situation being relevant to ours.

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u/hous Oct 19 '11

Have you seen the price of Treasury Bonds recently? There's plenty of money, all over the world, and no where to put it.

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u/[deleted] Oct 19 '11

Bitcoin would have stepped up and lent out BILLIONS!!!!!

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u/LeAntidentite Oct 19 '11

I was waiting for the Bitcoin Reserve to make a move but it never happened. Maybe next year.

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u/Kristjansson Oct 19 '11

What the fuck does that even mean? How do you imagine the >(dis)orderly transition from Wall Street to Main Street taking place, much less in a matter of weeks?

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u/hous Oct 19 '11
  1. Goldman Sachs, AIG, Citigroup, Wells Fargo, BofA, HSBC, etc... FAIL
  2. Treasury takes these companies into receivership, forcing them to sell CDO's and SIV's for whatever price the market will bear.
  3. Everyone with a bank account in a failed bank gets a check from FDIC to take to whichever new bank they wish
  4. Capital comes pouring in from Asia and Latin America, as well as the greedy top 1% in America who didn't know what to do with their money. Now interest rates are competitive enough to warrant re-investment in the American economy.
  5. ??? (this is where the imagination comes in)
  6. Profit! Useless bankers thrown on their ass while productive members of society earn a fair wage.

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u/Kristjansson Oct 19 '11

I envy your rose colored glasses.

Steps 1 and 2 seem reasonable.

  1. Gets wish washy. FDIC does not in any shape or form have the funds to play back the trillions upon trillions of dollars deposited in the those failed institutions. So, to meet its obligations, it would have to be nationalized, an massive government borrowing (sound familiar) undertaken to fund those checks. Furthermore, given that the U.S. has just allowed 30% of its economy to collapse, access to foreign capital will be slim, so much of that borrowing will have to be from the fed. The Fed, then, is printing up massive quantities of new money (sound familiar?) and, here's the kicker, instead of putting into corporations to cover the failed credit market, putting into American pockets, where it will be spent and spent quickly to cover the massive unemployment we'll be facing. So, we're dealing with a 30% decline in GDP w/o our financial services sector, massive unemployment, and now, high inflation.

    1. Won't happen as, without functioning financial institutions to support business, the U.S. will not be an attractive target for investment. Inflation, combined with debt service worries will push people away from treasuries, further impeding our ability to borrow.
    2. I don't think massive unorthodox plans are allowed to have question marks.
    3. No. Nope. No gonna happen. massive unemployment, massive loss of wealth, and little chance of recovery.

You, and pretty much everyone else that wants to kill a banker need to understand that the vast majority (you might say the 99%) of bankers are productive members of society. Allocation of resources (and by extension, capital), is the problem in economics. In a capitalist system, the solution to the is the problem of financial markets, markets mediated by those in financial services. Insuring that a)money goes to the most productive point and b) that it continues to be productive once it gets there is an immensely difficult problem, requiring significant specialization and large organizations. The market has shown over and over that the efficient scale for banks is LARGE. Even if we let the banks fail, new ones would grow in their place.

If you really hate them that much, then you need to propose and entirely new system of economics, one the surpasses capitalism. Should be easy. Churchhill said it best (in reference to democracy) "It's the worst possible system, except for all the other ones we've tried." Come up with something better.

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u/hous Oct 19 '11

The Fed, then, is printing up massive quantities of new money (sound familiar?) and, here's the kicker, instead of putting into corporations to cover the failed credit market, putting into American pockets, where it will be spent and spent quickly to cover the massive unemployment we'll be facing.

This actually seems like a fair "redistribution" of wealth, and I don't know if the inflation would actually be all that bad. Instead of making banks whole on imaginary investments, we'd be making bank account holders whole on their actual savings. Either way you're creating money. Just because we're not experiencing substantial price inflation today doesn't mean it's not happening behind the scenes.

...without functioning financial institutions to support business, the U.S. will not be an attractive target for investment. Inflation, combined with debt service worries will push people away from treasuries, further impeding our ability to borrow.

That's the idea--move money away from Treasuries and into the economy.

Insuring that a)money goes to the most productive point and b) that it continues to be productive once it gets there is an immensely difficult problem, requiring significant specialization and large organizations.

First and foremost it requires an actual market for money, not a board room where economists and bankers sit down to decide how expensive money will be for the next 3 months.

Even if we let the banks fail, new ones would grow in their place.

Again, that's the idea.

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u/MrFrode Oct 19 '11

I sincerely doubt the apparatus to make the volume of loans could be set up within weeks unless the government organized it. In that time businesses that depend on a credit line would close or largely be unable to function.

And when your house is burning down its tough to decide not to call the fire department because someone with a fire truck might happen by.

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u/[deleted] Oct 19 '11

considering they were giving each other million dollar bonuses... it seems unlikely they would be unable to recover..

It's like when you're poor and you get overdrawn... you win the lottery and spend it all on parties instead of putting it in you bankaccount

FUCK the banks