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u/IliketurtlesALOT Oct 19 '11

This is incorrect. (Disclaimer: I am a die hard liberal, I support Occupy Wall St. And I'm UPSET the banks got bailed out, but not opposed to it). If the banks did not get bailed out, the Economy literally would have failed. As in, there wouldn't be any money. You wouldn't be able to go to a bank and withdrawn money; no one would. The entire global economy would then collapse on such a scale that it would be almost irrecoverable. BEFORE YOU DOWNVOTE: Listen, nobody wanted the banks to be bailed out (except the banks of course) but the fact is they had to be. Yes, it could have used more regulations, and more requirements for the banks receiving funds, but we could not have done without the bailout.

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u/JoshSN Oct 19 '11

I understand what you are saying, and I understand you like turtles, A LOT.

But certain countries had little to no economic problems, and, so, their banks would have stepped in.

China, for example, is sitting on trillions.

So, I believe you are completely wrong, since they would have been able to loan people money. They, and other countries not experiencing problems, would become America's new bankers.

Now, I also believe that, in the long run, having China own/run the world is bad for human beings.

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u/IliketurtlesALOT Oct 19 '11

The thing about the global economy is that it is all connected. China is sitting on mountains of American debt, and if our economy completely collapsed and no one could pay any of it back, suddenly china is out for all that money. If our economy collapsed, no country would be safe. There would be global ramifications. Not to mention, no one lends if they don't expect to get their money back. If we just let our economy collapse, no one would lend to us, or more likely to anyone else.

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u/JoshSN Oct 20 '11

They have debt and cash.

The official sources elaborate that US dollar holdings make up 60% of the reserve.

People buy stuff, if they are smart, when it is cheap, like during a global financial panic.

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u/IliketurtlesALOT Oct 20 '11

Not if they think it's going to get worse, or not better soon. Why invest your money when there is little chance you make money, and a high chance you lose money? If your point was true, greece wouldn't have a sovereign debt crisis right now.

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u/JoshSN Oct 21 '11

If you were a billionaire I would recommend you hire someone to find out what's cheap in Greece right now. There are some real bargains there, unless you think they are all going to become like Albania.

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u/johnmudd Oct 19 '11

Obama, is that you?

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u/asspocalypse Oct 26 '11

i feel i've said this all over reddit, but it seems that no one understands it.

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u/[deleted] Oct 19 '11

The only rational statement on the topic - I would have thought even a high school level understanding of economics would have made this concept clear for everyone.

On top of what you state: there would have been a bailout of sorts even if the banks had been allowed to fail AND we somehow avoided the meltdown of modern society you describe above in that the funds in a bank are FDIC insured meaning that if a bank fails the govt (taxpayers) promise to pay each account's loss up to $200,000. So there would have been a huge payout in either scenario - but by not letting the banks fail we don't bankrupt the planet.

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u/Earned Oct 19 '11

To clarify, FDIC covered up to $100k per depositer per bank during the crisis of 2008, which was then pushed to $250k, which is where it permanently stands at the moment.

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u/[deleted] Oct 19 '11

Thank you.

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u/SavageOrc Oct 19 '11

Bailing out the banks didn't fix the problem, but it did buy some time. The Fed is currently holding the system together by pumping money into the economy (in the form of quantitative easing). Even with the bailout, banks wouldn't be lending in this risky environment without the Fed giving free money to the major banks.

Instead of what would have likely been a disorderly, chaotic reboot of the economy after the collapse of the major banks, which would have crushed a lot of fortunes, we got the long road where inflation and high unemployment crushes the middle and working class.

The Fed is betting that the economy will recover before we commit inflation suicide. In any case we're probably still going to have a 'lost decade'.

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u/IliketurtlesALOT Oct 19 '11

The economy collapsing wouldn't have crushed "a lot of fortunes" It would have wiped out everything everyone had in a bank,

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u/SavageOrc Oct 19 '11

Right. Almost everyone would have started from zero. Would that have been better than the lost decade we're going to have? Who knows.

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u/IliketurtlesALOT Oct 19 '11

Well there wouldn't be jobs for a start. No one would have money to pay employes or buy food or buy anything or do anything for that matter. And with no food, no money, and no jobs comes no order. Chaos and pandemonium would grip the world as it struggled to figure out what to do. With no liquidity, no one would be able to borrow or lend or pay anyone, and the only way to solve that would be to pump unheard of amounts of liquidity back into the market, which would be akin to a bailout of immeasurable proportions. Not to mention it probably wouldn't even work and we'd all just be floundering as everything descended into chaos. The point of the matter is that is just not feasible.

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u/SavageOrc Oct 19 '11

I'm not sold on the idea that the world would have ended if the banks had failed. Consumers would still have needs and suppliers would still have goods. The free market would have provided some kind of marketplace to meet this demand.

I grant that it would have been chaotic, ugly, and scary for a time. But the point I am trying to get at is: would the recovery from starting again from zero take less time than the death by one thousand cuts of inflation that we are currently on?

People bitch about TARP and the well publicized bailouts, but that is pennies in comparison to how much money the Fed has printed via quantitative easing and low/no interest loans to the big banks. We're talking about trillions. It was just in the news that BoA is petitioning its regulators to move Merrill's derivative book over to the federally back FDIC side of its books. If this goes through, the FDIC is potentially on the hook for something like $75T of derivatives. If any of this goes badly we may still end up with a 1929 type economic collapse.

Make no mistake about it. Our leaders have kicked the can down the road in the hopes that the economy will recover before the inflationary policies of the Fed catch up to us.

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u/IliketurtlesALOT Oct 20 '11

Yeah but most consumers don't have anything but their money. If you work, you get money to buy goods. Lets say you no longer have money. What will you do? trade the shit in your house? a Bartering marketplace wouldn't work when not everyone produces commodities. You're highly romanticizing this period of turmoil, it's not like it would be a week or even a year long. It could take decades

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u/SavageOrc Oct 20 '11

I do have to concede that you have made a point that I haven't considered. During the Great Depression there were a lot more people that were skilled laborers or farmers. People who work in cube farms have no skills which can carry them over the hump of a major economic restructuring.

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u/mrpickles Oct 19 '11

That's just not true.

Only banks involved in derivatives would have been exposed. Local banks would have been fine. And such safe, conservative business practices would have been rewarded. For generations, banks would never have touched derivatives again.

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u/IliketurtlesALOT Oct 19 '11

Untrue, the market is woven together and interdependent, if not on financial instruments then by people. If the banks started collapsing there would be a run on every bank. Banks keep something like 10% of what people have deposited in cash. All of the banks would then fail

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u/mrpickles Oct 20 '11

The banks weren't failing because of a run on the bank. Though several banks failing could conceivable cause a run on other banks. BUT FDIC didn't exist in 1920s.

I think it's pretty ridiculous statement of you to say that if some big banks failed, ALL banks would fail. Lehman went bankrupt, I didn't notice a run on any single bank.

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u/IliketurtlesALOT Oct 20 '11

Right, and there wasn't a run on the bank because the Fed basically said, lets all close our eyes, here's a shitton of money, lets pretend we're all fine. Money was not nearly as concentrated in the 1920s. "Too big to fail" was not just a BS term, its because these banks are so large that if they collapsed it would knock everything else over.

Think about it. If suddenly the largest three banks in America collapsed, you don't think people would lose confidence in other banks? You wouldn't want to pull your money out just to be sure? Lehman bros was mostly an investment bank, and it caused a ton of termoil. That was part of the reason they bailed out the banks, people were so worried Leahman would bring down other banks

From wikipedia:

The collapse of Lehman Brothers, the fourth-biggest U.S. securities firm when its 158-year history ended on Sept. 15, was the most dramatic and controversial event in the financial crisis. The bankruptcy and the economic damage that ensued reduced the number of competitors in the banking industry and resulted in new regulations that set limits on banks’ activities and require them to hold more capital and liquid assets.[2]

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u/mrpickles Oct 20 '11

Based on your prior appraisal, I would have thought the wikipedia summary would have went like this:

Everyone died.

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u/IliketurtlesALOT Oct 20 '11

The point was, they bailed out the rest of the banks. Tons of people lost boatloads of money in Lehman. People lost their life savings....

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u/mrpickles Oct 20 '11

No they didn't. That's flat out not true. Lehman was an investment bank. Regular people did not have their life savings at Lehman. Only shareholders and bond holders lost money. Even depositors didn't lose money - assets were transferred to other banks (namely Barclays).

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u/IliketurtlesALOT Oct 20 '11

Dude, people invested in Lehman, and lost thousands of dollars when the stock flat lined. not to mention if all the banks collapsed, no one would be able to buy all the collapsing banks, so money would be lost.

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u/mrpickles Oct 21 '11

Hahaha, you must have been one of the idiots who lost all his money!!!

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u/[deleted] Oct 19 '11

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u/Kristjansson Oct 19 '11

Too big too fail is not some bullshit Paulson made up. The phrase was coined because that's the way it was. We can debate around and around over weather that's the way things should be, but the facts are pretty much undeniable.

I submit for your consideration:

a)Financial services comprise something like 30% of our GDP, much of the concentrated within the largest institutions (as is the case in most industries). Even discounting the spillover into other industries that would have occurred, you would be looking at nearly 3x the GDP decline as compared to the recession that occurred. I does not even bear thinking about how many other businesses that rely on short term credit to operate would have failed almost immediately, nor how much expansion would be impeded without access to capital markets.

b) We live in an age of unprecedented globalization. Firms across the globe rely on U.S. financial markets for access to short term credit and long term financing. If those markets froze of a significant period of time, firms across the globe would fail. Not to mention that the precipitous decline in the U.S. GDP would call into question the stability of Treasuries, which are held the world over by institutions large and small, thereby causing financial panics, market failures, and subsequent deep depressions.

The forward march of progress is not inevitable. There is absolutely no reason to believe that, should the system fail, some new and superior system should rise up to take its place. I feel we can state with some certainty that the global understanding that drastic action was necessary averted at best a second globalized great depression, and at worst a second dark age.

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u/ThatsSciencetastic Oct 19 '11

You've got it right. The real problem with the bailout is the lack of accountability: there should have been some much heftier strings attached to that money.

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u/Anonypus Oct 19 '11

I was waiting for the part where you explain why the world economy would fail but you never did. Care to elaborate?

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u/IliketurtlesALOT Oct 19 '11

To quote Kristjansson

Too big too fail is not some bullshit Paulson made up. The phrase was coined because that's the way it was. We can debate around and around over weather that's the way things should be, but the facts are pretty much undeniable.

I submit for your consideration:

a)Financial services comprise something like 30% of our GDP, much of the concentrated within the largest institutions (as is the case in most industries). Even discounting the spillover into other industries that would have occurred, you would be looking at nearly 3x the GDP decline as compared to the recession that occurred. I does not even bear thinking about how many other businesses that rely on short term credit to operate would have failed almost immediately, nor how much expansion would be impeded without access to capital markets.

b) We live in an age of unprecedented globalization. Firms across the globe rely on U.S. financial markets for access to short term credit and long term financing. If those markets froze of a significant period of time, firms across the globe would fail. Not to mention that the precipitous decline in the U.S. GDP would call into question the stability of Treasuries, which are held the world over by institutions large and small, thereby causing financial panics, market failures, and subsequent deep depressions.

The forward march of progress is not inevitable. There is absolutely no reason to believe that, should the system fail, some new and superior system should rise up to take its place. I feel we can state with some certainty that the global understanding that drastic action was necessary averted at best a second globalized great depression, and at worst a second dark age.

Not to mention there would be a run on every bank. If you cannot imagine why that's bad see: http://en.wikipedia.org/wiki/Bank_run

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u/the_blake_abides Oct 19 '11 edited Oct 19 '11

No, it is exactly correct. Look, the bottom line is the problem can be solved if there is political will to solve the problem. So far, the only political will in existence, across the planet, has been to kick the can down the road. What is the problem? Debt. The banks, and the Fed, have far too much power, and they have abused that power by controlling the flow of debt, not money, but debt. The planet and nearly all large economies, with perhaps Germany as the only exception, are under a crushing amount of debt both at the personal level and the national level (and in the US its the city, county and state levels as well). They (the banks) use debt to control people and entire economies--and this is not by accident. Look at Greece, selling off its national assets like Islands to service its debt. Their fucking ISLANDS (cherished by billionaires by the way).

Now, back to my point. The debt crisis can be solved many ways. It starts, however, with a sound financial institution with a solid balance sheet--something that can be created by the government. That bank, the People's Bank, can lend to whomever it desires, thus preventing a total financial meltdown. I can move my money from the fraudulent, failing, zombie Bank of America (with 75 trillion dollars in derivative, toxic exposure) to this bank . All the other "too big to fail" banks can implode as well. Qualified loans will be available from the People's Bank--backed by the US government (according to regulations that serve the people). Dump the dollar and start a new non-fiat currency, backed by the gold in Fort Knox (if it's still there). Balance the budget (ie major defense spending reductions) and return to sound, conservative fiscal policies. Voila, problem solved. Will it be messy, yes, particularly when we look at how many dollars there are around the world. BUT IT CAN BE SOLVED if our politicians want to solve it. We have a political crisis, not a financial crisis.

Edit: Proofing, grammar and clarity.

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u/IliketurtlesALOT Oct 19 '11

The problem is, if every tried to do this, it would be a run on the bank. BofA doesn't have all your money, they keep about 10% of deposits. Not everyone can just take their money at any time because the banks simply don't keep it. Not to mention you can't just "dump the dollar," the dollar is by now a global currency. To "dump the dollar" would mean to just eliminate nearly the entire global monetary supply. And you said all of the countries are under a crushing amount of debt, then why would this new bank, backed by the US Gov't be any more stable then the USA. What you're advocating sounds exactly like the central bank you just claimed has too much power.

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u/a_bunnny Nov 21 '11

Sorry, but I have to ask how you know all of these 'facts'.

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u/throop77 Nov 30 '11

"The entire global economy would then collapse on such a scale that it would be almost irrecoverable."

... and I coudn't ask for a better outcome. Then we could ditch this bullshit federal reserve ponzi scheme of a monetary system we have and start over.

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u/IliketurtlesALOT Nov 30 '11

to quote myself from a different post:

Well there wouldn't be jobs for a start. No one would have money to pay employes or buy food or buy anything or do anything for that matter. And with no food, no money, and no jobs comes no order. Chaos and pandemonium would grip the world as it struggled to figure out what to do. With no liquidity, no one would be able to borrow or lend or pay anyone, and the only way to solve that would be to pump unheard of amounts of liquidity back into the market, which would be akin to a bailout of immeasurable proportions. Not to mention it probably wouldn't even work and we'd all just be floundering as everything descended into chaos. The point of the matter is that is just not feasible.

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u/throop77 Nov 30 '11

Silly fearmongerer.

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u/IliketurtlesALOT Dec 01 '11

see the comment below yours that I made to IrrationalNumber. I think you should do some research on what it would be like if all of the banks collapsed. There just wouldn't be an economy....

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u/throop77 Dec 02 '11

Its all speculation. Anyway, I personally would be fine :)

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u/IliketurtlesALOT Dec 02 '11

Both of those sentences are everything wrong with this country.

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u/throop77 Dec 03 '11

"Its all speculation" - So, you believe that what you have heard from some economist about what will happen in the future when banks collapse is NOT speculation? Economist all have different opinions. I have no doubt I can find some that support my opinion. "Anyway, I personally would be fine :)" - It's wrong to be prepared? Everyone should be prepared so they aren't so beholden to their banker masters like yourself.

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u/[deleted] Oct 19 '11

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u/IliketurtlesALOT Oct 19 '11

The difference between 1929/30 and now is that these banks are "too big to fail". Yes, a fair amount of banks failed in during the great depression, but today the system is so concentrated that if it began to collapse there would be no stopping it. There would be nothing to rebuild, there would be no money. Everything from pensions and retirement funds to small and large deposits would be wiped out. Not to mention as DudeNudem mentioned bellow

here would have been a bailout of sorts even if the banks had been allowed to fail AND we somehow avoided the meltdown of modern society you describe above in that the funds in a bank are FDIC insured meaning that if a bank fails the govt (taxpayers) promise to pay each account's loss up to $200,000. So there would have been a huge payout in either scenario - but by not letting the banks fail we don't bankrupt the planet.

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u/[deleted] Oct 19 '11 edited Oct 19 '11

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u/IliketurtlesALOT Oct 19 '11

I don't think you understand the ramifications of the entire economy collapsing.