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Thursday, October 27, 2016

Today’s Banks Don’t Do What Banks Are Supposed To Do

Banks in a capitalist society are meant to create wealth and decrease risk. JPMorgan and its kind do the opposite.

In his testimony before a congressional panel on the recent Swiss trading debacle, Jamie Dimon, CEO of JPMorgan Chase, said, “We’re doing what a bank is supposed to do.”

Was Dimon correct? In a capitalist economy, was Chase doing “what a bank is supposed to do”?

The answer is assuredly no. A bank is not supposed to do what JPMorgan Chase and its fellow too-big-to-fail compatriots do every day. They are practicing something other than actual capitalism. As this column has consistently stated, capitalism is not a vague idea. It is an economic system with well-defined principles designed to create wealth for society. These principles have powered the creation of wealth in America since the nation’s founding and empowered our country with an extraordinary resilience.

But importantly, wealth does not mean profits. Wealth is anything that can be experienced or physically used. Profits are an accounting proxy for the wealth that an entity generates. Like most proxies, the idea of profits as a measure of the wealth created for society may often be a good indicator, but as I have written previously, this proxy has failed spectacularly in the financial sector. The profits generated by today’s financial institutions bear little resemblance to the (lack of) wealth they have created for our society.

Capitalism also means there is no such thing as a “free market.” All markets require rules in order to operate fairly. The word “regulation” is really just another term for the rules that govern how participants in a market must behave. Indeed, one modern example of a free market economy may have been the period of economic chaos in Russia that followed the collapse of the Soviet Union, when the absence of rules led in part to devastating results.

Now let’s turn to the purpose of banks in a capitalist economy. Finance is an intermediary good: You cannot eat it, experience it, or physically use it. The purpose of finance is to support other activities in the economy. Banks are meant to allocate capital (funds) to the best possible use. In a capitalist economy, this means allocating money to the people or entities that will create the greatest wealth for the overall society. At the same time, risk management is supposedly a primary skill for bankers. When capital is allocated well and available to wealth creating entities, societies flourish. When capital is poorly allocated, economies can collapse.

Speaking broadly, banks allocate capital in two ways: through loans and by facilitating investments. Indeed, as we read breathless news reports on the first-day performance of IPOs, it’s easy to forget that the central purpose of an initial public offering (IPO) is to channel investment money into an enterprise that will hopefully create wealth for our entire society.

In light of today’s overly complex, overly concentrated, and overly influential financial sector, the above description may seem far too simplistic. But it’s not. In Judaism, there is a well-known story of the famous Rabbi Hillel describing the essence of Judaism in a simple statement, and then saying “the rest is commentary.” The same holds true in today’s financial sector. All of finance is meant to allocate capital to the best use, the rest is commentary.

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Copyright 2012 The National Memo
  • ObozoMustGo


    The number of prominant DemocRAT politicians that are running from Obozo and the DemocRAT convention for his 2nd party incarnation ceremony. They are smart!!!

    Have a nice day!

    • rustacus21

      … only b/c people are afraid of violent, crazed racists w/guns & lots of stolen money to use for intimidation & extortion. MayB if legislators would get about their business of REPRESENTING their constituents, instead of being on their knees sucking their way to huge cash campaign contributions, they could solve the banking regulations crisis, as well as use the money lost in risky GAMBLING to put into the general economy, in order to create job, fund public schools, retrain the unemployed & provide greater R&D cash for renewable energy replacements for dwindling petroleum stocks… Oh yea & keep student loan rates affordable!!! & by the way, have a Gr8 day…

      • ObozoMustGo

        Hi rusty! How’s my lefty buddy doing today? Are you taking summer classes now? Just curious.

        Reading your post, and many others like it, I can’t help but wonder what you mean by:

        >”MayB if legislators would get about their business of REPRESENTING their constituents”<

        I think you mean representing their "LEFTIST" constituents, correct? You certainly can't mean that you want them to represent conservative constituents because when they do that, you nutjobs on the left kick and scream like a child that just had his candy taken away.

        Please clarify. Thanks.

        A "banking regulations crisis"? The only crisis in banking are the politicians sticking their noses too far into everyone else's business, and then bailing out their buddies who make bad decisions. Let bad businesses fail. Then we don't have these issues.

        Public shools are funded locally as they should be. I'll show you my $7K per year tax bill to prove it. What business does the Fed have taking your tax dollars to fund my kid's education, or my tax dollars to fund education in Iowa? Why do we have to funnel our money to DC so that they can give it back? The Feds have NO business in public education. NONE!

        I love it how you leftist nutjobs think the government can do "job training". HA! What a joke. The government can't train itself to climb out of a paper bag, much less know what the hell the private sector needs.

        Uhhhh…. rusty….. I know you guys on the left love the idea of "renewable energy" and this grandiose idea of "investment", but we've actually tried that just recently and look what it got us: BILLIONS upon BILLIONS wasted in sheetholes like Solyndra, Ecotality, Solar Trust, and hundreds of others like them that have gone under.

        One other point, rusty. We DO NOT have dwindling petroleum supplies. Not even close. In fact, they are growing. And by 2017, the US will be producing about 10 million barrels per day and we will be the world's #1 producer. We are already the world's #1 producer of natural gas. Look it up, my friend. This is true. I know it's counter to the leftist fantasy view of the world, but reality most often is counter to your fantasies.

        Have a nice day, my friend!

        • rustacus21

          Hallo my friend!!! & yes, no summer vacation 4 me, unless counting the 5 days between the 2 summer terms!!! Sooo, where 2 start… 1stly, solyndra, like all prospective business, probably started as a good idea, but not everybody is capable of being Bill Gates obviously. Point being, we’re heading for renewables – 1 way or the other. Petroleum isn’t (renewable), so part of my studies is figuring out the replacements. The cost of investment will be nothing compared to the cost of inaction, so we’d better start doing some serious cost-benefit analysis so we can figure out how to avoid frying the planet & us along w/it!!! But this gets to my point of whether we’re going to allow corporations to dictate the terms of the debate? This is a Democracy after all & the way they’re (corp’s) approaching things, it’s, well, a plutocracy, w/them unable to hear, much less consider alternatives to their actions. This is where Liberal/Progressives must get active & convince U guys on the right it’s not about taking anything, but rather, utilizing what we have as best we can w/out losing money or livelyhoods or lives for that matter. Banks are no different & if they truly look at things, regulation MAKES them more money than they’ll lose in the long run. Just a thought or 2…

  • rustacus21

    There WERE REASONS for for the rash of regulations following the Republican Great Depression of ’29. Of those legislation, there were NO major economic upheavals or crisis or meltdowns, until the Reagan years when conservatives started chipping away at these laws & Democrats, under siege from money & political threats by bullies in the Republican party to go along w/it. Since Reagan, there has been an endless parade of economic & markets ruptures caused ALL by conservative administrations, the most serious following the dismantling of Glass-Steigall (via a deal that would get Republicans to back off from continuing their bullying tactics against the Clinton administration), resulting in the 2nd Great Republican Depression of 2008. That banks are engaged in investment activities subjects them to greater risks unnecessarily, by virtue of the additional cash reserves a normal investment house lacks. Therefore, when the incoming Obama administration proposed going back to 1933-era banking regulations, banks (led by the likes of JPMorgan, BankOfAmer., etc.) deployed their lobbyists & in short order, the proposals were killed. Consequently, JP Morgan lost another several billion & as of July 1, will make students (like myself) pay for the loss, by cranking up rates on borrowing for our student loans! The JOB of banks is to provide a ‘safe haven for savings & provide capital for business investments. What this article describes is the best case for greater regulation, so banks will stop “GAMBLING” in risky scemes – casino style – where the money gets pocketed by CEO’s & share holders, but those w/savings take the hit… Where o where are REAL Liberal/Progressives like FDR when U need them!?!?

    • ObozoMustGo

      rusty.. once again, you don’t really know what you are talking about. That’s OK. You’re young and still hung up on the cliche’s of the left. The economic collapse was precipitated by the real estate bubble. That we can agree on.

      But, the collapse of the Real Estate market and resulting financial markets turmoil was a situation created solely by government regulation and manipulation of the mortgage industry for social engineering goals. The Community Reinvestment Act of 1977, signed by the now 2nd worst president in American history, is what gave community organizations and regulators authority over banking practices. Reagan, wisely put the thing on the shelf and did not pursue implementation administratively. Neither did GHWB. But the Clinton Administration did pursue it and brought it alive full force.

      Do you remember (no, you’re not old enough) the term “Red Lining” that was bandied about by the Clinton regulators in the 90’s? Google it if you don’t know. It applies to the practice of a bank drawing a red line around certain neighborhoods or geographies as a way to say that they DO NOT lend to anyone in those areas because they will not get paid back. The Clinton Admin wanted to increase home ownership, and they saw this practice as a barrier to increasing home ownership in poor urban areas. They authorized organizations like ACORN to storm bank branches with protests, many of which turned violent, and threaten the banks that they will put them out of business unless they stop “Red Lining”. Yet another seemingly good leftist idea with good intentions, but the devil is always in the details.

      So the banks went to Congress to lobby for their interests. The Congress was able to strike some compromises and agreed to use the Government sponsored FannieMae and FreddieMac as a guarantor of mortgages that were offered to low income people.

      Now, pretend you are a banker. Your business is loaning money. That’s what you do. Your government threatens you and tells you that you must loan money to people who were never able to get loans previously. But to compromise with you, the government also tells you that they will guarantee the loans so you won’t lose money by lending to people that cant pay. Hmmmmm…. A no lose proposition to sell your products (loans)? Hmmmmmmmm… sounds pretty good, doesn’t it? And that is what the banks did. They created loan products that were low up-front costs but became tougher in the out years. They loaned up to 100% or more on the value of the properties because the low income people typically have little to no down payment. The banks, at the urging of the Feds, did everything they could to overcome the problem of making loans to people that could not afford them.

      So looking over the situation now, you as the banker begin to realize that you have made a lot of risky loans, but they are guaranteed by Fannie or Freddie. Your business is loaning money, not servicing mortgages. So you sell your loans at a discounted rate to investors. Those investors believe the loans are guaranteed by the government (Fannie & Freddie). The market over a 10 to 12 year period begins to ingest trillions of dollars of these loans. Some of the bankers begin to be worried about those loans that make up their investments and they create insurance products to hedge their bets (called derivatives).

      In late 2007, it started becoming apparent that as those mortgages matured in later years, a higher and higher percentage of them started to default. The housing market was maturing, supply had met demand, and prices started to level off or come down a little. The first in the line to show trouble was Country Wide (Chris Dodd’s buddy, by the way). Then a couple of smaller ones started to roll over. Then it became obvious that neither Fannie nor Freddie had anywhere near the reserves to pay up on their promises. (Why doesn’t this surprise anyone?) YouTube the video of scumbag Franklin Raines testifying before Congress in 2004 when the Repubs wanted to regulate Fannie more and were concerned. It’s all right there for you to see. As the house of cards began to crumble, the ripple into the financial system and the loans and derivatives that used them as collateral all came crashing down.

      This is exactly what happened. The government, trying to social engineer home ownership, created a perverse incentive for banks to do what they should not be doing. Then the government tried to insure the banks would not lose money with tax payer promises to cover their losses.

      The entire thing was a scam. And do you think the politicians that created the mess would take the blame? HELLLL NO!!!! They do what they always do. Blame the evil bankers for wanting to make a profit. They would never tell you the truth because they might get thrown out of office and lose their power. That could never happen when they can blame everyone else. And the useful idiots of the world automatically buy their crap lies.

      Then what do they do? The 2 IDIOTS most responsible for the whole mess in Congress come up with a bill called Dodd-Franks that turns getting a regular mortgage into an anal exam of 80 to 100 pages of paperwork for the average American, and millions of worthy payers being turned down or turned off by the process. And you leftist nutjobs ignorantly cheer such nonsense.

      I know you won’t like the truth. Leftist nutjobs rarely do. But this is the way it went down and this is the way in works. If you knew this, instead of watching MSLSD all day, you wouldn’t be a leftist nutjob.

      By the way… the only good thing about FDR is that HE”S DEAD!!! That guy was a complete disaster for America.

      Have a nice day, my lefty buddy!

      • rustacus21

        Whew- another long day!!! I’m organizing students 2 get involved in the loan-rate-hike-bank-rip-off deal. It’s amazing how many of these kids carry their parents politics to school w/them!!! It’s bad enuff they’re just off the Mommy’s milk, but this is crazy!!! Anyway, working from the U’r last pt’s 4ward: FDR was ‘THE’ presidential model 4 the 20th century! Period! Followed by TR & Clinton. There’s a tradition there I won’t b’labor, but b’tween those 3, the nation consistently was on upward trajectories – ALL America; Dodd-Frank is an ex of all that poison, filthy vile money in politics TR got rid of in 1905; now, as the banks were directly responsible for halting more strict, DESPERATELY needed regulations, we can see from 2day report that it wasn’t 2, but NINE BILLION that JP Morgan lost in their most recent “casino” OUTING. “Social engineer” isn’t a bad idea in Diamon’s case 4sure!!! May have worked wonders 4 JPM, but we won’t know that, since the damage is done. I mention that b/c U bring up Clinton era home lending practices, which FORCED Fannie/Freddie & banks to start lending to a more “diverse” pool of home owners, in essence, diversifying neighborhoods across America. What was great is, the law was proactive against “Red-Lining”, but better, it PROVED non-Whites were as good a lending risk as Whites (in a good econ), as there wasn’t the foreclosure MESS just 5 yrs post-Clinton. What went wrong? The 2001-2009 administration looked the other way as mortgages were written w/out the proper oversite. This is where it got tricky & a bit complicated: w/a sinking economy (as of 2003 onward), indications of problems were IGNORED by regulators. Also, it’s false these were ONLY non-White homeowners going belly-up, as the lay-off cycle hits them (non-Whites) 1st, w/White workers to follow, putting the initial attn on them (non-Whites). By ’08, there was no distinctions as ALL homeowners were victimized when the “pop” (of the housing bubble) went off. What I’m trying to say is there has to be a good economy for all this stuff 2 work. But more importantly, there has 2 B “GOOD” govt in the mix that’s nimble, smart & uncompromised, 2 act independent of, AGAIN, money influences. Here in MI, a bill was snuck thru the legislature to limit asbestos damage & SURPRISE – ALEC (see > http://mediamattersdotorg/research/201204180008 http://truth-outdotorg/news/item/9126-new-documents-confirm-koch-was-on-nra-led-alec-crime-task-force <) pushing an agenda, prior to the 2nd most important election this young century. W/this crap going on, govt, the banking syst, even citizens are compromised, @odds over ideology w/the planet on fire, LITERALLY!!! In class yesterday, we covered the fall of the Roman Empire. I felt a chill up my spine, as our professor detailed the disorienting greed of the elites, while the "Huns" chased the outlying populations (?immigrants?) to Rome & then, attacking & sacking a defenseless city, b/c Rome had grown fat & bloated w/xcess & indifference 2 what was going on in the world outside their own "courtyards", "villa's" & exclusive "compounds". U see this as well, so don't deny it! Politics aren't the problem, as it, like the bank issue & jobs & the economy, are part of a bigger crisis of lack of virtue, morality or faith in each other (of the citizenry). Call it what U want, but we can't afford 2 blind ourselves like Rome did!!! Anyway, I'm out – I'll look 4 U'r reply & have a GR8 nite…

      • dtgraham

        That’s not what the Financial Crisis Inquiry commission found when they examined this. When they issued their report in Jan 2011, they came to the conclusion that “the CRA was not a significant factor in subprime lending or the crisis.” Many subprime lenders weren’t subject to the CRA and only 6% of subprime proxy loans had any connection to the law. Further, it was found that CRA regulated lenders had half as many defaults as the others. This is an urban legend of the fringe right, up there with Obama’s trip to India costing 10 billion a day and unions giving 450 million to Obama in 2008.

        2008 had many factors that contributed to it but if derivatives had been restricted, or completely regulated, the major problems would have been avoided.

        Trillions of dollars in this market and the biggest banks in the country operating in secret. This high stakes derivatives market could easily take down the entire financial system again.

        Long Term Capital Management was a case study in arrogance. They invented complex mathematical formulas and used otc derivatives to place their bets. Neither the gov’t nor investors knew anything about how LTCM worked. LTCM did business with 15 of Wall Street’s biggest banks and leveraged 5 billion into more than 1 trillion in derivatives. They didn’t know the extent of LTCM’s exposures in the market or that all of the other otc derivatives dealers had been lending to them as well. Many banks had invested in LTCM derivatives believing that they alone were in a deal. When LTCM became stressed (due to a financial crisis in Russia) and these guys wanted to collect their collateral, they discovered that a lot of other parties had the same claim on it. None of the regulators or banks knew that LTCM was on the verge of collapse because they had no info on the over the counter dark market.

        In 1993 Bankers Trust took Proctor and Gamble to the cleaners with complex otc derivatives products. Proctor filed suit claiming that there was no way to understand these products and that they were fraudulently presented to them. BT took advantage of the fact that the otc products were too complex to understand. Somehow P&G’s counsel got hold of audiotape recordings of BT brokers saying things like “wet dream”, and “we set ’em up”, and “these idiots really think that it’s in their best interests, but heh heh it’s not.”

        In a private meeting one time, Fed chairman Alan Greenspan told CFTC head Brooksley Borne, “you probably think there should be rules against fraud don’t you?” “You don’t get it…. the market will figure it out.” Recalled later by Borne. She was charged with policing fraud and Greenspan didn’t think that should even be policed. Rubin, Sommers, and Greenspan eventually got rid of her and defanged her agency.

        Obozo, this is complicated (to say the least) and it’s way, way, beyond 1977’s community reinvestment act. The issue here is that it’s an unregulated 27 trillion dollar market happening out of sight inside a black box. It’s a dark market with no transparency and no rules and conditions that are very favourable for things to go wrong. The libertarian philosophy of government being a destructive force that just gets in the way has brought us this. All of the lessons learned from the 30’s, about what’s needed to have markets function smoothly, have been ignored. Markets can’t work like that. The capitalist system can’t work like that.

        • ObozoMustGo

          dt… How have you been. I’ve been on vacation (still am) but figured I would check in to see how my lefty buddies are doing. I hope you are well.

          Regarding your post, I have a question: Do you think that a government commission, set up and staffed by leftist big government people, is going to find fault with government programs? Seriously? When has a leftist EVER looked at a government program and proclaimed it a failure? The answer is NEVER! The leftist nutjob answer to every failed program is that “it needs more money and time to work”.

          You like to talk about derivatives, but ignore the incentive system that was set up which created the NEED to devise those hedges. Further, what do you think bankers learn when the politicians bail them out for their bad decisions? You know what they think…. that there really is no cost to bad decisions because Uncle Sam will steal from taxpayers to cover their asses.

          The answer then, is absolute freedom for banks to do with their own money what they want. Disclose derivative holdings and exposure in their quarterly reports, and keep house money separate from customer money. I, as a consumer of banking services, have a right to put my money in any bank I choose and to avoid banks with excessive exposure. When a bank fails, let them fail. A smart and well run bank will take over customer deposits. The bad bankers fail and bankruptcy procedures begin. The threat of failure with NO taxpayer bailouts combined with full disclosure of derivative exposure will be plenty incentive to avoid risky behavior for most people.

          As to your other cited problems with BT and LTCM, no doubt there are scumbags and liars in banking just like there are in government. No amount of regulation is going to get rid of unscroupulous or bad actors anywhere. They should be dealt with criminally IF they broke the law. If they were just being immoral, but not illegal, they should suffer the destruction of their businesses. But too much regulation stifles the very point and benefit of a free market, and therefore becomes highly destructive.

          While I understand your feelings that bad actors should be weeded out and their actions should be prevented, the truth of the matter is that only a small percentage of any walk of life, banking or government included, are bad actors. It is simply NOT possible to have enough regulation to completely eliminate all risks and failure. The entire point of the free market is that we are free to succeed AND fail. Risk is a natural component of freedom. To eliminate risk is to eliminate freedom. Do you understand?

          I hope you are well, my friend. I’m gonna reply to a couple more posts, but then get back to my vacation. I only have this week left.

          Have a great day, DT!

          • dtgraham

            i) There was never a need to devise those hedges. If you don’t believe the independent inquiry, then at least give it some thought. Do you think that some poor folks defaulting on their mortgages could take down the financial system of the United States of America and a number of other nations around the world? With derivatives or without, but especially without.

            ii) The only way I can think of to separate house money from customer money is evil regulations. You eliminate Glass-Stegall and then foist the commodities futures trading modernization act upon the nation, and they’ll run wild. They have.

            iii) I hated the bank bailouts too. Everybody did. The problem is, without massive intervention of some kind, the banks and entire financial system collapse and then the U.S. becomes Albania overnight. The Wall St crooks don’t care. They’ll disappear with their ill gotten fortune. You think things are bad now. This isn’t a glove factory in Mayberry going under.

            iv) Not that it’s anywhere close to being a good solution, but a requirement of full disclosure of complex derivative “assets” would involve evil government regulations. Like consumers would really understand anyway, and as though it would be truly and patiently explained to them by the banks. There’s my laugh for the day.

            v) You need risk to be brought about by the mechanizations of legitimate commerce, not by activity that’s so immoral that it needs to labelled as criminal if it isn’t already.

            Obozo, I’m no communist but your philosophy is going to help resurrect it. You’re no regular conservative. If so, we could dialogue. I know that every cell of your being is steeped in Ayn Rand. Like her, you’re not thinking straight but you think you are. Freedom isn’t just, let the world go crazy with no rules.

          • ObozoMustGo

            Response to your points…

            i) Who are you to say to that a bank needs/doesnt need to hedge whatever bets they want? I suppose you should be running a large investment bank, right? NOT!!!! And certainly, the multilayered collateral and hedging does present risks, but hey, there are none when the government bails you out. And the failure of a few mortgages doesnt have a great effect. What it does have effect on is when enough mortgages go under to create a significant decline in property values, the number of mortgages that are under water radically increases. As they increase, the value of the real collateral backing ALL mortgages as a whole declines, and this screws their balance sheets. In turn, hedges are placed against such an eventuality. This is not a major problem (in fantasy world) if Fannie/Freddie are backing the loans. So yes, mortgages going under DO affect a major portion of the banking system. One other point… a large number of the people defaulting on mortgages were not “poor people”, but middle and upper middle class people chosing strategic default rather than pay mortgages they could afford. So dont give me the whiner story.

            ii) The reason there is only one way you can think is because you dont realize there is a difference between government bureaucrat’s regulations and financial reporting requirements, most of which are adopted by the banking industry and the AICPA’s Financial Accounting Standards Board (called the FASB) which is NOT a government agency. The SEC requires reporting. The FASB determines what goes into those reports and exactly how matters are accounted for and reflected.

            iii) You have bought the lie about the bailouts. Look up history. This is not the first time that such bailouts have ocurred and they are ALWAYS accompanied with dire threats of the end of the world by the politicians seeking a way to scare the populace into supporting something they never would under normal circumstances. It was all a fake. The world would not end and the strong would survive and take over the weak who have failed. We would be WAAAYYY better off today.

            iv) The problem with you leftist nutjobs is that you all think everyone else is too stupid to think for themselves and only can be saved from the big bad capitalists with the help of the leftist overlords. Well, you are wrong. We are not all that stupid. (only you guys on the left are) “Derivatives” is a fancy word for insurance. Any normal person that is NOT a useful idiot or leftist nutjob with a blind faith in government can understand this. It’s not hard. And full disclosure itself IS a deterent to foolish risk taking.

            v) “Legitimate commerce”…. interesting term. What is “legitimate commerce”? Is it what you define it as? Is it what I define it as? Or, is it what has been defined by our cultural norms in a free society and codified into laws already? I think the latter wins the day. For your definition of what is legitimate is purely subjective and is based on leftist nutjob confused thinking that is emotionally based and designed to remove failure from the system.

            You supposition that advocating free market economics as going to cause the rise of communism is like saying advocating safe driving causes more accidents. Huhhhh??????

            And I am a pretty down to earth conservative, DT. We’ve had some good discussions on here. Hope we can have more.

            You see… you got me to take time from my vacation for this. Let me go.

            Have a great day, DT!

          • dtgraham

            For anybody still reading this, pay close attention. It took me close to a week to notice. Obozo feels that the only answer is “absolute freedom for banks to do with their own money what they want.” With THEIR OWN MONEY. It’s not investor’s money, it’s not corporate customer money, it’s not 401k money, it’s not union money, it’s not small business money, it’s not your money or my money, it’s THEIR money which they should have “absolute freedom” to gamble with as they feel fit.


          • ObozoMustGo

            dt… back from vacay but under water with catchup.

            Yes, you finally get it. Just like you are free to do with your money what you want, so should anyone or any business be free to do so. For banks, so long as they are NOT permitted to access customer accounts, they can do what they want with house money. Free to succeed, free to fail. NO BAILOUTS!

            What makes you think that a government bureacrat knows more about banking and risk than bankers do? Why do you have such uncompromising faith in the very government institutions that have demonstrated nothing but failure for the past 100 years?

            Plus, you never answered my question about “When has a leftist EVER looked at a government program and proclaimed it a failure?”…. do you have a response different than mine?

            Have a nice day!

          • dtgraham

            They lost so much money that they couldn’t even cover their customer obligations, hence the threat of the collapse of the banking industry and the need for a salvage operation to save the economy. House money wasn’t just loose change and we’re not talking only a few banks here. The FDIC would have warranted some level of bailout by itself.

            Why do I question banker’s integrity and honesty regarding risk, when left entirely to their own devices with few rules? Oh…..I don’t know. 1929 and 2008 sort of come to mind. Funny thing that. In both cases, there were few regulations governing risk taking and libertarians were in place for “oversight”. The changes of the 1930’s brought about 70 years of stability until the changes of the 90’s finished the reversal process and set the stage for 2008. Yeah I know, like your CRA story, I’m sure that your copies of Libertarian monthly have presented some reverse engineered, cockamamy, alternate universe story of evil gov’t being responsible, but don’t believe it.

            In Canada, the federal gov’t’s National Energy Program was considered (by Liberals) not worth continuing. You talk as though you know every single gov’t program that ever existed and you know that none of them have ever been altered, changed, or dropped. How would you know that? Got proof? I can think of the reverse. Gov’t’s realizing that a completely hands off approach had serious flaws: banks before the 1930’s, automobile and airplane safety standards, food safety and environmental regulations, labour laws, etc..

            Any government programs that tend to stick are due to their popularity. In a free democratic society, why shouldn’t voters be able to tell political parties that there are certain services that they want their gov’t to do for them, and they’re more than willing to pay for them in taxation. Are freedom and democracy just for the wealthy elite who don’t want gov’t to do anything?

            I don’t have uncompromising faith in gov’t institutions. The Greek gov’t has been corrupt for a long time. I have suspicions about Spain’s dynamic provisioning and even the French did a little book cooking I hear. International banking can be very intertwined and this mostly happened after the American financial deregulations occurred. Some gov’t officials were ethically challenged but they also had help from morally bankrupt financial institutions who now had the deregulated opaque products that would help them hide their true financial positions or get them through a rough period with ridiculously fraudulent promises. There were towns and municipalities across Europe, and some in America, that were devastated when things began to go horribly wrong in the market. Many times, they didn’t understand what they were getting into.

            That’s the thing. You don’t want a situation where this can occur in the first place. That’s not the normal risk taking of everyday commerce. Of course gov’t debt can get to be a problem, but we disagree strongly on the level of blame here. The Republic of Ireland was the darling of the right for a long time. They did virtually everything that the American right says you’re supposed to do, and look what happened. Did you know that Spain’s national debt, per capita, is less than the U.S.?

            Obozo, you make blanket statements all the time that no one, not absolutely steeped in your philosophy, would agree with. “All government institutions have demonstrated nothing but failure for the past 100 years.” You often make me react like an old Amy Poehler-Seth Myers weekend update skit; really…..really…..really.

          • ObozoMustGo

            dt… it is absolutely without question an incontrovertable fact that the Fed Gov’t created the system that incented, no PUSHED, banks into creating loan instruments for people that otherwise could not afford them. All in the name of the lofty pie-in-the-sky social engineering goal of increasing home ownership. The government makes the rules, business follows the rules. With no push from the government, why on earth would a banker loan money to people that cant pay it back? They wouldn’t.

            I am fully aware of the debt problems of America. I dont need you to tell me that. I do find it ironic how on the one hand you can admit to the enormity of the US debt problem, but then support a jackass like Obozo that has put that debt problem on massive steroids. You can’t be on both sides of the issue, DT. Well, maybe you can since you’re Canadian and it doesnt matter. But Americans can’t be on both sides.

            Re: Ireland… they did the right things for attracting business and growing their economy, but failed to control social welfare spending. Economic growth soared and so did revenues to the government. But like all politicians everywhere, they spent way more than they took in. And when economic cycles turn down, like they always do, they were stuck holding the bag. And they, like the rest of the PIIGS in Europe, are now paying the price for profligate spending on social programs.

            Why would you question bankers’ honesty? What makes politicians and bureaucrats more trustworthy than bankers? How do you know what the normal risk taking of everyday business is? And why would you care what they do with their own money? You are free to put your money in any bank you want and to examine their financials. They’re free

            No one says we dont need certain minimum regulations. Of course we do. But anyone that thinks that we can regulate our way to complete safety and no more failure is living in a fantasy world. You cant do it. Not possible. In fact, the more regulation, the more likely to have failure and corruption as people naturally seek ways around strangling bureaucratic red tape. Where do you think corruption is at it’s greatest? In free market economies, or command and control economies? You know the answer that that question, DT. Why is that? Hmmmmm?????

            Regarding government programs… I should be a little more specific and say government SOCIAL programs. Not a single one has EVER accomplished it’s mission. Every single one has become a behemoth and self-serving, self-perpetuating monster that consumes taxpayer dollars and redistributes only a small portion of that which it takes in. Every one has been a failure of outrageous proportion.

            Also, we in America do NOT live in a democracy. Our founders knew that democracy devolves quickly into mob rule. This is why they set up a constitutional representative republic. There is a massive difference between the two. In a democracy, the majority can vote themselves access to the minority’s private property (money). In a Constitutional representative republic, this is not supposed to happen because the voice of the minority AND the rule of law as set up in the Constitution prevent mob rule. Unfortunately, in America, we are now living in a post-Constitutional period where politicians and courts have essentially ignored the rule of law laid out in the document’s plain writing. They instead are making it up as they go according to their own personal goals for society. Witness the Obozocare law. There is NO WAY IN HELL that the law is Constitutional. It’s not even debatable. John Roberts manufactured a new tax out of whole cloth. The Constitution defines taxes already, and he invented a new one that basically says that we can tax you if you DO NOT purchase a private product and service. Absolutely unbelievable. Roberts should be impeached.

            Now I know you like socialized medicine and that’s what you have in Canada. But we’re NOT Canada. We have a Constitution that LIMITS Federal government powers, and maximizes individual liberty and freedom. Socialized medicine is 100% at odds with the principles of liberty and freedom. 60% of Americans want nothing to do with this law. It will bankrupt us quickly, drive costs higher, and destroy what once was the most efficient and innovative healthcare system in the world.

            But healthcare is not the point of this discussion. It is an example of the fact that ALL government social programs that redistribute wealth are destructive and are failures. And by the way, when I say social programs, I also mean social programs that benefit businesses or industries. All of them suck!

            Gotta run. Have a nice day!