Board 8 > The Difference Between Free Markets and Capitalism

(+) Yeah! (+)

The judge with an excellent overview of basic economic principles that are so commonly ignored.

http://dudewheresmyfreedom.wordpress.com/2011/09/26/the-difference-between-free-markets-and-capitalism/

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SmartMuffin - Because anything less would be uncivilized
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too long, didn't read

oh more complaints about government regulation, even though everyone here is aware that lack of regulation allowed banks to act with systematic risk to maximize profits. that risk eventually brought the economy crashing down which has overwhelmingly hurt the poor, even though they had nothing to do with the decisions made by banks that caused this situation.

conservatives have been grasping at straws for this for a while and have concocted a fairy tale about how the government forced the banks to make these loans but it is patently untrue and should be embarrassing for anyone to believe.

u have a blog for it, bye bye

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lack of regulation allowed banks to act with systematic risk to maximize profits

Obviously you didn't watch the video, as it explains in very simple terms why this line of thinking is completely and totally wrong.

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SmartMuffin - Because anything less would be uncivilized
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there is a difference between free markets and capitalism, of course. the difference is that free markets have never once existed in history and capitalism is a system whereby the private islands of corporate power maximize profits and buy government officials, subsidized by the middle class.

ah the video.


you're wrong smartmuffin.

Obviously you didn't watch the video, as it explains in very simple terms why this line of thinking is completely and totally wrong.

I did watch it! it was nothing we haven't heard from conservative talking heads a thousand times. anyone who really believes that too much regulation and government intervention caused our last recession is hopelessly tied up in propaganda.

We had regulations on financial institutions that were mean to prevent this exact type of meltdown. Under pressure from those financial institutions (who were looking to maximize profit and didn't care that there was extra risk since they would be bailed out by the government/people anyway) the government lifted these regulations and it has had exactly the effect predicted. They have had major profit growths, and we've had several recessions that hit the poor and middle class, and have also been paid for by the poor and middle class.

This recession is a product of unregulated capitalism where the risk is born by society instead of the corporation who is causing it.

I don't get it. How can you say all that and blame "unregulated capitalism." In unregulated capitalism, there are no bailouts. Therefore, there is no moral hazard.

Also, the CRA is like, a real thing. We have real video of leftists protesting banks for not giving enough loans to minorities. I guess you can argue that these things didn't have a huge affect, but you cannot claim they don't exist.

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SmartMuffin - Because anything less would be uncivilized
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there are no bailouts, no moral hazards, but at the same time, theres no protection for customers of those banks.


which I guess you would be ok with, since that would be the customers fault for picking a crappy bank right?

and it's effect, not affect

I don't really consider "the corporations have bought the government" or "these corporations are too big to fail" as regulation. I agree that those are not in line with absolute free markets, but usually when conservatives attack government regulation I assume they're talking about things like "you can't sell expired food" or "you can't dump a bunch of oil into the ocean" which are actual real regulations.

Let's get back to the CRA for a second here. Your logic simply doesn't add up.

If your claim is that the CRA didn't matter, and that the banks would have made all of those subprime loans anyway (out of greed, I presume?), then why did they bother passing the CRA in the first place? It makes no sense to pass a law requiring companies to do something if that thing is inherently profitable and something they would already be doing without a law.

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SmartMuffin - Because anything less would be uncivilized
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I'm not totally against regulations, but as a general guideline, I'd say that regulations should only exist to protect freedom, not to reduce it. So, we can have a law banning people from selling themselves as slaves or buying others as slaves. This takes away some freedom (the freedom to sell yourself into slavery), but it protects other freedom (the freedom to make all your other decisions for the rest of your life), so I'd argue it's a net positive for freedom.

Are there situations where it's genuinely a good idea for someone to want to sell themselves into slavery? Sure, perhaps 2 people are on the verge of death by starvation, and there's only enough food for one of them. There's a 50/50 chance the one who doesn't get the food will die before they get more food. In this case the two people might agree to a deal: one person gets the food and becomes the other person's slave if they both end up surviving. The parties might not be willing to give up their shot at the food for anything less.

But such situations are exceedingly rare, and in any case, we could argue that freedom is more important than life, so even this case would not justify slavery.

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90s games > 00s games

Are there situations where it's genuinely a good idea for someone to want to sell themselves into slavery?

How about "money for college"

:)

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SmartMuffin - Because anything less would be uncivilized
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The CRA makes it illegal to discriminate against low income neighborhoods, but also adds that banks should act in ways consistent with "safe and sound operation." Like this here:

The law, however, emphasizes that an institution's CRA activities should be undertaken in a safe and sound manner, and does not require institutions to make high-risk loans that may bring losses to the institution.

Also

The Act mandates that all banking institutions that receive Federal Deposit Insurance Corporation (FDIC) insurance be evaluated by Federal banking agencies to determine if the bank offers credit (in a manner consistent with safe and sound operation as per Section 802(b) and Section 804(1)) in all communities in which they are chartered to do business.

also also

An institution's CRA compliance record is taken into account by the banking regulatory agencies when the institution seeks to expand through merger, acquisition or branching. The law does not mandate any other penalties for non-compliance with the CRA.

all taken from Wikipedia

So what we have is basically that you can't discriminate based on where the customer lives, but you are not forced to act in ways that are high risk or harmful to your business. These apply if you're backed by the FDIC and there are no real penalties for failing to meet the standards.

Taking all that, I would not look at that law and think it had anything to do with our economic downturns. The banks suggested it as a reason because they were looking to deflect blame and the conservative politicians and media ran with it because it was a chance to nail the liberals with something new. It doesn't hold up to even passing scrutiny.

Most economists seem to feel the same way:

Some economists, politicians and other commentators[105][106] have charged that the CRA contributed in part to the 2008 financial crisis by encouraging banks to make unsafe loans. Up to 2007 FDIC has been criticising banks for having "a substantially deficient record of helping to meet the credit and community development needs (...) including low-and moderate-income neighborhoods" and "not making use of innovative and/or flexible lending practices"[107]

Economists, including those from the Federal Reserve and the FDIC, dispute this contention. The Federal Reserve, having examined the evidence, holds that empirical research has not validated any relationship between the CRA and the 2008 financial crisis.[108] At the FDIC, Chair Sheila Bair delivered remarks noting that the majority of subprime loans originated from lenders not regulated by the CRA, calling it a "scapegoat" and declaring it "NOT guilty."[109]

Oh, the Fed and the FDIC think that regulation wasn't the problem here?

WHAT A SHOCKER!!!!

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SmartMuffin - Because anything less would be uncivilized
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More people think that too!

Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charges the Federal Reserve with ignoring the negative impact of the CRA.[100] In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks."[110] In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.[111]

However, many others dispute that the CRA was a significant cause of the subprime crisis. Nobel laureate Paul Krugman[112] noted in November 2009 that 55% of commercial real estate loans were currently underwater, despite being completely unaffected by the CRA.[113] According to Federal Reserve Governor Randall Kroszner, the claim that "the law pushed banking institutions to undertake high-risk mortgage lending" was contrary to their experience, and that no empirical evidence had been presented to support the claim.[108] In a Bank for International Settlements (BIS) working paper, economist Luci Ellis concluded that "there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust", relying partly on evidence that the housing bust has been a largely exurban event.[114] Others have also concluded that the CRA did not contribute to the financial crisis, for example, FDIC Chairman Sheila Bair,[109] Comptroller of the Currency John C. Dugan,[115] Tim Westrich of the Center for American Progress,[116] Robert Gordon of the American Prospect,[117] Ellen Seidman of the New America Foundation,[118] Daniel Gross of Slate,[119] and Aaron Pressman from BusinessWeek.[120]

Legal and financial experts have noted that CRA regulated loans tend to be safe and profitable, and that subprime excesses came mainly from institutions not regulated by the CRA. In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton,[63][121] stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight".[122] According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.[123] A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans.[124] Emre Ergungor of the Federal Reserve Bank of Cleveland found that there was no statistical difference in foreclosure rates between regulated and less-regulated banks, although a local bank presence resulted in fewer foreclosures.[125]

Really, what we should be saying is "conservative pundits and a couple economists they found want to blame liberals for something, even though everyone else with any knowledge of that situation says it's dumb and doesn't hold water? What a shocker!"

(I am gonna go eat food now S-Muf but I'll be back later and we can continue this)

bernanke is a tard

"Free Market, ho!" doesn't sound as good.

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Nobel laureate Paul Krugman

Another shocker!

According to Federal Reserve Governor

No way!


You say "everyone else with any knowledge of that situation" but what you mean is "the people who were responsible for regulating the banks." Right, THEY'RE going to be totally unbiased!

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SmartMuffin - Because anything less would be uncivilized
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Some conservative guy on FOX Business thinks the government caused the recession? What a shocker!

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It's not exactly surprising that 55% of commercial real estate mortgages are underwater when real estate prices have fallen by 35%. That doesn't say much about the creditworthiness of the buyers.

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90s games > 00s games

It's not exactly surprising that 55% of commercial real estate mortgages are underwater when real estate prices have fallen by 35%. That doesn't say much about the creditworthiness of the buyers.

IIRC, ARMs were aimed mainly at subprime borrowers.

The value of your house really doesn't matter at all if you have a fixed rate mortgage and bought the house for the long-term for the purpose of actually living in it. My parents bought a house in about 2003. Around once a year I ask them what the value is. The answer is always "We don't know and we don't care."

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SmartMuffin - Because anything less would be uncivilized
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difference between smuffin and liberals


liberals blame mostly corporations but admit the government can and was at fault too (but not nearly as much), but in smuffin's eyes, CORPORATIONS CAN DO NO WRONG IT WAS ALL THE GOVERNMENT

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Yet Smuffin is harsher on corporations than liberals. Smuffin would have let all those Wall Street banks go bust, liberals wanted the government to bail them out.

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90s games > 00s games

Yet Smuffin is harsher on corporations than liberals. Smuffin would have let all those Wall Street banks go bust, liberals wanted the government to bail them out.

Under the assumption that people would logically want to put regulations in place to stop things from happening again.

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Black Turtle beat me, Yesmar in the Fall 2010 Guru Contest!

What kind of regulations? Rules to stop banks from taking too many risks? If it were up to me, I'd institute a weekly work limit for Wall Street- say, you cannot work more than 60 hours a week. People working 100 hours a week are probably getting so little sleep/non-work time that they're functionally drunk. We should not be entrusting the economic health of the nation to people working 100 hours a week.

The too big to fail doctrine is a very dangerous idea. It encourages banks to put as many people in danger through their decisions as possible, because that will give them leverage to force the people to bail them out if their risks go badly.

I think a Tea Party president would probably result in banks taking less risks, actually- because they'll realize that Mr. Crazy Tea Party President may not care that we'll get 25% unemployment and all the other nasty stuff economists said would happen if we didn't bail out the banks that were too big to fail. He might just take a stand on principle and refuse.

Though excessive risk-taking doesn't seem to be a problem right now- just the opposite, actually, according to the Obama administration and the Fed, which have been trying to get credit flowing again, but haven't been too successful.

Sorry this post has been so rambling, I wanted to say a little on a bunch of different things.

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90s games > 00s games

Yet Smuffin is harsher on corporations than liberals. Smuffin would have let all those Wall Street banks go bust, liberals wanted the government to bail them out.

Only under the condition that since we are paying money for them, we now have a voting voice in their decisions (which was not the case).

Yet Smuffin is harsher on corporations than liberals. Smuffin would have let all those Wall Street banks go bust, liberals wanted the government to bail them out.

Thing is, if the FDIC and other such nonsense didn't exist, the banks wouldn't have taken risks that would lead to them going bust. That would just be idiotic. Us middle class people can sit around here and lament that our 10,000 savings account might be gone, do you really think the hot shots at these banks who own hundreds of thousands of shares in company stock want to see their bank fail? Nobody has more incentive to keep the banks solvent than the major shareholders of the banks.

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SmartMuffin - Because anything less would be uncivilized
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I agree with smuffin on letting the banks fail as it would have been the most prudent move.