10.2% Unemployment: How's the Free Market and Capitlaism working for you?

Well, of course *you* don't like the results of the free market... you're one of the dumb ones. Free market is only good for the folks who make smart choices.

Well, if this isn't an advertisemetn for central economic plannning I don't know what is. Of course the Soviet Economy eventually failed.

The capitalist Roman Empire also failed.

What would you suggest instead?

Uh, 200 doses of flu shots isn't very much. You can come up with plenty of examples of GS manipulating markets; this is not one of them, Der Fuhrer.

Then how about Morgan Stanley's 1,200 flu shots? They gt 6 ties as many flu shots than Lenox Hill Hospital.

http://www.politico.com/news/stories/1109/29235.html

alk about bad timing.

As Washington reels from the news of 10.2 percent unemployment, the Center for Responsive Politics is out with a new report describing the wealth of members of Congress.

Among the highlights: Two-hundred-and-thirty-seven members of Congress are millionaires. That’s 44 percent of the body – compared to about 1 percent of Americans overall.

Pres - You can't seriously call our economy a free market system can you? Don't be absurd.
Free markets allow failures. A free market economy would have allowed the banks to go under, new sources of capital to come in and pick up the pieces and we'd be well on our way to recovery.

Instead we chose to end mark to market accounting on real estate loans which allows the banks TO NEVER REALIZE their losses. This can now go on forever and as it does more and more will become unemployed/underemployed.
Free market capitalism is about personal responsibility. It would say homeowners lose their homes if they can't pay and bankers lose their jobs and their fortunes for making stupid bets. Instead the government has bailed out the banks and the homeowners. Poor choice should yield poor results.

No economy in history has worked better than the way ours has over the last 200 years. Capitalism has his faults, I'll agree with that, but you can't say that we are capitalist now.

alpie has gone delirious. maybe we are getting close to a bottom

> A free market economy would have allowed the banks to go under, new sources of capital to come in and
> pick up the pieces and we'd be well on our way to recovery.

am i the only person that finds this statement to be a little optimistic? even if i were to agree that allowing the banks to go under would mean that we'd be on the way to recovery (a HUGE assumption), i think it would be a safe assumption that we'd be digging out from a much deeper hole. so in absolute terms, i don't see how you can be so confident that we would currently be in better shape.

If too many banks went under, China might pull the plug on loaning us bread and then we would really be in trouble.

This is a world economy, folks, like it or not.

{Manhattan real estate agent.}

"If too many banks went under, China might pull the plug on loaning us bread and then we would really be in trouble."

China's economy is dependent on Americans buying their stuff. If we fail they fail. They will prop us up forever. Plus, China use to buy 75% of our debt now they buy "only" 25%.

"we'd be digging out from a much deeper hole." Unfortunately we'll never know. I disagree that nationalizing the banks would have lead to a deeper recession. Regardless, a deeper shorter recession would be much better than a 10 year less severe recession.

There are trillions of dollars of equity on the sidelines (we'll call it smart money). They should have been able to come in and buy up the banks (we'll call them dumb money) at pennies on the dollar. We should have wipe out the bond holders (the fact that these bond holders at the banks didn't get wipe out is criminal) and equity holders. After all they are the ones who elect the boards of these companies and certainly the boards of these companies should have seen that their banks were over-levered and had too much exposure to certain asset classes - they all deserve to suffer. Then the smart money can come in, pick up all of the talented employees and start amazing new banks. Plus these new banks would be smaller. Instead now we just get zombie banks that are even bigger than "too big to fail."
Additionally, homeowners who can't make their payments should move out. It's not like they die or something, they are just moving. I've been a renter my entire adult life - it's ok. I still have friends, and fun, and my health etc.....

Then as these people move out of their homes prices fall and become more affordable for everyone - including the people who were just foreclosed on -in 4 or 5 years they will be able to buy again and will be able to do so at much lower prices. Imagine if that person before was paying 50% of his income toward housing and then 4 years after his foreclosure he's paying 25% of his income instead. In the end isn't a foreclosure the best thing to happen to him? Certainly the banks, bond holders, pension funds etc who bought the debt are going to be wiped out, but so what, that's what RISK is. They were wrong, they bought the wrong paper and they should lose their investments.

It's so much better than what we're doing now. Borrowing money that my kids will have to pay back because some guy bought a home he couldn't afford and some banker doesn't want to lose his job. Personal responsibility. You screw up and you lose. But again, it's not like the losers are dead, they just have to rent like I do.

If too many banks went under...
The banks ARE DEAD. they just don't know it, kept in their zombie state by zero fed funds, gov't guaranteed funds, suspension of mark to market and trading activity and gov't efforts to prop up asset values...

'Borrowing money that my kids will have to pay back because some guy bought a home he couldn't afford and some banker doesn't want to lose his job. Personal responsibility. You screw up and you lose. But again, it's not like the losers are dead, they just have to rent like I do.'

How true, how true......

'China's economy is dependent on Americans buying their stuff. If we fail they fail. They will prop us up forever.'

You have never been to China. You are unfamiliar with Chinese nationalistic culture. If the Chinese Gov. told it's people that they have to skip a meal every day...they bum and then they skip...that simple. Dependent on us? HA

How about a resource based economy? I know I'm asking for trouble, but I watched "zeitgeist:Addendum" recently.

"You have never been to China. You are unfamiliar with Chinese nationalistic culture." I've been to China 3 times - actually been to most Asian counties spending about 120 days total in Asia (no expert for sure but no novice either) - I understand the nationalism. I stick by my statement. The Chinese economy is dependent (not 100% but there is a dependence) on the US's economy which means if we go down their lives get worse. It's in their best interest to ensure we are doing well.

I agree, If the Chinese can't pull all their money out. It would be suicide. But if they reduced their dollar exposure a little, it could still drive up our borrowing costs and affect the u.s. dollar.

"A free market economy would have allowed the banks to go under, new sources of capital to come in and pick up the pieces and we'd be well on our way to recovery."

Just like in 1929. Thousands of banks went under, the economy quickly recovered, and by 1933, we were back to prosperity with 5% unemployment. Oh, wait a second, the history book in front of me says otherwise.

Pres - are you really trying to compare today to 1929 - in 1929 there was no capital on the sidelines - now there are trillions of dollars. Right?

> Regardless, a deeper shorter recession would be much better than a 10 year less severe recession.

Jazz, i am sure you understand that it all depends on the numbers. there are scenarios where a short deep recession would leave you worse off in absolute terms than a 10 year recessions. but unfortunately we'll never know.

> in 1929 there was no capital on the sidelines - now there are trillions of dollars.

i tried to look this up, but didn't find much success. though it's hard for me to believe that there was NO capital on the sidelines in 1929.

i did find articles saying that there might be around $4 trillion on the sidelines, but you can't count all $4 trillion because some of the money will always stay as cash and some is earmarked for certain classes of investment. so if someone has set aside $100 for investing in bonds with the risk becomes acceptable, you can't really count on that person buying a piece of a failing bank with that money (assuming a very different risk profile). so the real question is how much of that $4 trillion would have been really available to save the banks? again, it's hard to say.

also, $4 trillion sounds like a lot, but the US govt backed $4.3 trillion in assets last year. i don't know if $4 trillion would have been enough even if you assume all $4 trillion were available.

we'll never know the answers to a lot of the questions, but i don't think i really want to know how the economy would have handled the failure of Morgan Stanley (which was next in line after Lehman). remember how many pundits were saying we should let lehman fail? well a lot of people since have come out and said, letting lehman fail was a huge mistake.

"A free market economy would have allowed the banks to go under, new sources of capital to come in and pick up the pieces and we'd be well on our way to recovery."

I love this idiotic argument from arm chair economist that live in la la land. The only way for things to get better is to just let the entire economy implode. Its this bizarro mentality that everything will be wonderful after we just let another great depression happen and millions of people are starving in the streets. Same thing happened when Lehman failed. They screamed let it fail- then it failed, everyone lost 1/2 their savings and iceland went bankrupt in a week. Oops, 2 days later we get a whole new tune and they are throwing trillions of dollars at it. Read it out loud if you have to, its called "systemic risk"

/fucking idiots

$4 trillion at 12 to 1 leverage is $50 trillion of buying power.

slowmdm - we'll never know but there are plenty of economist at the best schools and think tanks that support the "let them fail - we should have done nothing" strategy.
"and millions of people are starving in the streets." do you really believe this is possible?

millions starving in the streets? what's going to happen if unemployment continues for another couple of years? perhaps starving in the streets is a bit too apocalyptic but honestly i cannot imagine what is going to happen.

"and millions of people are starving in the streets." do you really believe this is possible?

It happened in 1929- so yes, I know its possible. What do you think a second great depression is?

http://www.calculatedriskblog.com/2009/11/walmart-quote-of-night.html

"There are families not eating at the end of the month,” said Stephen Quinn, executive vice president and chief marketing officer at Wal-Mart Stores, and “literally lining up at midnight” at Wal-Mart stores waiting to buy food when paychecks or government checks land in their accounts.

The real problem is some people believe letting banks fail and everything will just be wonderful, some how it will be bad, but it will be OK in the long run. It is complete horse shit. Letting Lehman fail was monumentally stupid, it was painfully obvious. Things are bad now, but letting the entire economy just self destruct and there maybe no recovery at all. "Let it fail" goes for governments too- Its a stupid stupid stupid idea by stupid people.

"It happened in 1929- so yes, I know its possible. What do you think a second great depression is?"

Someone can help me here but I think we use to get 6 bushels of corn per acre and now we get 25 - and one farmer use to feed 6 people and now one farmer can fee 125 people. People starve because of apathy and ineptitude of people and governments - not because of a lack of money or a bad economy.
We may be headed to a depression or we may have gone into a depression if we would have let everyone fail, but if people starve it's not because we don't have enough food.

"A free market economy would have allowed the banks to go under, new sources of capital to come in and pick up the pieces and we'd be well on our way to recovery."

I love this idiotic argument from arm chair economist that live in la la land. The only way for things to get better is to just let the entire economy implode. Its this bizarro mentality that everything will be wonderful after we just let another great depression happen and millions of people are starving in the streets.

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Exactly. Letting the economy completely collapse and hoping it will just fix itslef overnight is like a cancer patient refusing all medical care and hoping that the cancer will just go away like the common cold. Today, the economy is the cancer patient. You can go for the chemo and live or you can do nothing and die. It's that simple.

I also don't buy the BS argument from the so called libertarians that we should let everyone fail. However, I do beleive in conseuqnces and therefore anytime a compmany fails, it should be NATIONALIZED, not bailed out. And I mean 100% nationalized, not quasi-nationalized like were doing now.

> $4 trillion at 12 to 1 leverage is $50 trillion of buying power.

in order to get leverage, don't you need people to lend? i think 12 to 1 is really optimistic.

"Exactly. Letting the economy completely collapse and hoping it will just fix itslef overnight is like a cancer patient refusing all medical care ...."

I'm not saying let the "economy completely collapse" - those are your words - plenty of the worlds best economist claim that letting the banks fail would not have collapsed our economy and that that theory was pushed by Paulson to ensure his banking friends got protected.
Had any country had our similar problems we would have told them to nationalize their banks - we did it with Argentina etc. We could have nationalized our banks - broken them up into smaller pieces and sold those pieces off. Plenty of people think it was BY FAR the best plan of action.

Pres - just read your second of the two recent posts - I think you've assumed that I think we should have totally stayed out of the way - Nationalizing banks is the way that you let them fail.

By shoring up and providing gov't credit to the weakest banks, the gov't makes the bad banks appear safer than the good banks. In effect, the gov't puts the well managed banks at a huge disadvantage. And what has citibank done, charge usury rates on credit cards , beefed up their trading desks, and vowed to close lcoal branches in unprofitable neighborhoods( you read into that). Of course at the same time the FDIC closes down the involvent but not luck to be systemically important important thrifts.

"plenty of the worlds best economist claim that letting the banks fail would not have collapsed our economy..."

So how do those economists explain the Depression? What do you think caused the Depression? I don't know, you think bank failures had anything to do with it??? And if all the big banks did fail, it would still cost the govt. lots of money. After all, the FDIC has to cover all those deposits...

IN Europe which I hear everyone wants to emulate these days, they made the decision to break up the too large to fail institutions.

Nationalizing banks is not letting them fail. Doing nothing is letting them fail, like we did with Lehman. I don't know about you, but the last thing liberatrians like Ron Paul who think evryone should fail is for banks to be nationalized.

"IN Europe which I hear everyone wants to emulate these days, they made the decision to break up the too large to fail institutions."

Really? I did not hear of Deutsche Bank being broken up.

Let's start with this, a bank run is a disaster. We had a few choices, nationalizing, reorg, or gov't moeny propping them up. It seems to me we went with the gov't money propping them up , the worst solution.. Nationalizing even for a short period would have been preferable perhaps followed up by a rationalization of the business(i.e. parts sold off). We sould've also done a pre-packaged bankrupcy(not a liquidation) where the stock holders get wiped out and bond holder debt is converted to equity. Seems to me that there was no obligation or need to protect bond holders and stock holders. Why is Citibank different than Fannie Mae? Are you saying Fannie was less important? It further seems that the tax payer is stuck with a broken automobile company while ohters are making a bundle on citibank.