Quote from: HappyFunnyFoo on August 05, 2011, 05:42:51 PM

Socialism is good. Regulation is great. The reason the U.S. is in a mess is due to the Futures and Commodities Modernization Act of 2000 creating a completely unregulated derivatives, CDO, CDS, and MBS market, which catalyzed the real estate boom and allowed lots of stupid banks to loan to greedy Americans to buy homes that were two sizes too large for their budget. The deleveraging of this mess is what's caused the situation we're in now. If we had regulations in place requiring more disclosure of information or restrictions on the scope of a collateralized debt obligation and mortgage-backed security, this whole situation wouldn't have occurred.

For more information youtube Khan Academy, as I'm too lazy to explain in detail basic economics to clueless fifth grade-level tea partiers here.

Tchau

OK, I will explain briefly why I disagree with your take on things and on Salman Khan's take on things. If you do not agree with me I expect the same respect I show you and do not resort to name calling, it is unnecessary and polarises the argument.

Socialism is good:
Socialism appears good, the most extreme forms of socialism have been Soviet Russia and Communist China. Both those places only improved as people were allowed to engage in free economic activity. The one had to collapse before things got any better, the other is becoming increasingly free and as a result increasingly prosperous.

A less extreme example of why socialism is not good is Sweden. Despite being held up as the shining light of socialism their economy was built on free market principles until the 50s when socialists gained power and began a crazy tax regimen on the rich and a highly managed society. In the early 90s they realized the damage this was doing and starting privatising many industries and restructured the tax system to benefit the specific people who paid the tax initially.

Regulation is great:
I agree, regulation is great if you are an incumbent corporation. Contrary to what many people think, regulatory bodies have almost all been hijacked to protect the very companies they were meant to protect. I live in South Africa and here we have 5 cellular companies who basically dictate to the regulator who must be let into their little ecosystem. This undermines the one regulation that cannot be hijacked, competition on cost and product quality in the absence of such regulation.

Ponder this, was it the treasury and the Fed that bailed out the banks in the US after they failed? These are supposed to be the bodies looking out for the people, and here they are giving their friends $1.4 Trillion.

Quote

The reason the U.S. is in a mess is due to the Futures and Commodities Modernization Act of 2000 creating a completely unregulated derivatives, CDO, CDS, and MBS market, which catalyzed the real estate boom and allowed lots of stupid banks to loan to greedy Americans to buy homes that were two sizes too large for their budget. The deleveraging of this mess is what's caused the situation we're in now. If we had regulations in place requiring more disclosure of information or restrictions on the scope of a collateralized debt obligation and mortgage-backed security, this whole situation wouldn't have occurred.

I take it you mention this in reference to Salman Khan's explanation. I have an enormous amount of respect for Mr. Khan but in this instance I believe he is missing a few crucial elements.
Debt based money
There is really no limit to the money supply in the United States. Fractional reserves are still in place but have long since stopped acting as a restraint on the increase in credit. The primary beneficiaries of the debt based money system is the banks. They have access to low rate credit that allows them to purchase real world goods. The higher up in the system you go, the cheaper the credit becomes.

This creates the very dubious situation where banks can create very large amounts of money that then syphon into the economy, jacking up the prices for the goods it's meant to purchase. In the most recent example it was housing, there was a large amount of credit available for the purchasing of homes which lifted the prices, started the mania and eventually reached the point where people were unable to service the debt. This lead to bankruptcies, defaults and the whole system contracting in on itself again. This time not because the credit was no longer available but because people could no longer produce fast enough to service the debt.

"Deregulation"
The thing people never mention here are that there are controls AND privileges under regulation. When you hear about "deregulation" it is hardly ever taking away of privileges, only controls. Banks are EXTREMELY privileged through regulation they can make money out of basically nothing for Pete's sake!). What libertarians are saying is remove the controls AND the privileges. What people hear is keep the government privileges in place and remove only the restrains. Without the government privilege to create money the big banks will not last the end of the year.

These products have existed for a long time
CDO's were first created in 1987.
CDS are very normal, very necessary contracts that act as insurance against defaults, either private or governmental. Imagine trying to invest in a poor country without taking out insurance against irresponsible government action? These have exsited since the early 1990s
MBS have existed since 1981.
All these things could not have caused the damage they did if their value was not implicitly backed by the easy money of the federal reserve. The people trading and creating them knew they could get away with abusing them because the US govt would step up and fill the gap. If that knowledge was not there, they would never have reached the pandemic level they did.

Lastly I would like to point out that it was libertarian economists who were making the loudest noise about this when it was happening and were laughed at.
http://www.youtube.com/watch?v=2I0QN-FYkpw