Federal Reserve now is control of ENTIRE financial system.

[lesfamilia]

Originally Posted by Mangudai954

Originally Posted by kix4kix

Although it looks like expansion of the Federal Reserve, it is actually the opposite.

Explain

The gentleman a few posts above you delineated it as clearly as anyone will in this post, short of Yahweh / Allah / God themselves.

The same people up in arms about this probably think Obama is the Antichrist and the world will absolulely self-destruct come MMXII.

 

[kix4kix]

Originally Posted by Mangudai954

Originally Posted by kix4kix

Although it looks like expansion of the Federal Reserve, it is actually the opposite.

Explain

This will only pass if new legislation (pork) is passed along with it which limits the Reserve in way it never was before. So in a sense it is labeling them ashaving full power(which they have anyway).....In turn there will be oversight that was non-existent before.

Edit:

Originally Posted by knightngale

well hopefully the federal reserve transparency act passes (H.R. 1207)

 

[wawaweewa]

Originally Posted by J Burner

Originally Posted by dj sven

If everyone stopped borrowing money, the economy would be great

This may actually be the most moronic statement in NT history. If everyone stopped borrowing money, there would be no economy, genius. How is the average person going to ever own a home without a mortgage? How many people do you know with $200,000 + sitting in there bank account to pay cash for a house? So, under your brilliant analysis, over 90% of Americans would never own a home.

How many people do you know that can afford a car without financing? You have 10,20,30,40 thousand plus sitting around in your bank account to go drop on a car? Neither do I, neither do the rest of us average people.

How many people do you know that went to college with out some form of a student loan?

Our economy DEPENDS on people being able to borrow and lend money. If we stop using credit, the economy would be at a complete standstill, genius.

ummm...that's what the US was like before the 70's. Of course 0 borrowing is both detrimental and counterproductive but no onw is talkingabout 0 borrowing literally.
Borrowing equals debt. Borrowing is never good. Borrowing can only be viewed as a necessary evil when there is a real need for it.

Back in the day people who financed cars were viewed as losers....true story.
Back in the day people who took out 2nd mortgages or refinanced existing ones were viewed as losers too.

It's a long story but yes, borrowing became a necessity for US economic growth starting at about the late 70's.
It was a consequence of what really can only be called traitorous activity by US politicians, certain US businessmen, and various banking institutions overthe last few decades that made borrowing so necessary for sustained growth.

Essentially what happened was borrowing aka debt replaced real wage growth.
It's a scheme that's been used multiple times throughout history.

 

[mangudai954]

edit: nvm you're referring to when wages began to stagnate and people starting borrowing replace it

 

[kix4kix]

The interesting thing about credit, is philosophers such as Plato, predicted these markets and modern day slavery hundreds of years ago.

 

[wawaweewa]

Originally Posted by kix4kix

The interesting thing about credit, is philosophers such as Plato, predicted these markets and modern day slavery hundreds of years ago.

True......and that's because these were the same practices carried out since the beginning of the modern economic system (which Plato's society was apart of).
Debt and serfdom never really change throughout human history.


As an aside...just in general....

This is the 3rd central bank in US history. If they get rid of this one, in a few years a 4th one will arrive.
A central bank is so essential to maintaining power for the financial elite that they will literally do anything to maintain one. It is the goal.

The best defense against a central bank is to know the history of such institutions and protect oneself from all their negative consequences and take advantageof the artificial markets and imbalances in the economy that they create.

 

[rexanglorum]

The underlying problem with this financial meltdown was the bad incentives that were created by the precedent for bailouts and the notion of "too big tofail." People who have talked to me about this have heard this before but it needs to be repeated, the 1997 bailout of Long Term Capital Management (LTCM)was the primary reason for this unravelling 11 years later. Because financial firms are working with such large amounts of money they can take rational risksbecause they make so bets per day and per years that there really is an optimal level of risk. Too little means that the money could have yielded more and froma social stand point it meant that capital did not find its best uses. Too much risk means that your firm has years where it takes huge losses and could becomeinsolvent. Within any given sub field or sub sector of finance there is a point that is optimal (of course no knows what is the perfect level of risk and thatpoint is changing due to changing realities on the ground) and when you get to enjoy the benefits but also have to suffer losses, you will be motivated to makeinvestments that are near your ideal level of risk taking.

The problem was bailouts, when you get to keep the rewards of high returns but pass off the result of low or negative returns and even insolvency to the taxpayers, large aka "too big to fail" insurance companies and banks and hedge funds will and did deviate from their optimal risk levels and took toomuch risk because when your risky bets go well, you make lot and you make even more by doing 10 to 1 or 20 to 1 or 30 1 or more leveraging (borrowing money tomake investments and amplify your returns on an investment). For a while it worked because the economy was growing and was fueled by a housing bubble.Consumers, seeing their homes go up in value and sometimes be valued at a price that was a dozen times higher than they had originally paid, felt rich and feltlike their were financial wizards when all they did was buy a cheap home in the 70's or 80's or 90's in coastal cities or suburbs. The expandingeconomy meant that for a while the risky bets made by financial institutions really did bring in huge returns.

The fact that only big and interconnected firms could be bailed out caused banks and insurance companies, who due to both regulation and their own selfinterest, would have never considered merging with hedge funds and gambling away depositor and/or their customers' insurance premiums. The repealing of theGlass-Steagall act, the 1999 law that allowed the highly regulated banks and insurance companies to merge with the less regulated hedge funds and otherunconventional financial institutions, is frequently cited as the primary cause of this meltdown but absent bailouts the only mergers would have been for thepurposes of gaining economies of scale as is the case with most merger in industries where bailouts are not common or do not happen.

Practices like excessive risk taking, mergers that make firms extremely large as well as bad lending practices are frequently seen as both the causes of themeltdown and are the inevitable result of deregulated markets. The reality is that those practices were the result of being able to pass the downside of risksto someone else and eventually to the public and regulation will never be as effective in creating good behavior as the specter of being wiped out and notbeing saved. Good behavior by the business community springs from the same source as their bad behavior, self interest and with that in mind it is best todesign the underlying set of incentives to compel them to self regulate and that involves letting everyone fail if they deserve it.

Because you had to be big and ideally inter-twinned with many facets of the financial markets to be "too big to fail" these firms wanted to beattached to hedge funds in order to be interconnected (and thus better make the case that their downfall would have sweeping effects on the economy) and thehedge funds wanted to append themselves to banks for the same reason. Bailouts and "too big to fail" cause firms to get so big that their suddenliquidation would have been painful (I disagree with the notion that our economy will collapse if big firms fail, most business, big or small, that have beencreated have failed) it probably would have been a good idea to have the Fed or Treasury oversee the orderly dismantling of all of the firms who asked for TARPmoney and to make small depositors and policy holder whole but no one else.

Bailouts are not the sole explanation but they are the most potent in this episode. The misuse of the Government Sponsored Enterprises (GES's) created thelink between loans officers on the ground and the ultimate passing of the buck by the big firms on Wall Street. Fannie and Freddie provided an artificialmarket for risky bundles of bad mortgages that no one could under stand. The politicizing of mortgage lending also accelerated this process. I also am abeliever in the Austrian credit cycle theories so the Fed, probably not in the devious and nefarious manner that is presented byZietgeistand other anti-Fed documentaries, played role in this and in all other financial disruptions because it is a central planning operation. The fact that the Fedhas to the pick the price of money puts it in the same position as central planners and price fixers in the Soviet Union and like the Soviet planners destinedto get the price wrong. In this case the price of money was too low and caused more money to be demanded than than can be supplied at that price.


Cliff Notes:

- Bad incentives, chiefly bailouts for large companies, caused their mangers to take too many risks. If they would have been operating with the understandingthat failure, caused by their own excessive risk taking would result in their company failing and them losing much of their future pay, they would have beensensible and careful.

- Most regulations are either circumvented, become outdated or cause harm by preventing good and productive things from happening or they can eveninadvertently cause bad behavior because of the unintended incentives created by the new regulatory regime.

- We have to make credible commitment to the notion that no firm will be kept alive on tax payer dollars.Very large firms probably do warrant some governmentaction but it should be about making small creditors, depositors and premium holders whole, letting major creditors seek recovery through normally bankruptlegal channels and generally reducing collateral damage that is a real concern but not one that justifies saving insolvent companies.

- Bailouts cause too much risk taking and extremely strict financial regulation can and have caused too little risk taking, or markets for lending that are tootight. The best judges of what is the ideal balance of risk and of caution are the investors themselves and absent both heavy regulation to limit risk takingas well as absent the promise of bailouts, that cause too much risk taking, the private sector would, out of its own self interest, do the best job of findingthe optimal level of risk, they would almost always do a better job than government agencies.

 

[duba169]

^ but what does that have to do with the federal reserve? (i only read the cliff notes)

 

[rexanglorum]

I was about the article which was mostly about how there will be a bunch of new financial regulation that are supposed to both prevent systemic risk fromexisting but also allow for the flexibility and innovation and healthy risk taking that are needed for an economy to expand.