Economic death spiral: can we survive? (Page 2)

I think on a small scale you're right with individual stocks but those things don't effect the economy as a whole and they tend to self regulate.  As in, I dump a bunch of money into a hot stock and lose my tail because it didn't do as expected.  I get hurt, but I don't effect my neighbor's job or anything.

Businesses (in general) are smart and don't do stupid risky things that are going to lose them money.  Banks would have never lent money at the levels that were going on pre 2008 without Fannie and Freddie buying the paper.  The banks were simply making money by writing the mortgage and selling the paper to the Government.  That's a blatant example of the government causing the problem.  So, I think in that example the groupthink was in the government and not with the people.

As for the "fair share" comment, I'd be more than willing to pay more taxes if everyone was truly paying their fair share and the money was being used efficiently.  I currently pay a very disproportionate share both dollars wise and percentage wise and I feel my tax dollars are being spent very inefficiently which is why I'm all about cutting taxes or at least keeping them the same and reducing spending.  I'd potentially be ok with raising taxes to make everyone pay their "fair share" but I'm thinking my idea of "fair share" and your idea of "fair share" are quite a bit different.  ;-)

Here are the two things wrong with this "self-regulate" concept...

1. "Ethics" is gone from the financial area.  Those traders will do what is "legal", but ignore that which is "ethical".  Sacrificing the macro-economy for one's one institutional or personal gain.
2. These "smarter traders" are essentially doing what they've been trained to do from school and their industry - maximize return at any and all costs.  They're trained pit bulls and when you let them off the leash, don't be surprised at what they do.

You can't suddenly expect traders who were and are fraternity brothers and are measured on short-term quaterly goals and have no interest in Main Street investors to suddenly grow a conscience.  That's what government is for, to keep them in line so that they work within the boundaries of the pendulum and not get unethically "creative" which risks the entire system.

MF Global, Bear Sterns, Goldman Sachs, JP Morgan...  The list goes on and on of "what the f*** were they smoking?!"

Let me make this clear, I'm NOT PRO-GOVERNMENT in this thread.  They've made gigantic mistakes as well!  Fannie and Freddie Mac is the biggest example of a government/business failure f-up!  And my "government regulation to keep the pendulum swining in check" applies to government as well.  Back in the Clinton Presidency, there was a massive push to get people out of rentals and into homes.  Realizing the "American Dream" and having the Fed & FM/FM lower rates to achieve this certainly added to, if not created the housing bubble.  Not EVERYONE is meant to own a home.  So the government regardless of whether it's Democrat or Republican can be just as guilty of causing swings.

I just think we need to kee party and partisan politics out of fiscal policy and regulation.
Use regulation to contain the natural swings of tghe market and prevent greed from creating an environment which threatens the macro system as a whole.

As I said, it boils down to ones definition of fair share. (nice generalization, btw)  I personally pay a lot of taxes that go towards programs that I agree and disagree with.  I actually don't have a huge problem with my tax rate where it is and would assess it as being "fair", as in not super high and not super low.  Where I have a problem is that 50% of people not paying any federal tax. That is ridiculous and is not in any way "fair".  I'm ok with a cutoff for the really poor so they don't have to pay taxes, but 50% is not where that cutoff should be.

Now about your generalization about "sacrificing for the greater good" I also personally donate a significant amount of money every month to charity, one in particular is a program for inner city poor kids to give them a place to go after school versus hanging out in gangs.  The money I give to charity is far more efficiently used than anything the government could do with it.  My wife and I both grew up and took advantage of several charities just like this one, so we do feel obliged to give back.  I'd much rather do that than fund some fairy dust solar company that gives money to the party in power.  

I agree companies do a lot of very stupid things, but I guess I was getting at that it kind of self regulates.  Call it darwinism or something in the business world.  If you do something stupid you are going to fail, if you don't you will generally not fail.  Therefore through business evolution more companies will do less stupid things than the ones doing stupid things.

What is meant by the term "fail"? If I drive a company into the ground, but walk away a billion dollars richer, did I fail? What is the downside for me if I get to keep hundreds of millions of dollars, a trophy wife, the houses on the coasts and in the mountains, and the Lamborghinis? I still "won" even if the company has "failed".

And in many cases, the smart people at the top are smart enough to think that they will "beat the system", they are surrounded by others who play fast and loose with the rules, such that it seems normal (think of driving down a major highway, where everyone is driving 15 mph faster than the speed limit - most people think "only chumps follow the posted speed limit").

I saw a study recently that found that if the people running a company had been in the military, it was statistically much less likely that the company would run into ethical violations. Which raises some interesting questions about how to instill ethics into people. I don't recall if it made a distinction between people who were drafted (and thus somewhat more randomly selected) or who chose military service (suggesting a more innate sense of duty and right and wrong).

Then you have free market ups and downs.  Firms succeeding and firms failing.  Firms growning, but not to the point of becoming a dependency for the entire system.  Firms taking risks, but not industries.  You would have a free market economy, but with CONTROLS and OVERSIGHT in place to prevent the entire macro free market system from spiraling downard into recession or depression.

I believe individuals at some of these firms commited criminal violations.  They personally gained and sacrificed not only their investors, but their entire business as well.  An executive who receives $100 million in bonus while the business fails around them as a result of their risky, foolish actions...  What John Corzine did... is no better than what Bernie Madoff did.  Take other peoples' money, gamble it, lose it and make money from the loss.

The military has this thing called a military court of justice and they can and will put you in Levenworth prison for many years.  They don't answer to Congress and don't have lobbyists to write laws to protect the unethical.  Wall Street billionaires feel they are above the law because they get to write the laws and they know there are no teeth sharp enough to incarcerate them.  I would much rather take my chances in court against the SEC with a billion in lawyers, and lobbyists on the Hill than I would as a corrupt Lt facing a court martial!

Then how did those conmtrols and oversights fail?  Last I saw, sub-prime mortgages, CDO's, and over-leveraged investment banks were not only totally legal, but the industry norm.  Deregulation like the repeal of Glass-Steagal in 200 removed major controls.  What was already in place and if so, why have we been going through what we have over the past 6 years?

Or do you consider this 6-year recession to be just a normal downturn in the normal cycle of economics?

The recession ended 3 years ago and lasted for a little over a year, since then it has been a sub-par recovery but not a 6 year recession.

of course the recession ended 3-years ago.  GDP has been growing and employment is seeing gains as well.  of course, this could all be smoke and mirrors.  afterall, the governement would never manipulate the numbers. 

How's that tin-foil hat working out for ya?? 

If the government was going to manipulate the numbers they wouldn't have done such a poor job on the recovery. 

I think you mean for the last 11 years. We're pretty much still in the same position we were in 2001. Lost decade(s) anyone?

So we're actually IN agreement.  In my analogy, I said that government regulation is only at the ends of the pedulum to prevent wild swings one way or the other, NOT to guide the pendulum along the way.  The free market dictates price.  The government dictates the mechanism at a large-scale to which those prices can affect the nationwide economy as a whole.

I believe the government should not be setting price on company, commodity, etc.  But when individuals, companies, institutions, and the industry begin to practice in an unethical manner which could threaten the system and macroeconomy as a whole, they have the right and ability to step in and stop such actions as a threat to the US economic system.  They should keep some restrictions in place (chains on the pit bull).  i.e. repealing Glass-Steagal.

And Fannie May/Freddie Mac - that's what you get when the government itself steps in too far to control price, availability and econmic ideology... an utter failure!  The free market should have the ability to dictate mortgage price and availability based on profit and risk.  There should be no reason for government interference so that more people could get into homes for political gain.

One final note (from me):  It disturbs me how the political and election process has reduced the message to one of two extremes...  A free market with NO government regulation or Socialist control over private business.  It's not that black & white and it bothers me how BOTH political parties make it out to be that way to pander to their ignorant polar bases.

The answer is in the middle with a combination of both free market and controling regulation.  But the "talking heads" on the cable news shows spouting to their mindless TV-zombie voters would never admit that.  The polarization of our political system and government...  The loss of pragmatism and compromise...  It all leads to paralysis.