Global Stimulus?

[strategy 4]

one pretty clear example of what H is talking about:http://en.wikipedia.org/wiki/Greenspan_putmore directly, from here:

AIG was required to post additional collateral with many creditors and counter-parties, touching off controversy when over $100 billion was paid out to major global financial institutions that had previously received TARP money. While this money was legally owed to the banks by AIG (under agreements made via credit default swaps purchased from AIG by the institutions), a number of Congressmen and media members expressed outrage that taxpayer money was going to these banks through AIG.[53] In January, 2010, a document known as "Schedule A – List of Derivative Transactions" was released to the public, against the wishes of the New York Fed. It listed many of the insurance deals that AIG had with various other parties, such as Goldman Sachs, Société Générale, Deutsche Bank, and Merrill Lynch.[54][55]Had AIG been allowed to fail in a controlled manner through bankruptcy, bondholders and derivative counterparties (major banks) would have suffered significant losses, limiting the amount of taxpayer funds directly used. Fed Chairman Ben Bernanke argued: "If a federal agency had [appropriate authority] on September 16 [2008], they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders, and impose haircuts on creditors and counterparties as appropriate. That outcome would have been far preferable to the situation we find ourselves in now."[56] The "situation" to which he is referring is that the claims of bondholders and counterparties were paid at 100 cents on the dollar by taxpayers, without giving taxpayers the rights to the future profits of these institutions. In other words, the benefits went to the banks while the taxpayers suffered the costs.

again, the issue of counterparty default risk. lots and lots of people--including goldman--ignored it on the assumption that the government would step in before things got dire. the poor compensation incentives issue is very real, but it all leads back to the fact that firms figured out that they had attained "too big to fail" status and they took full advantage of it. as much as I'd like to be principled and have the world work the way it should, I wish they had saved lehman. just once, I'd have liked to have something meaningful go my way.

[hblask 1]

That wasn't the problem at all. Government bailouts weren't guaranteed before the crisis and did not lead to the crisis. The only bailouts that led to the crisis were the internal bailouts within investment banks. If a person failed at their job, or a bank went under, they were still left with a huge severance package. There was almost no connection between doing one's job well and making money. They were making money however they could make it (with no long term perspective), and they were shoveling that money out to everyone in their company.The real problem is that ibankers didn't really care about what the effect of their investments were as long as they made money. Even though they did their fair share to cause the crisis, they, for the most part, made money before, throughout the crisis, and continue to make money as the crisis is starting to wane. So, why should they ever care about creating risky investments that bankrupt people.But to say that implicit government bailouts were the cause is just, well, not right.

In a true market, nobody would've bought the crap the lending banks were selling. But the bad loans were bundled and sold as "government-backed securities" -- which, as we are seeing, they were. The banks that owned them knew the govt would never let them (the banks) go bankrupt, so they took huge risks.Before the government forced banks to make bad loans, they didn't make them, because nobody would buy them. Then the govt starting forcing "fairness" in lending and pressured the banks to make loans to unqualified people. The banks held their nose and did it, then did what any sensible business would do: packaged them up and sold them to third parties, who got insurance on them and then insurance on the insurance, etc. Pretty soon, nobody knew what they were buying. But the lending banks found out they could sell them, and the buyers had the promise of government backing. Without the government backing, there would be no buyers, and without buyers, there wouldn't be as many bad loans.This is a classic example of moral hazard, and there were economists warning Congress of it for over a decade before the mortgage meltdown. So yeah, when real economists are warning "the rules are bad" and Congress (particularly Frank and Dodd, in the famous YouTube video) claim "everything's fine, quit being dramatic", then it is clearly a failure of legislation.

[Jeepster80125 0]

In a true market, nobody would've bought the crap the lending banks were selling. But the bad loans were bundled and sold as "government-backed securities" -- which, as we are seeing, they were. The banks that owned them knew the govt would never let them (the banks) go bankrupt, so they took huge risks.Before the government forced banks to make bad loans, they didn't make them, because nobody would buy them. Then the govt starting forcing "fairness" in lending and pressured the banks to make loans to unqualified people. The banks held their nose and did it, then did what any sensible business would do: packaged them up and sold them to third parties, who got insurance on them and then insurance on the insurance, etc. Pretty soon, nobody knew what they were buying. But the lending banks found out they could sell them, and the buyers had the promise of government backing. Without the government backing, there would be no buyers, and without buyers, there wouldn't be as many bad loans.This is a classic example of moral hazard, and there were economists warning Congress of it for over a decade before the mortgage meltdown. So yeah, when real economists are warning "the rules are bad" and Congress (particularly Frank and Dodd, in the famous YouTube video) claim "everything's fine, quit being dramatic", then it is clearly a failure of legislation.

well said.

[JoeyJoJo 18]

It's going to be hard to take the rest of your post seriously after this introduction. Yeah, Paul Krugman has no understanding of economic theory. Okay.

Krugman: Rahm Emanual Ruined the EconomyOk, the article doesn't exactly say that, but I found the above article from one of All_In's sites and that's the conclusion it came to, so I'm pretty sure it must be true.

[mk 11]

http://online.wsj.com/article/SB1000142405....html#printMode

[El Guapo 8]

http://online.wsj.com/article/SB1000142405....html#printMode

I like it, it seems like a prudent approach.