Economic, Scientific, Moral and Natural Law.

[WTL]

The Obama thread has brought up guns. And if anyone is watching the news, they will see the financial crisis going on and the measures the gov't is taking to "do something".


I'm am going to use this occasion to talk about something bigger than either the issue of arms or financial markets.


There are such things as economic, natural or scientific law. A simple example of scientific law is that if a man drops an apple from a building in Atlanta, the apple will fall to the ground cause of gravity.

A government decree that the apple should fly will not cause the apple to fly.

There is an economic law that is the first thing they say when you sit down in econ 101. "There is no such thing as a free lunch".

What that means is everything, everything costs money. Everything has consequences. It is almost like Newton's third law "for every action there is an equal and opposite reaction"

What that means is there are some things that exist outside the will of individual men.. Outside the will of government institutions. They are bigger in scope.

The government's bailout of AIG, Bear Stearns, Fannie Mae and Freddie Mac reminds me of all these natural, economic and scientific laws.

While I don't understand everything that these economic wiz kids, these government beaurocrats come up with, I understand that these firms were failing for legitimate reasons. When you try and absorb what harm their failing was fixing to cause, you don't really eliminate that harm, it will just pop up and manifest itself somewhere else.

It like a brush fire being put out with a garden hose. The fire is huge. You have a little hose. You spray one part of the fire, and it pops up even bigger 20 feet over. You can't put it out with a garden hose.

The government is a garden hose compared to the market. The free market is the ultimate form of power and democracy. The government seeks to control all, and tries to bind down the market. It isn't big enough though. What you have is an unnatural, artificial institution (government) trying to create a free lunch by eliminating a natural institution (the market). And its not gonna work. They might be able to move around who gets hurt by this. They might be able to take all the financial burden that should have been directed at the leaders of these firms and letting the entire country share the burden, or just the taxpayers, but it isn't going away.

Its just like the gun issue. There are guns out there in the hands of people. Good citizens and bad. The government sometimes passes laws trying to keep this or that model from being out there, all in the name of "trying to do something", and it never succeeds. The guns are still out there. In fact, you can argue that since only the law abiding citizens follow the laws, the people being hurt by these laws are the good citizens.

This is the core of the problem. The government does not really have that many legitimate roles. It protects borders. It arbitrates disputes. It builds roads. Then when we have a crisis, the dumb ones scream at it to do something. Do what? What can it do?

Sometimes you have to take your medicine.

The candidates, the President, the government, the FED are all trying to delay the inevitable. In doing that, they are making the mess bigger. And its still gonna go boom.

We would be better off if we just let the recession come. Stop putting it off. We are doing nothing constructive right now, except ensure that that bubble gets bigger, and that when it really pops the effects will be deeper. Its like a big pimple on the face of Washington. Go ahead and pop it now.

[CarpMan]

"We would be better off if we just let the recession come.” WTL, We are in a recession and have been for sometime. This is a “depression” and no one knows how to deal with it, not even the bureaucrats in D.C. No one has ever seen or had to deal with any thing like this before. The big one in 29 worked itself out and this one will too. BTW, enjoyed your post.

[MississippiBoy]

Carpy, we're not in a recession. The dictionary definition of a recession is "a period of an economic contraction, sometimes limited in scope or duration."

The U.S. economy is still growing. It's growing much slower than before, but it's still creeping up.

As far as AIG and all the stock market stress, housing crisis, etc, I agree with WTL. The housing mess was caused by idiots who gave other idiots a much bigger mortgage than they could afford. Now the gov't bailed out Fannie Mae and Freddie Mac to protect them from the consequences of their own actions. What reason do they have to change their ways? It's like raising a child and never letting them see that their actions can cause harm to themselves or others. That child will grow up never considering others' feelings or the effects their decisions have on the people around them.

Let the market correct itself. Isn't that called the "invisible hand" theory? That the market will act in its own way to correct fluctuations, problems, and crashes? Will it be easy and painless? Hell no. But it does need to happen.

[WTL]

Whether or not this is a recession or not per se is semantics. I have actually heard in the past week that there are some ways they calculate our national economy that have changed, and if we used the old ways we would be in a recession, but calculating it as we do we arent...yet.

This can exactly, exactly be made into a personal example.

A guy ran up 234,000$ debt on 7 different credit cards, a car note, medical expenses, luxury items and lucky craft crankbaits.

He was close to going bankrupt. But the lovely neighborhood loan shark, George W. Bernake, offered him a huge loan that would consolidate and cover all the expenses. Just at an interest rate he could never really handle. The guy jumps at the loan though, cause it will keep him from filing bankruptcy today.

That is where we are now.

[Rodman_Rob]

the gov. needs to take a step back and take a laissez faire approach.

A recession occurs whenever GDP decreases for 2 consecutive quarters. However adjustments are made to a particular quarters GDP 2-3 quarters afterwards. Regardless of the definition, our economy is very borderline right now. Tons of people are losing there homes, unemployment is way up, banks are in trouble, gas prices are rediculous, food and other goods and services are on the rise due to high gas prices. The question shouldn't be "Are we in a recession?", but should be "How many years before the economy starts to get better?" Our economy is in shambles right now.

[Lilmoosecountry]

As a banker i need to rule in on this. We have only just begian to see the worst. My believe there will be another 200 billion in bail outs. I believe atleast another 6 to 8 month of unstablity. Now you have the big 3 with there hands out aswell. Not including the Airlines wanting more money. This won't stop if we keep passing out money for goverment take overs. The national Debt is real. All these companies have is a promise. Nothing more. The US goverment is so entrenched with debt it's writing checks that it can't afford. Right now the US does'nt even print enough money daily to keep up with inflation. As i sound negative about all this. There is some good. All these bail outs are starting to calm some investors. If nothing else it may be good PR. to slow things down alittle & give banks some time to stablize. The little meeting they had in Washingtion may bring the DOW up a few points today. But will have to wait & see. But don't kid yourselves. We will be feeling this STING for quite awhile regardless what person becomes president. There is no OVERNIGHT solution to this one.

[doc]

Originally Posted by WTL

Whether or not this is a recession or not per se is semantics. I have actually heard in the past week that there are some ways they calculate our national economy that have changed, and if we used the old ways we would be in a recession, but calculating it as we do we arent...yet.

This can exactly, exactly be made into a personal example.

A guy ran up 234,000$ debt on 7 different credit cards, a car note, medical expenses, luxury items and lucky craft crankbaits.

He was close to going bankrupt. But the lovely neighborhood loan shark, George W. Bernake, offered him a huge loan that would consolidate and cover all the expenses. Just at an interest rate he could never really handle. The guy jumps at the loan though, cause it will keep him from filing bankruptcy today.

That is where we are now.

The only reason that we are not in an Official Recession is because
"National Bureau of Economic Research" hasn't officially recognised it as a recession. Even tho we officially fit the bill for a recession we cant say were in a recession untill they declare it. ?

[Fishnngolfn]

Originally Posted by doc

The only reason that we are not in an Official Recession is because
"National Bureau of Economic Research" hasn't officially recognised it as a recession. Even tho we officially fit the bill for a recession we cant say were in a recession untill they declare it. ?

Is it sort of like a police officer cannot declare a decapitated man dead, since only the coroner can pronounce a person dead at a scene?

[doc]

Exactly........

[WTL]

And if they declare it a recession, everybody will take their money out of the market just cause of the mere word "recession".

We just took a ****load of debt. Lilmoose, if its only 200B I will be surprised. Cavuto just said a second ago the word "trillion". Who really knows.

I have one hope, and its the same hope we should all have for this country:



Maybe, just maybe they take this national debt seriously now. Maybe. Hopefully. It all comes down to the debt, the value of the dollar, ect. We need the next President to do the right thing and right the economic ship. We as citizens just became responsible for the whole edifice. You think the subprime crisis wasn't your problem? Well you just bought it. It was bought for you so that others wouldn't have to pay the full price for their actions. We can cry about that. We can ***** and moan, and I just might a lil while longer. But we also have to take responsibility, even if its for the stupid actions of others. Someone has to take responsibility. The responsibility is gonna land somewhere. Just hope our "leaders" (in truth I have seen 10x the leadership on this very board as I have seen in Washington) get the picture and stop trying to buy free lunches with stolen credit cards.

[Lilmoosecountry]

The subprime nonsense is a result of banks extending credit to those who should have nevor recieved money in the first place. It's the fault of the lendor & the bank. It did start with the subprime nonsense. Partly because many of the banks that were offering subprime deals also delt with brokerage services. The stockholders saw these banks taking losses & paniced. Then the trickle down effect began. The bank i work for takes more into consideration to your loan. Like Debt to credit raitio. You can have the best crdit there is but if the debt raitio is to hight we don't lend. We just don't offer bad loans. We are a very conservative bank. If these other banks did the same we would'nt be where we are now.

[Rodman_Rob]

I won't say the subprime lenders are the only one to blame. it does boil down to the borrower as well. while doing subprime mortgages, I originated many piss poor loans where it seemed as if I was throwing the file against the wall to see what stuck. however I've looked up many of those clients, 200+ subprime loans, only 3 faced foreclosure. the only thing I can suggest is borrower education. I knew my clients were risky borrowers, they knew the bank was taking a risk which was the reason they had high rates......but they had a home, a foundation for their family. I can only account it to borrower education. There were brokers who were just paper pushers, doing whatever they could to get the loan closed as quick as possible, and then there were brokers like myself, educating the borrower on how lenders loaned money, why to avoid foreclosure, how to avoid foreclosure, and what to look for down the road to prevent foreclosure. 2 out of the 3 borrowers that were facing forclosure, were able to refinance into a foreclosure bailout loan. just goes to show what education can do.

[flbassman]

I learned a lot readin that post WTL. Whether or not you want to use the word reccession, the economy is pretty torn up right now. I think that right now, the current government is treating the debt like it isn't real, judging by the rate at which it increases daily. For right now, I am gonna whine, and ***** and moan, until somethin gets better, or somebody starts listening..........

[cassidyta]

I can not speak for all parts of the country, but for out here, the biggest issue was that everyone played the home equity lotto. 1300 SqFt homes on a tenth of an acre sold for around 275K 5 years ago. We watched those numbers climb every month, and at it's peak, those same homes appraised around 650K. This was good for some, because they were able to refi their subprimes into an acceptable fixed. Most however, chose to take out their equity and spend it on the new cars, boats, travel, etc..... They all thought that they would simply refi again or sell at a large profit. They banked on it as they signed their 3 year ARM and interest only.
Today, they are sitting on a home valued around 300 and owe over 500. My street is just under a mile in length, and there are 9 "bank owned" homes for sale.

I believe that Rod is dead when he says that this is not all the fault of the lenders. I think it is all about the love of the almighty buck. While corporations may have been a large contributing factor, the consumer did their fair share as well.

They saw refinancing as one big pawn shop and now the entire economy is paying the price

[Jim80]

Theres a lot of truth to many of the statements made but I don't think that this problem will be able to right it's self until we have true economic growth . And I'm not talking talking job creation but economic growth , in my opinion a wal-mart opening and creating 400 jobs isn't growth , it just maintains the level of poverty and until there is a atmosphere were good hard working people can thrive rather than just survive our future looks bleak at best . The lose of jobs in skilled industries is climbing and meanial labor jobs ie; fast food and minimum wage retail postions are growing people are being forced to try to survive on less than half of what they need per year. In my state I have had 7 factories close in the last 5 years due to production being moved to china and mexico , leaving many career toolmakers unemployed and working thre jobs to make a fraction of their old incomes and until that trend reverses many of our problems will continue .

Jim

[bamabassman]

very interesting , yes this is veryyyy interesting. i am learning alot here gang, thanks.