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I am Groot
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All of this parallels how horrible the situation was during the Great Depression, how trickle down doesn't work, and how we should be taxing the rich at a much higher rate.
 

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Premium Member
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Trickle down works miracles, Dave, but only for the top 5%.
:agreed:

The only thing trickling down is the rich pissing down everyone else's backs.
 

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I am Groot
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We're about due for a French Revolution, don't you think? :D
 

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We're due for some kind of uprising. I've said it before but where are people like Teddy Roosevelt and Howard Metzenbaum when we need them? :(
 

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I am Groot
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No.

But it's about time we stopped "bailing out" investment banks, insurance companies, drug companies, auto companies...
Man, you are just completely humor-impaired. :lol: However, to seriously respond to your post...

Do you think it would have been better to suffer complete economic collapse, worse than the Great Depression, or bail out Wall Street?
 

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NSLALP
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Man, you are just completely humor-impaired. :lol: However, to seriously respond to your post...

Do you think it would have been better to suffer complete economic collapse, worse than the Great Depression, or bail out Wall Street?
Sorry dude, my funny-button is suffering today. Work is being br00tal and I'm not helping my situation by being all over MG.org today :lol:

Complete economic collapse without "bailing out Wall Street"? That's the funny part. The money didn't exactly clean up those horrific "toxic derivatives" we heard so much about. It gave bonuses to the top fraction of a percent of those criminals so that they could continue doing what they did to land themselves in that predicament in the first place.
 

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Premium Member
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Sorry dude, my funny-button is suffering today. Work is being br00tal and I'm not helping my situation by being all over MG.org today :lol:

Complete economic collapse without "bailing out Wall Street"? That's the funny part. The money didn't exactly clean up those horrific "toxic derivatives" we heard so much about. It gave bonuses to the top fraction of a percent of those criminals so that they could continue doing what they did to land themselves in that predicament in the first place.
Oh jeez, don't even get me warmed up.

Derviatives are not "toxic." They're spectacular instruments for risk control, and honestly in that collateralized debt obligations allow default risk to be better spread amongst investors looking to take on exposure to home loans by lowering the entry threshold and spreading the risk of default much more evenly, they actually most likely have helped lower borrowing costs for average Americans. The problem here was so many of the underlying loans were absolute shit to begin with.

We already lost one major investment bank - had Goldman or Merrill followed Lehman and Bear Stearns, it's unlikely that the government could have afforded to cover counterparty losses for the rest of the industry. Considering there's no real line between "retail" banks that write guys like you and I mortgages and investment banks anymore thanks to deregulation, this would have led to a total banking collapse. Your employer wouldn't have been able to pay your salary because the line of credit they depend on would be gone, you wouldn't be able to draw upon your savings because available liquidity would be zero, and you couldn't use a credit card or debit card to make purchases because no one would be left to honor the payments. It'd be pure anarchy.

Really, if there's one thing I want to see out of financial reform, it's a mandatory clearinghouse like what's used for futures contracts for over-the-counter instruments like swaps. That, with federal backing, would have given the Fed the option to let a few more banks die along with Goldman and Lehman while containing the spread of counterparty exposure, because the clearinghouse would have been a buffer between each of the banks.

I don't know how up on the industry you are, man, but what you're saying is akin to the lungs getting pissed off that the heart was getting shock therapy to restart because, "well, we didn't stop beating..." I can't say I was happy to see it either, but it needed to happen.
 

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NSLALP
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1. Derviatives are not "toxic."

2. Really, if there's one thing I want to see out of financial reform, it's a mandatory clearinghouse like what's used for futures contracts for over-the-counter instruments like swaps. That, with federal backing, would have given the Fed the option to let a few more banks die along with Goldman and Lehman while containing the spread of counterparty exposure, because the clearinghouse would have been a buffer between each of the banks.

3. I don't know how up on the industry you are, man, but what you're saying is akin to the lungs getting pissed off that the heart was getting shock therapy to restart because, "well, we didn't stop beating..." I can't say I was happy to see it either, but it needed to happen.
1. I know. That's why it was "quoted". And I have absolutely no qualms about evil "naked short selling" either, for example. It's simply a futures contract.
2. Doesn't sound like a bad idea. How about mandatory reserve requirements?
3. Fairly up but I've been concerned about other things for a while. And yes, we were backed up against a wall pretty hard. But fractional reserve banking got us in this mess, and it won't get us out of it, and it's still true that we basically got taken for a ride.
 

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1. I know. That's why it was "quoted". And I have absolutely no qualms about evil "naked short selling" either, for example. It's simply a futures contract.
2. Doesn't sound like a bad idea. How about mandatory reserve requirements?
3. Fairly up but I've been concerned about other things for a while. And yes, we were backed up against a wall pretty hard. But fractional reserve banking got us in this mess, and it won't get us out of it, and it's still true that we basically got taken for a ride.
1.) Nah, naked shorting is simply selling on margin. It's risky as fuck since your upside is limited and your downside is not, but as long as you know what you're getting into...

2.) Separate issue altogether. Futures exchanges typically have minimum margin requirements (different meaning than on #1 - it's really more like cash collateral) and I like that idea. As far as reserve requirements, I actually really like Obama's idea of a tax based on leverage that kicks in past a certain point. Let the banks who want to take on more than a given degree of leverage pay the government for that privilege, and it's a risk they won't take so readily.

3.) This is an issue way bigger than reserve requirements, though. If Lehman had been forced to carry a higher level of reserves than they had - say, 15% rather than 10% - it almost certainty wouldn't have made a difference when they started taking losses on CDOs and credit-default swaps. Sure, they might have held out a couple more days, but it wasn't the difference between life and death. Furthermore, as a libertarian I'm surprised to hear that argument from you - government regulation aside, increasing cash reserve requirements would result in an exponential decrease in the M2 money supply, which would radically scale back potential long-run GDP.

Personally, I think market-based incentives to keep leverage at sane levels coupled with a swaps clearinghouse to serve as a "firewall" to prevent the destruction of any one firm spreading to another would be the much more practical answer.
 

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Canis lupis robertus
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Derviatives are not "toxic." They're spectacular instruments for risk control, and honestly in that collateralized debt obligations allow default risk to be better spread amongst investors
See, I take issue with this.

It's kind of like mark to market accounting - the more elaborate the schemes they develop to do things like marginalize risk or skew real profits, the more likely the financial sector is to abuse these new tools. It's happened again and again.

The rise of derivatives and credit default swaps is the exact environment that encouraged such greedy, almost predatory lending practices, and I'm not telling you anything new here, D. If they want to keep these Rube Goldberg financial instruments, there has to be A) far better regulation and oversight, or B) a true laissez-faire system, where if they fuck up, they're gone.

Or just do away with this bullshit, and force the market to be more conservative.
 

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Premium Member
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See, I take issue with this.

It's kind of like mark to market accounting - the more elaborate the schemes they develop to do things like marginalize risk or skew real profits, the more likely the financial sector is to abuse these new tools. It's happened again and again.

The rise of derivatives and credit default swaps is the exact environment that encouraged such greedy, almost predatory lending practices, and I'm not telling you anything new here, D. If they want to keep these Rube Goldberg financial instruments, there has to be A) far better regulation and oversight, or B) a true laissez-faire system, where if they fuck up, they're gone.

Or just do away with this bullshit, and force the market to be more conservative.
Eh, as they say, Bob, it's a poor craftsman who blames his tools.

Derivatives are spectacularly valuable instruments because of the way they do allow you to slice and dice risk and package it into convenient packages, and change your company's risk profile to meet projected future market conditions, be that hedging out existing risks or taking on additional ones for higher returns. I know how much you hate "speculative" trading, but it's a necessary evil that accompanies how much good can be done with them.

That said, I'm with you in one regard - the main reason I really want to see a swaps clearinghouse is it would allow a bank to go down in flames without taking anyone else with it. The problem with OTC contracts is they link financial institutions together and impose counterparty/credit risk on the whole system. Break those ties, and the system as a whole becomes more stable, and in fact probably will be more stable with the inclusion of derivatives than if they were banned.
 
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