Open Market Operations.

[luke warm]

Given that I haven't come across any of them, I think it is fair to assume that they are in a small minority. (Could you point link me to one of them, btw?) This should be enough of a reason to be a little more skeptical about their claims.

 

The attitude "none of us has the expertise to judge this, and there are some who call themselves 'economist' on either side of the issue" is non-productive, it is the same attitude that would lead one to conclude "There is no way to tell whether global warming is happening, there are "experts" on either side of this issue".

Everybody should try to make educated guesses which of the economists are right. Given that there seems to be a huge majority on one side of the issue, this should be an easy guess.

i agree that we all read the experts we choose, for whatever reasons... but posting links will only get those on both sides to post counter-links that prove their experts are better... but here are a few

 

http://www.cato.org/pub_display.php?pub_id=1101

 

http://www.nationalreview.com/nrof_luskin/...00601270946.asp

 

http://www.heritage.org/Research/Taxes/wm47.cfm

[helene_t]

Jimmy: Those links are quite partisan and besides they just say that lowering capital gain tax is good for economic growth. Arend was talking about capital gain in the context of the current credit crisis.

[Al_U_Card]

Looks like lowering (removing) CGT is popular with those that have CG and not at all for those that don't...

[cherdano]

Given that I haven't come across any of them, I think it is fair to assume that they are in a small minority. (Could you point link me to one of them, btw?)  This should be enough of a reason to be a little more skeptical about their claims.

 

The attitude "none of us has the expertise to judge this, and there are some who call themselves 'economist' on either side of the issue" is non-productive, it is the same attitude that would lead one to conclude "There is no way to tell whether global warming is happening, there are "experts" on either side of this issue".

Everybody should try to make educated guesses which of the economists are right. Given that there seems to be a huge majority on one side of the issue, this should be an easy guess.

i agree that we all read the experts we choose, for whatever reasons... but posting links will only get those on both sides to post counter-links that prove their experts are better... but here are a few

 

http://www.cato.org/pub_display.php?pub_id=1101

 

http://www.nationalreview.com/nrof_luskin/...00601270946.asp

 

http://www.heritage.org/Research/Taxes/wm47.cfm

Jimmy, none of the links you give even claim that lowering capital gains taxes would solve the current financial crisis. Whether lowering this tax is a good idea is a reasonable debate. The claim that it solves the current situation is not. I wouldn't be surprised if it's one of the most laughable economic ideas spit out by one of the 4 caucuses in Congress.

[Al_U_Card]

One of the main issues in any speculation bubble (and its bursting) is LEVERAGE.

 

When the fed removed the 12:1 cap on leverage back in 2004 it was only a matter of time that the heavy bettors would run afoul of their own greed.

 

And who was leveraged more than 25:1?????

 

Bear Stearns, Lehman Bros. Fannie Mae, Freddie Mac, AIG.....what a surprise!

[Lobowolf]

Looks like lowering (removing) CGT is popular with those that have CG and not at all for those that don't...

Well, yeah...and guess who supports higher taxes on cigarettes and who opposes them? Like the man said...a politician whose plan is to rob Peter to pay Paul can always count on Paul's support.

[luke warm]

Jimmy: Those links are quite partisan and besides they just say that lowering capital gain tax is good for economic growth. Arend was talking about capital gain in the context of the current credit crisis.

that's why i hesitated to post links, helene... i post links from sources i read, others do the same, etc etc... as for the present problem, i thought it was one basically of liquidity (maybe mike777 and others can weigh in on that)

Jimmy, none of the links you give even claim that lowering capital gains taxes would solve the current financial crisis. Whether lowering this tax is a good idea is a reasonable debate. The claim that it solves the current situation is not. I wouldn't be surprised if it's one of the most laughable economic ideas spit out by one of the 4 caucuses in Congress.

as i said to helene above, i thought it was a liquidity crisis more than anything else... as i also said, links are two-edged swords, but here are a few concerning this issue and cutting capital gains

 

http://thehill.com/leading-the-news/rsc-pi...2008-09-23.html

 

http://www.usnews.com/blogs/capital-commer...et-bailout.html

 

http://www.npr.org/templates/story/story.p...toryId=95026117

 

as i said in my first post in this thread, i have no idea whether or not the bailout is the way to go... i keep hearing that if we don't do it we're doomed, and maybe that's so

[mike777]

Jimmy given that money is fungible I do not know why this bailout plan is better than open market operations or getting rid of the capital gains tax.

 

 

I think we can all understand why getting rid of the capital gain tax and therefore flooding the economy with trillions in cash, which makes the top 2% much richer and the bottom 40% not a penny richer in the short term will never pass.

 

I have not read anything that compares one to the other.

 

Everyone seems to be 100% focused on the bailout plan is best, perhaps it is for some reasons, I do not know.

 

From what I read there is a liquidity crises, inst will not loan. There is a lack of price discovery on alot of these mortgage instruments. I assume massive liquidy helps these problems while it may create other issues.

 

It seems falling home prices is making the situation worse.

 

Sept. 29 (Bloomberg) -- The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

 

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

 

The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone."

[luke warm]

I think we can all understand why getting rid of the capital gain tax and therefore flooding the economy with trillions in cash, which makes the top 2% much richer and the bottom 40% not a penny richer in the short term will never pass.

yeah, i understand that too... the question is, would it in the end be good or bad for the country? i prefer market answers where possible, assuming they exist

[cherdano]

Jimmy, none of the links you give even claim that lowering capital gains taxes would solve the current financial crisis. Whether lowering this tax is a good idea is a reasonable debate. The claim that it solves the current situation is not. I wouldn't be surprised if it's one of the most laughable economic ideas spit out by one of the 4 caucuses in Congress.

as i said to helene above, i thought it was a liquidity crisis more than anything else... as i also said, links are two-edged swords, but here are a few concerning this issue and cutting capital gains

 

http://thehill.com/leading-the-news/rsc-pi...2008-09-23.html

 

http://www.usnews.com/blogs/capital-commer...et-bailout.html

 

http://www.npr.org/templates/story/story.p...toryId=95026117

 

as i said in my first post in this thread, i have no idea whether or not the bailout is the way to go... i keep hearing that if we don't do it we're doomed, and maybe that's so

Jimmy, I find this discussion a bit difficult. You say "how about reducing capital gains taxes" to solve the crisis. I say "I don't know a single serious economist who treats this suggestion by the House Republicans seriously".

 

Now you give three links, among which

- one of them just describes the proposal by the House Republicans,

- one of them just discusses in general terms alternatives to the bailout (which would happen to any proposed solution - no matter which solution is proposed by the Treasury, there would be reasonable economists disagreeing for various reasons)

- and finally one of them says that among many other things we absolutely have to do, it might also be a good idea to drastically cut the capital gains tax.

 

Let me double-down on my original claim. The proposal by the House Republicans to solve the crisis by suspending the capital gains tax is ridiculous. It seriously disqualifies them, and puts their credibility in question.

[mike777]

Warren Buffet last night:

1) We should tax capital gains at the same rate as ordinary income.

2) Lift the cap on social security taxes.

3) If we buy these mortgages and mortgage derivates at market price, this is a wonderful, great deal for all Americans.....He would love to be able to take 1% or more. BUT buy at market prices. Example if we are going to buy 700 million of one type of security......sell 100M in the market.......then have the govt buy the remaining 600M at same price.

4) He is very upbeat and positive on the American Economy long term, if we make the correct decisions now hopefully we can cap unemployment at 7% if not it make take 5 more years to fix and millions and millions more will be unemployed.

 

 

http://www.charlierose.com/home

[luke warm]

Let me double-down on my original claim. The proposal by the House Republicans to solve the crisis by suspending the capital gains tax is ridiculous. It seriously disqualifies them, and puts their credibility in question.

you might be right, arend... hypothetically, if the cgt was eliminated what do you think would happen in the economy?

[mycroft]

Hypothetically? Nobody that matters would lose their homes, nor their life savings, nor their guaranteed pensions, nor the lobby and campaign money.

 

In other words, the rich would get richer, the poor would not, no fewer houses would be foreclosed on, but that's okay, "I've got mine, Jack" and it's not like any of the foreclosures are Our Kind of People, Dear.

 

Of course, the current path of "give us a whole bunch of money we don't actually have and things will be okay" is going to achieve the same goal. Probably at the same cost, in the long run.

 

What, cynical, me?

[y66]

If your goals are to increase savings and allocate capital efficiently then eliminating the capital gains tax is a good idea. But I don't see how this is relevant for the current problem since the effects of such a policy are long term. In the short term, eliminating capital gains taxes can make things worse, if you don't cut government spending proportionally, since it immediately lowers tax revenues, which leads to increased government borrowing at a time when the government needs to be lending, for example, in the way that Warren Buffet is now lending to Goldman Sachs and GE. Maybe this Buffet style lending (smart, hard-nosed, return commensurate with risk) is what some posters are looking for when they refer to "market based" solutions. But the term "market based solution" seems like an oxymoron to me when the problem is that the market has temporarily ceased to exist.

[mike777]

The market temporarily failed to exist because it seemed banks and lending inst could not trust anyones including each others financial statements. There was a lack of price discovery. This despite the fact all of these exotic instruments are suppose to be marked to market.

 

I guess it was a shock to all these huge financial inst if you take on trillions of risky debt (affordable housing loans, mandated by law, forced lending to poorer people), then make this debt AAA rated only because FNMA,(usa) govt backs it and then the debt goes into massive foreclosure, this is shocking.

 

Banks through CRA were mandated to lend to poor credit risks. They did not mind so much as they turned around and sold the loans to FNMA who was required to buy trillions of this stuff. FNMA buying it made the paper AAA rated. Keep in mind loans are basically streams/flows of cash. Now Investment banks cut up these cash flows in exotic fashions and sold them but the underlying cash flows were rated AAA in terms of safety backed by FNMA and assumed backed by you the taxpayer.

 

Shockingly when everyone tried to sell trillions/billions of this stuff all at once.......there were a lack of buyers.

 

 

Wells Fargo's bid may trigger the end or the start of the end of this fear.

 

Perhaps the OPen Market Operations of the 29th helped in more than one way.

[Al_U_Card]

Robert B. Reich, in the San Fransisco Chronicle, wrote:

Bottom-up economic theory

 

Robert B. Reich

Sunday, October 5, 2008

 

The Mother of All Bailouts may be necessary to unfreeze our capital markets, but it won't unfreeze the American economy.

 

Bailout or no bailout, we're heading into deep recession. One of the first initiatives that Congress and the next administration will need to take will be an economic stimulus package. But not even this will remedy the underlying problem: The earnings of most Americans haven't kept up with the cost of living. That means there's not enough purchasing power to keep the economy going.

 

Adjusted for inflation, the incomes of nongovernment workers are lower today than in 2000. They're barely higher than they were in the mid-1970s. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago.

 

Per-person productivity has grown considerably over the past three decades and has continued to rise even in the lackluster recovery of this decade.

 

But most Americans haven't reaped the benefits of these productivity gains. The benefits have gone largely to the top.

 

The top 1 percent of American earners now take home about 20 percent of total national income. In 1980, the top 1 percent took home just 8 percent. Inequality on this scale is bad for many reasons, but it is also bad for the economy.

 

The wealthy devote a smaller percentage of their earnings to buying things than the rest of us because, after all, they're rich and already have most of what they want. Instead of buying, the very wealthy are more likely to invest their earnings wherever around the world they can get the highest return.

 

The last time the top 1 percent took home 20 percent of total income was 1928. After that, the economy caved in.

 

The underlying earnings problem has been masked for years as middle- and lower-income Americans found means to live beyond their paychecks. The first coping mechanism was to send more women into paid work. The percentage of American working mothers with school-age children has almost doubled since 1970, to more than 70 percent. But there's a limit to how many mothers can maintain paying jobs.

 

So Americans turned to a second coping mechanism - working more hours. Americans have became veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.

 

But there's also a limit to how many hours Americans can work. So we turned to a third way of coping. We began to borrow. With housing prices rising briskly through the 1990s and even faster this decade, we turned our homes into piggy banks.

 

But now, with the bursting of the housing bubble, we're reaching the end of our ability to borrow, just as lenders have reached the end of their capacity to lend.

 

That means there's not enough purchasing power in the economy to buy all the goods and services it's producing. We're finally reaping the whirlwind of widening inequality and ever more concentrated wealth.

 

The only way to keep the economy going over the long run is to increase the real earnings of middle- and lower-middle-class Americans.

 

The answer isn't to protect jobs through trade protection. That would only drive up the prices of everything purchased from abroad. Most routine jobs are being automated anyway.

 

Nor is it to give tax breaks to the very wealthy and to giant corporations in the hope they will trickle down to everyone else. We've tried that and it hasn't worked. Nothing trickled down.

 

The long-term answer is for America to invest in the productivity of our working people - enabling families to afford health insurance and have access to good schools and higher education, while also rebuilding our infrastructure and investing in the clean-energy technologies of the future. We must also adopt progressive taxes at the federal, state and local levels.

 

Call it bottom-up economics.

 

It would be a sad irony if the Wall Street bailout robs us of the resources we need to invest in average Americans and rebuild America from the bottom up.

[y66]

Gordo to the rescue?

 

Has Gordon Brown, the British prime minister, saved the world financial system?

 

O.K., the question is premature — we still don’t know the exact shape of the planned financial rescues in Europe or for that matter the United States, let alone whether they’ll really work. What we do know, however, is that Mr. Brown and Alistair Darling, the chancellor of the Exchequer (equivalent to our Treasury secretary), have defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up.

 

This is an unexpected turn of events. The British government is, after all, very much a junior partner when it comes to world economic affairs. It’s true that London is one of the world’s great financial centers, but the British economy is far smaller than the U.S. economy, and the Bank of England doesn’t have anything like the influence either of the Federal Reserve or of the European Central Bank. So you don’t expect to see Britain playing a leadership role.

 

But the Brown government has shown itself willing to think clearly about the financial crisis, and act quickly on its conclusions. And this combination of clarity and decisiveness hasn’t been matched by any other Western government, least of all our own.

For the rest of this story, by Nobel laureate Paul Krugman, click here.

[helene_t]

The article says that the British plan will take effect Monday (today I suppose) and that other European countries are likely to follow, but the Fortis-owned part of ABN-AMRO has already been taken over by the Dutch government.

[glen]

August 08 NY Times article on Prof Nouriel Roubini:

NY Times August 08 Dr Doom Nouriel Roubini

On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt.

Today's interview - long, but real stuff:

October 14 2008 Nouriel Roubini video interview

 

About the prof:

Wikipedia Nouriel Roubini

[mike777]

August 08 NY Times article on Prof Nouriel Roubini:

NY Times August 08 Dr Doom Nouriel Roubini

On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt.

Today's interview - long, but real stuff:

October 14 2008 Nouriel Roubini video interview

 

About the prof:

Wikipedia Nouriel Roubini

lets back up and assume all I mean all of this happens 100%.....now we make money...lots of money for us and our families....so?

1) once in a lifetime housing bust.....we make money!

2)deep recession...we make money!

3)default mortgages...we make money!

4) trillions unravel.....we make money!

5) system shudders to halt////we make money!

 

 

 

lol you know all of this and you still lose money.......i give up!

 

Please note it assumed you know all of this...if you still lose money ok........blame YOU!

 

What is worse you know..you know all of this and yet you still lose all your money!

Let us back up!

 

 

 

1) housing bust predicted last 50 years...ok maybe longer!

2) default mortage..predicted last 50 years..okmaybe longer

3) trillions unravel.....ok predicted last 100 years

4) system shudders..okpredicted last 1000 years

[y66]

Nouriel Roubini makes Dr. Doom look like little Miss Sunshine. I love this guy.

[PassedOut]

Alan Greenspan has changed his mind about the beneficial effects of financial market deregulation: Greenspan Concedes Error in Regulatory View

 

WASHINGTON (AP) — Alan Greenspan, the former Federal Reserve chairman, said Thursday that the current financial crisis had uncovered a flaw in how the free market system works that had shocked him.

 

Mr. Greenspan told the House Oversight Committee on Thursday that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had proved to be wrong.

 

Mr. Greenspan said he had made a “mistake” in believing that banks operating in their self-interest would be enough to protect their shareholders and the equity in their institutions.

Admitting a mistake: You can tell that Mr. Greenspan is not a politician!

[y66]

I saw this quote today

 

"those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief."

No *****.

 

Now what?

[mike777]

Alan Greenspan has changed his mind about the beneficial effects of financial market deregulation: Greenspan Concedes Error in Regulatory View

 

WASHINGTON (AP) — Alan Greenspan, the former Federal Reserve chairman, said Thursday that the current financial crisis had uncovered a flaw in how the free market system works that had shocked him.

 

Mr. Greenspan told the House Oversight Committee on Thursday that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had proved to be wrong.

 

Mr. Greenspan said he had made a “mistake” in believing that banks operating in their self-interest would be enough to protect their shareholders and the equity in their institutions.

Admitting a mistake: You can tell that Mr. Greenspan is not a politician!

Yes......MBA schools are teaching and have been for a while that there are many stakeholders not just shareholders.

 

This will be an excellent case study of that. CRA became a priority, employees became a priority, plain executive greed, etc.....

 

Fellow bridge player Ace Greenberg last night on Charlie Rose said how the "investment bank business model failed" It failed from simple rumors which caused a "bank run" which could not be stopped.