GrahamH wrote:Seth wrote:GrahamH wrote:Capitalism is a 'giant Ponzi scheme based on everlasting economic growth, which is impossible.
No, it's just cyclical, which every good capitalist knows full well, and plans for.
Sure there are cycles, but how does the spiral keep growing? How is endless economic growth possible?
Capitalism does not depend on endless economic growth, first of all. Second, capitalism works because it is cyclical, and it responds to the forces of entropy. Capitalism is nothing more or less than people living their lives consuming and creating simultaneously. Most of the needs of society are stable; food, shelter, clothing, but they are also transient, and therefore the demand is continuous for new goods which the free market provides through the balancing of supply and demand. All of the products of an economy are transient as well. Some are more durable than others, but everything wears out and must be replaced. This is the basis for a stable free-market economy. Individuals need clothes, plates, food and all of the myriad of other things that one uses in daily life. Someone has to produce those objects on a regular basis to serve recurring and expanding needs. When expansion diminishes or ceases during an economic cycle, some manufacturers go out of business, while others emerge to meet new consumer demands.
Capital investors play the cycles carefully, and they of course desire "endless economic growth" but never get it. Some win, some lose, but overall the amount of capital available for business meets the demand, so long as external forces do not interfere (like government) in the free market process of growth and correction.
Free markets operate better than centrally-planned economies because no planner can possibly know or provide for the myriad of needs and desires of a large economy, which results in shortages and surpluses and market failures. Free markets work because the have the balance and guidance of billions of individual choices every day, something no central planner can possibly imitate.
And finally, people die and new people are born. The demands of infancy and youth are different from the demands of adulthood, which are different from the demands of old age, and the free market serves each person's needs as they emerge, and production shifts with the shifting demographics.
It is a socialist conceit and fallacy that capitalism is about "endless economic growth."
Seth wrote:Actually, it was. It was Barney Frank and Chris Dodd, who are as close to avowed socialists as it gets, who fucked up our economy by engaging in socialist redistributionist schemes under the Community Reinvestment Act. The mortgage market merely tried to cover it's collective ass with credit default swaps, and the FTC didn't catch on to the fact that the scheme was actually an insurance plan that, by law, was supposed to be fully funded, but wasn't.
My info on this is limited to The Big Short, so I may be in error, but it seems that what you refer to was merely the seed. The real problems started when the market in CDOs took off and drove excessive lending to fuel gambling on AAA rated junk. Isn't that when responsible lending truly went down the pan to feed the Ponzi scheeme?
No, the problem is that the government did not allow the failed banks and investment houses to fail, and it bailed out foreign investors in bundled toxic mortgages rather than stand back and let the risks of investment take their toll. And in the end, as we have seen, all the putative efforts to keep people who never should have bought a home in those homes has failed anyway.
Our bailout money went more or less directly overseas to line the pockets of investors who should have been required to suffer the losses inherent in their investment.
Seth wrote:Absent the Frank and Dodd show and Carter's Community Reinvestment Act, banks NEVER would have made loans to unemployed or marginally employed people, and they would have remained what they always should have been: Renters.
Wikipedia wrote:The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered,
consistent with safe and sound operation
The banks became reckless. Show we where they were commanded to be reckless.
It all happened behind closed doors, where Frank brought the big bank managers in and told them that if they didn't start making more risky loans to individuals who were unqualified for credit, he would use his influence to get the Federal Reserve and the FDIC to subject the banks to endless federal investigations, which is a death-sentence for a bank because once consumers find out their bank is under Fed investigation, it usually causes a run on the bank.
Bankers agreed to loosen their credit requirements and began turning a blind eye to outright mortgage application fraud out of simple self-preservation. To try to hedge against the losses that they KNEW were coming, they bundled the toxic paper into "securities" and sold them, largely overseas. The overseas investors, not being stupid, demanded some "insurance" against widespread mortgage default, so they went to AIG and created the credit default swap, in which AIG promised to cover any default losses. AIG failed to capitalize this risk, so when the housing bubble collapsed and people began defaulting in large numbers, AIG and the banks went to the government for a bailout, rather than simply tell their overseas investors that they were screwed, and the government forked over the money.
At the same time, mortgage brokers were engaging in predatory practices and borrowers were committing felonies left and right by falsifying their financial statements in order to qualify.
Added to that was the incentive to loan that was provided by federal mortgage insurance from Fannie Mae and Freddie Mac. Banks with toxic paper were allowed, in the name of progressive egalitarian redistributionism, to off-load those mortgage to government-funded plans, thereby sticking the taxpayers with the bulk of the toxic paper that wasn't sold as securities.
Officials at Fannie and Freddie knew years ahead of time that they were exposed, and they saw the crash coming, but did nothing to stop the fraud because they too were under the influence of the House Banking Committee and its Chairman, Barney Frank, whose socialist goal is for every poor person to own a house, even if they can't pay for it.
The Federal Reserve, having examined the evidence, holds that empirical research has not validated any relationship between the CRA and the 2008 financial crisis.
Do you really think the Federal Reserve is going to admit that they are in part responsible for the crash? Do you think they are idiots?
It's really pretty simple: People who were unqualified to obtain home loans were induced to do so by the federal government, lead by Barney Frank and Chris Dodd and the market forces followed that demand by producing way too many new houses, which caused an artificial bump in home values. Based on guarantees by the feds that their mortgages would be "insured," the unqualified buyers bought way more house than they could afford at an inflated price on a mortgage with low initial payments and an enormous balloon payment that they kept denying would come down the pike.
When the realities of economic caught up with these buyers, they of course defaulted on their loans. The inflated market collapsed and even people who were fully-solvent and paying on their loans were forced into foreclosure by their lenders merely because the "market value" of their home dropped below what they owed, despite the fact that they had no intention to sell and every intention and the capacity to pay off their loan properly. People who had never missed a payment, and never would, were foreclosed on because the lender inserted a clause that lets them foreclose if the property diminishes in value below what the borrower owes. This clause is INTENDED to protect the bank against a borrower trashing the property and then walking away from the loan, leaving the bank with the damage. But banks have been using it to cover their asses in cases where the "market value" has gone down because the market in the area has crashed due to irresponsible borrowers and houses are in foreclosure.
And rather than forbid banks to foreclose on borrowers who were not in default for non-payment, the government continues to ignore the problem, and the housing situation just gets worse and worse.
The ONLY winners in this debacle were the foreign investors and the banks, who are now making more money than ever. And it's a good bet that they planned this from the beginning, or at least had the contingencies covered in the event of the inevitable housing bubble collapse.
Everything else by way of economic devastation was caused by the housing collapse, which was caused by the CRA and the policies of the federal government towards making loans to unqualified applicants.
"Seth is Grandmaster Zen Troll who trains his victims to troll themselves every time they think of him" Robert_S
"All that is required for the triumph of evil is that good men do nothing." Edmund Burke
"Those who support denying anyone the right to keep and bear arms for personal defense are fully complicit in every crime that might have been prevented had the victim been effectively armed." Seth
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