Robert K. Merton listed six possible causes of unanticipated consequences:
1) Ignorance,
2) Error in analysis,
3) Immediate interests,
4) Basic values,
5) Self-defeating prophecy,
6) Relevance
From Jake K.: Regardless of the rightness of making/letting people pay for their mistakes, though, often letting them fail would actually cause those of us who didn't make these mistakes-not only those that did-much greater harm. The captain of the Titanic should have been more concerned about icebergs. He had ultimate faith that his ship was unsinkable and so didn't take external/unknown dangers seriously enough (obviously). We see where that got him and everybody on board. Belief in pure, unadulterated capitalism, if such a thing were ever possible, is like faith in the unsinkable ship. In the end, you don't know if it will work. Isn't it smartest to hedge one's bet?
From Diane W.: IMHO - NO... Listen to those in the know not the guess work of our elected officials - which in reality is the fault of the people voting and not voting... With regards to the Titantic is was a matter of not listening... records of the Titanic accident history indicate that the Titanic disaster may very well have been able to have been completely avoided had officers on ship paid heed to reports received earlier regarding the frozen waters they were approaching.
I strongly believe that letting them fail would have had a negative impact on all of us in the SHORT-TERM. Instead of making people take their lumps for their mistakes immediately, we have only delayed the day of reckoning (and increased the size of those lumps via the expansion of our national debt). I find this scenario much more distasteful as everyone is expected to pay for the mistakes of a few... not to mention the moral hazard issue - those who made the mistakes have learned NOTHING, thereby encouraging similar reckless behavior in the future with expectations that the government will bail them out again.
From Jim B.: We have a way to partially test this theory: what are the Lehman's executives doing now? Would they do it again? (not rhetorical questions - I don't know - but I suspect there's a disconnect in punishing corporations and reforming corporate behavior when the decision-makers still profit when a company fails).
Definitely agree... most of the upper/middle management got jobs somewhere else (duh-um in my opinion). There was actually a great article in The Deal a couple of years ago that showed where all the guys from Bear Stearns ended up after they blew that joint up - all back making 6-7 figures doing the same shit at different firms. Also look at all of the outlandish bonuses that were paid out in 2008 as the world was coming to an end -- the Wall St. culture is part of the problem... bonuses are EXPECTED, not earned for above-and-beyond performance. Not sure how to rectify that (I am not a proponent of Washington telling companies what appropriate bonus structures are -- those clowns would screw it up even more because they don't know jack about the businesses they are trying to regulate).
Aside from the need to reform corporate behavior, I think there is a need to reform individual behavior -- the fools that bought $500K houses on $40K salaries, but then got bailed out haven't learned anything either. And yes, the banks and mortgage brokers are partially at fault (completely at fault in some cases where they fraudulently misled people), but the individuals still need to bear the responsibility -- at the end of the day, it was their signature on the mortgage docs.
From Jake K.: To all those who took out preposterous mortgages for houses they couldn't come close to affording in hopes of flipping them, I want to say: too bad for you. You made a gamble and lost. The problem is that there are too many of them. If we let those people go down not only will it harm all of us in the pocketbook in the short-term but it will severly damage and possibly alter the whole national cycle of comsumption. Instead of buying we'd save too much. We'd likely be sucked into a national malaise. We've seen it before in the 30's (then it was after wild stock market speculation). People would pull back their spending, further debilitating the economy. This is the situation in Japan now: they were the Asian miracle and now they've been in the toilet for, what, a decade? It took us WWII to finally get out of our funk after the Depression. The thing about recessions and depressions is that all it takes is a significant change at the margins-a minority of speculative house buyers told to suck it-to steer us all in the wrong direction. THe national debt is a terrible problem. I'm not excited to owe so much to the Chinese. It's not our biggest problem, though. First, we have to get the number of people working productively up and making money so they buy. We have to get people optimistic about the future. They we tackle the debt. It's going to be much easier to handle with a growing economy that with a shrinking one. RE: moral hazard- was there really so much of a moral hazard as there was a being-swept-along? Believe me, I'm not condoning the actions. But in that time and place those actions seemed almost reasonable, from a certain point of view. And aren't the too-happy-to-lend banks also at least partly culpable? And what about regulations let too loose? Those are as much moral hazards. Should we make those players pay and if so how?
From Jake K.: To all those who took out preposterous mortgages for houses they couldn't come close to affording in hopes of flipping them, I want to say: too bad for you. You made a gamble and lost. The problem is that there are too many of them. If we let those people go down not only will it harm all of us in the pocketbook in the short-term but it will severly damage and possibly alter the whole national cycle of comsumption. Instead of buying we'd save too much. We'd likely be sucked into a national malaise. We've seen it before in the 30's (then it was after wild stock market speculation). People would pull back their spending, further debilitating the economy. This is the situation in Japan now: they were the Asian miracle and now they've been in the toilet for, what, a decade? It took us WWII to finally get out of our funk after the Depression. The thing about recessions and depressions is that all it takes is a significant change at the margins-a minority of speculative house buyers told to suck it-to steer us all in the wrong direction. THe national debt is a terrible problem. I'm not excited to owe so much to the Chinese. It's not our biggest problem, though. First, we have to get the number of people working productively up and making money so they buy. We have to get people optimistic about the future. They we tackle the debt. It's going to be much easier to handle with a growing economy that with a shrinking one. RE: moral hazard- was there really so much of a moral hazard as there was a being-swept-along? Believe me, I'm not condoning the actions. But in that time and place those actions seemed almost reasonable, from a certain point of view. And aren't the too-happy-to-lend banks also at least partly culpable? And what about regulations let too loose? Those are as much moral hazards. Should we make those players pay and if so how?
From Jake K.: To all those who took out preposterous mortgages for houses they couldn't come close to affording in hopes of flipping them, I want to say: too bad for you. You made a gamble and lost. The problem is that there are too many of them. If we let those people go down not only will it harm all of us in the pocketbook in the short-term but it will severly damage and possibly alter the whole national cycle of comsumption. Instead of buying we'd save too much. We'd likely be sucked into a national malaise. We've seen it before in the 30's (then it was after wild stock market speculation). People would pull back their spending, further debilitating the economy. This is the situation in Japan now: they were the Asian miracle and now they've been in the toilet for, what, a decade? It took us WWII to finally get out of our funk after the Depression. The thing about recessions and depressions is that all it takes is a significant change at the margins-a minority of speculative house buyers told to suck it-to steer us all in the wrong direction.
From Jake K.: THe national debt is a terrible problem. I'm not excited to owe so much to the Chinese. It's not our biggest problem, though. First, we have to get the number of people working productively up and making money so they buy. We have to get people optimistic about the future. They we tackle the debt. It's going to be much easier to handle with a growing economy that with a shrinking one. RE: moral hazard- was there really so much of a moral hazard as there was a being-swept-along? Believe me, I'm not condoning the actions. But in that time and place those actions seemed almost reasonable, from a certain point of view. And aren't the too-happy-to-lend banks also at least partly culpable? And what about regulations let too loose? Those are as much moral hazards. Should we make those players pay and if so how?
From Jake K.: I am so with you that it's up to us to vote and make our voices heard. I think who is in the "know" and should be listened to is tough to know ahead of time but much easier in a rear-view mirror.
As far as the Titanic, I am nowhere near a scholar. My knowledge comes from the movie and popular culture. I think your comment, however, makes my point: had the Captain and officers paid greater attention to the waters they were in and heading toward, they would have changed course. Underlying their behavior, I suggest, was the belief that the ship was unsinkable and therefore it didn't matter into which waters it sailed, it was going to survive. I think capitalism is like that: a great and mighty vessel, the best one on the seas; but that doesn't mean it can't be sunk. It is best piloted to the most useful ports.
National malaise... do you not think that's what we're in right now? See Japan: 1990-2000 (and I would agree with you - more like through 2010). I think that's what we're in right now... I agree that we would have seen something similar if "Too Big to Fail" had been allowed to fail, but I think it would have lasted for a shorter period of time. The bailout has not only mortgaged the country's future, but has also bet the house -- one mis-step and it all comes crumbling down.
I would argue that the best thing that came out of the Depression was the overly cautious mentality that came with people understanding the value of a buck. The overwhelming majority of people born after 1980 (I call them Generation Entitlement or Generation Me) have no sense of savings or value because they were brought up in a time of unprecedented prosperity and consumerism... what happens when they take over running the show in the next 10 years (and didn't learn anything from this debacle)?
I agree that unemployment is a major issue, probably even more psychologically than economically -- 10% unemployment means that 90% of people are working (for the record, I hate how unemployment is reported -- the real number is more like 17% with "underemployment" close to 20%, but the principal still holds). That is why I said from the beginning that the "bailout" funds should have been used to bolster our decaying infrastructure -- the majority of the jobs lost in the recession were construction related due to the housing bust. Put those people back to work fixing dams, bridges, etc. China spent their stimulus funds on building a national high-speed rail system... something with long-term benefits for all citizens. Instead we pissed it away on AIG, GM, repaving perfectly acceptable roads, and Cash 4 Clunkers.
Re: Banks & Regulators: ABSOLUTELY those people should have to pay the piper. If a bank didn't do due diligence (i.e. liar loans), they should take a hit. Regulation arguably got too loose, but has now swung back the other way and is too tight to the point of not making any sense (why anyone would want to be an investment banker and deal with all of those registration headaches is beyond me). The problem is, you and I, who did nothing wrong and acted responsibly during this lunacy, are helping to pay for it. I'm not that altruistic.
National malaise... do you not think that's what we're in right now? See Japan: 1990-2000 (and I would agree with you - more like through 2010). I think that's what we're in right now... I agree that we would have seen something similar if "Too Big to Fail" had been allowed to fail, but I think it would have lasted for a shorter period of time. The bailout has not only mortgaged the country's future, but has also bet the house -- one mis-step and it all comes crumbling down.
I would argue that the best thing that came out of the Depression was the overly cautious mentality that came with people understanding the value of a buck. The overwhelming majority of people born after 1980 (I call them Generation Entitlement or Generation Me) have no sense of savings or value because they were brought up in a time of unprecedented prosperity and consumerism... what happens when they take over running the show in the next 10 years (and didn't learn anything from this debacle)?
I agree that unemployment is a major issue, probably even more psychologically than economically -- 10% unemployment means that 90% of people are working (for the record, I hate how unemployment is reported -- the real number is more like 17% with "underemployment" close to 20%, but the principal still holds). That is why I said from the beginning that the "bailout" funds should have been used to bolster our decaying infrastructure -- the majority of the jobs lost in the recession were construction related due to the housing bust. Put those people back to work fixing dams, bridges, etc. China spent their stimulus funds on building a national high-speed rail system... something with long-term benefits for all citizens. Instead we pissed it away on AIG, GM, repaving perfectly acceptable roads, and Cash 4 Clunkers.
Re: Banks & Regulators: ABSOLUTELY those people should have to pay the piper. If a bank didn't do due diligence (i.e. liar loans), they should take a hit. Regulation arguably got too loose, but has now swung back the other way and is too tight to the point of not making any sense (why anyone would want to be an investment banker and deal with all of those registration headaches is beyond me). The problem is, you and I, who did nothing wrong and acted responsibly during this lunacy, are helping to pay for it. I'm not that altruistic.
From Jake K.: I agree we are currently in a national malaise. I'm concerned that without keeping the economy going, by hook or crook, whatever means necessary, including deficeit spending, we'll move into a clinical depression. Depressions for countries (and people) tend to take a very long time to heal. Again, think Japan. And they take a lot of collateral damage along the way. They take years, decades. They take great chunks of people's lives and they waste human potential. I think, unfortunately, that betting the house is the corner we've put ourselves into: we've left ourselves no other choice.
Not sure on the best effect of the Depression. You may be right. A hard slap of the kiester might be what's necessary today. From a behavioral stand point, though, I wonder if honey isn't better (more efective in terms of numbers of people changing behavior) than vinegar. Just not sure. Also, am I wrong in thinking that there were fewer markets and significantly less monetary fluidity in the 30s? Surely, that changes the game a bit.
You'd have it reported 90% (83%, as the case may be)? Brilliant! I like that. Much more hopeful.
Regarding use of bailout money, I agree with you, with one caveat: the possible fall was so great that money had to be put to work immediately. Any building project, even on fast track, takes time. Some of that time could be shaved off, one suspects, but still not all. It also takes some time to admister the money. But a new WPA? Absoultely. All for it. A smart investment. You're right in that it appears a good portion was not as wisely spent as it could be.
We're on the same page re: banks, if different paragraphs. Except for a few high-profile cases that I vagely recall, none of those folks had to pay back any of the money they earned scamming the populace. I guess people still want to be investment bankers because they can become or dream of becoming rich. Yes, we're paying for it; yes, we did nothing wrong. It's not out of altruism that I hold my views, though: principally, it's from the belief that we're all in this together. I don't mean in a kumba-ya, let's-hold-hands-round-the-campfire way. I mean from a practical what's the cheapest way we're all going to get out of this mess because we all pay, directly or indirectly otherwise. It does us no good for poverty to radically increase; for black (or white or mexian-american or whatever) teenagers to roam the streets because they're unable to find work; or for there to be a society in which the difference between rich and poor becomes even greater. I don't know about you but I don't want to live in a south american country behind gates and worried about being kidnapped. I don't want to walk down city streets in fear. What I do want is for people to participate in the way they best can for the sake of all of us. That is a bit hippy-dippy, perhaps, but I think it's also the lesson of In Search of Excellence and Good to Great.
I compared capitalism with the Titanic at the start of this thread. I want to add this: The Titanic was the mightiest and most beautiful ship on the sea. It would have been fine and traveled for many voyages if those in charge had paid attention to the waters around. Heading toward increased societal discord and disparity is like heading into freeing waters. Icebergs ahead.
From Jake K.: I agree we are currently in a national malaise. I'm concerned that without keeping the economy going, by hook or crook, whatever means necessary, including deficeit spending, we'll move into a clinical depression. Depressions for countries (and people) tend to take a very long time to heal. Again, think Japan. And they take a lot of collateral damage along the way. They take years, decades. They take great chunks of people's lives and they waste human potential. I think, unfortunately, that betting the house is the corner we've put ourselves into: we've left ourselves no other choice.
Not sure on the best effect of the Depression. You may be right. A hard slap of the kiester might be what's necessary today. From a behavioral stand point, though, I wonder if honey isn't better (more efective in terms of numbers of people changing behavior) than vinegar. Just not sure. Also, am I wrong in thinking that there were fewer markets and significantly less monetary fluidity in the 30s? Surely, that changes the game a bit.
You'd have it reported 90% (83%, as the case may be)? Brilliant! I like that. Much more hopeful.
Regarding use of bailout money, I agree with you, with one caveat: the possible fall was so great that money had to be put to work immediately. Any building project, even on fast track, takes time. Some of that time could be shaved off, one suspects, but still not all. It also takes some time to admister the money. But a new WPA? Absoultely. All for it. A smart investment. You're right in that it appears a good portion was not as wisely spent as it could be.
From Jake K.: We're on the same page re: banks, if different paragraphs. Except for a few high-profile cases that I vagely recall, none of those folks had to pay back any of the money they earned scamming the populace. I guess people still want to be investment bankers because they can become or dream of becoming rich. Yes, we're paying for it; yes, we did nothing wrong. It's not out of altruism that I hold my views, though: principally, it's from the belief that we're all in this together. I don't mean in a kumba-ya, let's-hold-hands-round-the-campfire way. I mean from a practical what's the cheapest way we're all going to get out of this mess because we all pay, directly or indirectly otherwise. It does us no good for poverty to radically increase; for black (or white or mexian-american or whatever) teenagers to roam the streets because they're unable to find work; or for there to be a society in which the difference between rich and poor becomes even greater. I don't know about you but I don't want to live in a south american country behind gates and worried about being kidnapped. I don't want to walk down city streets in fear. What I do want is for people to participate in the way they best can for the sake of all of us. That is a bit hippy-dippy, perhaps, but I think it's also the lesson of In Search of Excellence and Good to Great.
I compared capitalism with the Titanic at the start of this thread. I want to add this: The Titanic was the mightiest and most beautiful ship on the sea. It would have been fine and traveled for many voyages if those in charge had paid attention to the waters around. Heading toward increased societal discord and disparity is like heading into freeing waters. Icebergs ahead.
From Jake K.: Regardless of the rightness of making/letting people pay for their mistakes, though, often letting them fail would actually cause those of us who didn't make these mistakes-not only those that did-much greater harm. The captain of the Titanic should have been more concerned about icebergs. He had ultimate faith that his ship was unsinkable and so didn't take external/unknown dangers seriously enough (obviously). We see where that got him and everybody on board. Belief in pure, unadulterated capitalism, if such a thing were ever possible, is like faith in the unsinkable ship. In the end, you don't know if it will work. Isn't it smartest to hedge one's bet?
ReplyDeleteFrom Diane W.: IMHO - NO... Listen to those in the know not the guess work of our elected officials - which in reality is the fault of the people voting and not voting...
ReplyDeleteWith regards to the Titantic is was a matter of not listening...
records of the Titanic accident history indicate that the Titanic disaster may very well have been able to have been completely avoided had officers on ship paid heed to reports received earlier regarding the frozen waters they were approaching.
I strongly believe that letting them fail would have had a negative impact on all of us in the SHORT-TERM. Instead of making people take their lumps for their mistakes immediately, we have only delayed the day of reckoning (and increased the size of those lumps via the expansion of our national debt). I find this scenario much more distasteful as everyone is expected to pay for the mistakes of a few... not to mention the moral hazard issue - those who made the mistakes have learned NOTHING, thereby encouraging similar reckless behavior in the future with expectations that the government will bail them out again.
ReplyDeleteFrom Jim B.: We have a way to partially test this theory: what are the Lehman's executives doing now? Would they do it again? (not rhetorical questions - I don't know - but I suspect there's a disconnect in punishing corporations and reforming corporate behavior when the decision-makers still profit when a company fails).
ReplyDeleteDefinitely agree... most of the upper/middle management got jobs somewhere else (duh-um in my opinion). There was actually a great article in The Deal a couple of years ago that showed where all the guys from Bear Stearns ended up after they blew that joint up - all back making 6-7 figures doing the same shit at different firms. Also look at all of the outlandish bonuses that were paid out in 2008 as the world was coming to an end -- the Wall St. culture is part of the problem... bonuses are EXPECTED, not earned for above-and-beyond performance. Not sure how to rectify that (I am not a proponent of Washington telling companies what appropriate bonus structures are -- those clowns would screw it up even more because they don't know jack about the businesses they are trying to regulate).
ReplyDeleteAside from the need to reform corporate behavior, I think there is a need to reform individual behavior -- the fools that bought $500K houses on $40K salaries, but then got bailed out haven't learned anything either. And yes, the banks and mortgage brokers are partially at fault (completely at fault in some cases where they fraudulently misled people), but the individuals still need to bear the responsibility -- at the end of the day, it was their signature on the mortgage docs.
From Jake K.: To all those who took out preposterous mortgages for houses they couldn't come close to affording in hopes of flipping them, I want to say: too bad for you. You made a gamble and lost.
ReplyDeleteThe problem is that there are too many of them. If we let those people go down not only will it harm all of us in the pocketbook in the short-term but it will severly damage and possibly alter the whole national cycle of comsumption. Instead of buying we'd save too much. We'd likely be sucked into a national malaise. We've seen it before in the 30's (then it was after wild stock market speculation). People would pull back their spending, further debilitating the economy. This is the situation in Japan now: they were the Asian miracle and now they've been in the toilet for, what, a decade? It took us WWII to finally get out of our funk after the Depression.
The thing about recessions and depressions is that all it takes is a significant change at the margins-a minority of speculative house buyers told to suck it-to steer us all in the wrong direction.
THe national debt is a terrible problem. I'm not excited to owe so much to the Chinese. It's not our biggest problem, though. First, we have to get the number of people working productively up and making money so they buy. We have to get people optimistic about the future. They we tackle the debt. It's going to be much easier to handle with a growing economy that with a shrinking one.
RE: moral hazard- was there really so much of a moral hazard as there was a being-swept-along? Believe me, I'm not condoning the actions. But in that time and place those actions seemed almost reasonable, from a certain point of view. And aren't the too-happy-to-lend banks also at least partly culpable? And what about regulations let too loose?
Those are as much moral hazards. Should we make those players pay and if so how?
Thanks for this. You get me thinking.
From Jake K.: To all those who took out preposterous mortgages for houses they couldn't come close to affording in hopes of flipping them, I want to say: too bad for you. You made a gamble and lost.
ReplyDeleteThe problem is that there are too many of them. If we let those people go down not only will it harm all of us in the pocketbook in the short-term but it will severly damage and possibly alter the whole national cycle of comsumption. Instead of buying we'd save too much. We'd likely be sucked into a national malaise. We've seen it before in the 30's (then it was after wild stock market speculation). People would pull back their spending, further debilitating the economy. This is the situation in Japan now: they were the Asian miracle and now they've been in the toilet for, what, a decade? It took us WWII to finally get out of our funk after the Depression.
The thing about recessions and depressions is that all it takes is a significant change at the margins-a minority of speculative house buyers told to suck it-to steer us all in the wrong direction.
THe national debt is a terrible problem. I'm not excited to owe so much to the Chinese. It's not our biggest problem, though. First, we have to get the number of people working productively up and making money so they buy. We have to get people optimistic about the future. They we tackle the debt. It's going to be much easier to handle with a growing economy that with a shrinking one.
RE: moral hazard- was there really so much of a moral hazard as there was a being-swept-along? Believe me, I'm not condoning the actions. But in that time and place those actions seemed almost reasonable, from a certain point of view. And aren't the too-happy-to-lend banks also at least partly culpable? And what about regulations let too loose?
Those are as much moral hazards. Should we make those players pay and if so how?
Thanks for this. You get me thinking.
From Jake K.: To all those who took out preposterous mortgages for houses they couldn't come close to affording in hopes of flipping them, I want to say: too bad for you. You made a gamble and lost.
ReplyDeleteThe problem is that there are too many of them. If we let those people go down not only will it harm all of us in the pocketbook in the short-term but it will severly damage and possibly alter the whole national cycle of comsumption. Instead of buying we'd save too much. We'd likely be sucked into a national malaise. We've seen it before in the 30's (then it was after wild stock market speculation). People would pull back their spending, further debilitating the economy. This is the situation in Japan now: they were the Asian miracle and now they've been in the toilet for, what, a decade? It took us WWII to finally get out of our funk after the Depression.
The thing about recessions and depressions is that all it takes is a significant change at the margins-a minority of speculative house buyers told to suck it-to steer us all in the wrong direction.
From Jake K.: THe national debt is a terrible problem. I'm not excited to owe so much to the Chinese. It's not our biggest problem, though. First, we have to get the number of people working productively up and making money so they buy. We have to get people optimistic about the future. They we tackle the debt. It's going to be much easier to handle with a growing economy that with a shrinking one.
ReplyDeleteRE: moral hazard- was there really so much of a moral hazard as there was a being-swept-along? Believe me, I'm not condoning the actions. But in that time and place those actions seemed almost reasonable, from a certain point of view. And aren't the too-happy-to-lend banks also at least partly culpable? And what about regulations let too loose?
Those are as much moral hazards. Should we make those players pay and if so how?
Thanks for this. You get me thinking.
From Jake K.: I am so with you that it's up to us to vote and make our voices heard. I think who is in the "know" and should be listened to is tough to know ahead of time but much easier in a rear-view mirror.
ReplyDeleteAs far as the Titanic, I am nowhere near a scholar. My knowledge comes from the movie and popular culture. I think your comment, however, makes my point: had the Captain and officers paid greater attention to the waters they were in and heading toward, they would have changed course. Underlying their behavior, I suggest, was the belief that the ship was unsinkable and therefore it didn't matter into which waters it sailed, it was going to survive. I think capitalism is like that: a great and mighty vessel, the best one on the seas; but that doesn't mean it can't be sunk. It is best piloted to the most useful ports.
National malaise... do you not think that's what we're in right now? See Japan: 1990-2000 (and I would agree with you - more like through 2010). I think that's what we're in right now... I agree that we would have seen something similar if "Too Big to Fail" had been allowed to fail, but I think it would have lasted for a shorter period of time. The bailout has not only mortgaged the country's future, but has also bet the house -- one mis-step and it all comes crumbling down.
ReplyDeleteI would argue that the best thing that came out of the Depression was the overly cautious mentality that came with people understanding the value of a buck. The overwhelming majority of people born after 1980 (I call them Generation Entitlement or Generation Me) have no sense of savings or value because they were brought up in a time of unprecedented prosperity and consumerism... what happens when they take over running the show in the next 10 years (and didn't learn anything from this debacle)?
I agree that unemployment is a major issue, probably even more psychologically than economically -- 10% unemployment means that 90% of people are working (for the record, I hate how unemployment is reported -- the real number is more like 17% with "underemployment" close to 20%, but the principal still holds). That is why I said from the beginning that the "bailout" funds should have been used to bolster our decaying infrastructure -- the majority of the jobs lost in the recession were construction related due to the housing bust. Put those people back to work fixing dams, bridges, etc. China spent their stimulus funds on building a national high-speed rail system... something with long-term benefits for all citizens. Instead we pissed it away on AIG, GM, repaving perfectly acceptable roads, and Cash 4 Clunkers.
Re: Banks & Regulators: ABSOLUTELY those people should have to pay the piper. If a bank didn't do due diligence (i.e. liar loans), they should take a hit. Regulation arguably got too loose, but has now swung back the other way and is too tight to the point of not making any sense (why anyone would want to be an investment banker and deal with all of those registration headaches is beyond me). The problem is, you and I, who did nothing wrong and acted responsibly during this lunacy, are helping to pay for it. I'm not that altruistic.
National malaise... do you not think that's what we're in right now? See Japan: 1990-2000 (and I would agree with you - more like through 2010). I think that's what we're in right now... I agree that we would have seen something similar if "Too Big to Fail" had been allowed to fail, but I think it would have lasted for a shorter period of time. The bailout has not only mortgaged the country's future, but has also bet the house -- one mis-step and it all comes crumbling down.
ReplyDeleteI would argue that the best thing that came out of the Depression was the overly cautious mentality that came with people understanding the value of a buck. The overwhelming majority of people born after 1980 (I call them Generation Entitlement or Generation Me) have no sense of savings or value because they were brought up in a time of unprecedented prosperity and consumerism... what happens when they take over running the show in the next 10 years (and didn't learn anything from this debacle)?
I agree that unemployment is a major issue, probably even more psychologically than economically -- 10% unemployment means that 90% of people are working (for the record, I hate how unemployment is reported -- the real number is more like 17% with "underemployment" close to 20%, but the principal still holds). That is why I said from the beginning that the "bailout" funds should have been used to bolster our decaying infrastructure -- the majority of the jobs lost in the recession were construction related due to the housing bust. Put those people back to work fixing dams, bridges, etc. China spent their stimulus funds on building a national high-speed rail system... something with long-term benefits for all citizens. Instead we pissed it away on AIG, GM, repaving perfectly acceptable roads, and Cash 4 Clunkers.
ReplyDeleteRe: Banks & Regulators: ABSOLUTELY those people should have to pay the piper. If a bank didn't do due diligence (i.e. liar loans), they should take a hit. Regulation arguably got too loose, but has now swung back the other way and is too tight to the point of not making any sense (why anyone would want to be an investment banker and deal with all of those registration headaches is beyond me). The problem is, you and I, who did nothing wrong and acted responsibly during this lunacy, are helping to pay for it. I'm not that altruistic.
From Jake K.: I agree we are currently in a national malaise. I'm concerned that without keeping the economy going, by hook or crook, whatever means necessary, including deficeit spending, we'll move into a clinical depression. Depressions for countries (and people) tend to take a very long time to heal. Again, think Japan. And they take a lot of collateral damage along the way. They take years, decades. They take great chunks of people's lives and they waste human potential. I think, unfortunately, that betting the house is the corner we've put ourselves into: we've left ourselves no other choice.
ReplyDeleteNot sure on the best effect of the Depression. You may be right. A hard slap of the kiester might be what's necessary today. From a behavioral stand point, though, I wonder if honey isn't better (more efective in terms of numbers of people changing behavior) than vinegar. Just not sure. Also, am I wrong in thinking that there were fewer markets and significantly less monetary fluidity in the 30s? Surely, that changes the game a bit.
You'd have it reported 90% (83%, as the case may be)? Brilliant! I like that. Much more hopeful.
Regarding use of bailout money, I agree with you, with one caveat: the possible fall was so great that money had to be put to work immediately. Any building project, even on fast track, takes time. Some of that time could be shaved off, one suspects, but still not all. It also takes some time to admister the money. But a new WPA? Absoultely. All for it. A smart investment. You're right in that it appears a good portion was not as wisely spent as it could be.
We're on the same page re: banks, if different paragraphs. Except for a few high-profile cases that I vagely recall, none of those folks had to pay back any of the money they earned scamming the populace. I guess people still want to be investment bankers because they can become or dream of becoming rich. Yes, we're paying for it; yes, we did nothing wrong. It's not out of altruism that I hold my views, though: principally, it's from the belief that we're all in this together. I don't mean in a kumba-ya, let's-hold-hands-round-the-campfire way. I mean from a practical what's the cheapest way we're all going to get out of this mess because we all pay, directly or indirectly otherwise. It does us no good for poverty to radically increase; for black (or white or mexian-american or whatever) teenagers to roam the streets because they're unable to find work; or for there to be a society in which the difference between rich and poor becomes even greater. I don't know about you but I don't want to live in a south american country behind gates and worried about being kidnapped. I don't want to walk down city streets in fear. What I do want is for people to participate in the way they best can for the sake of all of us. That is a bit hippy-dippy, perhaps, but I think it's also the lesson of In Search of Excellence and Good to Great.
I compared capitalism with the Titanic at the start of this thread. I want to add this: The Titanic was the mightiest and most beautiful ship on the sea. It would have been fine and traveled for many voyages if those in charge had paid attention to the waters around. Heading toward increased societal discord and disparity is like heading into freeing waters. Icebergs ahead.
From Jake K.: I agree we are currently in a national malaise. I'm concerned that without keeping the economy going, by hook or crook, whatever means necessary, including deficeit spending, we'll move into a clinical depression. Depressions for countries (and people) tend to take a very long time to heal. Again, think Japan. And they take a lot of collateral damage along the way. They take years, decades. They take great chunks of people's lives and they waste human potential. I think, unfortunately, that betting the house is the corner we've put ourselves into: we've left ourselves no other choice.
ReplyDeleteNot sure on the best effect of the Depression. You may be right. A hard slap of the kiester might be what's necessary today. From a behavioral stand point, though, I wonder if honey isn't better (more efective in terms of numbers of people changing behavior) than vinegar. Just not sure. Also, am I wrong in thinking that there were fewer markets and significantly less monetary fluidity in the 30s? Surely, that changes the game a bit.
You'd have it reported 90% (83%, as the case may be)? Brilliant! I like that. Much more hopeful.
Regarding use of bailout money, I agree with you, with one caveat: the possible fall was so great that money had to be put to work immediately. Any building project, even on fast track, takes time. Some of that time could be shaved off, one suspects, but still not all. It also takes some time to admister the money. But a new WPA? Absoultely. All for it. A smart investment. You're right in that it appears a good portion was not as wisely spent as it could be.
From Jake K.: We're on the same page re: banks, if different paragraphs. Except for a few high-profile cases that I vagely recall, none of those folks had to pay back any of the money they earned scamming the populace. I guess people still want to be investment bankers because they can become or dream of becoming rich. Yes, we're paying for it; yes, we did nothing wrong. It's not out of altruism that I hold my views, though: principally, it's from the belief that we're all in this together. I don't mean in a kumba-ya, let's-hold-hands-round-the-campfire way. I mean from a practical what's the cheapest way we're all going to get out of this mess because we all pay, directly or indirectly otherwise. It does us no good for poverty to radically increase; for black (or white or mexian-american or whatever) teenagers to roam the streets because they're unable to find work; or for there to be a society in which the difference between rich and poor becomes even greater. I don't know about you but I don't want to live in a south american country behind gates and worried about being kidnapped. I don't want to walk down city streets in fear. What I do want is for people to participate in the way they best can for the sake of all of us. That is a bit hippy-dippy, perhaps, but I think it's also the lesson of In Search of Excellence and Good to Great.
ReplyDeleteI compared capitalism with the Titanic at the start of this thread. I want to add this: The Titanic was the mightiest and most beautiful ship on the sea. It would have been fine and traveled for many voyages if those in charge had paid attention to the waters around. Heading toward increased societal discord and disparity is like heading into freeing waters. Icebergs ahead.