Bob Brinker says you're a certified fool is you question the Bernank

[murphy_p_t]

turned on radio and heard Brinker slamming anyone who questions Bernanke. He stated that Bernanke is the only one doing their job in DC.

I'm glad to know that I'm a fool

[doodle]

I tend to think Bernanke is the only person in Washington who has done anything to help stop the financial crisis from becoming the second great depression. On the whole, I think we have him to thank that we don't have much, much worse problems than we do today. Of course I disagree with the entire structure of the economic system we live under so I don't exactly represent mainstream thinking. 

[craigr]

We can never prove what would have happened if Bernanke did nothing. But I'm definitely in the camp that the Fed's actions likely dragged out the problem far further than it should have been dragged, not to mention creating it in the first place with lots of cheap credit due to Federal government initiatives.

So pardon me for not thanking him for fixing the problem that he and the Fed created in the first place. Kind of the same way I don't thank the arsonist for putting out the brush fire he started.

[Benko]

pardon me for not thanking him for fixing the problem that he and the Fed created in the first place.

+1

[doodle]

We can never prove what would have happened if Bernanke did nothing.

Just like we can never prove what the United States would have been today without the formation of a central bank in the first place. Over the last 100 years this financial crisis as well as the great depression look like just a few little blips in an enormous period of economic expansion. Who is to say any of that would have been possible under different conditions. Economic panics and crisis in this country existed before the creation of the federal reserve system after all.

Bernanke didn't create this nonsensical system we live under, he is just in charge of keeping it reasonably functioning. 

[doodle]

Government is such as easy punching bag for the private sector...when anything goes wrong it is so easy to toss all the blame their way. I rather think the interconnected and myriad variables in the system are a wee bit too complex to so easily lay blame on one actor.

[craigr]

Government is such as easy punching bag for the private sector...when anything goes wrong it is so easy to toss all the blame their way. I rather think the interconnected and myriad variables in the system are a wee bit too complex to so easily lay blame on one actor.

No bank would have been making $250,000+ loans to people with no documented income unless they knew they had a bigger sucker to sell them to (Fannie Mae/Freddie Mac aka. Uncle Sam). Or thinking they'd be bailed out if they went wrong.

If the banks had to suck up the loan risk entirely, there is simply no way these high credit risk loans would have been made. IMO. The person making $20K a year probably wouldn't have qualified for even a $50K loan, let alone one worth hundreds of thousands. Without all that easy money in the markets, you would have had less people bidding on homes they couldn't afford. Which means less likely chance of a housing bubble would have formed. etc.

And the thing is all this "compassion" in the loans did was to put people into houses they couldn't afford, saddled them with bankruptcy years later, cratered the housing market for legitimate savers that could afford them, and caused a lot of people to lose a ton of money that otherwise wouldn't have otherwise.

So in this case, yeah we pretty much can blame the government!

[doodle]

Government is such as easy punching bag for the private sector...when anything goes wrong it is so easy to toss all the blame their way. I rather think the interconnected and myriad variables in the system are a wee bit too complex to so easily lay blame on one actor.

No bank would have been making $250,000+ loans to people with no documented income unless they knew they had a bigger sucker to sell them to (Fannie Mae/Freddie Mac aka. Uncle Sam). Or thinking they'd be bailed out if they went wrong.

If the banks had to suck up the loan risk entirely, there is simply no way these high credit risk loans would have been made. IMO. The person making $20K a year probably wouldn't have qualified for even a $50K loan, let alone one worth hundreds of thousands. Without all that easy money in the markets, you would have had less people bidding on homes they couldn't afford. Which means less likely chance of a housing bubble would have formed. etc.

And the thing is all this "compassion" in the loans did was to put people into houses they couldn't afford, saddled them with bankruptcy years later, cratered the housing market for legitimate savers that could afford them, and caused a lot of people to lose a ton of money that otherwise wouldn't have otherwise.

So in this case, yeah we pretty much can blame the government!

Here is one thing I don't understand about this whole economic system. On a macroeconomic scale we have the ability to collectively build more things than we have the money to consume.  There is an interplay or game between the real economy of goods and services and the money economy which I don't quite understand.

If you remove money from the equation for a second, things get a little nonsensical for me. If we were a tribal village it would be like if we collectively built big huts for everyone and then told each other that we couldn't live in them. Money is a great tool, but in our system it obscures  and mystifies things.

[LifestyleFreedom]

We can certainly blame the government in this case.  But that is another way of saying we can only blame ourselves.  We are the ones who put these elected officials (and their appointees) in office.  When Long Term Capital Management melted down in 1998 (which is well documented in the book When Genius Failed), I thought at the time that the financial regulators had learned some important lessons and fixed the system so that it would not melt down again.  I was wrong.

The Warning
http://www.pbs.org/wgbh/pages/frontline/warning/view/

As a citizen, I have to live with the consequences of this mess.  I suppose the laws and regulations will get tougher in the years ahead, just as they did after the Panic of 1907 and The Great Depression and other financial calamities we have had over the years.  I do not know what the answers are myself.  Instead, I have to figure out how to navigate through this mess and remain solvent.

[craigr]

If you remove money from the equation for a second, things get a little nonsensical for me. If we were a tribal village it would be like if we collectively built big huts for everyone and then told each other that we couldn't live in them. Money is a great tool, but in our system it obscures  and mystifies things.

Fundamentally money is a powerful tool, like a firearm. In the right hands it is useful. In the wrong hands people get shot, or shoot themselves.

In the case of easy credit, the situation is people that shouldn't have money lent to them because they are irresponsible do irresponsible things. Then it blows up and people are shocked.

Am I shocked that someone with no documented income and perhaps previous history of bad credit turns out to be a bad credit risk? No. But then again I doubt the banks were shocked either. It's just that they knew they could sell them off to Freddie Mac, etc. and have them absorb the inevitable losses.

The entire idea of cheap home loans was idiotic from top to bottom. I actually don't blame the banks. I blame the people that enabled the cheap credit (the Fed and Uncle Sam) as a way to finance homes for people that have no business buying a home.

[doodle]

We can certainly blame the government in this case.  But that is another way of saying we can only blame ourselves.  We are the ones who put these elected officials (and their appointees) in office.  When Long Term Capital Management melted down in 1998 (which is well documented in the book When Genius Failed), I thought at the time that the financial regulators had learned some important lessons and fixed the system so that it would not melt down again.  I was wrong.

The Warning
http://www.pbs.org/wgbh/pages/frontline/warning/view/

As a citizen, I have to live with the consequences of this mess.  I suppose the laws and regulations will get tougher in the years ahead, just as they did after the Panic of 1907 and The Great Depression and other financial calamities we have had over the years.  I do not know what the answers are myself.  Instead, I have to figure out how to navigate through this mess and remain solvent.

How could the federal reserve be responsible for the panic of 1907 when it hadnt even been created yet? In fact, the impetus for its creation was largely the 1907 panic itself.

[doodle]

If you remove money from the equation for a second, things get a little nonsensical for me. If we were a tribal village it would be like if we collectively built big huts for everyone and then told each other that we couldn't live in them. Money is a great tool, but in our system it obscures  and mystifies things.

Fundamentally money is a powerful tool, like a firearm. In the right hands it is useful. In the wrong hands people get shot, or shoot themselves.

In the case of easy credit, the situation is people that shouldn't have money lent to them because they are irresponsible do irresponsible things. Then it blows up and people are shocked.

Am I shocked that someone with no documented income and perhaps previous history of bad credit turns out to be a bad credit risk? No. But then again I doubt the banks were shocked either. It's just that they knew they could sell them off to Freddie Mac, etc. and have them absorb the inevitable losses.

The entire idea of cheap home loans was idiotic from top to bottom. I actually don't blame the banks. I blame the people that enabled the cheap credit (the Fed and Uncle Sam) as a way to finance homes for people that have no business buying a home.

Craig,

You are still talking voodoo money. Im talking real production and consumption of goods. If we have the ability to produce something then we should also be able to consume it without inviting panic and crisis. If we can build the homes, why cant we live in them as well?

I think the real culprit in all of this is that the rules of capitalism are somewhat nonsensical and when you add a convoluted money system on top it is inevitable that something among all these crazy gyrating parts is going to crash or break.

[Benko]

I think the real culprit in all of this is that the rules of capitalism are somewhat nonsensical

Doodle,

Step 1.  In the name of fairness, bend/break the laws of capitalism i.e. force lenders to loan money to people who couldn't possibly pay it back

Step 2. Blame capitalism for the result.

Sound familiar?  This is a favorite liberal tactic.

[craigr]

You are still talking voodoo money. Im talking real production and consumption of goods. If we have the ability to produce something then we should also be able to consume it without inviting panic and crisis. If we can build the homes, why cant we live in them as well?

It's not voodoo. Productive resources were diverted into building homes for people that couldn't pay for them. People that could pay for them were forced to pay much more as they bid against those that could not. Unless you are going to give people a home for "free" then there are consequences for these actions. Indeed, even giving a home for "free" has it's own unintended consequences as people in the USSR discovered.

I think the real culprit in all of this is that the rules of capitalism are somewhat nonsensical and when you add a convoluted money system on top it is inevitable that something among all these crazy gyrating parts is going to crash or break.

Free markets works quite well when there are consequences attached to actions. It is Darwin with a price tag. Bad actors don't stay solvent. Good actors don't do stupid things with their money. It actually works remarkably well (at least when compared to alternatives). When it goes off the rails there is usually some kind of government involved. Either they are making risky investments less so by absorbing the risks. Or maybe they are doing things in the market to distort the risk/reward outcomes. Or perhaps they are acting to protect a monopoly though crony capitalism. Etc.

[melveyr]

Bernanke is just alright with me.

I think people think he has more power than he really does though. He can change the price of debt, which is extremely relevant when private sector debt is rapidly expanding on a national scale. However, when people are more focused on paying down debt regardless of the price (a perfectly logical thing to do when you are insolvent) his actions have less of an impact on the economy.

If you are a soda lover, when Coke changes the price of two liters it is reasonable that you might consume more or less of it depending on the price. But, when you develop diabetes from too much sugar, the price becomes entirely irrelevant. They could hand out Coke for free and you still might not buy it.

Household balance sheets are sick, and Bernanke doesn't have the cure; he can only change the price of what made us sick in the first place.

[craigr]

Bernanke is just alright with me.

I think people think he has more power than he really does though. He can change the price of debt, which is extremely relevant when private sector debt is rapidly expanding on a national scale. However, when people are more focused on paying down debt regardless of the price (a perfectly logical thing to do when you are insolvent) his actions have less of an impact on the economy.

There's the rub. The Fed enabled a huge heroin binge and when it finally started killing people they don't want to take the blame when everyone is in rehab dealing with the withdrawals.

His fix?

Offer cheaper heroin.

No thanks. The Fed has helped enough already.

[LifestyleFreedom]

How could the federal reserve be responsible for the panic of 1907 when it hadnt even been created yet? In fact, the impetus for its creation was largely the 1907 panic itself.

That is exactly the point.  Wall Street banker J.P. Morgan saved the United States from the Panic of 1907.  Congress did not want to have to depend on the charm and skills of an individual to save the country again from another financial panic.  So the Federal Reserve was created in response to the Panic of 1907.

People may agree or disagree with the Federal Reserve, but it was created in response to a financial crisis.  Sometimes the solution to one crisis creates the seeds for another crisis.  Or perhaps subsequent crises are not as severe as they would have otherwise been had the original solution not been created.  These kinds of assertions are difficult to prove because we cannot conduct controlled experiments.

[doodle]

Craig,

Fundamentally money is a powerful tool, like a firearm. In the right hands it is useful. In the wrong hands people get shot, or shoot themselves.

Money is a tool. But its power is derived from that which we give it. I know it would be considered sacrilege for you, but I think you would find Marx quite enlightening.  I am still reading him, but his analysis of capitalism is probably still the most profound one to this day.

Marx thought capitalism was an incredibly productive system that was able to produce enormous wealth. That is why he thought that all economies had to proceed through a capitalistic phase. But, there were contradictions and tendencies within capitalism that led to instability and thus would ultimately cause its downfall.

Karl Marx claimed that capitalist societies suffered from two unresolvable problems that would prevent both social harmony and a stable economic life. First, Marx assumed that the competitive processes of a capitalist market society would lead to a concentration of capital ownership in fewer and fewer hands. Marx built this claim on the assumption, which he holds in common with laissez faire economics, that a competitive economy must lead inevitably to the elimination of some producers by others, there must be winners and losers and the winners would grow increasingly large. Capitalism, Marx argued, contrary to the general assumption of laissez faire economics, had an inherent tendency towards concentration of capital in oligopolies and monopolies. (I really think this is what you are seeing today. Take a walk down your average grocery stores aisle. You might think you have a diversity of corporations products to choose from, but in reality because of acquisitions and mergers you probably have about six.)

Capitalist corporations grew more concentrated and larger, the number of individuals owning the means of production became fewer. The class structure becomes polarized and the economic and social conditions of the two opposed main classes more strongly contrasted, leading to political activation of the working class and prolonged conflict with the dominant bourgeois class through political and industrial organization. It is this development of social polarization that provides the unsolveable social or relational contradiction of capitalist society.

The social organization of a capitalist society also presented an inherent structural contradiction in the economic dynamics of capitalism. While capitalism revolutionized the means of production by promoting the greatest economic development in human history, its class structure focused the capacity to consume in a tiny minority of the population. The mass social scale of production could not remain compatible with the concentration of wealth in fewer and fewer hands. As a result, there must be inherent instability, or anarchy, in the whole capitalist system of production. The social effects of such instability in turn must intensify the political struggle of social classes hastening the event of socialist revolution.

I think the real culprit in all of this is that the rules of capitalism are somewhat nonsensical

Doodle,

Step 1.  In the name of fairness, bend/break the laws of capitalism i.e. force lenders to loan money to people who couldn't possibly pay it back

Step 2. Blame capitalism for the result.

Sound familiar?  This is a favorite liberal tactic.

Benko,

If you don't break or bend the so called "laws of capitalism" you are going to have a social nightmare on your hands sooner rather than later. The best thing you can do to destroy capitalism is to fully unleash it from regulation and redistribution. Do that and you'll have a full on revolution on your hands in a short matter of time.

[doodle]

How could the federal reserve be responsible for the panic of 1907 when it hadnt even been created yet? In fact, the impetus for its creation was largely the 1907 panic itself.

That is exactly the point.  Wall Street banker J.P. Morgan saved the United States from the Panic of 1907.  Congress did not want to have to depend on the charm and skills of an individual to save the country again from another financial panic.  So the Federal Reserve was created in response to the Panic of 1907.

People may agree or disagree with the Federal Reserve, but it was created in response to a financial crisis.  Sometimes the solution to one crisis creates the seeds for another crisis. Or perhaps subsequent crises are not as severe as they would have otherwise been had the original solution not been created.  These kinds of assertions are difficult to prove because we cannot conduct controlled experiments.

That is the Hegelian Dialectic and it forms a big part of Marx's theories of how history progresses. Thesis --> antithesis --> synthesis (which now forms new thesis for the process to start a new.)

Libertarians live in a fantasyland where this process doesn't happen because their system would be such a utopia that nothing would ever go wrong that needed fixing. It is a religious thing.

[craigr]

Craig,

Fundamentally money is a powerful tool, like a firearm. In the right hands it is useful. In the wrong hands people get shot, or shoot themselves.

Money is a tool. But its power is derived from that which we give it. I know it would be considered sacrilege for you, but I think you would find Marx quite enlightening.  I am still reading him, but his analysis of capitalism is probably still the most profound one to this day.

Marx was wrong on just about everything. I wouldn't waste a second of my time listening anything he has to say. His ideas resulted in the deaths of tens of millions.

Marx thought capitalism was an incredibly productive system that was able to produce enormous wealth. That is why he thought that all economies had to proceed through a capitalistic phase. But, there were contradictions and tendencies within capitalism that led to instability and thus would ultimately cause its downfall.

And he was wrong. As bad as free market systems may be, Wal-Mart has never run a Gulag.

Karl Marx claimed that capitalist societies suffered from two unresolvable problems that would prevent both social harmony and a stable economic life.

And again he was wrong. Free market systems have produced technology and innovations that would make even the most diehard Marxist envious when looked at in comparative terms. Under free market economies, bread lines are almost unheard of. Under controlled economies? Very common.

First, Marx assumed that the competitive processes of a capitalist market society would lead to a concentration of capital ownership in fewer and fewer hands. Marx built this claim on the assumption, which he holds in common with laissez faire economics,

And again he was wrong. Wealth is very transitional. Even in so-called "dynasties" the wealth tends to disperse and vanish inside three generations. Wealth is not stable when poorly managed and follow-on generations have shown to be poor managers. New caretakers of wealth come onto the scene constantly. There are very few families that have true inter-generational wealth.

had an inherent tendency towards concentration of capital in oligopolies and monopolies. (I really think this is what you are seeing today. Talk a walk down your average grocery stores aisle. You might think you have a diversity of corporations products to choose from, but in reality because of acquisitions and mergers you probably have about six.)

Monopolies do not exist under a true free market system. They only exist when governments get involved to protect them. A large company cannot raise prices, etc. without a new competitor emerging to undercut them on the opportunity. The only way that can happen is if government is used to lock people out of competition. You even saw this under Marxist command economies where state owned agencies under delivered and over charged.

Capitalist corporations grew more concentrated and larger, the number of individuals owning the means of production became fewer. The class structure becomes polarized and the economic and social conditions of the two opposed main classes more strongly contrasted, leading to political activation of the working class and prolonged conflict with the dominant bourgeois class through political and industrial organization. It is this development of social polarization that provides the unsolveable social or relational contradiction of capitalist society.

Ok. And you are telling me that there are no classes in Marxist economies? There is not an elite system of party members entrenched though political connections and violence? Again I'd much rather have to deal with Wal-Mart executives than Communist Party insiders in terms of getting things changed. Wal-Mart doesn't send vans out in the middle of the night to haul you off to re-education camps.

The social effects of such instability in turn must intensify the political struggle of social classes hastening the event of socialist revolution.

Sure. And those social revolutionaries will be using capitalist cell phones to coordinate their struggle, while wearing Nike shoes, Levi jeans and drinking Starbucks Lattes and bitching about all of it on Facebook from their heated homes with abundant and cheap electricity. Poor souls. The system is really keeping them down.

[doodle]

Marx was wrong on just about everything. I wouldn't waste a second of my time listening anything he has to say. His ideas resulted in the deaths of tens of millions.

So have Jesus' ideas in the hands of the Christian church.

What you say about Marx is absurd and narrow-minded and the basis of a lifelong of brainwashing that you have received courtesy of the United States government. You have become an ideologue and stopped thinking.

[craigr]

What you say about Marx is absurd and narrow-minded and the basis of a lifelong of brainwashing that you have received courtesy of the United States government. You have become an ideologue and stopped thinking.

Let me be clear.

Karl Marx was an idiot. He didn't understand anything about economics nor human nature. He was a control freak moron.

The only brainwashing I received about Marx was in college where I had idiot professors talk about how great he was. Again, they never had to live under his brilliance being safely harbored in the United States.

Quoting Karl Marx to me is the same as quoting Hitler. Maybe worse. Less people died under Hitler than under Marxist losers around the planet. In fact, I can't even stand people wearing Che Guevara shirts. Che was a violent idiot, too.

Show me where Marx's ideas have ever worked and haven't resulted in death, misery, backwards economies and human despair. Nowhere that I can see.

Which again brings me back to the idea that Karl Marx didn't know what he was talking about.

[doodle]

Marx's work is primarily concerned with understanding and analyzing how capitalism functions. His work is most important for identifying structural contradictions within the capitalist system.

What Josef Stalin or any other thug leader did in his name do not prove the invalidity of Marx's study of capitalism anymore than papal pogroms represent the belief and doctrine of Jesus.

[LifestyleFreedom]

That is the Hegelian Dialectic and it forms a big part of Marx's theories of how history progresses. Thesis --> antithesis --> synthesis (which now forms new thesis for the process to start a new.)

I've always thought of this process as the Law of Unintended Consequences.  For example, Congress decides to eliminate a loophole in the tax code and in the process, created two or more new loopholes that wealthy people (with their tax lawyers) can figure out how to exploit.  Or Congress decides to make it easier for more people to own their own home and in the process, people who cannot really afford a home figure out how to game the system (for example, "NINJA" loans -- no income, no job, no assets).

[craigr]

What Josef Stalin or any other thug leader did in his name do not prove the invalidity of Marx's study of capitalism anymore than papal pogroms represent the belief and doctrine of Jesus.

No they show that Marx was wrong. That's it. His ideas made the problem worse and enabled control freaks to kill millions. That's the legacy of Marx. Why waste a second of time trying to validate his ideas when there are so many other brighter philosophers whose ideas didn't result in murder of millions while leaving the rest in misery?