Capitalism Fails

[JinXy]

In 2008 it started as a localized failure of the realestate market that escalated, however it never were even close to a complete failure. If a complete failure ever happened the pension payouts would stop, the government would go bankrupt as would banks and peoples entire life savings would be worth naught, food prices would skyrocket and in general everything would quickly become very bad and very nasty.

No it is not because while small depositors as a group might carry a significant part of the banks total deposits they each represent a very small part, it is risk capitalists, corporations and business in general that carry the large deposits and they go wherever the returns are best because they know that in case of a failure they would be the ones to get their deposits paid back first. The small depositors thus carries little of the say and almost all the risk, hence it would solve nothing to not bail them out, the fundamental flaw still exists.

No... it happened because the government and Fed bailed everyone out in the dot.com bubble 8 years earlier. Bad companies grow bigger. Money printing pushed down interest rates artificially, government programs (guaranteed deposits being one of them) encouraged banks to lend money recklessly and taught depositors not to worry, and banks were able to repackage mortgages and sell them to fannie and freddie (government entities), thinking there is nothing to lose! Don't read from the mainstream media because they know nuts about economics :)

And while I support bailouts I think that whenever the government is forced to bail out any corporations it should be mandatory that they seize a portion of the shares equal to the percentage worth of the bailout relative to the stock value of the corporation at the time of the bailout. This would prove incitement for investors and corporations not to ever get bailed out by the government as it would be a direct blow to themselves.

Why would you make taxpayers own a part of a bankrupt company? It doesn't make economic sense, let alone moral sense.
Why must millions of hardworking americans who did nothing wrong, who saved for the future and did not buy 4 or 5 houses, pay for those who did? And pay for those bankers who gamble?

Let the companies go bankrupt. Successful companies will come in and buy up the assets and gain market shares, and the whole system start from a sounder base. Scandinavia did it. South Korea did it. The US had done it before. Japan didn't do it. In the 1990s the US TOLD japan that they were doing the wrong thing to bail out japanese companies. Now Japan has have 2 lost decades already. What an irony, the US went on to do what it preached not to do.

The first because it insures that a company that is generally viable but come on hard times gets a chance to become profitable again and thus saving jobs and investments, the second because it incentives people to invest their money rather than hoarding it(where it does no good) So I think they're generally have a justification for existing but therefore I also think that bailouts have a justification for existing as it's the other side of the coin of the first two.

Yes and no. It saves jobs in those failed companies, YES. But the resources used to save these companies must come from another part of the economy Elldallan. Somewhere else, jobs (more productive jobs!) that would have otherwise come into existence could not because the resources have been diverted away to save those failed companies. There's no free lunch. Many economists assume that there is.

And hoarding money is not a bad thing at all. The money is saved in banks, which lowers interest rates and gives signal to businesses to borrow and invest for the future, in anticipation of future spendings by those savers. Savings and investment is how an economy grows, not spending per se. What is spent is gone.

The financial market is a very complex system and I don't claim to have more than a passing familiarity with it so I might very well be wrong about things because there are deeper issues or things hidden below the surface.

It is complex indeed. But there are a few economics laws and fundamental principles that will never change till the end of time. :)

[JinXy]

Before anyone makes further arguments... i sincerely urge you to read my article here:

http://silvernjin.blogspot.sg/2011/1...-pages_16.html

Just read the first chapter will do. It only takes 3 minutes. Please do it and argue why it is wrong. It is very important to understand what savings and consumption really mean, as well as their true effects on the system. (not something you will get from the mainstream media or schools)

[Elldallan]

[QUOTE=JinXy;15286887]No... it happened... <read the original post for the full text> ...is forced to bail them out.
You're probably right that the bailouts before at least in part helped cause the current crisis because the government bailed out companies without taking anything in return or punishing the behaviour that forced it to bail the company out. I however don't think that it neccessarily makes bailouts in general bad, but if the government does bail companies out it should be to protect the grassroots, therefore you need to punish and scare the living daylights out of the investors, stock owners and corporate officers and make the price for them so high that they'll never want to risk having to be bailed out again.

Why would you make taxpayers... <read the original post for the full text> ...preached not to do.

Well, I don't think it's a zero sum game and I suggested it as an alternative to bailouts without any quid pro quo, not as an alternative to no bailouts.
Yes those resources comes from somewhere else but the general premise of bankruptcy protections is that it's not a zero sum game and that you by paying in the short term can return the company to profitability. Because the stock market is so mobile it means that a generally stable productive company can be forced into bankruptcy because of a single bad decision or a short series of bad decisions that doesn't impact the long term viability of a company but is disastrous in the short term, for example releasing one or two bad or flawed products even if you've had 30 years of releasing good products.

Also Scandinavia did bailout their banks in the 1990's, and again in the 2008 crisis, Sweden even bailed out one of their banks because of bad investments it had done in Estonia, because this bank risked going under because of these bad investments and if that had happened then millions of people would have lost a ton of money(without the government deposit guarantee). And for a country of 10 million then having a million or more people loose their life savings would have lead to riots, uprisings and general anarchy and probably a lot of dead bank employees.

Yes and no... <read the original post for the full text> ...There's no free lunch. Many economists assume that there is.

Free lunch no but it isn't a zero sum game either and the financial market is not isolated from the rest of civilization. Huge singular events can be very disruptive to society.
For example if the government didn't bail out Fannie Mae and Freddie Mac it's likely that millions of people would loose their homes because their banks in an attempt to get a quick inflow of cash would demands that they repay their entire loan immediately
The people would of course be unable to do this and so the bank seizes their property(because once they've done A they're sort of forced to follow this to it's conclusion because halting before the end would set a bad precedent) and they're left homeless.
But because the real estate market just crashed the bank will be unable to sell the house for cash and will instead be left with an unoccupied house that will deteriorate because the bank neither can nor does it want to spend money on maintenance of these millions of houses, and then nobody will ever buy these ran down shabby houses, and everybody looses.

When you displace millions of people or cause them to loose their source of income there is also the very real chance that there will be riots and uprisings which definitely is not beneficial to anybody. If the bank displaces a million people and these people then storm the bank and burn it to the ground everybody looses and there is no winners, only losers. Therefore it is better to prevent this course of events because letting it rin it's course risks destabilizing the community and with sufficient scale maybe even the nation. So from a purely financial viewpoints bailouts might be a horrible idea but I hope you agree that it's better than civil war.

And hoarding money is not a bad thing at all. The money is saved in banks, which lowers interest rates and gives signal to businesses to borrow and invest for the future, in anticipation of future spendings by those savers. Savings and investment is how an economy grows, not spending per se. What is spent is gone.

I didn't say it was, hoarding your money and sitting on it(putting it in your mattress) is bad because it doesn't drive interest rates and that money is for all intents and purposes removed from circulation at least temporarily.

It is complex indeed. But there are a few economics laws and fundamental principles that will never change till the end of time. :)

Yes, people are greedy, power corrupts and absolute power corrupts absolutely. Or as the Ferengi would say, Greed is eternal.

I hope I make somewhat sense, it's quite late here :P

[JinXy]

[QUOTE=Elldallan;15287161]

No... it happened... <read the original post for the full text> ...is forced to bail them out.
You're probably right that the bailouts before at least in part helped cause the current crisis because the government bailed out companies without taking anything in return or punishing the behaviour that forced it to bail the company out. I however don't think that it neccessarily makes bailouts in general bad, but if the government does bail companies out it should be to protect the grassroots, therefore you need to punish and scare the living daylights out of the investors, stock owners and corporate officers and make the price for them so high that they'll never want to risk having to be bailed out again.



Well, I don't think it's a zero sum game and I suggested it as an alternative to bailouts without any quid pro quo, not as an alternative to no bailouts.
Yes those resources comes from somewhere else but the general premise of bankruptcy protections is that it's not a zero sum game and that you by paying in the short term can return the company to profitability. Because the stock market is so mobile it means that a generally stable productive company can be forced into bankruptcy because of a single bad decision or a short series of bad decisions that doesn't impact the long term viability of a company but is disastrous in the short term, for example releasing one or two bad or flawed products even if you've had 30 years of releasing good products.

Also Scandinavia did bailout their banks in the 1990's, and again in the 2008 crisis, Sweden even bailed out one of their banks because of bad investments it had done in Estonia, because this bank risked going under because of these bad investments and if that had happened then millions of people would have lost a ton of money(without the government deposit guarantee). And for a country of 10 million then having a million or more people loose their life savings would have lead to riots, uprisings and general anarchy and probably a lot of dead bank employees.

Free lunch no but it isn't a zero sum game either and the financial market is not isolated from the rest of civilization. Huge singular events can be very disruptive to society.
For example if the government didn't bail out Fannie Mae and Freddie Mac it's likely that millions of people would loose their homes because their banks in an attempt to get a quick inflow of cash would demands that they repay their entire loan immediately
The people would of course be unable to do this and so the bank seizes their property(because once they've done A they're sort of forced to follow this to it's conclusion because halting before the end would set a bad precedent) and they're left homeless.
But because the real estate market just crashed the bank will be unable to sell the house for cash and will instead be left with an unoccupied house that will deteriorate because the bank neither can nor does it want to spend money on maintenance of these millions of houses, and then nobody will ever buy these ran down shabby houses, and everybody looses.

When you displace millions of people or cause them to loose their source of income there is also the very real chance that there will be riots and uprisings which definitely is not beneficial to anybody. If the bank displaces a million people and these people then storm the bank and burn it to the ground everybody looses and there is no winners, only losers. Therefore it is better to prevent this course of events because letting it rin it's course risks destabilizing the community and with sufficient scale maybe even the nation. So from a purely financial viewpoints bailouts might be a horrible idea but I hope you agree that it's better than civil war.



I didn't say it was, hoarding your money and sitting on it(putting it in your mattress) is bad because it doesn't drive interest rates and that money is for all intents and purposes removed from circulation at least temporarily.



Yes, people are greedy, power corrupts and absolute power corrupts absolutely. Or as the Ferengi would say, Greed is eternal.

I hope I make somewhat sense, it's quite late here :P

The best way to teach investors a lesson is to let them lose money. Not bail them out.

Millions will be affected yes. But it will be temporary. Now because you bail people out, you are ensuring that subsequent crisis will be way worse. Millions more people will be affected as a result.

When you have the Fed and govt that encourage an unprecedented binge after the dotcom bubble burst, do you expect to wake up the next morning and expect everything to be fine? We have to be realistic. Someone has to pay the price.

Well, with all due respect, i have seen the same arguments a million times. These are arguments that the mainstream copy from each other... none of them read scholarly articles or examine crises in the past. I have linked an example of a 1920 crisis in the US in which the govt did not intervene, but i bet no one even reads my short summary.

Anyway, since it is hard for everyone to understand economics, I give up. The fact is, nations that have not let people fail have struggled. Historically this is a fact. Just look at the US now, it has a lost decade. Going into the 2nd one now.

Regarding the hoarding of money, even if you put it under the mattress, it will cause prices to fall, and purchasing power of other money in circulation increases.

Just wait and see.. because you keep kicking the cans down the road, the problems get bigger. Eventually the riots will be bigger and badder.

I find it hard that people think that after a drunken party, they can wake up the next morning and think there will be no hangover. Thats the approach many take when it comes to economics.

[JinXy]

Just so you know, there were more than 7000 banks in the US prior to the crisis.

Lots of honest, prudent banks should have been able to buy up assets on the cheap from failed banks and gain market shares.

I just dont understand why it's hard to see this. Somehow people think that banks should not be treated just like any other business. Banks have gone bankrupt for centuries. There is nothing strange or scary about that.

Many people are saying the same things on the tv, newspapers, online... Somehow, most of the people who didnt see the crisis coming (and therefore do not fully understand the root causes) think they know what the solution is :)

[JinXy]

Look at how many trillions the US had spent to bail people out, and how much the debt had skyrocketed. Then compare this to their GDP growth (yeah, you can use the rosy gdp figures provided by the govt. I will grant you that).

Can you honestly say that this policy is a success? Are you going to pay off those debts?

[JinXy]

[QUOTE=Elldallan;15287161]

No... it happened... <read the original post for the full text> ...is forced to bail them out.
You're probably right that the bailouts before at least in part helped cause the current crisis because the government bailed out companies without taking anything in return or punishing the behaviour that forced it to bail the company out. I however don't think that it neccessarily makes bailouts in general bad, but if the government does bail companies out it should be to protect the grassroots, therefore you need to punish and scare the living daylights out of the investors, stock owners and corporate officers and make the price for them so high that they'll never want to risk having to be bailed out again.

The bailout was never about protecting the grassroots. Why would they bail out their friends and then turn around to punish them.

In any case, there is no reason to prop up failures. It was only in the recent crisis that we hear of "too big to fail". There is no such thing...it is just fear-mongering... anyway, here is my article on the depression that nobody talks about : http://silvernjin.blogspot.sg/2013/0...about.html?m=1

[Elldallan]

Well I'd like to clarify a few things before I go on.
I'm not debating this from a purely economic standpoint but from how it would impact a society/nation.

Therefore I'll start with a few points

The government(at least in a democratic nation) is a government of the people, by the people, for the people. Not by the people for economy. And by the people we mean the inhabitants/citizens of that country. Specifically it excludes people anywhere else.

Therefore I claim the following, any action or lack thereof that results in riots and/or uprisings is a failure by the government, because they have failed the people.

While it might make economical sense to let a company fail because some other company will pick up the slack and create more productive jobs, if those jobs are in another nation then the government has failed no matter how much economical sense it makes.


This is why I think bailouts makes because of how banks have intermarried with each other and exchanged securities, if one fail(and is allowed to fail completely) it will make the securities that other banks has with that bank worthless and it will destabilize those banks, and then they risk failing, and so on. Yes banks have acted irresponsibly and I think that those in charge needs to be punished, and punished hard but I don't think that letting a significant part of the people loose their life savings is an acceptable price because these people will not accept that lying down, they'll demand that the government do something about it and if the government fails then either they'll take up arms against the government or they'll elect someone who promises them to act and restore their lost wealth and improve their lives.

The inaction of the German government during the interwar economical crisis was what made the rise of the Nazi regime possible, because they promised the people that they'd fix it(and they did fix quite a bit of it) if they were elected, and they did get elected.

The bailout was never about protecting the grassroots. Why would they bail out their friends and then turn around to punish them.

Of course not. Because the United States has more in common with a Kleptocracy than it does with a Democracy, the wealthy can legally buy politicians and thus whatever laws they please.

Can you honestly say that this policy is a success? Are you going to pay off those debts?

Well luckily I don't have to as I'm Swedish. Yes I think that the US could have handled the economic crisis better and I do think that their national debt is a big problem that certainly won't go away anytime soon.

I just don't understand why it's hard to see this. Somehow people think that banks should not be treated just like any other business. Banks have gone bankrupt for centuries. There is nothing strange or scary about that.

I don't think that banks going bankrupt is the problem, banks going bankrupt is fine, I think the problem here is the massive scale, if a couple of thousand John/Jane Doe loose their life savings because of a bankruptcy that's "fine", if it's 10 million Doe's or more that loose their life savings then that's a problem because they won't accept it quietly and this time there's enough of them to cause serious problems.

The best way to teach investors a lesson is to let them lose money. Not bail them out.

Agreed, I just don't think that even without a bailout that's going to happen. Because lets say that a certain bank that's going bankrupt derives 40% of it's revenue from John/Jane Doe, 15% From big corporation A, 10% from Big company B, 12% from big corporation C, 13% from big company D 5% from small company E and 5% from small company F. And when it fails it has revenues or assets enough to pay 50% of it's debts then the losers will be small company E & F and all the John/Jane Does. The big corporations which also typically are the ones pushing the bank to take ever greater risk just so they can get a better interest rate will still get all their money back. And nobody will have learned a single damn thing, and this will be repeated over and over and over again, because those who have the control takes very little to none of the actual risks.
So until laws are changed so that everybody gets 50% of their debts repaid or that the debts are repaid from the bottom up then this behavior will continue regardless of bailouts or not. But the bailouts will at least protect all the John/Jane Does and small company E&F.
And the government is eventually going to have to protect these Doe's one way or another, either by bailouts or through the social welfare system, the problem is that when people loose their jobs and ends up in the social welfare system a large percent of them usually get stuck there for various reasons and will become a permanent burden for the government.

Yes kicking the can ever onwards will only exacerbate the problem, but I don't think that the problem is the bailouts themselves bit that it's the fundamental construction of the financial system and the rules/laws governing bankruptcy and debt.

[Palem]

...why are you guys having such a hard time quoting?

[Elldallan]

hmm you're correct, I fixed mine now.
I didn't notice that there were plaintext quote initiators at some places in his text.

[JinXy]

Well I'd like to clarify a few things before I go on.
I'm not debating this from a purely economic standpoint but from how it would impact a society/nation.

Therefore I'll start with a few points

The government(at least in a democratic nation) is a government of the people, by the people, for the people. Not by the people for economy. And by the people we mean the inhabitants/citizens of that country. Specifically it excludes people anywhere else.

Therefore I claim the following, any action or lack thereof that results in riots and/or uprisings is a failure by the government, because they have failed the people.

While it might make economical sense to let a company fail because some other company will pick up the slack and create more productive jobs, if those jobs are in another nation then the government has failed no matter how much economical sense it makes.

I understand where you are coming from. I'm saying that because of these bailouts and huge debt, you are creating much more problems in the future. The riots/uprisings will eventually come, and it will be worse.

The best way to improve people's lives is through economic freedom (free-market capitalism). Socialising banks' losses is not economic freedom.

This is why I think bailouts makes because of how banks have intermarried with each other and exchanged securities, if one fail(and is allowed to fail completely) it will make the securities that other banks has with that bank worthless and it will destabilize those banks, and then they risk failing, and so on.

This is the argument put forth by the mainstream and govt officials to scare people. The fact is, there were more than 7000 banks, playing the game properly, waiting for their chances to gain market shares. They are prudent and they won't fail just because other banks fail. Those other banks failed because they are leveraged up heavily. The sound banks have got nothing to do with this. They won't fail just because these bad banks fail. Check out their balance sheets please.

Yes banks have acted irresponsibly and I think that those in charge needs to be punished, and punished hard but I don't think that letting a significant part of the people loose their life savings is an acceptable price

Like i said, a bigger crisis will come, and people will lose much more because you delayed the pain. Now the banks are more leveraged than ever. Check out this phrase: LEVEL 3 ASSETS in their balance sheets. Furthermore, like i've said, sounder banks will come in and buy up the assets of failed banks, INCLUDING customer accounts and employees.

because these people will not accept that lying down, they'll demand that the government do something about it and if the government fails then either they'll take up arms against the government or they'll elect someone who promises them to act and restore their lost wealth and improve their lives.

And therein lies the biggest flaw of democracy. Such actions will only make the nation worse off. Plato is right. Democracy self-implodes. People have to realise that the solution lies in the free market and not the government.

The inaction of the German government during the interwar economical crisis was what made the rise of the Nazi regime possible, because they promised the people that they'd fix it(and they did fix quite a bit of it) if they were elected, and they did get elected.

Inaction? The Germans printed tons of money to service their debt. Hyperinflation hits the land. Politicians blamed it on foreigners and galvanised the people.

Of course not. Because the United States has more in common with a Kleptocracy than it does with a Democracy, the wealthy can legally buy politicians and thus whatever laws they please.

So why do you allow the bankers to make politicians bail them out with taxpayers' money?

Well luckily I don't have to as I'm Swedish. Yes I think that the US could have handled the economic crisis better and I do think that their national debt is a big problem that certainly won't go away anytime soon.

Yeap. They will default eventually or will need someone else to save them. The bailouts was a huge factor in the increase in debt levels. Why not let the banks fail, liquidate ALL the bad debt, and start over? You will have horrible pain after a drunken stupor. There's no avoiding it. Your bailout prescription is akin to drinking more alcohol to keep yourself drunk so that you delay the time you will get the hangover. But it can only go on for so long.

I don't think that banks going bankrupt is the problem, banks going bankrupt is fine, I think the problem here is the massive scale, if a couple of thousand John/Jane Doe loose their life savings because of a bankruptcy that's "fine", if it's 10 million Doe's or more that loose their life savings then that's a problem because they won't accept it quietly and this time there's enough of them to cause serious problems.

Well, i believe I have dealt with this line of argument sufficiently. So just as a summary:
1. Good banks will gain those customers.
2. There may be a price to pay if people simply assume a bank is safe before placing their deposits.
3. The structural imbalances caused by bailouts get bigger. Eventually, there will be even greater pain.
4. There is some level of social safety net in place to help the really needy.
5. Instead of spending billions on useless endeavours (eg. overseas wars), the money could have been used to help these people.

Agreed, I just don't think that even without a bailout that's going to happen. Because lets say that a certain bank that's going bankrupt derives 40% of it's revenue from John/Jane Doe, 15% From big corporation A, 10% from Big company B, 12% from big corporation C, 13% from big company D 5% from small company E and 5% from small company F. And when it fails it has revenues or assets enough to pay 50% of it's debts then the losers will be small company E & F and all the John/Jane Does. The big corporations which also typically are the ones pushing the bank to take ever greater risk just so they can get a better interest rate will still get all their money back. And nobody will have learned a single damn thing, and this will be repeated over and over and over again, because those who have the control takes very little to none of the actual risks.
So until laws are changed so that everybody gets 50% of their debts repaid or that the debts are repaid from the bottom up then this behavior will continue regardless of bailouts or not. But the bailouts will at least protect all the John/Jane Does and small company E&F.
And the government is eventually going to have to protect these Doe's one way or another, either by bailouts or through the social welfare system, the problem is that when people loose their jobs and ends up in the social welfare system a large percent of them usually get stuck there for various reasons and will become a permanent burden for the government.

The best way to protect the average joe is if he is informed. The average joe is never going to be informed if they assume that the government can insure their deposits. How do you think the average joe are so informed about, say, cell phones? :)
Because there are consumer reports.
Same goes for the banks. If the government had not insured deposits (a false insurance. Do check out how much money the FDIC actually has), there would have been more rigorous analysis of the banks by independent people. There would have been more consumer reports on banks.

Yes kicking the can ever onwards will only exacerbate the problem, but I don't think that the problem is the bailouts themselves bit that it's the fundamental construction of the financial system and the rules/laws governing bankruptcy and debt.

Well, the financial system has always operated this way for a few thousand years.
What's different now is that there is actually such a thing as "Too big to fail". (of course there isn't but people believe it)

[Elldallan]

I understand where you are coming from. I'm saying that because of these bailouts and huge debt, you are creating much more problems in the future. The riots/uprisings will eventually come, and it will be worse.

Yes I believe you are correct but I don't believe that preventing the bailouts would prevent this because the fundamental flaws of the system and the horrible risk distribution will insure that the system stays intact and that there will always be a next time

The best way to improve people's lives is through economic freedom (free-market capitalism). Socialising banks' losses is not economic freedom.

Personally I prefer a more Socialistic form of government where we take collective responsibility for certain things such as social securities and a large government to help regulate corporation because free-market capitalism is just as much of an utopia as communism is because the individual can never hope to gain the complete information oversight that free-market capitalism demands that every single actor on the market has. Therefore an unregulated financial market will naturally end up with a collection of oligopolies which will collude to corner the market and fix prices, and therefore capitalism is bound to fail just like communism is.

This is the argument put forth by the mainstream and govt officials to scare people. The fact is, there were more than 7000 banks, playing the game properly, waiting for their chances to gain market shares. They are prudent and they won't fail just because other banks fail. Those other banks failed because they are leveraged up heavily. The sound banks have got nothing to do with this. They won't fail just because these bad banks fail. Check out their balance sheets please.

In an ideal system yes, but the current system is what it is and just like a heroin addict we can't go cold turkey over night because that will kill the individual. Anything we do will have to be a gradual change from the one system to the other, how steep the gradient can be is up for debate.

Like i said, a bigger crisis will come, and people will lose much more because you delayed the pain. Now the banks are more leveraged than ever. Check out this phrase: LEVEL 3 ASSETS in their balance sheets. Furthermore, like i've said, sounder banks will come in and buy up the assets of failed banks, INCLUDING customer accounts and employees.

Yes I'm aware of that, but as I said above I don't think we can just jump from the current system into a different one by just simultaneously allowing all the bad banks to fail en masse. Put limits on how large percentage their level 3 assets are(which if I understand things correctly are fairly intangible assets) and then gradually lower these limits every year until they're permitted to have a very small portion of that type of assets

And therein lies the biggest flaw of democracy. Such actions will only make the nation worse off. Plato is right. Democracy self-implodes. People have to realise that the solution lies in the free market and not the government.

As I said I think that free market is just as much a solution as communism is, both are utopias and neither will work well if released in an uncontrolled environment.
As Churchill said, Democracy is the worst form of government except for all the others that have already been tried.
Also ideally I'd prefer a democratically elected transparent government to some shady and shadowy free market powers of a utopian system without any insight and which in the real world favor the formation oligopolies and price fixing.

Inaction? The Germans printed tons of money to service their debt. Hyperinflation hits the land. Politicians blamed it on foreigners and galvanised the people.

Yes they did print money and that's one of the few things they did from my understanding, that and blaming France and those accusations were extremely well founded.
Then a certain political party and a certain political leader came along and promised to change things by giving people food, build roads and give people work(and they did change things enough to get reelected by democratic means(then they did away with democracy)), and yes they also blamed it all on a certain ethnic group, and we know what happened after that.

So why do you allow the bankers to make politicians bail them out with taxpayers' money?

Because as long as we allow the bankers to buy the politicians we can't change anything.

Yeap. They will default eventually or will need someone else to save them. The bailouts was a huge factor in the increase in debt levels. Why not let the banks fail, liquidate ALL the bad debt, and start over? You will have horrible pain after a drunken stupor. There's no avoiding it. Your bailout prescription is akin to drinking more alcohol to keep yourself drunk so that you delay the time you will get the hangover. But it can only go on for so long.

No I suggest that we gradually reduce the drinking rather than going cold turkey because going cold turkey has a very real chance of killing the patient when the addiction is bad enough(and in this case it's off the scales)

Well, i believe I have dealt with this line of argument sufficiently. So just as a summary:
1. Good banks will gain those customers.
2. There may be a price to pay if people simply assume a bank is safe before placing their deposits.
3. The structural imbalances caused by bailouts get bigger. Eventually, there will be even greater pain.
4. There is some level of social safety net in place to help the really needy.
5. Instead of spending billions on useless endeavours (eg. overseas wars), the money could have been used to help these people.

1. Assuming that there will be good banks, maybe. But as long as we lack the tools and the rights to ensure/confirm that they are good banks because without them the existence of good banks is pretty much irrelevant as you're pretty much left to spinning a roulette wheel and hope that the ball stops on that single number you bet on
2.Yes but first we have to give the people the tools they need to make informed choices, something which they currently lack or is at best incomplete.
4. The problem is that this net isn't designed to handle a sudden huge influx of the really needy, and in the end it still amounts the remaining taxpayers bearing the burden, so one way or another it all comes back to the taxpayers
5. This I agree completely with. Or at least I did the territorial ambitions of a certain ex superpower reared it's ugly face again, but once again there seems to be a very real need for the western nations to maintain absolute military supremacy because the alternative is far far worse. I remember an old quote which I'm unable to trace at the moment, You either have a sufficiently strong military or you will eventually have one imposed upon you.

The best way to protect the average joe is if he is informed. The average joe is never going to be informed if they assume that the government can insure their deposits. How do you think the average joe are so informed about, say, cell phones? :)
Because there are consumer reports.
Same goes for the banks. If the government had not insured deposits (a false insurance. Do check out how much money the FDIC actually has), there would have been more rigorous analysis of the banks by independent people. There would have been more consumer reports on banks.

It is impossible for Average Joe to become completely informed, because any bank would refuse to provide you almost any pertinent information, they won't tell you how much of their assets is insured in gold, nor with what other banks/corporations they have placed their securities, or which banks have placed their securities with them. Hell, banks even have governmental permission, sometimes even an obligation to lie in their quarterly statements if they have a bad quarter that risks unbalancing the bank. They won't tell you how safe their vault is nor will they tell you who else holds an account with their bank or how much they have there(so you can't find out if the bank has a large number if huge corporate financiers that are likely to demand high risks in exchange for high payoffs)
If Average Joe had a right to demand that the bank turn over any and all pertinent information at his request then yes I'd agree with you that Average Joe has a duty to make himself informed about his choices, but as long as the bank has the right to obscure or withhold pertinent information(and no bank would willingly turn this information over because it would also tell their competitors how they could hurt them) then Average Joe can never hope to gather enough infromation to make an informed decision.

Well, the financial system has always operated this way for a few thousand years.
What's different now is that there is actually such a thing as "Too big to fail". (of course there isn't but people believe it)

No that's absolutely not true.
The idea of corporate entities is a new concept.
The concept that the owners of a company can receive the governments protection from having their debt holders seize their personal assets is new.
Hell, a few hundred years ago you used to be able to put debtors into prison until they repaid their debts, however long that took.
The idea of bankruptcy protection is new.

[JinXy]

Yes I believe you are correct but I don't believe that preventing the bailouts would prevent this because the fundamental flaws of the system and the horrible risk distribution will insure that the system stays intact and that there will always be a next time

Yes the system stays intact. But it's a flawed system. Bad companies are propped up at the expense of good ones. There may not always be a next time. Look at well managed countries like singapore which doesn't go around propping failed companies up. Even if there is a next time, it will not nearly be as bad as if you have propped up failed companies.

Personally I prefer a more Socialistic form of government where we take collective responsibility for certain things such as social securities and a large government to help regulate corporation because free-market capitalism is just as much of an utopia as communism is because the individual can never hope to gain the complete information oversight that free-market capitalism demands that every single actor on the market has. Therefore an unregulated financial market will naturally end up with a collection of oligopolies which will collude to corner the market and fix prices, and therefore capitalism is bound to fail just like communism is.

Socialism fails all the time...and that's what obama is trying to do now. He thinks he's the best socialist in history.. anyway we haven't had any free-market capitalism at all. There is no free-market when you have an institution that can manipulate interest rates and when you have government interventions with bailouts. You don't need to regulate financial markets. The market is the BEST regulation itself. If you succeed, you are rewarded. If you fail, the market punishes you by making you go out of business.

In an ideal system yes, but the current system is what it is and just like a heroin addict we can't go cold turkey over night because that will kill the individual. Anything we do will have to be a gradual change from the one system to the other, how steep the gradient can be is up for debate.

Like i said, don't expect drink so much and then wake up the next morning without a hangover. Someone will pay the price eventually.

Yes I'm aware of that, but as I said above I don't think we can just jump from the current system into a different one by just simultaneously allowing all the bad banks to fail en masse. Put limits on how large percentage their level 3 assets are(which if I understand things correctly are fairly intangible assets) and then gradually lower these limits every year until they're permitted to have a very small portion of that type of assets

All banks? It's not all banks. It's just a few rogue banks. There are thousands of prudent banks waiting to gain market shares.
Do you know what a level 3 asset is? It is an accounting gimmick and it exists to allow banks to hide their bad assets. Why would they put a limit to it? :)

As I said I think that free market is just as much a solution as communism is, both are utopias and neither will work well if released in an uncontrolled environment.
As Churchill said, Democracy is the worst form of government except for all the others that have already been tried.
Also ideally I'd prefer a democratically elected transparent government to some shady and shadowy free market powers of a utopian system without any insight and which in the real world favor the formation oligopolies and price fixing.

To have a free market, you must have free interest rates and no bailouts. The current system hasn't been free ever since the creation of the Fed 100 years ago. So i'll be careful not to put the blame on 'free-market capitalism' when there are problems.

Yes they did print money and that's one of the few things they did from my understanding, that and blaming France and those accusations were extremely well founded.
Then a certain political party and a certain political leader came along and promised to change things by giving people food, build roads and give people work(and they did change things enough to get reelected by democratic means(then they did away with democracy)), and yes they also blamed it all on a certain ethnic group, and we know what happened after that.

Yeah i think so too.

Because as long as we allow the bankers to buy the politicians we can't change anything.

Hmm? Then let the bankers fail :)

No I suggest that we gradually reduce the drinking rather than going cold turkey because going cold turkey has a very real chance of killing the patient when the addiction is bad enough(and in this case it's off the scales)

It won't kill the patient... you will just have a very bad hangover. They have been drinking for a decade now. To stay high all the time, you need an ever larger dose of alcohol. So you cannot gradually reduce the drinking. Otherwise the Fed would have exited their stimulus programs a long time ago. But they keep coming up with excuses to print more money (they've had more than 10 policy changes already over the past 5 years!). I've pointed this out repeatedly to other people. When they reduce the drinking, when they reduce the money printing, the government will go bankrupt and the banks that they've bailed out will fail again. Their balance sheet is just too horrendous and cannot withstand a spike in interest rates at all.

1. Assuming that there will be good banks, maybe. But as long as we lack the tools and the rights to ensure/confirm that they are good banks because without them the existence of good banks is pretty much irrelevant as you're pretty much left to spinning a roulette wheel and hope that the ball stops on that single number you bet on
2.Yes but first we have to give the people the tools they need to make informed choices, something which they currently lack or is at best incomplete.
4. The problem is that this net isn't designed to handle a sudden huge influx of the really needy, and in the end it still amounts the remaining taxpayers bearing the burden, so one way or another it all comes back to the taxpayers
5. This I agree completely with. Or at least I did the territorial ambitions of a certain ex superpower reared it's ugly face again, but once again there seems to be a very real need for the western nations to maintain absolute military supremacy because the alternative is far far worse. I remember an old quote which I'm unable to trace at the moment, You either have a sufficiently strong military or you will eventually have one imposed upon you.

1. It's not 'assuming'. I know there is. I've seen numerous balance sheets. You should too. Even if all of them fail, it doens't mean that banks will disappear. It just means that someone else will come in and be the next banker.
2. How do you do that, when you make everyone feel safe and think that government will always have their back.
4. You can't make sure everyone doesn't lose money. Someone has to pay the price. It still comes back to the taxpayers yes, but at least now you don't have to waste money propping up insolvent employers. Besides, the govt can cut spending dramatically in other areas to help.
5. Keep the troops home. No one is going to attack america. Their military is already too overpowering.

It is impossible for Average Joe to become completely informed, because any bank would refuse to provide you almost any pertinent information, they won't tell you how much of their assets is insured in gold, nor with what other banks/corporations they have placed their securities, or which banks have placed their securities with them. Hell, banks even have governmental permission, sometimes even an obligation to lie in their quarterly statements if they have a bad quarter that risks unbalancing the bank. They won't tell you how safe their vault is nor will they tell you who else holds an account with their bank or how much they have there(so you can't find out if the bank has a large number if huge corporate financiers that are likely to demand high risks in exchange for high payoffs)
If Average Joe had a right to demand that the bank turn over any and all pertinent information at his request then yes I'd agree with you that Average Joe has a duty to make himself informed about his choices, but as long as the bank has the right to obscure or withhold pertinent information(and no bank would willingly turn this information over because it would also tell their competitors how they could hurt them) then Average Joe can never hope to gather enough infromation to make an informed decision.

Well, not so true. I for one, may be one of the consumer watchdogs. Because I know what the banks are doing. Mobile phone companies also don't have a vested interest to tell you about their products. But the consumer watchdogs are pretty good with their jobs.

No that's absolutely not true.
The idea of corporate entities is a new concept.
The concept that the owners of a company can receive the governments protection from having their debt holders seize their personal assets is new.
Hell, a few hundred years ago you used to be able to put debtors into prison until they repaid their debts, however long that took.
The idea of bankruptcy protection is new.

Ok. I am talking about the way markets work. Good companies get rewarded by the market. Bad companies go bankrupt. Propping up bad companies will destabilise the system. I have not discussed anything about bankruptcy protection or corporate entities at all in all my previous posts.

[TommyB]

.. anyway we haven't had any free-market capitalism at all.

If it has never existed how can you be so sure it's the solution?

Can you point at one country/region where a 'free-market capitalism' has been sufficiently implemented to show how it improves people's lives as claimed and at the same time eliminate other factors to show that 'free-market capitalism' is indeed responsible for it?

[JinXy]

If it has never existed how can you be so sure it's the solution?

Can you point at one country/region where a 'free-market capitalism' has been sufficiently implemented to show how it improves people's lives as claimed and at the same time eliminate other factors to show that 'free-market capitalism' is indeed responsible for it?

Well, yes... america had free markets before 1913. Before the creation of Fed. America became an economic powerhouse, a place where everyone wants to go, a place where people can save money because there is deflation and money's purchasing power rises over time (today people are being told inflation is good. An excuse for central banks to print money), a place where government is only 3% of the gdp in size (today govt sucks up over 30% of the gdp).

Today, even though we do not have any country that comes as close as the level of freedom america had more than 100 years ago, we have some very good proxies.. singapore, korea, hongkong, china, taiwan, etc, where they let markets run the show. These places are not perfect though..like i said none of them were as free as america used to be.