The PD's are kaput

cavedave

OK, we've established that there is no such thing as perfect security for savings. How does this amount to an argument for taking away such security as is available?

I am not arguing that you should. I might argue (and oddly i think the pd's had a similar belief) that thinking the government can always come in and save you is unjustified.

For example you can claim that all banking deposits are secured but we know that is only the case as long as all of us don't actually need to test that. Same with dole payments. We will get paid should we be unable to work, unless of course loads of us are in this position at which time the government will say "tough" and leave us to fend for ourselves. I'm not arguing for a fully free market here, just for realism about the supernatural powers of the government

Which on the point of the Pd's is something they did. They did not seem to claim the government would fix all your problems and tried to get out of peoples way to let them help themselves to a fair extent. Not that this was a popular move.

oscarBravo

donegalfella wrote: »

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OK, I'm glad we're agreed on that. I'm still uncertain how undermining that consensual faith is a better idea than sustaining it.

FWIW, the problem is not the guarantee of deposit accounts. The problem lies in the Irish government's decision to guarantee all the deposits and debts of the banking system. The deposits are not really the issue here; the debts are—namely the lavish debts issued by banks to customers with no evident means of paying them back.

You think it's possible to guarantee deposits without also guaranteeing debts?

But you raise a good point: the banks have been less than prudent in their lending practices. Do you suppose looser regulation would result in increased prudence?

oscarBravo

cavedave wrote: »

I am not arguing that you should. I might argue (and oddly i think the pd's had a similar belief) that thinking the government can always come in and save you is unjustified.

OK - I think we're broadly in agreement. My argument is with those who would advocate that the government should never, ever get involved.

I'm not arguing for a fully free market here, just for realism about the supernatural powers of the government

Which on the point of the Pd's is something they did. They did not seem to claim the government would fix all your problems and tried to get out of peoples way to let them help themselves to a fair extent. Not that this was a popular move.

Nope, but I'd find myself broadly in agreement with them.

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Hobbes

donegalfella wrote: »

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I don't have a reference but I can well believe it. I know people from both ends of the spectrum in regards to cash.

When your on low income you simply don't have the money to put away. Those that do have deposit accounts would probably have less then what they get in a month in it (placeholder for the cheque/dole).

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oscarBravo

donegalfella wrote: »

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Gold isn't a 100% guarantee.

Not that I'm looking for such a guarantee. All I want to know is why anyone would think it a good thing to remove such safeguards as exist.

You're correct that banks pay me interest in return for permission to lend out my deposit. Banks lending money is a good thing from a wider economic perspective. The health of an economy is entirely dependent on the ability and willingness of banks to lend money, as we've seen in recent weeks.

I'm willing to let a bank lend out my deposit, because it's a low-risk (I won't say risk-free) proposition. If the risk increases, I'll be less likely to deposit money with the bank, which means the bank has less money to lend, which leads to an economic slowdown. Everybody loses.

No, my point is that the more free the economy, the more opportunities people have to become wealthy.

So you advocate increasing the risk to everybody, in order that some may have an opportunity to get richer? Good luck selling that manifesto.

There is no such thing in practice as a "perfectly free market," as you well know. However, it is the case that some economies are freer than others, and that people in Ireland have more opportunities to create wealth than do people in, say, the Democratic People's Republic of Korea.

Absolutely. My quarrel is with those who would push for ever more free markets, without pausing to consider whether unfettered freedom is a good deal for everybody concerned.

oscarBravo

donegalfella wrote: »

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Great - now all you're doing is relying on banks (which are run by fallible human beings) to always accurately calculate risks.

Unfortunately, banks - or more accurately, the people who run banks - have a strong incentive to take ever more daring risks. Sure, a bank that risks too much may end up extinct, but if its executives have golden parachutes, then who cares? It's only the plebs who ultimately lose out.

But a bank in a system such as ours knows that it can take as many risks as it wants, and the government will bail it out if it fails....

That's a bad scenario, sure. So the question is: should the government never, ever bail a bank out, even if that means condemning the bank's customers to poverty? Or should the government regulate the people who run the banks, and make sure that they pay the price of their recklessness, should a bailout be required?

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oscarBravo

donegalfella wrote: »

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Sure I agree with it. I wouldn't have phrased it that way, but it's the essence of the centrist, European-style government. It avoids in equal measure the pitfalls of both Communism and AynRandian capitalism.

And the risk will increase only if the banks take on more risk than they can afford to assume—such as issuing €300,000 euro mortgages to people who work in Tesco. The answer here is prudence in lending, and a healthy balance between deposits and loans, not that the government should leap in to save banks from their own mistakes.

Agreed. The difference is, I believe the government should enforce that prudence and balance; whereas you believe it should be enforced through free-market Darwinism. The fact that such a free market would leave swathes of ordinary human casualties in its wake doesn't seem to enter your calculations.

My point was that Ireland is more economically free now than it was in 1985. And I don't know many people who are less wealthy now than they were then.

No argument. Where we differ is that I don't see past performance as a guarantee of future returns. Yes, the country is in better shape than it was twenty years ago (or at least it seemed to be a few months ago). That doesn't mean that there's a guaranteed correlation between market freedom and individual prosperity.

In using the expression "push for ever more free markets," you have it backwards. Markets are inherently free until governments decide to intervene and make them less free. It is those who agitate for regulation and redistribution who are the problem, not those who question whether governments have a mandate to strip people of their freedom and their money.

You're falling back on propaganda and slogans rather than addressing the point - are there no diminishing returns in the correlation between market freedom and the welfare of the people?

oscarBravo

donegalfella wrote: »

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Again with the straw men. The difference between governments and banks is that banks have no mandate to consider the welfare of either individual citizens or the broader economy when calculating risk. If you believe that citizens should be assured of a basic level of financial security, then regulation is required to limit the risks that banks can legally take.

You seem slightly confused about the role the stock market plays in punishing institutions that are perceived to have overexposed themselves to risky investments. The precipitous fall in Irish Life & Permanent's share price after rumors of exposure to bad Icelandic debt should be a clue.

How many senior executives at IL&P missed mortgage payments as a result? How many of them are wondering how they're going to pay for their kids' next meal?

How many of them suffered any financial consequences whatsoever?

And where do you think these golden parachutes come from?

From profits - where else?

Okay, so exactly how do you regulate people to make sure that they "pay the price of their recklessness"? I'm an executive in a limited-liability bank. I authorize lending exorbitant sums of money to Bob the Builder Construction, Ltd. Two years later, Bob has gone bankrupt, and my bank is on the rocks. What is the government going to take from me personally? How do they make me "pay the price"?

They make it illegal for you to pay yourself a ten million euro bonus.

Or do you feel that it's entirely acceptable that, having made such stupidly risky loans, you should reward yourself to your heart's content?

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irish_bob

donegalfella wrote: »

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what is irelands chart possition in that line up , oh and have we slipped in the last few years

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oscarBravo

donegalfella wrote: »

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And the US has a ten-and-a-half-trillion-dollar national debt, more than 70% of GDP. I guess it's just about possible that there are one or two other factors than the level of financial regulation at play.

Well, your government regulators have been doing an absolutely wonderful job in recent years, haven't they?

Straw man. You're trying to claim that because regulation hasn't worked perfectly, an absence of regulation would have - that's not even close to logical.

"Swathes of ordinary human casualties?" Am I advocating genocide?!

Straw man. Unless you consider wiping out a large number of people's savings an acceptable price to pay for the enrichment of a small number of people.

Well, if it's not a "guaranteed correlation," it's certainly a remarkable coincidence! According to the Heritage Foundation, the five most economically free countries are Hong Kong, Singapore, Australia, the United States, and New Zealand. The five least economically free countries are North Korea, Cuba, Libya, Zimbabwe, and Burma. Do I need to go on?

Do you always have to argue from extremes? I'm not advocating emulating North Korea or Cuba, I'm questioning whether reduced regulation is a good thing for Ireland. In other words, I'm asking you to extrapolate towards increased market freedom, and demonstrate how it will increase prosperity, rather than pointing at the extreme end and trying to extrapolate away from it.

oscarBravo

donegalfella wrote: »

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Do you think it would be a better idea for the government not to licence lotteries and bookmakers, and instead to allow anyone to operate one at will?

According to your logic, governments should also regulate stock markets, racetracks, and any other forum in which individual citizens take risks.

Governments do regulate stock markets. Do you think there should be no FEC in the US? Do you think insider trading should be legal? Do you think race-fixing should be legal?

Indeed! We had exactly such "bulletproof" legislation in the USA! And we saw how well that worked out, didn't we?

I never used the word "bulletproof" - your straw man body count is climbing steadily. And once again, you've tried to imply that because regulation didn't work perfectly, that is somehow proof that a lack of regulation would have worked better. You need to work on your logic.

That wasn't my question. My question was, how do governments make individual bank executives "pay the price" for taking on absurd risks?

I answered the question, but you snipped my answer from your quote. So can I take it that you do indeed feel that it's acceptable for the executives of banking institutions to reward themselves richly for inflicting huge damage on the stock markets and the economy through unfettered risk-taking?

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oscarBravo

donegalfella wrote: »

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Nice - you snipped the relevant part of the quote.

I'm stating that we have no evidence that increasing market regulation does anything to improve countries' financial stability. There is, however, significant evidence to show that decreasing regulation boosts prosperity and economic dynamism—everywhere from Argentina to Australia.

And you're taking it on blind faith that that trend must necessarily continue, to the point where a total absence of any kind of government oversight whatsoever will lead to a perfect utopia where all citizens will become infinitely rich. Forgive me for not sharing that view.

You're merely arguing zero-sum economics here, proposing that the rich can only become so by wiping out the savings of the poor. This simply isn't so.

No, I'm not, and it's a stretch to read that from what I've said.

You've argued, in effect, that allowing banks to collapse is the right thing to do. You don't seem to be bothered at all about the effect such collapses would have on individuals. That's the difference between us: I see the wiping out of people's savings as too high a price to pay for an opportunity for rich people to get slightly richer.

Well, your point was that there is no "guaranteed correlation between market freedom and individual prosperity." I think there is, and I point to the most economically free countries as also being the most wealthy, while the least free countries are also some of the least wealthy.

So you've said. Any chance you'll stop avoiding the tough question as to how far that trend can realistically be extrapolated?

I can point to numerous case studies around the world where increased market freedoms have increased prosperity. Can you name even one case where curbing market freedoms has increased prosperity?

Governments, by guaranteeing bank deposits, have historically created a sense of security for the ordinary citizen, which means that banks have money to lend, which is the basis of all commerce.

donegalfella wrote: »

That's not my point, as you well know. I'm addressing your claim that governments have "a mandate to consider the welfare of ... individual citizens ... when calculating risk." If this is so, then governments should logically prohibit such financially risky activities as dealing in stocks, betting on horses, and buying lottery tickets, activities in which individual citizens routinely lose significant sums of money.

I love how carefully you avoid answering the difficult questions that expose the cracks in your worldview. I'll ask again: Do you think there should be no FEC in the US? Do you think insider trading should be legal?

As to your comical distortion of my point, I never suggested that governments should prevent citizens from taking risks. There's a difference between allowing an individual to take risks with his own money, and allowing a bank executive to take risks with tens of thousands of other people's money.

You did not, and I never attributed the term to you: I was referring to the claims of several U.S. politicians in the years prior to the current financial debacle.

They were wrong. Regulation didn't work as well as it should have. But you're using this to argue that because a burglar alarm malfunctions, the solution is to remove it and leave all the doors and windows standing open instead.

Your answer was that the government should make it illegal for executives to receive large bonuses.

No, it wasn't. My answer was that it should be illegal to receive large bonsuses for taking stupid and costly risks.

But that only removes an incentive; it doesn't ensure accountability.

So how does a perfectly free market ensure accountability?

What about politicians such as Jimmy Carter and Bill Clinton, who used the Community Reinvestment Act to force lending institutions into making risky loans...

I wondered when you'd bring up that particular canard. I'm not sure whether you actually believe that lie, or are simply hoping I don't know what the CRA actually entailed.

The banking executives, I'm afraid, were only profiting from the mistakes made by others—and those "others" are invariably to be found in government. I'm not saying that the banks' actions were particularly defensible—but they were a logical response to governmental blundering.

"I'm not saying that a burglar's actions are particularly defensible - but they are a logical response to defective locks and alarm systems." Those poor, victimised banks, forced into taking risks by the nasty, evil governments who left loopholes for them. My heart bleeds.

The difference between us is that you see government as the solution to economic turmoil. I see it as the cause.

One of these days, you'll explain precisely how the absense of regulation in the banking sector will make us all richer.

Or you'll come clean and admit that as long as it makes a select few richer, it doesn't matter a damn what happens to everyone else.

Nodin

donegalfella wrote: »

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I'm amazed how often that comes up.....

A study, by a legal firm which counsels financial services entities on Community Reinvestment Act compliance, found that CRA-covered institutions were less likely to make subprime loans(only 20-25% of all subprime loans), and when they did the interest rates were lower. The banks were half as likely to resell the loans to other parties.[

Link

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Nodin

donegalfella wrote: »

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However its become very obvious that in certain cases, the risks taken by a few, to reward the few, have consequences that are far too wideranging to be acceptable.

donegalfella wrote: »

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You seem to be confusing the area of venture capital with the ordinary business of banking. People placing monies in banks for security and to hold their cash do not do so to enter that particular area, nor are they advised that they are doing so.

donegalfella wrote: »

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Unlimited liability comes to mind. Certainly a more hard and concrete set of terms to define the conditions under which bonus payments and rewards are paid has to be put in place. Executives in Lehmann Brothers were awarding them selves over 400 Million while simultaneously lobbying for a bailout. Its the inevitable result of a laissez faire, mind you.

donegalfella wrote: »

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I might say the same to you. Certainly it does seem to be have co-opted as the favourite scape goat of the American right at the moment.

donegalfella wrote: »

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Not entirely a stupid suggestion.

donegalfella wrote: »

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Spoken as if from Dickens 'Hard Times'.

Nodin

donegalfella wrote: »

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Any more of that Well Poisoning and I'd say Galwegians won't be the only ones drinking from tankers this Christmas.

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Nodin

donegalfella wrote: »

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Thoughts of mine that may coincide with FF may be taken as a result of coincidence, rather than our travelling as fellows.

donegalfella wrote: »

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Considering the amount of interest paid on the average deposit, the risk would therefore be expected to be small indeed. The majority of people look to banks as a glorified giant safe, rather than some investment venture. You might argue - possibly correctly - that thats far from the truth, however thats just not how its perceived or used. Nor have I noted any massive campaign to change that by the banks, funny enough.

donegalfella wrote: »

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Considering the human factor of greed and the failure of self-regulation it would appear that some form of outside intervention would be required. Ideally this would be in the form of set criteria, rather than a case to case basis. The phrase 'Guidelines' should be avoided, as it smells of what the English like to call 'a fudge'.

I don't see why it should be any more remarkable than revising Directors duties under the varios governing acts,as happened when new circumstances and difficulties arose....

donegalfella wrote: »

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Given their complete lack of accountability, no, I most certainly don't.

donegalfella wrote: »

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No, awarding millions while lobbying for bailouts is.

Internal documents obtained by the committee, Waxman said, "portray a company in which there was no accountability for failure."

Waxman cited an e-mail exchange among top Lehman executives. After someone sent an e-mail suggesting that Lehman's top management give up their bonuses, both Fuld and George H. Walker, a member of Lehman's executive committee and a cousin of President Bush, sent e-mails disagreeing with the suggestion.
Walker, according to Waxman, replied by writing, "Sorry team. I'm not sure what's in the water at 605 Third Avenue today. … I'm embarrassed and I apologize."
Waxman said that Fuld "mocked" the suggestion by adding, "Don't worry – they are only people who think about their own pockets."
Waxman also cited a request submitted to Lehman's compensation committee four days before the firm filed for bankruptcy. The request, he said, recommended that the board give three departing executives over $20 million in "special payments."
"In other words, even as Mr. Fuld was pleading with Secretary Paulson for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman said

http://abcnews.go.com/Blotter/Story?id=5965360&page=2

donegalfella wrote: »

Since you credit me with the comparison, I'll take it.

Not a problem, Mr Gradgrind.

oscarBravo

donegalfella wrote: »

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You're strangely reluctant to spell out what you think is required, and have continually argued that less regulation is invariably and inevitably better. Accordingly, I've had to push to see if you are prepared to extrapolate that position to its logical extreme. It seems I've finally forced you to concede that the correlation breaks down at some point - progress, albeit akin to pulling teeth.

Governments should provide the framework in which markets can operate efficiently...

As long as that "framework" doesn't involve them having any actual say over anything whatsoever, right?

...but the government itself should not be an actor in the economy...

That has to be the single most bizarre thing you've ever said. And that's saying something.

Yes, I have argued that allowing bankrupt institutions to go bankrupt is the right and proper thing to do.

If you had your life savings in a deposit account that suddenly disappeared overnight, would you write a congratulatory letter to the executives of the bank? Would you shrug and say, what the hell, that was the risk I took by being stupid enough to put my money in a bank instead of keeping a stack of gold bars under my matress?

You've argued that governments should never allow banks to collapse, propping them up with taxpayer funds in the name of protecting a limited number of citizens from supposed financial ruin.

Whereas you blithely dismiss such citizens as a necessary casualty of capitalism.

Straight question for you: if you found yourself sacrificed at the whim of capitalist necessity, would you be as blasé about it?

You don't seem to be bothered at all about the effect such moral hazard will ultimately have on economies and on taxpayers. A nation full of Northern Rocks is the only logical outcome of all this propping up.

Only if the propping-up is unconditional.

You are then arguing for a world in which people can derive reward for taking on absolutely no risk. That's patently absurd, I'm afraid. The world of investment assumes a correlation between risk and reward.

The risk involved is that of being partly or completely nationalised. The risk for the executives is that of being denied their exorbitant bonuses. As it stands the risks are externalities, and as such no deterrent.

Contrary to your laughable fingering of the CRA as the reason for the credit crunch, the true reason is the commoditisation of risks, and the consequent dissociation of risk from reward. Once a bank sold its risks to someone else, it - by definition - had no risks, and as such no checks on lending.

Alas, I don't have a crystal ball.

And yet, you confidently predict, as if it were axiomatic, that reduction of regulation would inevitably solve the current financial crisis. I haven't seen anything yet that suggests this is anything other than a tenet of the faith of market fundamentalism.

You have a peculiarly strange notion of "history," my friend. My history books tell me that commerce has existed for thousands of years, while the FDIC came into existence only in 1933, and Ireland began insuring deposits of more than €20,000 only a couple of months ago. Logic demonstrates that "the basis of all commerce" is clearly not governments' willingness to insure bank deposits.

It's amazing the lengths you'll go to to misrepresent what I say. The basis of commerce is credit. The availability of credit is determined by the willingness and ability to lend money. The more that banks have on deposit, the more they can lend. The safer those deposits are perceived to be, the more willing people will be to make them.

You would prefer a system where every lodgement to a bank account is a gamble. Not me.

As I have stated above, governments should provide the framework in which markets can operate efficiently, but have no mandate to interfere with the process of price discovery.

Describe this framework to me?

I have no problem with outlawing insider trading.

Why? Explain to me why it's OK for a government to prevent people making money from the commodity that is information? Why should they be allowed to prevent that, but not specify (say) liquidity requirements?

As regards the Securities and Exchange Commission (note: SEC, not "FEC" as you repeatedly call it), then, yes, I agree that the latter should exist.

Why? What role does the SEC fulfil that the market couldn't manage itself through Darwinian processes?

In that case, should the government monitor fund managers to make sure they don't take risks with tens of thousands of other people's money?

If I put my money in a managed fund, I'm asking the fund managers to take a risk with my money. Seriously, this isn't a difficult concept to grasp.

By the way, you continue to duck my question about how you make banking executives as individuals "pay the price" when their institutions collapse.

I've answered the question. The fact that you didn't like the answer doesn't mean I didn't answer it. If you have a problem with my answer, tell me what the problem is rather than repeatedly asking the question.

Shareholders can hold executives responsible for stupid decisions by selling their stock—just as they can reward them with sizable bonuses when the company performs well.

Case study for you: in 1999, Mattel purchased The Learning Company - my then employer. They paid $3.5 billion dollars. TLC went on to post a loss of $206 million for the year, causing Mattel to lose $82 million for the year, and $430 million (including restructuring costs) in 2000. Mattel fired a tenth of its workforce in an attempt to recover from the debacle, and its share price dropped from a 1998 high of $45 to $11.

The CEO at the time was Jill Barad. As a result of all the above, Jill lost her job.

And took with her a $50 million severance package.

Fifty. Million. Dollars.

Yup, the market sure showed her what for.

Erm, what "lie"? You obviously don't know what the CRA actually entailed.

"It is the purpose of this chapter to require each appropriate Federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions." Perhaps you can point to the specific provisions in the Act that require a bank to take risks.

One of these days, you'll explain precisely how a highly regulated banking sector can be anything other than a stagnant, moribund wasteland!

You've done that for me, rather eloquently. You've waxed lyrical on how much more prosperous Ireland has become in the last couple of decades. That took place in the context of a regulated banking sector.

Why don't you just go the whole hog and nationalize the financial sector? Surely Brian Lenihan Jr., with his mandate to protect the public from risk, can do a better job than these stupid, greedy capitalists?

Because I'm a believer in balance. I don't think unfettered capitalism is a good thing (despite being an entrepreneur), and I don't think communism is a good thing.

Perhaps you'll admit that your social egalitarianism matters more to you than dynamism, entrepreneurialism, or progress!

I am an entrepreneur. Social egalitarianism doesn't have much to do with it. My business doesn't have a lot of cash on hand, but such as it is: if I woke up in the morning and found my cash reserves had simply disappeared, I'd be out of business. A number of the shareholders in the company would probably lose their homes. My business's employees would be out of work. Several of the small businesses that depend on the service I provide would be at risk of going bust, and so on and so forth.

But hey, that's an acceptable price to pay for keeping the market free of government interference, right? Hell, we wouldn't want to put any kind of crimp in the banks' profits.

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