What Market Failure?

[Hallibutbouy]

Free market for the poor when they can't afford healthcare or housing or a decent funeral or can't find a job. Bailouts when the banks mess up by investing and trading in worthless assets. Does that make any sense when the bankers who brought the mess upon us have enough money to be unemployed for the rest of their lives and still live a life of luxury. Communism for the rich, free market for everyone else, that's the game.

[Hallibutbouy]

I wonder if he would have been giving that argument for no government intervention when the taxpayer was being held to ransom to save his rich banking buddies with a bailout. Any true free-marketeer would have let the banks fall. The reality is that the most business people who argue for the free market do it out of their own interest, not because they believe the free market has the most beneficial result for society. The last 30 years have been a disaster for western societies.

[Hallibutbouy]

Amazing how he managed to turn the banking crisis around to create an argument for further deregulation!!! You have had your de-regulation since Thatcher and Raegan and this is where it has left us. In the last 30 years the top 1% have increased their income by 140% while the bottom 20% and the middle 20% are still working for the same real wage for longer hours!! That is what happens in a free market, the strong dominate the weak. Markets are more monopolistic than ever. That is a failure.

[residentzombie]

@Hallibutbouy Corporatism was created by over regulation in various economies by politicians. Large corporations like Marlboro, Microsoft, Goldman Sachs, etc. have all publically welcomed additional regulation by their buddies in D.C. When these well established corps have many regulations, it shuts down their smaller competition and the corps have more control of the industry they are in. You have in backwards sir.

[Hallibutbouy]

@residentzombie don´t be silly mate All markets are regulated in one way or another, even if that is only property rights. The question is always ín whose favour are they regulated? Companies don´t spend billions of dollars on lobbying 4 fun, they know that when they do changes in policy or law go their way & most of the time what works for them is less oversight, less public knowledge, more freedom to be immoral when its profitable & less tax from government or equally less red tape 2 deal with

[residentzombie]

@Hallibutbouy Just a coincidence that the markets regulated the most by government are the ones messed up the worst? Free markets are needed because a politician does not have perfect knowledge of an industry that they attempt to regulate and most of the time they realocate capital to go to places it should not go like mortgages. Companies lobby FOR regulations NOT to deregulate their respective industry. BP was the #1 pusher for Cap and Trade legislation.

[residentzombie]

@Hallibutbouy The whole point of free market is if a company gambles too much and they loss that gamble they go bankrupt. If government is there to bail them out all companies will make reckless bets because they don't care about losses since the taxpayers will make them whole again.

[residentzombie]

@Hallibutbouy Free markets call for corporations who take too many risky gambles and loss those gambles to go out of business. If gov't is there with taxpayer dollars to bail them out if they loss their gamble, this is NOT the free market. The financial industry is about 70% regulated by gov't and just a coincidence that the financial industry is so messed up? Gov't messed up the financial market by keeping interest rates too low for too long and cause capital to flow to areas it shouldn't have.

[residentzombie]

@Hallibutbouy @Hallibutbouy Free markets call for corporations who take too many risky gambles and loss those gambles to go out of business. If gov't is there with taxpayer dollars to bail them out if they loss their gamble, this is NOT the free market. The financial industry is about 70% regulated by gov't and just a coincidence that the financial industry is so messed up? Gov't messed up the financial market by keeping interest rates too low for too long and cause capital to flow to areas it

[residentzombie]

@Hallibutbouy @Hallibutbouy @Hallibutbouy Free markets call for corporations who take too many risky gambles and loss those gambles to go out of business. If gov't is there with taxpayer dollars to bail them out if they loss their gamble, this is NOT the free market. The financial industry is about 70% regulated by gov't and just a coincidence that the financial industry is so messed up? Gov't messed up the financial market by keeping interest rates too low for too long.

[residentzombie]

@Hallibutbouy Free markets call for corporations who take too many risky gambles and loss those gambles to go out of business. If gov't is there with taxpayer dollars to bail them out if they loss their gamble, this is NOT the free market. The financial industry is about 70% regulated by gov't and just a coincidence that the financial industry is so messed up? Gov't messed up the financial market by keeping interest rates too low for too long.

[Scientisticsoviet]

@residentzombie No really. The world of financial derivatives is certainly not a government sponsored invention. So while Alan Greenspan & the Federal Reserve did prop up a housing bubble by keeping interest rates low (ironically in the believe that the markets would adjust and produce optimal results), the spread of the crisis to the rest of the world was due to financial instruments that few or none understood the long term consequences of.

[residentzombie]

@Scientisticsoviet The only government sponsored invention need be freedom and upholding the natural law. Greenspan created the housing bubble along with Congress and Clinton enacting the Affordable Housing Act, giving creedence for the Fed to do what it did. Interest rates are a signal to savers and investors as to what credit is available. Credit is not unlimited, it is a product of the people saving and forgoing their wealth now for later consumption.

[Scientisticsoviet]

@residentzombie Again though, you are avoiding the elephant of derivatives and other financial "innovations" which have nothing to do with the government.

[Scientisticsoviet]

@residentzombie Another aside, the bailout is a result the growth and consolidation of financial institutions into large interdependent firms, which not only gives them capital to lobby the government with, but also creates the problem of crashing entire economy should they fail (thus a guaranteed implicit subsidy, assuming the government has an interest on the economy of which it is dependent).

[residentzombie]

@Scientisticsoviet The entire market would not have crashed had these firms went bankrupt. The system will crash because of hyperinflation, the Federal Reserve printing and expanding the money supply, but not because a few large financial institutions failed. That's what capitalism is - a profit and a LOSS system. Now when the politicians in bed with these finantional institutions gives them stolen money from taxpayers to pay off their bad bets, that is FASCISM.

[Scientisticsoviet]

@residentzombie It would have, as a large financial institutions are interdependent. They each make loans to each other, as well as to the rest of firms and individuals in the economy at large.

They bare similar risks to for instance a electric transmission system failing. The failure is not local and isolated, it spread to a very wide geographic region.

[residentzombie]

@Scientisticsoviet Smaller, more well run financial firms would have picked up the pieces after the big boys went under. That is what happens all the time. Bankruptcy is a healthy thing. It rids us of poorly run businesses. The big businesses gobbling up smaller business is a myth, myth maker. Competition will always happen. That is unless their buddies in government try to help those big businesses keep the competition out of the marketplace.

[Scientisticsoviet]

@residentzombie Eventually perhaps; The problem is that you get a very large deadweight loss in the short run which carries over to the long run (as investment slows down).

Also, many smaller already existing financial firms are often dependent on larger ones.

---

Aside, mergers and acquisitions do happen, and businesses grow. Saying that it is not the case shows not only academic ignorance of historical trends, but also never having actually work in a firm at any higher position (cont.)

[Scientisticsoviet]

@residentzombie Expansion is one of the key things a business focuses o nonce it's revenues and expenditures become stable (As a personal anecdote, when I worked in my fathers pastry manufacturing plant he was the process of a merger with a slightly larger firm in Winnipeg, such that they could gain each others products, market share, suppliers, diminish financial risk, etc.)

[residentzombie]

@Scientisticsoviet Onvisously what you stated is true; however, you are missing the point that once these businesses merge or buy each other out, new competitiors enter the marketplace especially if these mergers are a bad deal for consumers. If the merger is that of ethical means and not monopolistic means competition will take longer to form. Eventually this larger business will get lazy and competitiors will come in to offer better quality, better prices, and/or better customer service.

[Scientisticsoviet]

@residentzombie It really depends on the market in question. The more capital intensive, the less likely another firm will bother. Of course what is worse is when there are too many firms in a given industry, and so can't exploit scale and scope as effectively as possible (the example I often give is that of the electricity market in Quebec prior to merging of all smaller firms under our nationalized hydro-quebec).

[weav8060]

I like whoo689 above, "economists who are non-partisan" -- in other words, rational economics has nothing to do with ideology or values. He was well trained to be a pragmatist by the Paul Samuelsons et al.

[AlaskanWarrior]

So they have capital and then leverage it beyond 10:1 could not manage that because they got too greedy.

Becase the FCC is there to blame name them, and isn't the fed making money for private banks printing the money anyways.

Seems like Commence is good at concentrating wealth, these guys were the ones that got 780 Billion from the Fed that income taxes will go to paying back.

Why do the poor pay for the mistakes of the rich

[whoo689]

For the most part, I'm a libertarian, and I did believe the whole "gov't intervention caused the crisis" tale for a while. But looking further into it, that's not the case. And besides, it doesn't have to be a dichotomy of "too much intervention" vs. "too much deregulation." It should be obvious to any objective observer that is a mixture of the 2. Deregulation played a part in letting irresponsible bankers get out of hand (shit like derivatives, esp.) and extremely low interest rates.

[whoo689]

Economists who've studied the crisis who are more nonpartisan pretty much agree that deregulation, more so than so-called distortions, created the climate for a collapse. Of course things like extremely low Fed-created interest rates helped the housing boom go overboard. But that was not the whole reason. The Austrian economics analysis, esp., of the crash is too simplistic.

Saying it was all gov't's fault takes the blame off irresponsible bankers and CEOs who ran lenders into the ground.

[DK0526]

What was the market incentive for bankers to behave irresponsibly and run banks into the ground? what was the cause of this effect?

[DarkMagus1985]

@whoo689 The whole Libertarian argument is based on a cruel ideology born from the belief that government has no role in one's life and cannot be a vehicle for reforms and government should not infringe on people's desires. This argument was used in the defense of slavery against Northerners who wanted to abolish it. The argument of non-regulation was used by Southerners for Jim Crow. This argument was also made 2 maintain child labor and the abuses to workers. Government regulation is a must!

[minxlabrada]

Hard to take anything from BB&T seriously. Search on youtube for BB&T Mortgage.

[EldarMu]

Finger pointing at its best? He misses so many things that banks did wrong without any help form the government....

[KirtaPMcG]

Call me uneducated. But when he talks about destroying $20mil vs. $50mil it seems like he's admitting to an obvious cause of this crash and simultaneously blaming govt. The economy was built up on credit, imagined value. When that value can't be backed up, the market readjusts. Govt may have exacerbated the problem but having dubious credit as the foundation of our growth is a huge mistake.

Defining good performance as a rising GDP is also a mistake, but that's more a matter of opinion.

[cryoslave88]

A democracy cannot function if the state is subordinate to private enterprise in any way. This man is simply one of many delusional ideologues who attribute a benevolent nature towards laissez faire capitalism. The reality is that capitalism is more of a mad dog that can bring prosperity so long as the leash is firm and its movements are restrained.

[ObjectivistAesthetic]

@cryoslave88: freedom cannot operate if private industry is subordinate to government in any way.

Out of curiosity, is it part of your personal ideology that ideologues are bad?

If you think markets need to be restrained, you have the power to do it--just abandon all the things free markets have brought you, like your YouTube account. Or maybe you want people to perceive you as a hypocrite? Google is an enormous, (relatively) unregulated business, so put your money where your mouth is.

[cryoslave88]

Out of curiosity, is it part of your personal ideology that ideologues are bad? Quite the opposite, it is impossible to avoid ideology in politics, and i make no illusions of my allegiances. Either way it is non-sensical to presume that regulating big business would dismantle their very existence. I personally favour early American models of corporate charters in which the right to operate on such a scale was dependent on the common good. Google would fulfill this, large banks do not.

[ObjectivistAesthetic]

Regulations are a slow death by a thousand cuts.

You may not have illusions about it, but you are certainly under delusions about your ideology if you rely on empty phrases like "the common good."

[cryoslave88]

I was running out of space to type. Common good, as in the charter would stand if serves the interests of the state or the populace as a whole. The right to become incorporated should never have come to pass, nor should these behemoths have ever become legal persons. Capitalism looses its advantages when companies can operate on large transnational scales becoming powers beyond sovereign states. In regards to the recession, it could have been wholly avoided it the US banks were restricted.

[ObjectivistAesthetic]

Banks are some of the most regulated businesses.

I'm reading your comments and I can't agree because I don't see how these concepts are tied to reality. When you say, "populace as a whole" I'm thinking "individuals" and when you say "interests of the state" I'm also thinking "individuals." When you say "common good" I think "which individuals' good? What individuals get to decide it? How did they acquire that privilege?" Feel free to get the last word in--I'm pretty much done here today.

[cryoslave88]

Well i will leave it at that. My last word is simply that we do have differing philosophic perceptions on the subject. This conversation was a pleasure. Ta Andrew

[Adlershof]

This guy is shameless. 1929 goverment saved the economy, 2009 it has to do the same. Deregulation of markets only produces kaos and bankrupcy. This is not against capitalism, on the contrary. In order to protect capitalism we have to regulate it. Libertarian deregulators will drive us to total breakdown. People like this guy are eather dumb or bad people (or both)

[ObjectivistAesthetic]

@Adlershof: Sorry, but I just think comment is really uninformed.

[Adlershof]

What a powerful analisys of my comment! Sorry, but most of the developed world don't agree with you. Only Ron Paul freaks, libertarian lieyers, corporation thieves and tea-baggers like you defend a failed system like a derregulated capitalism

[ObjectivistAesthetic]

I don't care what "the developed world" thinks--I only care about what is moral and rational.

You don't need to be so defensive.

[IlynRoss1]

GW said govt is FORCE. The only function of govt/force is rights protection. Rights are rights to action, not to man-made values (e.g. healthcare)

Equals do not have slaves.

TJ: Reason & persuasion are the only practicable instruments. To remove force from citizen interactions so that they may deal w/ each other only by r & p, citizens delegate their right to self-defense to their govt. Citizens cannot delegate a right they do not possess hence, the govt has no right to regulate Rights

[langengro]

It really takes a tough nosed guy from the Ayn Rand Institute to uphold such bold opinions.

But didn't we know all along that people like this actually exist?

If you work for the Tobacco industry, you'll deny for decades that smoking causes lung cancer.

If you work for an Oil company, you'll keep denying that there is man-made climate change.

And if you work for an investment bank, you'll flat-out deny that there is such a thing as market failure.

You just have to ask the right guy ...

[Signofthedollar]

I'm glad Obama won, hopefully Americans will wake up before it is too late.

[ObjectivistAesthetic]

@Signofthedollar: Whoops!  Hey man, I accidentally clicked "negative" on your comment! Sorry about that! Slip of the clicker.

[PrairiePie23]

What?! Transparency distorts the market?!! You couldn't take the accounting loss?? Bullshit! Maybe your fucking margins were too slim - you know, not enough cushion. Jesus!!! Give me a fucking break! The market failed because people panicked and transparency is responsible for that? The implications are that if we didn't know what was going on, we wouldn't panic - welcome back to the roaring fucking twenties. Idiot.

[PortfolioManager1987]

You're speaking of the market as if it's not a place where economic actors voluntarily trade.

What would you prefer meatface? The iron fist? I think so.

Learn to listen to a video.. how many times was "transparency" mentioned? You stupid assfuck.

[PrairiePie23]

The way a company's assets are valued has everything to do with how the market reacts. If you're a portfolio manager, you know this is true. Besides, the speaker says as much. The laws and GAAP expressly adopted to report assets at objective values are specifically laws of transparency aimed at stabilizing a market. The entire collapse is due to irresponsible lending based on asset valuation. Would you have invested in assets based on bad lending practices if you'd known they were?

[danielt63]

00:57 "economically that mortgage was worth 80 million dollars and that is what it should have sold for..."

If you can't sell it for 80 mil, then it isn't worth 80 mil, unless you deny capitalism which, based on the beginning of the talk, he obviously does not.

[PortfolioManager1987]

There's no question the SEC's FAS 157 mark-to-market accounting rule revalued an entire market in such a way that made the secondary mortgage market collapse.

The market was coming out of a recession after the bailout of Bear Stearns, only to be royally fucked by a massive swing from billions in earnings to billions in losses thanks to FAS 157.

FAS 157 was instituted in November 2007 and relaxed in March 2009. Banks since have been marking to fair value, and the stock market has surged 60%.

[zeitgeistGO]

fuck money, fuck this sad fuck on the video and fuck you all Americans in general

[creten69]

@zeitgeistGO hes an idiot, now go dig up some gold u fuk

[ObjectivistAesthetic]

@zeitgeistGO : Well you are supporting an enormous, American corporation (Google) by using YouTube. So, either accept that you LIKE it or cancel your account and stop being a hypocrite that no one can possibly agree with in reality.

[AimiriZ]

lol kk

[upshall]

Yes, the government guarenteed the loans made by FannyMae but it was the banks and monetary companies packaging that debt as something to invest in that caused the problem. Money can not be created or destroyed. But someone can sell you something worthless.

[ObjectivistAesthetic]

I'm not sure I understand you. Money can't be created or destroyed? I'm pretty sure it can. What did you mean by this?

[upshall]

In the world of accounting money is not created or destroyed. It just changes hands.

[ObjectivistAesthetic]

So early, primitive humans had just as much wealth as we do today?

Obviously, I'm trying to make the point that wealth is a creation of human ingenuity--not something that is merely taken, given or found. Oil is valuable, but only if their is an invention (like a motor) to give it value.

You might like "Atlas Shrugged" which talks about this point a lot.

[upshall]

Your confusing value with money.

[kzatching]

you're confusing a verb with the possessive

[ObjectivistAesthetic]

That's an interesting point actually. Maybe we are talking about two different things, but it's christmas and I'm about to go climb a snowy mountain with my wife so I have no time to think about it. Have a nice day!

[mmsayre]

money can most certainly be created and destroyed.

[milloselmejor]

He makes valid points when he talks about the future of the USA 25 years in the future. I just hope that we can come up with the necessary solutions to fix them.