Obamatax on Banks - Not investment related

[watsa_is_a_randian_hero]

I think even Greenspan will agree that "there was a fundamental flaw" in Ayn Rand's theories.

What would it take to convince you that those theories are simply theories and dont work in the real world?

 

Would you have really preferred that most of the Major financial institutions in the World have collapsed?

 

I wouldn't but would have preferred for the government to actually negotiate during the bailout. You cant do bailouts then refuse to bargain / negotiate to preserve a free market that you are basically bailing out. Which was there reason for not negotiating.

 

 

To answer those questions:

 

I do not agree wholeheartedly with everything Rand proposed.  It does not work for a global economy with intricacies on our level.  However, I do agree that individual rights, especially those for private property, should be protected.

 

You cannot prove the statement you have made: "most of the Major financial institutions in the World have collapsed?."  But yes, those that were not solvent should have gone BK.  

 

Many more companies should have gone BK that didn't.  Nobody can say "we would have gone into a depression" if AIG wasn't bailed out.  Nobody knows.  But I do know Lehman's BK didn't cause any fundamental changes (even though the press likes to pretend it did).  The market declines that occurred after Lehman's BK would have occurred either way.  

 

I agree the Fed should have powers for orderly winddown.  But that includes wiping out stockholders AND BONDHOLDERS (bondholders were bailed out in all cases).  This was a credit crisis, after all.  Maybe we wouldn't have such moral hazard if we didn't have a government that bailed out bondholders of AIG.

 

 

 

I guess what I don't understand is why people keep looking for a "cause" of this recession and try to point figures, greenspan, bush, bankers, speculators.  Recessions are part of a market economy.  You will not achieve growth and innovation without open markets, and volatility in growth is a price you must pay for open markets.  Bankruptcies happen; let them happen.  Capital is taken away from those who are poor risk takers, and given to those who are more capable.  Letting poor companies continue to survive is nonsense. 

 

[Myth465]

Most everyone I respect (Buffett, Volcker, and Most Former Fed Governors) agrees that all of the investment banks would have collapsed followed shortly by the Regular Banks and large insurers due to derivatives and counterparty risk. Everyone was interconnected. No one knows, but im sure we can all connect the dots. My question is why do you think everyone is wrong? Watsa seems to have thought as much with his CDS bet.

 

Many thought Merril was next followed by Goldman. Followed by ................

 

The trouble with letting companies crash is it sounds great in theory. But what happens is no one lends money to anyone. Our economy is based on trust and you arent going to give money to anyone who you dont know will be around tomorrow. After Lehman. They say credit froze. You dont think they actually meant it. No one was lending money to anyone (Bank Wise).  Read the books (Too Big to Fail), check out the documentaries on Frontline (There are 3 to 4 of them which are very good). It was a real crisis not something that was simply made up by the papers. Buffetts phone was ringing because people needed cash. Goldman's former executives literally thought Goldman was next and they used to run the company. Luckily they were in government and could do something about it.

 

Henry Paulson ran Goldman and firmly believed in free market principles, he made this statement. In Spring 2007, Secretary Paulson told an audience at the Shanghai Futures Exchange that "An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention."[19]

 

Do you really think he wanted to do the bailouts. Or is it more likely he saw few other options and didnt want to be the guy who let the chips fall where they may.

 

Wiping out the bond holders would have ensured no one became a bondholder for a bank and would have basically crippled most insurers and pension funds (bondholders). I dont think they did the best job, but I think Buffett gives them credit because there were no easy choices.

 

I think they should have gone into reservership which is bankruptcy for banks. If they were bailed out then stockholders should have lost it all and maybe even bondholders given some sort of haircut / convert to ownership. I dont agree with the way the bailouts were done, but agree with them.

 

You do have a point. It doesn't make sense not to negotiate with the business when you are helping it. Then try to change what it does in terms of paying its employees. Im a Libertarian but these guys don't deserve their bonuses. Maybe some of the more profitable units, but not the CEOs and CFOs. Most of these profits are from phony accounting changes and government support. the government should have done what many have recommended and addressed these issues when the support was provided. We agree there.

 

Finally no one is debating the cause of the recession. What we are debating is who caused the greatest crisis since the great depression. The Fed has inflated asset prices for 20 years and created a super bust instead of a series of Booms and Busts (minor recessions). The minor recessions are very healthy in my opinion, but the super booms and busts are not. The causes are Congress (deregulation and lack of competent regulation), the Fed (ideology devoted to free markets, Greenspan said he didnt even believe in enforcing contracts / policing fraud),

[SharperDingaan]

 

Governments, & central bankers, can leglislate/impose whatever laws/rules they wish - within their own jurisdiction. All they need is a 'yea' vote to enact the law/policy on the land.

 

I-Bankers are all about capitalism & the free flow of money/talent to wherever it'll earn the most. So if your bonus (& total comp) is reduced to the point where you think that you can do better elsewhere - you should voluntarily move to wherever that 'elsewhere' is. Don't move & you've chosen to accept the lower bonus - & for most people, moving is not practical

 

You have a profit because the government/central bank fostered the environment that allowed you to make it. So why should any government let you keep it ? when frankly a monkey could have done much the same thing. And why is this any different to the existing annual fed/state tax share on a nations GNP? 

 

Much more pithy to go the 'sand-box' route!

 

SD

 

[Guest kawikaho]

I don't think there is much one can say to sway an opinion.  Watsa_the_ibanker is privy to his, and we are to ours.  I say kneecap the bankers, and invoke serious reform and regulation of the financials.  Volker just came out saying the same, and nearly everyone we respect is unanimous in this sentiment.

[Myth465]

I don't think there is much one can say to sway an opinion.  Watsa_the_ibanker is privy to his, and we are to ours.  I say kneecap the bankers, and invoke serious reform and regulation of the financials.  Volker just came out saying the same, and nearly everyone we respect is unanimous in this sentiment.

 

Agreed. Sounds like in a round about way you are saying.

 

Upton Sinclair's - "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

[SharperDingaan]

 

A couple more from our favourite comic that are specific to this, & thats it

http://www.telegraph.co.uk/finance/alex/

http://www.telegraph.co.uk/finance/alex/?cartoon=6748527&cc=6718600

 

Enjoy

Sd

[bargainman]

 

Sure they do. It's called the progressive tax system.  To an extreme the government could impose a 100% tax bracket for the highest income earners.  The government has a right to tax its people.  That is by law.  So I don't understand how you say 'the government has no right'.  That statement is completely false, the government has every right as long as it's passed by law.

 

Have you ever read Atlas Shrugged?  I suggest you do.

 

"That statement is completely false, the government has every right as long as it's passed by law." - This is probably the dumbest statement I have ever read.  Have you ever considered what gives the government the right to pass a law? 

 

The government has only powers, given to it by the people it governs.  The definition of an illegitimate governing body is one that exercises powers in excess of those given to it by the individuals it governs.

 

Well I never claimed to be as smart as an investment banker such as yourself, but I think you're probably being a bit extreme in claiming my statement to be the dumbest you've ever heard.  Or maybe you've never been exposed to dumber people than I.  It's probably possible since I'm kind of scraping the bottom of the barrel.

 

Ayn Rand huh?  That's one sure way of declaring your political and philosophical standing to the world.  And I think that's ultimately what the argument comes down to.  Philosophy. You're arguing philosophy, I'm arguing law and legality. I'm well aware of what supposedly gives the government powers.  That varies a lot depending on whether the government is a democracy, a republic, a dictatorship etc.  I'm not sure what you declare to be an illegitimate government either.  Is China's governing body illegitimate?  I can guarantee you that they exercise powers way beyond those supposedly given 'to it by the individuals it governs'.  When you say "The government has no right to impose limitations on the ability of a person to earn a specific wage", to me that is a legal question not a philosophical one.  Sure there are gray areas, but ultimately if Congress can pass the law and the president will sign it, then the government does have the legal right.  People can then challenge the constitutional legality of the law through the judicial branch if they so wish.  Checks and balances, separation of powers, all that good stuff.  Congress is elected by the people they govern.  If they get too far out of line they'll get voted out.  Now does the government have the philosophical 'right'?  Well I don't quite know what that is since there are many philosophies in this world and each may give you a different answer.

 

Anyway, your further statement that "The government has only powers, given to it by the people it governs" is bewildering under the circumstances.  I'm guessing that if you asked the majority of people in the US today, they'd likely vote to tax the banks and restrict egregious bonuses on the very people that almost brought us to financial ruin, what's your guess? 

 

Sorry if I've uttered any other dumb statements, I was under the impression that this was a generally civil discussion board welcoming even stupid people as myself.  That said I'd rather try to rationally debate a statement than have my statements labelled "dumbest I've ever heard" even by an obviously overly intelligent investment banker such as yourself.

[benhacker]

Gentle suggestion that we leave these kinds of discussions to other more appropriate places.... if for no other reason than you guys are clogging my RSS feed with non-investment posts. ;-)

 

As someone said... opinions are not often swayed on these topics, which itself may be a sign of the difficulty of some of these issues.

 

Ben

[bargainman]

Ok just one more then I'm done.  Sorry Ben Hacker.  Radian hero, If you still believe it was the dumbest thing you've ever heard, I submit these for your consideration:

 

http://www.huffingtonpost.com/2009/12/29/the-dumbest-quotes-of-the_n_405836.html?slidenumber=k937TPjX274%3D&slideshow#slide_image

 

"I personally believe, that US Americans are unable to do so, because some people out there, in our nation, don't have that, and eh I believe that our education, like such as in South Africa, and the Iraq, everywhere like such as, and I believe that they should, our education over here, in the US, should help the US, or should help South Africa, and should help the Iraq and the Asian countries, so we will be able to build up our future... for our children."

 

Also:

http://www.jimgeary.com/faves/joxe/JOXETC01.HTM

 

;D

[Myth465]

I think this one is better and more appropriate.

 

Craig T. Nelson: "I've been on food stamps and welfare, did anybody help me out? No. No." -- on lack of fiscal responsibility

[txlaw]

I don't think there is much one can say to sway an opinion.  Watsa_the_ibanker is privy to his, and we are to ours.  I say kneecap the bankers, and invoke serious reform and regulation of the financials.  Volker just came out saying the same, and nearly everyone we respect is unanimous in this sentiment.

 

I just read that Charlie Rose interview with Volcker, which I hadn't seen until now.  It's very interesting.  

If you haven't already read it, you should.  See http://www.businessweek.com/magazine/content/10_02/b4162011026995.htm .

 

I completely agree with Volcker on keeping the  commercial banks from getting too involved with what he calls "capital market activities."  They would not be allowed to do prop trading, derivatives dealing, energy trading, or merchant banking.  They would be allowed to underwrite securities for corporate clients.  Not sure whether he'd let them do M&A advisory work or payments transactions (I would).

 

I was actually hoping that Citi would become the prototype for this new approach.  That's where I thought they were going with the whole Citi Holdings/Citicorp approach.  But I'm beginning to worry now whether Citi will revert back to its bad old ways once the government sells its stake.  I'm thinking that the Rubin-ites in the administration are advocating that the government get out as soon as possible, but I'm not so sure that's the best course of action.  We'll see.  

 

Like many, I think that the bonuses being paid out to these bankers are outrageous.  However, I really wish that Congress would focus less on the outrageous bonuses and more on the real issues with financial reform, which are not getting addressed adequately.  Many questions need to be asked and answered: What are the most important institutions in our financial system?  How can we keep these systemically important institutions from becoming TBTF (or too interconnected to fail)?  How much leverage should we allow financial institutions to take on?  If securitization and the shadow banking system are here to stay, how do we make these systems more trustworthy and less susceptible to panics?  Are there perverse incentives in the system that we should be addressing?  For example, does it make sense to allow traditional investment banks and prop trading desks to be joined at the hip?  Should we be removing complexity from the financial system and if so, how?  What types of "innovative" financial products are truly useful to society, and which just cause more problems than we can handle?  Do we need to do more to harmonize financial regulation globally?  Can we do anything to make our financial system more transparent and less susceptible to dealmaking done in smoke-filled rooms?  Etc., etc., etc.

 

These are important questions that our representatives in government should be working on.  I can only hope that they're working on this stuff in the background while the political theater goes on.  But I'm not too optimistic about that.

[watsa_is_a_randian_hero]

I think this is getting a little out of hand.  watsa_the_i_banker?  Yes, I do work for an investment bank...with about 100 employees...with no involvement in underwriting or trading MBS, CDS, CDOs, or other toxic assets.  In no way can you attach any sort of responsibility for this mess on myself personally or the firm I work for.  I've worked about 80-100 hours/week this year, and after my bonus, I made less than my girlfriend on an hourly basis...is this the evil you desire to tax?  That will provide great motivation and incentives for people all across America...

 

-why not tax anyone who bought a 2nd home between 2004 - 2007?

-why not tax members of the former greenspan federal reserve for not preventing this bubble?

-why not tax former employees of Fannie/Freddie for overlevering its balance sheet?

-why not tax oil companies for causing $140 oil & perhaps increasing the severity of this recession?

-why not tax members of congress meddling with the economy to the point where it slows growth?

 

My point is there are many places one can point a finger for the cause of this recession...not just ibanks.  Yet people have a desire to single-out this set of people and cap their wages out of some sort of jealousy...as if they know better than the employees/shareholders who these people work for.  Is it possible that some bankers / traders create enough value for their employers to justify these bonuses?  Or no, that is impossible?  And the average American (with no banking or trading experience) somehow knows better than the employer trying to pay these sums of money? 

 

Everyone on this board is entrenched in their own political/philosophical views.  This is going nowhere...

[watsa_is_a_randian_hero]

Our economy is based on trust and you arent going to give money to anyone who you dont know will be around tomorrow.

 

???

 

Trust?  You lend on trust?  The only person I would lend based on trust to is my Mother.

 

People in a capitalist system lend based on earning a premium to compensate for risk taken.  And if those bets sour (the risk materializes), they take losses.  People who took bad risks should have taken losses.  Is there something wrong with that?

 

-How come people who owned Fannie/Freddie Debt took 0 losses?

-How come people who owned AIG Debt took 0 losses?

-How come people who traded CDS with AIG (i.e., Goldman) took 0 losses?

 

Isn't that the whole point of capitalism?  Lending to those you think can repay...getting compensated for risk...taking losses if your judgment was poor?

 

Are you arguing that the banks had to be bailed out because if they weren't people would have taken losses?  Which would have made the recession worse?  Isn't that the whole point?  Make investors take losses, they learn from it and use better judgment next time?

 

I'm not talking about not bailing out depositors...I'm talking about not bailing out debtholders (sophisticated investors who bought debt, and should have done more due diligence than looking at a credit rating).

[Myth465]

I am actually enjoying the debate / discussion, and would like it to continue. I realize that personal attacks dont allow for that and would like to remove them.

 

No one is saying you or your firm is responsible. Honestly if you dont work at a Major tarp bank which received billions of dollars and lobbied for accounting changes then you are out of scope. I think when we say the bankers and bonus's its quite clear who everyone is talking about. No one (well no one worth listening to means) the guy making 60k in NY, working 80 hours a week who gets a 50k bonus to earn a decent wage based on his hours. Goldman's average salary is $750,000. It sounds like thats much more then you make and much much more than I make.

 

Second you completely missed the point of my arrangement and went off on a small tangent based on 1 word taken out of context. Trust referenced the credit freeze, and trust is a big part of lending. When you lend with no collateral you are saying you trust that they will pay you back, its hard to have trust when banks are failing every 3 days. Hence capital markets froze.  

 

What im arguing is to put away your ideology and look at the situation. I had similar issues, I listen to Peter Schiff each week. I also read Ron Paul's book. I really enjoy where they are coming from, and agree with it in a controlled setting. The problem is so do alot of the people who ran the crisis.

 

Greenspan was an Ayn Rand libertarian who abhorred the idea that government should break up anything; he once wrote that "the entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance." Bigger was better, he said, and that way of thinking largely governed his stewardship of the Fed from 1987 to 2005. He also was the prime cause of the biggest crash since the Great Depression.

 

You are talking about how a capitalistic system works, and not looking at the situation as it was. You are talking theory and not looking at reality. Im guessing Greenspan, Paulson, and Berknake agree with your theory, but when the shit hit the fan they dealt with reality.

 

Have you asked yourself why?

Buffett is the greatest investor walking around today, and the richest man in the world. He thinks they did a good job based on what they had to deal with. Do you know why he said that?

 

Also I am not entrenched, my views have changed significantly over the year. When the facts change my views change. I am always open to growth.

[bargainman]

I think this is getting a little out of hand.  watsa_the_i_banker?  Yes, I do work for an investment bank...with about 100 employees...with no involvement in underwriting or trading MBS, CDS, CDOs, or other toxic assets.  In no way can you attach any sort of responsibility for this mess on myself personally or the firm I work for.  I've worked about 80-100 hours/week this year, and after my bonus, I made less than my girlfriend on an hourly basis...is this the evil you desire to tax?  That will provide great motivation and incentives for people all across America...

 

-why not tax anyone who bought a 2nd home between 2004 - 2007?

-why not tax members of the former greenspan federal reserve for not preventing this bubble?

-why not tax former employees of Fannie/Freddie for overlevering its balance sheet?

-why not tax oil companies for causing $140 oil & perhaps increasing the severity of this recession?

-why not tax members of congress meddling with the economy to the point where it slows growth?

 

My point is there are many places one can point a finger for the cause of this recession...not just ibanks.  Yet people have a desire to single-out this set of people and cap their wages out of some sort of jealousy...as if they know better than the employees/shareholders who these people work for.  Is it possible that some bankers / traders create enough value for their employers to justify these bonuses?  Or no, that is impossible?  And the average American (with no banking or trading experience) somehow knows better than the employer trying to pay these sums of money? 

 

Everyone on this board is entrenched in their own political/philosophical views.  This is going nowhere...

 

Well, I think you're taking this a bit more personally than you should, and as such making it more personal that it should be.  You certainly exacerbated the problem by calling people's statements stupid. Just because you disagree with a statement, or more accurately misunderstand a statement, doesn't mean it's stupid.  I also believe that your statement that "Everyone on this board is entrenched in their own political/philosophical views" is incorrect.  There are many many reasonable evidence and reason focused debates going on on this board that show people aren't entrenched in their views and are willing to expand their beliefs in a reasonable non-confrontational manner.  I never said I disagreed with any of your 'philosophies' and I didn't even argue with any of them.  My one comment was specific to a statement you made which I know from a legal standpoint was patently false.  You went ahead and called it the stupidest thing ever which I think meant you took it all very personally and weren't listening to the actual argument.  Your statement was legally incorrect.  The government does have the right as long as it passes through the system set up by the constitution and the law.  You still haven't responded to the actual argument or acknowledged it.

 

As to your other points, you are correct that there are many *many* other people that the government could use as scapegoats, and that the bankers in general, while they were guilty of causing this mess, they were not the *only* ones guilty of it.  So are our politicians conveniently singling them out and conveniently not pointing their fingers at themselves?  Sure.  Are they conveniently playing with the 'mob rule' and giving the crowd what they want?  Sure.  Welcome to politics.  That said, the problem with the argument that people who owned AIG/Freddie/Fannie debt should have taken huge losses is that who knows who actually owns that debt?  It could be 'sophisticated investors' but so were the investors who invested with Madoff!  (how many charities and trusting individuals where labelled 'sophisticated'?)  Everything is interconnected and who knows who actually ended up owning it.  Personally I think many of these institutions should be dismantled so we have a more resilient system.  But that's just one arm chair economist's opinion.

 

Just try not to take it personally man, life is too short.  And goodness get out of the office!  80-100 hours a week!?  Again.. life is too short.  IMHO.

 

[Guest kawikaho]

Watsa_randian, I did not mean to offend you.  I wrote your handle to differentiate it from Prem, and I was too lazy to write it out completely.  Sorry about that.

 

 

[watsa_is_a_randian_hero]

Have you asked yourself why?

Buffett is the greatest investor walking around today, and the richest man in the world. He thinks they did a good job based on what they had to deal with. Do you know why he said that?

 

I would also say they did a ok job given the circumstances...under time pressures, decisions that needed to be made were made.  Taking circumstances out of it I think they did a D job.

 

Mistakes that were made, given the circumstances (i.e. bailouts of certain firms, forced tarp investments on firms like WFC), should not be punished after the fact.  Furthermore, they are punishing the wrong parties.  Investors (bondholders and stockholders), were the real beneficiaries from the bailouts, and should have been wiped out/diluted to a larger extant, at the time the bailouts were made.  Its like a dog, you can't beat it a year after catching it pissing on your couch. 

[watsa_is_a_randian_hero]

Watsa_randian, I did not mean to offend you.  I wrote your handle to differentiate it from Prem, and I was too lazy to write it out completely.  Sorry about that.

 

 

no problems

[watsa_is_a_randian_hero]

That said, the problem with the argument that people who owned AIG/Freddie/Fannie debt should have taken huge losses is that who knows who actually owns that debt?  It could be 'sophisticated investors' but so were the investors who invested with Madoff!  (how many charities and trusting individuals where labelled 'sophisticated'?)  Everything is interconnected and who knows who actually ended up owning it.  Personally I think many of these institutions should be dismantled so we have a more resilient system.  But that's just one arm chair economist's opinion.

 

I'm not trying to take it personally, I'm just explaining my personal situation because it does appear I have a bias and people are using that against me in this argument.

 

As far is this statement is concerned, are you arguing investors shouldn't have to take losses?  Are you arguing I should have to pay for a church that bought AIG debt through higher taxes?

 

1.  Charity takes risk, earning a spread over risk free rate

2.  Risk pays off, they get to keep interest earned.

3.  The reinvest the profits into a new asset, again taking risk and earning a spread over risk free rate

4.  The asset defaults, but we should bail them out?

 

Who does this make sense to?  

 

They earn a spread on their assets over the risk free rate to compensate them for this risk.  That is the whole point of capital markets, to make sure that this risk is priced correctly.  It will never be corrected and priced correctly if bailouts of risk-takers continue.

 

[Myth465]

Have you asked yourself why?

Buffett is the greatest investor walking around today, and the richest man in the world. He thinks they did a good job based on what they had to deal with. Do you know why he said that?

 

I would also say they did a ok job given the circumstances...under time pressures, decisions that needed to be made were made.  Taking circumstances out of it I think they did a D job.

 

Mistakes that were made, given the circumstances (i.e. bailouts of certain firms, forced tarp investments on firms like WFC), should not be punished after the fact.  Furthermore, they are punishing the wrong parties.  Investors (bondholders and stockholders), were the real beneficiaries from the bailouts, and should have been wiped out/diluted to a larger extant, at the time the bailouts were made.  Its like a dog, you can't beat it a year after catching it pissing on your couch.  

 

I agree with this, stockholders and bondholders of the TARP banks won. They are silently grateful and really havent said much of anything. Bankers who also won out (what do you think would have happened to these CEOs and IBs had these firms collapsed, I think they would be a socialist looking for a hand out, actually they were corporate socialists who got handouts), are patting themselves on the back and claiming they were the smartest guys in the room.

 

When their profits are based on government support (guarantees, zero percent interest rates, cash bailouts, accounting changes). You are focusing on 1 type of bailout. Giving cash is 1 way to help a firm, but everything above was effectively a handout. If the government had not guaranteed money market funds what do you think would have happened. If we still had mark to market, then what.

 

These guys are celebrating while we have 15%-18% unemployment and underemployment. Dont you think Joe 6 pack, is going to be a little annoyed. Didnt Buffett tell Goldman that they were making a political mistake with the bonuses. The banks are also fighting regulation. They want business as usual with government support. Dont you think that has unique consequences.

 

You can have your cake (bondholders and stockholders), and you can eat it too. Just dont gloat about it.

 

---

 

That statement makes perfect sense. The largest recipient of the AIG bailout was Goldman. It doesnt get more sophisticated. It was just another backdoor bailout inmo. The holders of Freddie, Fannie, AIG (CDS), and Bank Debt were foreign government, insurance funds, pension funds, university endowments, and investment banks. They are the only ones with that kind of cash.

 

No sense bailing out these groups then forcing them to take a haircut on this paper, then bailing them out again.

 

Also fear and greed assure mispricing. Thats the whole point of value investing. Bailout or no bailout. We will all die off and our kids will continue the boom and bust cycle. Your investment theory contradicts your economic theory. Very interesting. There will always be bubbles. The problem is banking bubbles sink the whole ship and should be prevented.

 

The point of capital markets is not the pricing of risks. The primary role of the capital market is to raise long-term funds for governments, banks, and corporations while providing a platform for the trading of securities. Capital Markets facilitate economic development. Thats there point. When everyone misprices risk letting everyone fail for the sake of ideology misses the mark in my opinion.

[watsa_is_a_randian_hero]

The point of capital markets is not the pricing of risks. The primary role of the capital market is to raise long-term funds for governments, banks, and corporations while providing a platform for the trading of securities. Capital Markets facilitate economic development. Thats there point. When everyone misprices risk letting everyone fail for the sake of ideology misses the mark in my opinion.

 

This think to say this statement is the same as saying "pricing risk":

 

"The primary role of the capital market is to raise long-term funds for governments, banks, and corporations while providing a platform for the trading of securities"  

 

The product is cash.  By providing $, you inherently have to put a price on it (i.e., credit spread, required rate of return, ect).  There is a limited supply that can be loaned out/invested.  There is not an unlimited supply for the capital markets to just provide $ to any government, bank, corporation or individual that says they want/need it.  The capital markets, through pricing risk, determine who best deserves that cash based on ability to repay and interest rate that can be charged.

 

 

 

As a corollary (I just thought to add this), the limited supply of $ means bailing out firms invested in AIG/Fannie/Freddie debt, providing guarantees on bank-issued debt, and other "bailouts" meant taking $ that could have been invested in projects such as aids/cancer research, funding school systems, ect, and bailing out these debt investors.  What do you think was the best use of this capital?

 

[Myth465]

The former is the preferred allocation of capital, given the situation.

You cant look at everything in a box. Butter is better then guns, unless someone has a gun pointed at you.

 

Also I am beginning to agree with the others (in terms of the pointlessness of this endeavor), you seem to take 1 point or word and focus on it. Versus looking at the greater point of the argument. Im not attacking you personally, but we seem to be hoping around from buzz word to buzz word. I bear some blame as well.

[watsa_is_a_randian_hero]

The former is the preferred allocation of capital, given the situation.

You cant look at everything in a box. Butter is better then guns, unless someone has a gun pointed at you.

 

Also I am beginning to agree with the others (in terms of the pointlessness of this endeavor), you seem to take 1 point or word and focus on it. Versus looking at the greater point of the argument. Im not attacking you personally, but we seem to be hoping around from buzz word to buzz word. I bear some blame as well.

 

it is true guns are better than butter in some scenarios, but I would be hard-pressed to find a scenario where bailing out goldman $$$ for their AIG contracts at full price was a better use of American taxpayer money than cancer research or infrastructure investments or a hundreds of other better uses.

 

Any argument/debate has to be made 1 point at a time, built up to a holistic viewpoint.  How else do you propose we debate this?

 

Here are my key sticking points:

 

1.  Bailouts were given to investors that shouldn't have been.  This could have been done in a way that avoided a depression (bailing out depositors, but not bondholders)

2.  Punishing employees for bonuses (a) isn't the right party to punish, (b) infringes on individual rights.

3.  Taxing banks with a special tax is the right party to punish either.  The investors now, 1.5 years later, aren't the same as before.  

[Myth465]

You arent thinking hard enough. Straw-man aside. The bailouts in 08 & 09 (as poorly as they were implemented) were a better allocation of capital than cancer research. I dont know if 800 billion would have cured cancer, but I do know things would be infinitely worse with a crippled financial market.

 

And thank you for breaking out your arguments. I think everything gets lost in the shuffle and we end up talking about the function of capital markets and trusts. My issue is that your replies seize on 1 word within an entire paragraph and go off on that word. When that word isnt even the main point of the paragraph.

 

1.  Bailouts were given to investors that shouldn't have been.  This could have been done in a way that avoided a recession (bailing out depositors, but not bondholders) - Partially agreed, receivership should have been used. Contracts (bonuses, counter-parties, other) should have been destroyed thru the receivership process. It should have been like the S&L crisis. But this solution is the free market solution that was proposed by budding capitalist. I think they were stuck on the bondholders. The only reasons the banks are doing well right now is due to equity and debt offers which wouldnt have happened if everyone got screwed.

 

2.  Punishing employees for bonuses (a) isn't the right party to punish, (b) infringes on individual rights. - I dont agree with this. There are better targets, but the banks wont listen. If the government gives you support then they can largely do what you want. The CEOs are acting irresponsibly so the next target will likely be the employees. Employees get screwed all the time, ask any good worker that was laid off.

 

3.  Taxing banks with a special tax is the right party to punish either.  The investors now, 1.5 years later, aren't the same as before. - True but you have to use what you got to get what you want. The banks are pushing back on regulation and lobbying for nothing to be done. The responsible thing for them to do is admit that they screwed up and help design reasonable legislation to prevent this. They got there cake and want the option of another slice. The investors of Goldman were enriched by the rescue of AIG why shouldnt they pay.

 

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I think I understand your points and agree with them in theory but how would you solve this politically. The past is the past, going forward if you were Obama what would you do? Its easy to Monday morning quarterback and say the textbook should have been followed but what now. Just move on and do better next time?

[watsa_is_a_randian_hero]

You arent thinking hard enough. Straw-man aside. The bailouts in 08 & 09 (as poorly as they were implemented) were a better allocation of capital than cancer research. I dont know if 800 billion would have cured cancer, but I do know things would be infinitely worse with a crippled financial market.

 

I used cancer as an example. I'm sure it could have been put to use among cancer, infrastructure investment, education, and other initiatives.

 

And yes, I do think these would have been better investments.  And no, I don't think we would have had a depression.

 

Again, I'm still talking about an orderly wind down or recapitalization.  There is no reason the AIG debtholders needed to get paid out.  Their annuity holders (ordinary american's savings), yes, should be protected to prevent a depression.  Making debtholders take a haircut in no way would have caused a depression.