Would we be in this situation if LTCM bailout never happened?

[Guest]

My line of reasoning is like this:

 

If the bailout of LTCM never happened, we would have never had the dotcom boom (and bust). The Feds lowered rates to help with liquidity which drove valuations.

 

If the dot com bust never happened, we wouldn't have had the housing crisis (since rates wouldn't have dropped due to the dotcom recession). If we didn't have the housing crisis, rates wouldn't have dropped so low which allowed companies to borrow so much debt to buy back stock. If we didn't have so much debt, we wouldn't be on the verge of a huge, huge meltdown. Companies would remember to have a rainy day fund and wouldn't expect bailouts.

 

So, if the Fed would have just kept rates stable and let the economy hit a recession (and probably pretty small) in 1998, we wouldn't be in the situation we're in right now...and would have probably avoided 2 other very large economic hits.

 

 

[bobozou]

I'd like to (subjectively) think 'no, each progress downturn would not be worse than the last, and require ever-larger bailout mechanisms, ad nauseum'

[TwoCitiesCapital]

Not sure if we'll ever get to the bottom of this, but I largely believe the Fed's behavior is procyclical and exacerbated booms and busts if not a direct cause of many of them.

 

I wish they'd lose the employment objective and simply focus on a stable money supply and being a lender of last resort

[opihiman2]

My line of reasoning is like this:

 

If the bailout of LTCM never happened, we would have never had the dotcom boom (and bust). The Feds lowered rates to help with liquidity which drove valuations.

 

If the dot com bust never happened, we wouldn't have had the housing crisis (since rates wouldn't have dropped due to the dotcom recession). If we didn't have the housing crisis, rates wouldn't have dropped so low which allowed companies to borrow so much debt to buy back stock. If we didn't have so much debt, we wouldn't be on the verge of a huge, huge meltdown. Companies would remember to have a rainy day fund and wouldn't expect bailouts.

 

So, if the Fed would have just kept rates stable and let the economy hit a recession (and probably pretty small) in 1998, we wouldn't be in the situation we're in right now...and would have probably avoided 2 other very large economic hits.

 

It all started with Alan Greenspan, the asshole.  He pretty much set the tone for Federal Reserve to backstop the market.  Now they've been blowing bubbles and busts for the past 30+ years, the assholes.  I used to think people who were saying End the Fed were nuts.  But, now, I think when they start talking about buying assets like equities and all sort of other shit, thereby eliminating price discovery, I actually don't think it's a bad idea.

 

God damn Bernanke couldn't even see a housing bubble in 2006.  If you asked any Joe Schmo on the side of the street if they thought housing was over valued, the resounding answer was yes.  These buttholes live in ivory towers.  Greenspan started all this mess.  Bernanke put the final nail in the coffin with his stupid doctrine.  We're gonna need the Great Depression 2 to finally really stir up the populism and maybe get some head on spikes.