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17-03-2011, 14:52   #31
SupaNova
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Wow. Did you just try to refute a 300-page book you haven't read, written by two respected journalists, with a single quote from Wikipedia?
I quoted to show the timeline of the introduction of securitaztion. I would rather listen to respected economists on the cause of the economic downturn than respected journalists.

No institution is going to lend sub prime unless they can get those off their books. Fannie Mae and Freddie Mac were set up by government and were the largest buyers of sub prime mortgages. Their sole purpose since their inception has been to loosen lending practices.

Here's a good assessment of Fannie Mae and Freddie Mac.
http://www.youtube.com/watch?v=Ennn4...C2D7AFFD62C0BA

How you can call sub prime lending a product of the free market is beyond me.
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17-03-2011, 14:57   #32
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Again, I'm not trying to claim that government is blameless. I'm arguing with the rather bizarre idea that regulation magically makes corporations do stupid things that they would otherwise carefully avoid.
In a free market yes corporations would do stupid things and they would suffer the consequences by going out of business. The ones that didn't act stupid would last the longest. That's why you don't need a regulator pushing lending standards one way or the other in a free market.
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17-03-2011, 15:00   #33
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Originally Posted by SupaNova View Post
No institution is going to lend sub prime unless they can get those off their books.
Correct. Read the quotes above: the GSEs got into subprime because lenders were getting subprime mortgages off their books in spades. Wall Street was buying AAA-rated subprime CDOs in the hundreds of billions for years before the GSEs got into the act.
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Fannie Mae and Freddie Mac were set up by government and were the largest buyers of sub prime mortgages.
That's a non-sequitur and a half.
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Their sole purpose since their inception has been to loosen lending practices.
And that's a gross over-simplification. Loosening of lending practices (in the subprime sense) started to happen in the late eighties and early nineties, decades after the GSEs were set up.
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Here's a good assessment of Fannie Mae and Freddie Mac.
http://www.youtube.com/watch?v=Ennn4...C2D7AFFD62C0BA

How you can call sub prime lending a product of the free market is beyond me.
Maybe you should research using more in-depth sources than YouTube and Wikipedia before closing your mind to the possibility that the free market could ever possibly get anything wrong.
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17-03-2011, 15:06   #34
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In a free market yes corporations would do stupid things and they would suffer the consequences by going out of business. The ones that didn't act stupid would last the longest. That's why you don't need a regulator pushing lending standards one way or the other in a free market.
Which is fine, once you assume that large Wall Street firms collapsing is devoid of consequences for anyone other than those firms.
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17-03-2011, 15:14   #35
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Which is fine, once you assume that large Wall Street firms collapsing is devoid of consequences for anyone other than those firms.
Any business that collapses will have massive consequences for more than the business itself, that does not mean you should save it. Leaving failing businesses fail is how the free market regulates.
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17-03-2011, 15:37   #36
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Any business that collapses will have massive consequences for more than the business itself, that does not mean you should save it. Leaving failing businesses fail is how the free market regulates.
Yes. I know. And preventing businesses from doing stupid things that cause them to fail is how governments try to prevent the often catastrophic collateral damage that their failures inflict on others.
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17-03-2011, 15:40   #37
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Maybe you should research using more in-depth sources than YouTube and Wikipedia before closing your mind to the possibility that the free market could ever possibly get anything wrong.
I am aware that these are not the most reliable sources and if anything that i have linked to is wrong feel free to tell me. I am not close minded to the free market getting it wrong. When the free market gets it wrong its self correcting and self regulating. I am pretty close minded to the possibility that government can do a better job at correcting and regulating the market, than just leaving it alone.
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17-03-2011, 15:48   #38
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I am aware that these are not the most reliable sources and if anything that i have linked to is wrong feel free to tell me.
It's not a question of it being wrong; it's a question of you reading what you want to see into them - like the idea that the GSEs are responsible for subprime, which couldn't be more wrong if you tried.
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I am not close minded to the free market getting it wrong. When the free market gets it wrong its self correcting and self regulating. I am pretty close minded to the possibility that government can do a better job at correcting and regulating the market, than just leaving it alone.
The evidence suggests otherwise. The US mortgage market worked fine for half a century under government regulation. When that regulation was eased, a subprime crisis ensued. Now, I'm sure there's a way to conclude from all that that the regulation was the problem in the first place, but I'm also pretty sure that such a conclusion fails every known test of logic.

Again: if you're interested, read the book.
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17-03-2011, 15:50   #39
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Yes. I know. And preventing businesses from doing stupid things that cause them to fail is how governments try to prevent the often catastrophic collateral damage that their failures inflict on others.
I would have no problem with this if it worked but governments track records speak for themselves. The idea that we can put in strong regulation that will prevent people doing stupid things sounds great but it hasn't worked.

Also, the idea of governments stepping in to stop businesses doing stupid things or stopping a business failing has shades of the broken window fallacy. You think great, we have spent a ton preventing a business failing with strict regulation, or we have spent a ton rescuing a business and jobs. But you don't see by spending a ton on regulating and stopping businesses failing, that money is denied the chance of funding businesses that do a good job at regulating themselves and don't need constant watching and regulation.
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17-03-2011, 15:54   #40
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Again: if you're interested, read the book.
I am interested as to why wall street bought these junk sub primes? I presume they knew and just tried to pass these on?
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17-03-2011, 16:13   #41
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The evidence suggests otherwise. The US mortgage market worked fine for half a century under government regulation. When that regulation was eased, a subprime crisis ensued. Now, I'm sure there's a way to conclude from all that that the regulation was the problem in the first place, but I'm also pretty sure that such a conclusion fails every known test of logic.
I am not concluding that regulation is the problem. Whether you believe in a self regulating free market, which is way different than light regulation or strict regulation the recession has a hell of a lot more to it than that. Government policies and political culture, corruption between government and private sector, education(the fact that most borrowers had no idea what they were getting themselves into) and economic understanding to start.
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17-03-2011, 16:14   #42
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I am interested as to why wall street bought these junk sub primes? I presume they knew and just tried to pass these on?
The rating agencies rated them triple-A, and the big Wall Street firms (with the exception, to a point, of Goldman) got sloppy about risk management. They assumed (wrongly) that the ratings agencies knew what they were doing.
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17-03-2011, 17:04   #43
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The rating agencies rated them triple-A, and the big Wall Street firms (with the exception, to a point, of Goldman) got sloppy about risk management. They assumed (wrongly) that the ratings agencies knew what they were doing.
So it is incompetency and/or corruption on the part of rating agencies. Your philosophy is to bail out a incompetent and/or corrupt financial sector, and just put them under stricter regulation. The free market solution is to let them fail and remove barriers to entry, leave financial sector wide open to the competition, competition is the only way to improve quality and price. Regulation increases price and weakens competition. Competition is the best way support quality not regulation for those that believe in free markets.

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17-03-2011, 19:18   #44
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So it is incompetency and/or corruption on the part of rating agencies. Your philosophy is to bail out a incompetent and/or corrupt financial sector, and just put them under stricter regulation. The free market solution is to let them fail and remove barriers to entry, leave financial sector wide open to the competition, competition is the only way to improve quality and price. Regulation increases price and weakens competition. Competition is the best way support quality not regulation for those that believe in free markets.
That's the word that troubles me. I see far too much faith, and not nearly enough logical argument, from proponents of unregulated free-market capitalism. I point out that a regulated mortgage market worked without problem for half a century, and that the relaxation of regulation led, step by step, to a financial crisis - you ignore that, and recite the creed that an unregulated market will work better.

Sure, an unregulated market will work - like an ecosystem in a jungle works. I don't want to live in a jungle.
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17-03-2011, 19:57   #45
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That's the word that troubles me. I see far too much faith, and not nearly enough logical argument, from proponents of unregulated free-market capitalism.
There is plenty of logic in unregulated(financially, I'm not against environmental regulations for example) free market capitalism. It is very logical to let failing business fail. Its very logical to have highly competitive industry with low barriers to entry. Competition is what produces quality and lowers prices.

We do share something in common, we don't trust. I don't trust governments and regulations to steer businesses finances, i pointed out that its a broken window fallacy to spend money regulating and saving failing business, because ultimately it will be at the expense of businesses that are capable of regulating themselves. So its not only about trust, it is inefficient.

You don't trust a system of a highly competitive open market that only allows successful businesses to survive, bad businesses fail. Competition drives the quality of products and services up, and the cost to the consumer down. The more regulations the less competition.

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I point out that a regulated mortgage market worked without problem for half a century, and that the relaxation of regulation led, step by step, to a financial crisis
There are plenty of factors that lead to the financial crisis. There was regulators all along, there was regulation all along. They were loosened due to political pressure. In a self regulating free market there are no regulations to tighten or loosen due to political pressure.
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