Round 20 — Paul

Tom –

You’re mostly right about the dot.com bust. It was, for the most part, a well-deserved correction. Happily sparing Main Street from economic ravages. Yet many of those dot.com stocks were not much more than swindles. Representing companies that existed mainly on paper.

Even high tech stars, like Cisco Systems and Oracle, saw their stocks plunge during most of 2000. Because their Price / Earnings ratios had been totally out of sync. Yet investment banks were rating these stocks as ‘buys’ right up to the bust.

In the aftermath of the dot.com bust, those dubious ‘buy’ recommendations got some degree of coverage, especially in the business press. Then 911, of course, sucked up all the air; severely chilling the markets for a couple months, at least. 911 was still in the news when Enron fell in December of 2001. Its demise was followed by a series of corporate failures.

Global Crossing, WorldCom, U S Health, Tyco and Adelphia all crashed from fraudulent management in the opening months of 2002. But ‘The Accounting Crisis’, as it was known, disappeared from headlines when Bush made Iraq the story. Therefore no meaningful action was taken to correct what had been a wave of white collar crime. Bush, in fact, pushed for less regulation.

Republicans controlled the White House and both houses of Congress from 2002 – 2006. Giving them plenty of time to correct the housing bubble. Had they been inclined. So this notion that stupid liberal policies led to the Financial Crisis is totally disingenuous.

Not that Democrats were blameless, mind you. Clinton signed Phil Graham’s bill to dissolve Glass-Steigel. Which allowed commercial banks to load up on derivatives. And yes, Chris Dodd was a dubious senator. He’s gone now for that reason. And I know that Andrew Cuomo gets less than flattering coverage in THE NEW YORK TIMES.

So if you think Democrats were culpable, in The Financial Crisis, let’s have an investigation. The people deserve a full report. It shouldn’t be left to FOX NEWS.. or ‘any’ cable network to put the spin on what happened. The FOX spin, however, strongly suggests that affordable housing (to poor minorities) fueled the entire crash.

That spin plays to the Republican base: angry White male Southerners. Who have no clue at all of what those ‘toxic assets’ were. Though it came out after the crash that many banking executives had only scant knowledge how derivatives worked. Even Alan Greenspan was not completely sure. As captured in the transcripts of a Fed meeting.

Then there was that issue of executive compensation. Or more specifically the compensation of Wall Street traders. It seems they made absurd amounts selling all those toxic assets. This was clearly identified as a component in the crisis.

Finally one should note that Europe has been gripped by a financial crisis of similar magnitude. One that continues making news each day. So it strains the imagination to guess how stupid liberals in this country caused Europe to go down. Chris Dodd may have an Irish name, but he didn’t cause Dublin’s crash. Nor is Andrew Cuomo responsible for Italy’s debt.

Regarding Stephen Hicks and his post-modern leftist theory, I’m not exactly clear which leftists he has in mind.  The first rule of politics is ALL POLITICS IS LOCAL. That goes for liberals and conservatives. Every region has its own particular strain. Which breaks down even further along class and ethnic lines.

I am sending you, separately, a piece from the Washington Post that tells us what the Tea Party is really all about.

Paul

 

Round 20 – Tom

Paul –

You’re mostly right about the dot.com bust. It was, for the most part, a well-deserved correction. Happily sparing Main Street from economic ravages. Yet many of those dot.com stocks were not much more than swindles. Representing companies that existed mainly on paper.

If overly enthusiastic investors put their money in pie-in-the-sky ideas, that’s their problem. It’s not up to you or me to make their investment decisions for them. That goes with the territory.

Global Crossing, WorldCom, U S Health, Tyco and Adelphia all crashed from fraudulent management in the opening months of 2002. But ‘The Accounting Crisis’, as it was known, disappeared from headlines when Bush made Iraq the story. Therefore no meaningful action was taken to correct what had been a wave of white collar crime. Bush, in fact, pushed for less regulation.

The Accounting Crisis disappeared from the news because members of both parties would have gotten burned. Clinton was pals with the Enron crowd, as were some of Bush’s people.

Republicans controlled the White House and both houses of Congress from 2002 – 2006. Giving them plenty of time to correct the housing bubble. Had they been inclined. So this notion that stupid liberal policies led to the Financial Crisis is totally disingenuous.

What an amazingly illogical conclusion. Those policies had been in place for years. Clinton and Cuomo both pushed for the GSE’s to lower their standards, Obama sued Citibank to make more loans to people without good credit histories, and Janet Reno threatened to prosecute banks that didn’t lower their lending standards. The Republicans failed to pass legislation to force Fannie and Freddie to tighten up their standards after Dodd, Frank & Co. fought like hell to block it. The fact that the Republicans failed to correct dumbass policies instituted by the “affordable housing” crowd in no way negates the fact that those policies caused the housing bubble.

Not that Democrats were blameless, mind you. Clinton signed Phil Graham’s bill to dissolve Glass-Steigel. Which allowed commercial banks to load up on derivatives. And yes, Chris Dodd was a dubious senator. He’s gone now for that reason. And I know that Andrew Cuomo gets less than flattering coverage in THE NEW YORK TIMES.

The problem wasn’t that banks loaded up derivatives. The problem was that the derivatives were based on lousy mortgages that never should have been written. But they were written — and only because Fannie and Freddie bought up the mortgages and created the derivatives. If the banks hadn’t bought the securities, do you think those mortgages would have magically turned out okay? No, the explosion simply would happened elsewhere. Once the bad mortgages were written, the fuse was lit.

So if you think Democrats were culpable, in The Financial Crisis, let’s have an investigation. The people deserve a full report. It shouldn’t be left to FOX NEWS.. or ‘any’ cable network to put the spin on what happened. The FOX spin, however, strongly suggests that affordable housing (to poor minorities) fueled the entire crash.

The term “affordable housing” turned out to be a joke. All the “affordable housing” policies did was fuel a buying frenzy that drove up prices like crazy. Now the same group of idiots who caused that frenzy are looking for ways to prop up housing prices instead of letting them fall to their natural level.

That spin plays to the Republican base: angry White male Southerners.

Riiiiight … who are all stupid Baptists who drive pickup trucks.

Who have no clue at all of what those ‘toxic assets’ were. Though it came out after the crash that many banking executives had only scant knowledge how derivatives worked. Even Alan Greenspan was not completely sure. As captured in the transcripts of a Fed meeting.

Indeed, lots of people didn’t seem to know what they were, as explained nicely in the book The Big Short. Surely you’re not suggesting the angry little pissants in the Occupy Wall Street movement were well-versed in financial derivatives?

Then there was that issue of executive compensation. Or more specifically the compensation of Wall Street traders. It seems they made absurd amounts selling all those toxic assets. This was clearly identified as a component in the crisis.

How does high pay among traders make a good mortgage go bad, Paul? If traders had paychecks more in line with your preference, would that have prevented over-extended home-buyers from defaulting? Would it have prevented Fannie and Freddie from cooking their books and selling securities they assured the financial world were sound? Explain that one to me.

Finally one should note that Europe has been gripped by a financial crisis of similar magnitude. One that continues making news each day. So it strains the imagination to guess how stupid liberals in this country caused Europe to go down.

When exactly did I blame U.S. liberals for the debt crisis in Europe? Europe’s crisis was caused by excessive government spending. In the case of the Irish government, they chose (stupidly) to guarantee their banks’ debts just before the mortgage meltdown caused those banks to incur huge losses.

Chris Dodd may have an Irish name, but he didn’t cause Dublin’s crash. Nor is Andrew Cuomo responsible for Italy’s debt.

Again, why are you disputing charges I never made? I was talking about our meltdown, not Italy’s. Italy and Greece spent themselves into a hole they can’t climb out of. We’re headed there soon enough.

Regarding Stephen Hicks and his post-modern leftist theory, I’m not exactly clear which leftists he has in mind.  The first rule of politics is ALL POLITICS IS LOCAL. That goes for liberals and conservatives. Every region has its own particular strain. Which breaks down even further along class and ethnic lines.

What a strange retort. Last time I checked, we had a lot of national issues dividing the country and very different ideas on how to deal with them.

I am sending you, separately, a piece from the Washington Post that tells us what the Tea Party is really all about.

The Tea Party is really about stopping the runaway growth of government and the debt-bomb it’s lighting under all of us. You’re doing exactly what Hicks described yet again:  trying to link ideas you don’t like to racists, dumb pickup-truck drivin’ Baptists, anti-abortion fanatics, etc., to save yourself the trouble of actually dealing with the ideas.

Tom

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5 Responses to “Debate With A Leftist Pal, Part 20”
  1. BW says:

    Stick to food Tom, you’re not using your critical thinking skills.

    I would suggest reading The Monster for starters to see how subrprime mortgage giants were systematically and fraduently pushing bad loans on people for the fast buck. The loan was packaged up to Investment Banks, who couldn’t get enough of these things fast enough, and the risk was passed on. They can’t all go bad at once, right? You would sign a loan document at one rate, they would rip off the signature page and put in on a crappy loan that you didn’t agree to. The Monster was the name of sales tactic designed to get people to cry to get them to take on a loan they didn’t need. They would target those in bad situations, tell them a loan would help them get control of their financies when most times it would put them in a worse place. It was systematic fraud on a gigantic scale. If you don’t think that is at least partly to blame, your head is in the sand.

    I’m not excusing predatory lenders. Lenders who take a signature from one mortgage contract and apply it to another are of course committing fraud and should be prosecuted. That being said, I doubt the type of outright fraudulent loans you described made up more than a small fraction of the loans that went bad.

    The root of the meltdown was a bubble that couldn’t have happened if the Federal Reserve hadn’t kept pumping out money to be lent.

  2. Kathy says:

    I’ve missed these. Glad you’ve healed enough to manage both blogs.

    It’s partly healing, partly finding the time. I’m in physical therapy three times per week, which messes up my schedule.

  3. Tony says:

    Tom:

    Ayn Rand once said “Reason is not automatic. Those who deny it cannot be conquered by it.”

    I want to thank you for Fathead, as well as Science for Smart People. You are truly changing lives, including mine, my wife and my father’s; whom after I showed your documentary, has taken up a paleo style diet and at the age of 79 has dropped 9 pounds of fat in 3 weeks.

    Anyway, I know this is your economic blog so onward to your debate with a leftest friend. The concepts of freedom of will and freedom of thought seem to be missing in the minds of many of your detractors. As a man in my early 30′s, I have worked in capital markets as a small business owner of a fee only financial advisory firm for the last 10 years. I strongly recommend efficient low cost investments and too be quite honest, a great deal of my business now revolves around protecting small business pension plans from government fines and the new pension regulations brought down by Frank Dodd.

    I have a degree in economic history and can say your analysis…both nutritionally and economically are both spot on. I have taken a great interest in your work and in my spare time have been reviewing many of your posts from the last few years. I have truly enjoyed your retorts to…let me be as nice as possible….the leaps of logic many who write you seem to take…especially considering that many seem to know diddly sh@t about; capital markets, free enterprise, how our government functions, the role of free will in human nature, the need for restriction of authoritarian governments, the real value of a happy meal or the difference between a sugar and well…..sugar.

    It has always fascinated me how those who know so much that isn’t so. Are always the first one’s willing to share their thoughts with everyone around them.

    At any rate, you have show through your posts you have far too much intellect and talent to be wasting your time dealing with people who simply do not accept or believe in reason. To say your detractors do not comprehend reason or are too dull to understand reason would be a disservice to their intentions. They simply refuse to believe reason. They are not evil, nor ignorant, just wrong.

    My thought is as much as they will never convince you to be illogical, you will never convince them to be logical. Hence, your retorts, as eloquent as they are, are meaningless to the intended target. So, I suppose my question is why continue to indulge those you cannot change or help?

    I appreciate the compliments, Tony, and I’m of course fully aware that people like Paul can never be convinced with logical arguments for the simple reason that they’re not logical people in the first place.

    However, I continue answering his emails and posting our debates partly because it’s fun to slap him down, and partly because I know there are many other people out there who believe in economic freedom, but haven’t taken the time to think through and craft responses to people like Paul. Perhaps reading our debates will help them clarify their own beliefs and arguments in support of those beliefs.

    • Tony says:

      Tom:

      I do enjoy the banter. I have to say I do take a lot of pleasure in seeing your competitors arguments so thoroughly deconstructed…and I have learned from them as well. So, you are hitting your mark. Well done.

      Thank you, Tony.

  4. Gerard says:

    I’d agree with your response to Tony. For a centrist like myself I find these retorts extremely interesting – specially the stuff about government interference with Fanny and Freddie being the cause of the meltdown. This slant is certainly not publicized in Australian media. Makes me wonder if I should peer down the rabbit hole a bit further. The frustrating thing with that is I find no matter what discipline I look into – the further I look into it in trying to find answers to questions it only opens up more questions.

    We have a 3rd way Labor government in power now here of which formed government with the ultra leftist greens. They have bought in a tax on pollution to subsidize renewables. Is that bad? I don’t know – is distorting a market intentionally bad? Pragmatically? Ideologically?

    Cigarette tax has been up and will continually be upped. It has worked and has bipartisan support – is that bad? The black market may have benefited slightly but ciggerette consumption is down to record lows and continues to drop with government interference. As a drinker I would hate government to drop tax on alcohol because when I was in Hungary I could purchase beer for $1 I drank waaaay to much on holiday.

    Mining in Australia has gone through the roof thanks to China. We are taxing companies who make “super profits” as defined by government. So that people (including myself) get a tax cut & we pay off our stimulus plans and return to surplus soon. Lower income earners children also get free dental as a result. Slightly inefficient, might deprive investment slightly if its being run by government perhaps – but if a children from underprivileged house holds are getting free dental I cant see it as “stealing” from the rich.

    I don’t understand the Liberterian view point (and I might be wrong) that says Government can run primary schools for free but not free health care for children? I don’t see the difference? Why not privatize schooling so only those who can afford it can use it? Why has health care always been seen differently from Education in the US?

    You know I love free markets. But at heart im a pragmatic (3rd way) socialist. In 95% of times free markets create a better and wealthier society for everyone – our recent socialist governments have shown this in pioneering recent market reform. But there are still times I feel from a pragmatic point of view, in a minority of cases Government interference is required. Apologies for the big post.

    No apologies necessary. I apologize for the slow reply; it’s been a very busy week and weekend.

    Since you’ve become familiar with Thomas Sowell, I’d suggest his book “Housing Boom and Bust” for a lengthy look into the housing mess. Thomas Woods’ book “Meltdown” is also outstanding.

    The libertarian beef with education and health care both is federal involvement. Both exceed the limits of the Constitution. States and local governments are allowed (at least by the Constitution) to choose their own policies — but of course the federal government has ignored that and dictated school policy from Washington. So if states and local governments wish to provide “free” education or health care, that’s their business.

    Public schools were started in the U.S. largely because some Protestant political leaders were alarmed at the number of parents choosing Catholic schools for their children. So they provided a “free” alternative to persuade parents to skip the Catholic schools. Some states also passed laws requiring children to attend a public school, not a parochial rule. Those laws were struck down by the Supreme Court in 1925.

    I would rather see states go with a voucher system for education. A few municipalities have gone that route; they provide the financial means for an education, but not the education itself. As it is now, people who live in areas with lousy schools end up paying for education twice: once through taxes, and again by paying for a private school where their kids can actually receive a decent education.

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