AIG to be bailed out to the tune of $85 billion

You say the neoliberals said "nothing can go wrong" in free markets. You can't actually quote anyone saying that, but certainly can demonstrate that they lavished wild praise on it didn't spend much time talking about the downside.

Once again please try and read the posts before posting dribble.

I’ve clarified this twice now but here it is for the third time and I quote – “That was the impression that many advocates of neoliberalism tried to give, which was that neoliberlist policies couldn’t lead to a ‘crash’ because it could deal with such fluctuations.
Many pointed out this wasn’t the case even some free market economists (who believe such ‘corrections’ were necessary) but in a black and white world, something is either all good or all bad, deregulators pushed the ‘good’ and dismissed those that talked of the risks as pessimistic scaremongers.

To quote the Cato institute on the Great Depression – “Many people think that we need a big government to prevent, or to reverse, recessions. But the 1930s illustrate that activist policies increase, not decrease, economic instability. Government interventions reduce the flexibility that markets need to adjust to shocks and return to growth.”

Also read the bits from Greenspan below.

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Fine. My point is that proponents of things tend to be biased in favor of them, this is not a diabolical trait specific to neoliberals. You certainly can't provide any examples where you criticised left wing economics here. Ultimately, I really don't find this an interesting point at all, even if you could prove it.

And you didn’t ask me to give “examples where you criticised left wing economics here” as pointed out above again this seems to be some kind of point scoring exercise rather than real debate.

My point is that while neoliberal advocates sold their brands of economics to the general population as a panacea, some type of elixir of eternal wealth, many actually knew of the risks.

But it is very possible that if those risks had been explained then many of things that were very beneficial to the economic elites would not have taken place or been allowed (such as the huge hikes in top executive pay). I mean there was meant to be a trickle down that never came and there was meant to be a economic stability that just evaporated. Both of these things were the shortcomings and risks within the neoliberal ideology but the criticisms were dismissed by the advocates.


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I also pointed out that I myself acknowledge the downsides of free markets - they can lead to bubbles and recessions. You asked an interesting question: "But you seem to have implied that those are not failings or shortcomings they are just natural parts of the system you are defending". That's right, I do they they are natural parts of the system. I think free market capitalism - like democracy - is the worst system in the world, except for every other system that has ever been tried.

So to you they are not failings or shortcomings, which means you’re not admitting that your brand of economics has failings or shortcomings, the ‘downsides’ are just natural occurrences.

Even now you are not actually blaming neoliberal ideas you are in fact using the same arguments the neoliberal did to create this crisis that the problems are caused by ‘government’ intervention as if to imply that if the market was ‘truly’ free, everything would have been alright.


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The next part of your argument is that capitalists didn't care if the system collapsed because they had already feathered their nests quite nicely. In your world, they "became so wealthy by milking the neoliberal system as much as they could while they could, so that if any crisis came they would be cushioned from it.".

I have many problems with this. For one, they certainly didn't milk it for as much as they could while they could, because otherwise they wouldn't have taken such massive losses. They would have sold at the top. Hell they would have shorted at the top and ended up with twice as much money. I guess you can't see why someone who has $100 million wouldn't want to recklessly lose $95 million of it, but I sure can.

The thing is there is a difference between losing a supposed amount of money on paper and being hard up. Let us look at the case of James (Jimmy) Cayne, who seemed to prefer playing bridge and golf to running Bears Stearns although he got a salary of $200,000 dollars to supposedly do it along with huge bonuses.

Well on paper he was worth in the region of 900 million.
But then Bears needed Fed help and JPMorgan Chase was found to snap it up and Cayne cashed in his Bears stock at a rather low price and supposedly only made 60 million or so. But as the New York Times noted even with the ‘loss’ he wasn’t liable to go hungry, in fact “he has certainly accumulated enough to live out his retirement years in comfort”. There is the other investments such as the Plaza hotel apartments he brought for $28 million.
So lets see - According to US social security the average wage for Americans in 2006 was around 38,651, and remember there are a hell of a lot of people on lower, but lets round it up to 40,000 for convenience.

So if someone didn’t spend any of their wages and lived off air then it would take them a hundred years, 100 years, to make just 4,million, so it would take them just seven hundred years 700, to raise the 28 million Jimmy paid for his flats and only 1500 years to raise the 60 million he got for his shares.

So an average American would have had to have begun working in the reign of the dark age Frankish king Clovis, well over 1000 years before America was even discovered to reach the amount that Jimmy made in one day.


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Secondly, this is kind of a socialist comic book version of capitalism with the evil fat cats and so on. Capitalism is not a monolith. The CEOs who you refer to (at least when you get it right, since you sometimes get confused e.g. your confusion about who was invested in AIG)

I don’t think I’ve mentioned the investors in AIG? I mentioned the CEO’s of the companies with the most shares invested in Lehman Brothers, is that what you’re talking about?

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are not the top of the food chain, the shareholders are. And shareholders can change constantly - the young gun hedge fund trader who just got his first fund and is looking to make big money long or short is different from the old money park avenue family office who has had the shares since 1978, who is different from the CEO and his options, who is different from the senior management and business line rising stars who may have just been poached from another firm and may be getting options that don't vest for years. All these people have different, even opposite interests.

So you’re arguing that the CEO’s I mentioned didn’t get rich? Is Jimmy not rich?
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But you throw all that away and pretend its just a couple of evil old guard CEOs that have been at the same company for years, running the company in total isolation from the outside world, happy to take wild, reckless risks from their corner suite because at least they've got a few million in the bank. As I said, I just don't find this convincing.

Well you certainly are entitled to your opinion but you seem to be just backing it up with…well… that it’s your opinion.

I’m not arguing that a lot of people further down the financial food chain have got hurt and there is a lot more average Americans that are going to feel the cold winds of this crisis, but I’m pointing out that many of those that many that gained most from the risks of neoliberalism will not be amongst them.

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The third theme, a more interesting one in my view, is whether this bubble is purely the creation of foolish capitalists and whether the neoliberals did away with a regulatory environment which could have prevented it.

My view of course is that we don't live in a pure neoliberal world, of course we are in a mixed economy and shouldn't be surprised to find the blame is mixed too.

$6 trillion is a lot of state intervention.

But we’ve covered that and you still haven’t addressed what I’ve raised all you seem to be doing is ignoring it.

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And the majority opinion is that the Federal Reserve - by keeping rates too low - contributed as well.

Wonderful, what next are you going to create some Rat like conspiracy theory about the Federal Open Market Committee being packed with secret communists set on bringing down capitalism?

Sorry Hip but I really couldn’t stop laughing here given all those lectures you’ve given on the working on the FED.

It seems to me that the most of the economic thought concerning the Fed has been neoliberal or are you claiming differently?

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But a large part of the blame has to lie with the private sector that kept lending and lending and lending. As I said above, I think this sort of bubble - and the recessions that come with or without it - are part of free market capitalism.

Again to you it’s not a failing that can be fixed or alleviated but a normal function that people have to put up with.

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Importantly, I don't think it call all be regulated away. And I asked you to name an example of deregulation which contributed to this mess but you have not, as yet, responded.

Again you don’t really get it do you?

Ok it’s not just about deregulation but a philosophy,

But deregulation was part of it here is someone bemoaning what happened after the 1929 crash.

“A tidal wave of regulation soon swept over much of the American business community. Labor relations, securities markets, banking, agricultural pricing, and many other segments of the U.S. economy became subject to the oversight of government.”
He goes on to say that these heavy regulation were seen as an impediment to “efficiency and competitiveness”
“Deregulation and the newer information technologies have joined, in the United States and elsewhere, to advance flexibility in the financial sector. Financial stability may turn out to have been the most important contributor to the evident significant gains in economic stability over the past two decades.
Historically, banks have been at the forefront of financial intermediation, in part because their ability to leverage offers an efficient source of funding. But in periods of severe financial stress, such leverage too often brought down banking institutions and, in some cases, precipitated financial crises that led to recession or worse. But recent regulatory reform, coupled with innovative technologies, has stimulated the development of financial products, such as asset-backed securities, collateral loan obligations, and credit default swaps, that facilitate the dispersion of risk…
Although the business cycle has not disappeared, flexibility has made the economy more resilient to shocks and more stable overall during the past couple of decades. To be sure, that stability, by fostering speculative excesses, has created some new challenges for policymakers. But more fundamentally, an environment of greater economic stability has been key to the impressive growth in the standards of living and economic welfare so evident in the United States."
Good old Alan Greenspan

 

bump

 

The problem is that I don’t think people like Hipstatic have changed their ideas they just seem unable to defend them from criticism so they just run away.

Anyway let’s keep going – more reports on the lie being pushed to blame government ‘intervention’ on the financial crisis

Data prove untrue charges that push for affordable housing caused crisis
by David Goldstein and Kevin G. Hall
http://www.miamiherald.com/news/politics/AP/story/722379.html

Myths and falsehoods about the purported link between affordable housing initiatives and the financial crisis
http://mediamatters.org/items/200810100022?f=h_top

Subprime suspects: the right blames the credit crisis on poor minority homeowners. This is not merely offensive, but entirely wrong.
By Daniel Gross
http://www.slate.com/id/2201641/

 

My problem with the AIG bailout has a lot to do with this type of behavior. When we have to decide between buying gas or milk. They go on retreat paid by our bailout.

http://voices.washingtonpost.com/wa...s/2008/10/after_bailout_aig_execs_took_4.html

They cancelled the second one, but what have they scheduled for later?

http://abcnews.go.com/Blotter/story?id=5994567&page=1

 

Who has oversight over this type of behavior?

They are certainly in a diferent environment now. Weren't they scrutinizing their expenditures before? If not that's probably why we have to bail them out.

 

Just something of interest, Paul Krugman, the economist and long time critic of the free-market mantra’s of the neo-liberals, who Hipstatic seems to accuse of being a liar in this very thread was awarded the Nobel Prize yesterday.

So let’s get his opinion on blaming Fannie Mae and Freddie Mac -

Fannie, Freddie and You
http://www.nytimes.com/2008/07/14/opinion/14krugman.html?_r=2&oref=slogin&oref=slogin

To quote – “while Fannie and Freddie are problematic institutions, they aren’t responsible for the mess we’re in”

 

Paulson tries again.
Unlike the UK plan, the revamped American bail-out puts banks first and taxpayers second

By Joseph Stiglitz

http://www.guardian.co.uk/commentisfree/2008/oct/16/useconomy-usa

Here are some extracts -

“Britain showed at least that it still believed in some sort of system of accountability: heads of banks resigned. Nothing like this in the US. Britain understood that it made no sense to pour money into banks and have them pour out money to shareholders. The US only restricted the banks from increasing their dividends. The Treasury has sought to create a picture for the public of toughness, yet behind the scenes it is busy reassuring the banks not to worry, that it's all part of a show to keep voters and Congress placated. What is clear is that we will not have voting shares. Wall Street will have our money, but we will not have a full say in what should be done with it. A glance at the banks' recent track record of managing risk gives taxpayers every reason to be concerned…

The Paulson plan responded to Congress's demand to have something like a warrant, but as a matter of form, not substance. Buffett got warrants equal to 100% of the value of what he put in. America's taxpayers got just 15%. Moreover, as George Soros has pointed out, in a few years time, when the economy is recovered, the banks shouldn't need to turn to the government for capital. The government should have issued convertible shares that gave the right to the government to automatically share in the gain in share price…

The next Congress will have two major tasks ahead. The first is to make sure that if the taxpayer loses on the deal, financial markets pay. The second is designing new regulations and a new regulatory system. Many in Wall Street have said that this should be postponed to a later date. We have a leaky boat, some argue, we need to fix that first. True, but we also know that there are really problems in the steering mechanism (and the captains who steer it) - if we don't fix those, we will crash on some other rocks before getting into port. Why should anyone have confidence in a banking system which has failed so badly, when nothing is being done to affect incentives? Many of those who urge postponing dealing with the reform of regulations really hope that, once the crisis is passed, business will return to usual, and nothing will be done.”

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