The Next Financial Crisis

[Cheerful Charlie]

Again, the Manhatten Institute, Brian Reidel report. Obama left us with a good economy that had not been succeeded by Trump and the GOP controlled Congress would have cut $3 trillion of the national debt. Trump and the GOP gave us $7.8 trillion in new deficits. No it WAS NOT BOTH PARTIES! Clinton left with a balanced budget. Shrub Bush with a GOP Congress left us with a wrecked economy, the worst since the Great Depression. Even before Obama was sworn, leaders of the GOP met in meetings where they vowed no to cooperate with President Obama on anything. Obama pulled the U.S. out of the fisco Bush left him.

NO! America's economic woes were a product of near total. GOP incompetence, bad policies, and rank obstructionism. Dick Cheney, "Deficits don't matter!".

 

[Oleg]

Trump and the GOP gave us $7.8 trillion in new deficits.

Right. 2020 was a boring year. Nothing to mention. Nada.

 

[Cheerful Charlie]

PolitiFact - Here's how the deficit performed under Republican and Democratic presidents, from Reagan to Trump

This article was updated Aug. 2 to include a graph with the annual federal deficit in constant dollars. A viral post por

www.politifact.com

 

[Cheerful Charlie]

The U.S. budget deficit was sliced in half for fiscal 2022, the biggest drop in history following two years of huge Covid-related spending.
Though still large in historical terms, the budget shortfall declined to $1.375 trillion, compared to the 2021 deficit of $2.776 trillion.

U.S. budget deficit cut in half for biggest decrease ever amid Covid spending declines

The U.S. budget deficit was sliced in half for fiscal 2022, the biggest drop in history following two years of huge Covid-related spending.

www.cnbc.com

 

[Oleg]

$3.1 Trillion: Pandemic Spending Drives The Federal Budget Deficit To A Record

The government shortfall for the fiscal year that just ended was more than triple that of 2019. The national debt of $21 trillion now exceeds the size of the U.S. economy.

www.npr.org

 

[Oleg]

The U.S. budget deficit was sliced in half for fiscal 2022, the biggest drop in history following two years of huge Covid-related spending.
Though still large in historical terms, the budget shortfall declined to $1.375 trillion, compared to the 2021 deficit of $2.776 trillion.

U.S. budget deficit cut in half for biggest decrease ever amid Covid spending declines

The U.S. budget deficit was sliced in half for fiscal 2022, the biggest drop in history following two years of huge Covid-related spending.

www.cnbc.com

Wow. Covid ended and the deficit was cut. Just amazing.

 

[Cheerful Charlie]

Trumpo the clown did not handle the covid crisis correctly. So it ended up killing 1 million people and cost America billions.

 

[ZiprHead]

The next crisis will be the Republican shenanigans with the debt ceiling. A totally home-made and avoidable crisis.

Yes, if we just keep on adding debt there'll be no financial crisis coming our way. Nope. Where are we at now? $31T? Pfft. Pocket change.

7 and a half trillion of that just from Trump. We all know the history. Republicans get in charge and spend like drunken sailors. Then Democrats take over and Republicans go all

over the debt they're mostly responsible for.

Right. Both parties have been wildly irresponsible. When our comeuppance arrives, it’s gonna hurt.

Deficits go down when the Democrats are in control. They go up when the Republicans are in control. It becomes even more obvious if you assign each year's deficit to the party in power last year--this year's deficit is determined by last year's budget bills.

Stop with the finger pointing. It's the kind of problem that ends empires. Yes, both parties - with probably some indepedent votes - got us here. There's nothing in history or human experience that says the US can just keep maxing out new credit cards without consequence. I read somewhere recently that soon interest payments on the debt will match the amount we spend on defense. That's fucking crazy and unsustainable.

Please stop with the both sides do it bullshit.

 

[ZiprHead]

$3.1 Trillion: Pandemic Spending Drives The Federal Budget Deficit To A Record

The government shortfall for the fiscal year that just ended was more than triple that of 2019. The national debt of $21 trillion now exceeds the size of the U.S. economy.

www.npr.org

3.1 trillion. What about the other 4.7 trillion Trump added to the debt?

 

[Cheerful Charlie]

I do remember when Clinton became president and presented economic plans to balance the budget. Nutty Newt Gingrich, Trent Lott and other GOP leaders started ranting and raving. Doom! Doom! Recession! No, Depression! They did this when Bush was forced by Tip O'Neal and the Democrats to deal with the huge deficits his plan would create. $400 billion. Nutty Newt et al were in the end, utterly, totally wrong about all of this. The lies the GOP told America about the American economy still live on. I have been paying attention to all of this since the Reagan days. The GOP could not successfuly run a taco wagon.

 

[Swammerdami]

I thought that Republicans — the "Moral Majority" — at least knew nursery-rhyme morality. Doesn't the industrious squirrel save nuts in summer? This savings becomes especially important if winter turns out to be very bad.

For example, Obama ran record-setting deficits to recover from Bush's 2008 Financial Crisis, but by 2015 the deficit was just $442B. Still huge in absolute terms, but less than one-third the 2009 deficit and less as a percentage of GDP than deficits under Reagan, Bush-41 and Bush-43. The smart squirrel hoards nuts in good times.

Trump and the GOP gave us $7.8 trillion in new deficits.

Right. 2020 was a boring year. Nothing to mention. Nada.

My guess is that Oleg is bragging that he knows that Trump's Wuhan virus struck in 2020. But I think Cheerful Charlie wanted to call attention even to the way deficits shot up 2017-2019. The debt increased by over $1.2 Trillion in 2018 and another $1.2 Trillion in 2019. (Cite: https://www.thebalancemoney.com/us-deficit-by-year-3306306 )

A trillion here, a trillion there; soon you're talking real money. And these were not one-time trillion-dollar losses — they were driven by permanent tax cuts to benefit billionaires and multi-millionaires. Year-in, year-out, an extra trillion or so annually is now earmarked for the billionaires. Libtards want to spend hard-earned Republican money to feed the homeless? Doesn't simple fairness require that we also help the billionaires buy super-yachts and private jets?

Those squirrels did not understand about hoarding nuts in good times.

The fable of the squirrel has been written up in several children's books. Perhaps Oleg can help by reading the fable to his Republican friends.

 

[Swammerdami]

Trumpo the clown did not handle the covid crisis correctly. So it ended up killing 1 million people and cost America billions.

If AOC and her Squad had taken up shovels — like Lauren Boebert, Sean Hannity and Kevin McCarthy did — and helped build the Wall, the Wall would have kept the virus out. And Mexico would have paid for it.

But even setting aside the traitors who refused to fly down to the Texas border to help build the Wall, some of the Covid dead would have died anyway. Excess deaths blameable on Trump are about 600,000. Tops.

Meanwhile, Hillary Clinton was also a mass murderer: She murdered Vince Foster, the Ambassador at Benghazi, and Elvis Presley. That's three that we know about. Clinton/Trump? Same-same.

 

[Gospel]

Don't worry folks, I will step in and help you not lose money during the next finacial crisis as I've done before. You'll lay back comfortably cushioned by this enormous stack of paper placed beneath you. In fact I'm currently seeking ideas on what to name this stack of paper. I'm only accepting suggestions from billionaires; the poor need not reply.

Sincerely yours,
The Government

 

[Loren Pechtel]

The credit crisis of 2008 was the most dangerous world-wide financial crisis since the the Great Depression. It was caused by a housing price bubble, and by financial shenanigans pursued in the name of "hyper-efficiency" but which led to large-scale gambling: Big Wall Street Traders were buying million-dollar sports-cars by squeezing an extra 0.01% here and there, oblivious of real-world implications and with criminal cooperation from rating agencies. They eventually cost trillions to the real economy.

Disagree. I think the primary cause of the collapse was that we ignored the lesson we learned in 1929 about limiting margin ratios. We saw how allowing too much margin exposure destabilized the system and responded by limiting margin borrowing. However, as new forms of margin appeared we didn't apply that lesson to them and ended up in the same situation as 1929--too much margin-caused instability. The CRA, and the financial shenanigans set it off but that was only possible because of the underlying instability.

Unfortunately, we did not learn our lesson in 2008 and did basically nothing to curtail the exotic forms of borrowing. The same instability still exists. It's like the snow pack on the mountain--if it's unstable enough sooner or later the avalanche will be triggered. The nature of the trigger is unimportant, the underlying instability is what caused it.

I'm not sure why you say you "disagree" with me. My "hyper-efficiency" and "gambling" referred directly to excessive leverage. By the way, there are hyper-efficiencies other than excessive leverage that also pose risks to stability; high-frequency trading is one example.

But do not underestimate the sheer criminality that contributed to the crisis. The fancy new "investments" required good ratings from Moody's et al, but the favorable ratings were a corrupt joke. It is unethical for Wall St. salesman to exaggerate the way used-car dealers do, but many were well aware of financial flimsiness.

It's hard to prosecute Wall St. criminality. Passing new regulations after the fact is like Whack-a-Mole: New loopholes will be found. I think a very small tax on financial transactions would eliminate some of the useless^* hyper-efficiency and associated instability.

I disagree because I think the main issue was the instability caused by the excessive leverage rather than the gambling etc.

The guys playing with fire got burnt. I don't care. I care that the system was so unstable that the fire propagated far beyond them.

And instability is not the same thing as hyper efficiency.

 

[RVonse]

The credit crisis of 2008 was the most dangerous world-wide financial crisis since the the Great Depression. It was caused by a housing price bubble, and by financial shenanigans pursued in the name of "hyper-efficiency" but which led to large-scale gambling: Big Wall Street Traders were buying million-dollar sports-cars by squeezing an extra 0.01% here and there, oblivious of real-world implications and with criminal cooperation from rating agencies. They eventually cost trillions to the real economy.

Disagree. I think the primary cause of the collapse was that we ignored the lesson we learned in 1929 about limiting margin ratios. We saw how allowing too much margin exposure destabilized the system and responded by limiting margin borrowing. However, as new forms of margin appeared we didn't apply that lesson to them and ended up in the same situation as 1929--too much margin-caused instability. The CRA, and the financial shenanigans set it off but that was only possible because of the underlying instability.

Unfortunately, we did not learn our lesson in 2008 and did basically nothing to curtail the exotic forms of borrowing. The same instability still exists. It's like the snow pack on the mountain--if it's unstable enough sooner or later the avalanche will be triggered. The nature of the trigger is unimportant, the underlying instability is what caused it.

I'm not sure why you say you "disagree" with me. My "hyper-efficiency" and "gambling" referred directly to excessive leverage. By the way, there are hyper-efficiencies other than excessive leverage that also pose risks to stability; high-frequency trading is one example.

But do not underestimate the sheer criminality that contributed to the crisis. The fancy new "investments" required good ratings from Moody's et al, but the favorable ratings were a corrupt joke. It is unethical for Wall St. salesman to exaggerate the way used-car dealers do, but many were well aware of financial flimsiness.

It's hard to prosecute Wall St. criminality. Passing new regulations after the fact is like Whack-a-Mole: New loopholes will be found. I think a very small tax on financial transactions would eliminate some of the useless^* hyper-efficiency and associated instability.

I agree with your small tax on financial transactions. And I also agree with Loren about too much margin.

But to actually fix bubbles from appearing again both of you are missing the point IMO. That has to require unfettered consequences that normally should happen with capitalism but did not happen when government restored investment firms that should have paid a price. So rather than pass more regulation and laws, why can't government just let the people that cause the mess go out of business like they should? For example, why did Bear Sterns really need to be bailed out? And if they really did need to be bailed out for the public good,....why did the US government allow them NOT to be broken up into smaller pieces afterwards? Why was there no penalty for leaders of those financial institutions? Let those institutions go bankrupt like they should and/or temporarily nationalize them until financial stability is achieved again. But do not ever ever bail them out without consequence. That is how capitalism normally works.

 

[RVonse]

I do remember when Clinton became president and presented economic plans to balance the budget. Nutty Newt Gingrich, Trent Lott and other GOP leaders started ranting and raving. Doom! Doom! Recession! No, Depression! They did this when Bush was forced by Tip O'Neal and the Democrats to deal with the huge deficits his plan would create. $400 billion. Nutty Newt et al were in the end, utterly, totally wrong about all of this. The lies the GOP told America about the American economy still live on. I have been paying attention to all of this since the Reagan days. The GOP could not successfuly run a taco wagon.

I used to think this same way myself and in fact voted for Clinton for his 2nd term. And it is probably fair to say that Democrats in fact do reduce the deficit more because they believe in high taxation more than the Republicans do. Both parties believe in spending like drunk sailors but at least the Democrats believe in high taxes. But its more complicated than that because the high taxes also cause more unemployment and a lot more firms moving production out of the US. Is it worth not having jobs to have a low deficit? I don't know.

in a better world, both parties would greatly reduce spending AND taxes. But there is probably some kind of problem that would come up if they did that too.

 

[RVonse]

What will be the major causes of the next financial crisis?

Too much corporate debt on office space in the big cities. COVID has shown us that workers can be anywhere now, so why do firms need to pay high rent prices in the cities? Corporations that are also going to have more difficulty with their expenses after paying more incremental interest on their debt. A lot more of that kind of real estate vacant on the market and could trigger something worse. And then there could also be a huge sucking sound when ordinary workers in the big cities realize how overpriced their homes are and start moving out en mass. Those small homes are going to be worth a lot less when it is learned that the jobs don't need to be in the big cities anymore.

 

[Harry Bosch]

The credit crisis of 2008 was the most dangerous world-wide financial crisis since the the Great Depression. It was caused by a housing price bubble, and by financial shenanigans pursued in the name of "hyper-efficiency" but which led to large-scale gambling: Big Wall Street Traders were buying million-dollar sports-cars by squeezing an extra 0.01% here and there, oblivious of real-world implications and with criminal cooperation from rating agencies. They eventually cost trillions to the real economy.

Disagree. I think the primary cause of the collapse was that we ignored the lesson we learned in 1929 about limiting margin ratios. We saw how allowing too much margin exposure destabilized the system and responded by limiting margin borrowing. However, as new forms of margin appeared we didn't apply that lesson to them and ended up in the same situation as 1929--too much margin-caused instability. The CRA, and the financial shenanigans set it off but that was only possible because of the underlying instability.

Unfortunately, we did not learn our lesson in 2008 and did basically nothing to curtail the exotic forms of borrowing. The same instability still exists. It's like the snow pack on the mountain--if it's unstable enough sooner or later the avalanche will be triggered. The nature of the trigger is unimportant, the underlying instability is what caused it.

I'm not sure why you say you "disagree" with me. My "hyper-efficiency" and "gambling" referred directly to excessive leverage. By the way, there are hyper-efficiencies other than excessive leverage that also pose risks to stability; high-frequency trading is one example.

But do not underestimate the sheer criminality that contributed to the crisis. The fancy new "investments" required good ratings from Moody's et al, but the favorable ratings were a corrupt joke. It is unethical for Wall St. salesman to exaggerate the way used-car dealers do, but many were well aware of financial flimsiness.

It's hard to prosecute Wall St. criminality. Passing new regulations after the fact is like Whack-a-Mole: New loopholes will be found. I think a very small tax on financial transactions would eliminate some of the useless^* hyper-efficiency and associated instability.

I agree with your small tax on financial transactions. And I also agree with Loren about too much margin.

But to actually fix bubbles from appearing again both of you are missing the point IMO. That has to require unfettered consequences that normally should happen with capitalism but did not happen when government restored investment firms that should have paid a price. So rather than pass more regulation and laws, why can't government just let the people that cause the mess go out of business like they should? For example, why did Bear Sterns really need to be bailed out? And if they really did need to be bailed out for the public good,....why did the US government allow them NOT to be broken up into smaller pieces afterwards? Why was there no penalty for leaders of those financial institutions? Let those institutions go bankrupt like they should and/or temporarily nationalize them until financial stability is achieved again. But do not ever ever bail them out without consequence. That is how capitalism normally works.

Most of the banks that did the bad loans did go under. I can't remember how many did. But at least 200. I don't know much about Bear Stearns. I actually was a banker during the 2008 crisis. And our bank default rate increased by about 200%. But it was well within our margin. We were fine and rode it out. The FDIC gave us the bank assets of three banks that were very well managed and that went out of business. During bad times, well managed companies grow by taking over poorly managed ones.

 

[Loren Pechtel]

I do remember when Clinton became president and presented economic plans to balance the budget. Nutty Newt Gingrich, Trent Lott and other GOP leaders started ranting and raving. Doom! Doom! Recession! No, Depression! They did this when Bush was forced by Tip O'Neal and the Democrats to deal with the huge deficits his plan would create. $400 billion. Nutty Newt et al were in the end, utterly, totally wrong about all of this. The lies the GOP told America about the American economy still live on. I have been paying attention to all of this since the Reagan days. The GOP could not successfuly run a taco wagon.

I used to think this same way myself and in fact voted for Clinton for his 2nd term. And it is probably fair to say that Democrats in fact do reduce the deficit more because they believe in high taxation more than the Republicans do. Both parties believe in spending like drunk sailors but at least the Democrats believe in high taxes. But its more complicated than that because the high taxes also cause more unemployment and a lot more firms moving production out of the US. Is it worth not having jobs to have a low deficit? I don't know.

in a better world, both parties would greatly reduce spending AND taxes. But there is probably some kind of problem that would come up if they did that too.

In the long run the Republican approach causes just as much pain as taxes will have to rise to cover the interest. The delayed pain will make a bigger problem down the road because it doesn't act to limit spending as much.

 

[Swammerdami]

It's hard to prosecute Wall St. criminality. Passing new regulations after the fact is like Whack-a-Mole: New loopholes will be found. I think a very small tax on financial transactions would eliminate some of the useless^* hyper-efficiency and associated instability.

I agree with your small tax on financial transactions. And I also agree with Loren about too much margin.

But to actually fix bubbles from appearing again both of you are missing the point IMO. That has to require unfettered consequences that normally should happen with capitalism but did not happen when government restored investment firms that should have paid a price. So rather than pass more regulation and laws, why can't government just let the people that cause the mess go out of business like they should? For example, why did Bear Sterns really need to be bailed out? And if they really did need to be bailed out for the public good,....why did the US government allow them NOT to be broken up into smaller pieces afterwards? Why was there no penalty for leaders of those financial institutions? Let those institutions go bankrupt like they should and/or temporarily nationalize them until financial stability is achieved again. But do not ever ever bail them out without consequence. That is how capitalism normally works.

I agree that malefactors should pay a heavy price, but Bear Stearns is a poor example for two reasons:
(1) The Bear Stearns shareholders DID pay a heavy price: They were offered $2 per share for stock that had recently been priced at $130+. (The $2 price was upped to $10 or such through litigation, but that litigation had nothing to do with government.) The "bail-out" was that JPM assumed Bear Stearns obligations — but without making that paper good, insolvency would have spread like a virus. (The US Treasury came up with several billion but that was to entice JPM, not to help Bear Stearns' owners.)
(2) Bear Stearns was itself a VICTIM; they failed because they were pursuing the same over-rated paper that had hypnotized so many.

And anyway, should passive shareholders be punished for mischief by executives? (Yes, they should be and are punished. But it's unfortunate that the active swindlers do not pay the heavy price. Many of the active swindlers from 2007-2008 are now happily retired with many millions.) It's too bad that big-time white-collar crime goes unpunished, but prosecution is very difficult.

I know of no easy remedies, other than the small transaction tax I already mentioned. It is unfortunate that the brightest young people are incentivized to go to work on Wall St. for millions of dollars, when they could be doctors, scientists or teachers who are doing something useful for society.