Question - what if we DIDN'T stimulate the economy???

[Specterx]

I don't like what's in the stimulus bill at all. However, you can't just sit back and do nothing. We've let the financial system become an incredibly unstable house o' cards. You have a behemoth like Citi, either the government sorts through it and keeps the "public utility" aspects of the bank humming along, or you get old-fashioned bank runs, panic, and unpredictable cascading failure throughout the system. Meanwhile it'd take the bankruptcy court ten years to figure out who owes what to whom.

I would much rather see the govt sieze all the failed banks, replace management, and inject the minimum amount of capital necessary to keep things solvent. If liquidation is called for than it can be accomplished in an orderly fashion. Pay back the taxpayer before anybody else...

 

[Landis82]

Quote from TraderZones:

The results are very telling. This is one of the most lopsided votes I have seen on ET.

Yes, and I would be remiss if I did not point out that ET is the GREATEST contrary indicator and FADE known to mankind!

If you don't believe me, feel free to take a look at all of those polls in the Trading Forum over the years.

 

[Kap]

Quote from TraderZones:

Thesis: Instead of throwing $3 trillion at the economy just because we had "to do something", what if we did nothing and let capitalism and bankruptcy work? Short, terrible, would it be better or not than running up the federal deficit so much? Or should we spend a lot less or a lot more?

let them fail and small arms will be the new currency :eek:

 

[Capablanca]

Under capitalism the government can allow almost any industry to fail BUT NOT BANKS.

The capitalist system is built upon banks. The current crisis may not have been avoidable but it noticeably deteriorated after the fall of Lehman.

Rather than lots of opinion not backed by facts people should look at the results of past financial crises for an idea of what is the most successful way to deal with them.

Systemic Banking Crises: A New Database

 

[jueco2005]

In that case banks should be nationalized.

Quote from Capablanca:

Under capitalism the government can allow almost any industry to fail BUT NOT BANKS.

The capitalist system is built upon banks. The current crisis may not have been avoidable but it noticeably deteriorated after the fall of Lehman.

Rather than lots of opinion not backed by facts people should look at the results of past financial crises for an idea of what is the most successful way to deal with them.

Systemic Banking Crises: A New Database

 

[jueco2005]

They did do something. They reduced the amount of money, credit available and that prolonged the crisis.

Quote from Kassz007:

I believe the government policy of "do nothing" contributed heavily to the prolonging of the great depression. While I do believe the stimulus package has flaws, I am under the firm belief that the stimulus package is better than doing nothing at all.

This is especially true because I live in Canada. I get to reap the benefits of the stimulus package (via increased exports to USA due to increased money supply) without myself or my children having to repay the debt in increased taxes.

 

[ergo]

Quote from TradeWarrior310:


If you were smart you would learn from history instead of taking gospel from a Nobel Laureate whom happens to be WRONG.

Hi, I would be interested in understanding why you think he is wrong here. Thanks

 

[Random.Capital]

Quote from TraderZones:

...what if we did nothing and let capitalism and bankruptcy work?

FDIC - explicit taxpayer guarantee - would go bust in trillion dollar fashion.

PBGC - explicit taxpayer guarantee - would go bust in half-trillion dollar fashion

There would be no mortgages longer than 15 years and less than 9% interest because Fannie and Freddie would be gone, along with their implicit taxpayer guarantee that greatly subsidizes mortgages. Guess what that does to housing prices - instant, as in literally overnight - across the board 40% haircut from current home price levels.

Approximately 1M additional folks would be on the unemployment lines from GM and F going bankrupt (no way those two get DIP financing without a gov't bankstop).

Probably $0.5T in deposits would leave the country for "warmer climes".

I'm sure there's more, but that seems a reasonable start.

It seems the most important questions now are (a) how do we survive this mess and (b) how do we keep from having this happen again?

 

[TraderZones]

Quote from Random.Capital:

FDIC - explicit taxpayer guarantee - would go bust in trillion dollar fashion.

That is separate from the stimulus package and bank capital Injections. FDIC already had a mechanism in times of trouble, including raising their rates to member banks

PBGC - explicit taxpayer guarantee - would go bust in half-trillion dollar fashion

That is separate from the stimulus package. PBGC already had a mechanism in times of trouble.

There would be no mortgages longer than 15 years and less than 9% interest because Fannie and Freddie would be gone, along with their implicit taxpayer guarantee that greatly subsidizes mortgages. Guess what that does to housing prices - instant, as in literally overnight - across the board 40% haircut from current home price levels.

Speculation. They took over Fannie and Freddie and we are still in the same crisis. The housing market is and was in crisis. For example, all the capital injections into the banks have done little to spur new spending. They are mostly hoarding the money to strengthen their balance sheets.

Approximately 1M additional folks would be on the unemployment lines from GM and F going bankrupt (no way those two get DIP financing without a gov't bankstop).

They would go through bankruptcy just like the airlines. Their problems would be a lot easier to clean up, such as excess dealerships and Union obligations. Right now, the fed assistance has done absolutely nothing to keep them from burning cash at an alarming rate.

Probably $0.5T in deposits would leave the country for "warmer climes".

Speculation

[/B]

 

[fearless9]

Productivity drives a nation, not consumption.

And banking is the one common thread that glues the whole show together.
From the currently under performing non-productive gov. to the shrinking productive class.

Unless productivity and banking are treated as seamless, you are bound to eventually wind up in the sort of mess you are currently in.

regards
f9