I’m Kinda In Full Freak Out Mode

Its happened.

The myth of our free market economy has come crashing down.

Sure, they let Lehman fail, but they’ve bailed out

Bear Sterns

Fannie Mae

Freddie Mac

AIG

….

Who is next? WaMu? Wachovia? Could be anybody.

The way accounting is going these days, these guys are hiding what they can, legally, to try and buy time. Eventually, as we’ve seen this week especially, the truth always comes out.

Not to mention that the stock market has taken a nose dive, especially Monday, but really this entire year. Russia had to close its stock market today after a drop of 17 percent.

I just don’t believe that this is gonna be one of those things that goes away in a month or two. Something very bad is happening, and we’re gonna feel the effects for a long time.

One thing is for certain, we are seeing the end of the American Empire.

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26 responses to “I’m Kinda In Full Freak Out Mode

  1. I want to preemptively respond to all the folks who are inevitably going to respond to this post by saying, “I told you so! Free markets don’t work blah blah blah”

    First of all, I’ve already discussed this with Justin in a manner and forum more conducive to rational thought and discourse than a blog response board.

    The point must be made that just because an event involves a business does not mean it involves “the free market”. When the government buys 80% of AIG for $85b, that is corporate nationalization, love it or not. This isn’t much different than when the EU props up Airbus or when China bulldozes a village to build a factory. It is government of the business for the business by the business.

  2. No one is going to make that point. It’s not that the free market failed. The point is that an “unfettered” free market is prone to flaws (but many of us “liberals” already knew that).

    You have to let go of your libertarian ideals and realize that there is a need for a healthy relationship between government and free markets. Neither one by itself is good. They must balance each other.

  3. I’m with invisible hand

  4. How does the government determine what amount of regulation is enough? And how much freedom does one allow a corporation?

  5. No one knows the answer to that… but clearly, there’s been too much deregulation in the past 10 years. But it’s gotta be give and take from both sides. It’ll never be perfect, but if you cut one side off, we’ll be in another disaster such as this impending doom.

    You’ve just got to accept that the government/free market relationship is like a pendulum. We’ve got to have enough honest people on both sides to reduce the severity of the swings.

  6. I guess I don’t see this as a regulation problem though. Surely there are some issues where too little regulation causes an issue, but this is clearly something that occurred because of the government’s intervention in the market through the encouragement of subprime loans, mixed with the federal reserve setting interest rates below what the free market would have determined. Artificially low interest rates and easy credit cause malinvestment. The malinvestment is what the bubble was… people were putting money in things (and taking out loans against things) that in a normal market situation, they never would have done.

  7. I find it hard to believe that this is only about the government encouraging subprime loans and manipulating interest rates.

    It seems it’s (in part at least) related to the banks making terrible loans, not because the government told the to, but because everyone else was doing it (so why shouldn’t I and make some cash too).

    First-hand account:
    http://www.thisamericanlife.org/Radio_Episode.aspx?episode=355

  8. “I’m Kinda In Full Freak Out Mode”

    Justin, I’ve told you this before. Put your hope and faith in ME, not the things of this world which will pass away. Focus on me.

    Love you,
    J

  9. thanks Jesus I do need that reminder. Just having trouble at the moment because I know that what I preach is gone be tested here.

    Jonathan the thing is the banks,who did make bad loans, wouldn’t have had the opportunity to do so and make money without the foverments intentional inflation in home prices. They made it where a group of people who were boxed out of housing due to not having solid financials, could buy homes. It went on so long without defaults because prices continued to rise and rates stayed low. These loans wouldn’t have been made without the Feds lowering interest rates

  10. It’s my fault. I filled government pockets with money to encourage deregulation so the businesses I represent could make higher/riskier profits. It’s my fault Alan Greenspan ruined our economy with low interest rates. As pro-business people, we put pressure on the fed to create a financial situation that was conducive to cheap money and high profits.

    Whatever flaws we attribute to government are ultimately the result of its citizens. We hold the power to keep our government in check. So blame me, but blame yourself for allowing me to have so much power.

  11. No problem, bro. My grace is sufficient for you.

    Regarding your “preaching” just remember what one of my followers said, “use words only when necessary.”

    Keep on keepin’ on!
    ~J

  12. Jonathan, you are right. There were a lot of factors involved. I know. I was in the subprime world for the past 12 years. Back in the 90’s, Govco did “encourage” companies to make more loans to more people, regardless of their credit history or income status. The Clintons were big pushers of this. Many companies that didn’t do this, that didn’t buy into that idea, were audited time and time and time again by Govco and were fined for “redlining” and other things. They were focuses of editorials by local papers about how they were discriminating so, they finally gave in and followed the pack. So, for Nancy Pelosi to come out and say the Dems have NO fault in this is laughable.

    Now, companies were “encouraged” to lend to everyone but many of them took it a step or two (or three or four) further and it got crazy and out of hand and, yes, many of these companies just followed suit even though they didn’t like it. So, it was also their fault.

    Third, you have fraud. MANY Borrowers and Brokers falsifed docs, lied and scammed their way into homes they would never and could never afford.

    Forth, investors. Many people bought investment properties they never intended to live in just to make some money.

    It was the perfect storm. Many were at fault. However, does this mean that Govco come running in to bail out people who lied? Who bought more than they could afford? Companies who lent to those who were high risk or who they knew could not pay? No way. These Borrowers must learn a hard lesson as do the companies.

    What is really funny now is that Govco is starting to hint at the same thing again. They are complaining about Borrowers not being able to afford homes and such. They are again, almost encouraging lending to those who cannot afford it. What is also funny is that Bush proposed more Govco oversight of companies such as Fannie and Freddie back in 2003 and he was denounced by the Liberals for it.

    To say that the free market failed though it untrue. Also, to say that we won’t pull thru this is untrue. The U.S. has been thru tougher times than this.

  13. You know what’s really scary? The Bailout plan… we’re basically handing taxpayer money over to evil corporations with no strings attached:

    http://www.nakedcapitalism.com/2008/09/why-you-should-hate-treasury-bailout.html

  14. Don’t we hand over money to Govco with no strings attached? Or, should I say we are forced to hand over money to Govco with no strings attached?

  15. It’s retarded comments like your, Roland, that prevent people from talking to you. Seriously, grow a pair and have a real discussion like the rest of us. Try writing a REAL blog… yes, I’ve read the BS you spew on there.

    Let’s have a real discussion… you should follow the example of justin and y.

  16. lol. “retarded comments”. I like that.

    Usually when people cannot address a post, they respond with something like yours. How is saying that we do hand over money to Govco with no strings attached retarded? We do. Try not handing over your money at tax time or putting some conditions on it and see where it gets you.

  17. yay, you successfully diverted another important discussion. This is why our country can’t solve problems… we reduce everything to the most simplistic, nuance-lacking arguments.

    Ever seen Idiocracy? Great movie… sadly, we’re closer to it than we’re ready to admit.

    Great job on lowering the IQ of this discussion, Roland. I suppose it gets us closer to pining for the ‘sweet by and by’.

  18. Once again, you simply divert the issue. You STILL have not addressed my comment, only throw insults.

  19. I made a point about the bailout and posted a link. You made a flippant remark about throwing money away to govco (does that make you happy as a libertarian — govco? c’mon). So i believe you diverted the discussion.

    TAXES ARE NOT VIOLENCE, it’s part of the collective good, get over it, and join the discussion.

  20. Invisible Choke-Hold,
    The question is whether markets or government are more likely to fail. Markets have a healthy incentive structure which is self-correcting. Government has many layers of insulation from feedback, it is slow to correct itself, if it ever does, and is fraught with incentives to cheat – inevitably tied to the moral hazard of its controlling a monopoly on force.
    No. Regulation slows down and distorts the transmission of price information and gunks up the works of the economy.
    The best policy is protection of rights and enforcement of contracts. Nothing else.

  21. Yoohoo – anybody home?

  22. I’m here Robin. I’ve been super busy with school, work, and worry, in all reality. Working on not worrying, but its tough. And it doesn’t help when I’m on the internet constantly reading bad news.

    Hopefully I’ll be back in the blogging world soon. But who knows?

  23. My husband received his first retirement check on October 1st. Guess the joke is on us. First time in our lives we have some money in the bank and it disappears. I wanted to read your take on the situation. Hope you are feeling better. That nasty cold/flu is running everywhere, even here in Michigan. Thanks for posting today.

  24. Well, you do have the option of pulling it out of the market. I think the biggest problem is people just entering the job market, who are having trouble finding jobs (raises hand).

    I will say, my non expert opinion is that stocks are not going up any time soon. Its possible that we are at a bottom in the market, but I’m not sure about that. I think if we break the dow 7900 resistance, which was our bottom during the last recession, we might see dow 5000. That’s a bad scenario that would lead to the highest unemployment numbers since the great depression. The problem right now is that the market is holding up, in my opinion, because the governments of the world are artificially propping it up. If they inject so much capital that prices quit falling, we will end up with hyperinflation, maybe Weibar Germany type, which would be more devastating than any deflation we would see if the government had just left things alone.

    I think we are looking at best, a protracted recession of several years or more, possibly like the funk that the japanese have been in since 90. If you look at the Nikkei, it got up to the 40,000 pts area, and dropped significantly, never to recover completely. I’m not bullish on getting back into the market until I see another panic fall, which I think we’ll see before the end of the year.

  25. Predicting another market fall in these conditions is like predicting that a fat guy will eat the candy bar in front of him… duh…

    All of us who have college degrees should be thankful.

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