The real reason for today's economic problems

[Loki]

I don't think it was all that loose; it was just dependent on the characteristics of the society. But the point is that property was protected, even if there were exceptions (as there still are). Why bother having the protections at all? Why did feudal lords guarantee that the property of their serf would go to their son?

[Nessus]

Are the only possible answers to those questions statements that re-affirm the idea that the natural order of things is for individuals to keep "what they earn"? (Ostensibly without cutesy semantics about what 'earn' means)

[RandBlade]

I may be wrong here, but doesn't it assume rational self-interest?

Indeed at the basest level. Which is better than assuming people will act selflessly in the communal best interest.

[Nessus]

Indeed at the basest level. Which is better than assuming people will act selflessly in the communal best interest.

Oh, sure. But then on the other end of the spectrum you have a few hundred people manufacturing bubbles that shake the global economy for their own personal interest; I think we could find an agreeable middle-ground somewhere in between?

[Loki]

Oh, sure. But then on the other end of the spectrum you have a few hundred people manufacturing bubbles that shake the global economy for their own personal interest; I think we could find an agreeable middle-ground somewhere in between?

"A few hundred people" can't manufacture a massive bubble. It's a mass activity with mass participation. And it was hardly only the poor who were harmed by the bursting of that bubble.

[Nessus]

"A few hundred people" can't manufacture a massive bubble. It's a mass activity with mass participation. And it was hardly only the poor who were harmed by the bursting of that bubble.

Oh, of course, but it was those few individuals crafting them that got the most direct benefit. (Of course they couldn't do it all by themselves, it's a gross oversimplification, I can't make a nuke all by myself either, but I could lend a hand if someone asked. And I suppose if I had a lot to gain personally, and I had the means at my disposal, I'd make a nuclear bomb.)

[Khendraja'aro]

"A few hundred people" can't manufacture a massive bubble. It's a mass activity with mass participation. And it was hardly only the poor who were harmed by the bursting of that bubble.

Well, we now have two guys who managed to lose several billion dollars. I'd be careful with the "can't".

[Nessus]

Well, we now have two guys who managed to lose several billion dollars. I'd be careful with the "can't".

They need the right circumstances and bunches of people to use towards their end, though, Loki's right on that. Oppenheimer didn't personally fry thousands of Japs, but there was a bomb to be made, he was the man for the job. A lot of US soldiers got some indirect benefit from the Japs surrendering, but Oppie was the guy who got a pay check for those bombs. That sort of thing.

[Loki]

Oh, of course, but it was those few individuals crafting them that got the most direct benefit. (Of course they couldn't do it all by themselves, it's a gross oversimplification, I can't make a nuke all by myself either, but I could lend a hand if someone asked. And I suppose if I had a lot to gain personally, and I had the means at my disposal, I'd make a nuclear bomb.)

They were crafted by millions of people. Sure, some benefited from it, but they couldn't force others to partake in the bubble.

Well, we now have two guys who managed to lose several billion dollars. I'd be careful with the "can't".

How's this relevant to a bubble?

[Nessus]

They were crafted by millions of people. Sure, some benefited from it, but they couldn't force others to partake in the bubble.

Exactly, the others acted in what they perceived was a beneficial way to them. Welp, they picked the door with the goat. Too bad!

[Loki]

Exactly, the others acted in what they perceived was a beneficial way to them. Welp, they picked the door with the goat. Too bad!

I think you have an inaccurate idea of what "acting in one's interest is". Let's say if I invest my money in something, I have a 50% chance of getting an extra $1 million and a 50% of losing $500k. The expected benefit to me from this investment is $250k. Therefore, there is nothing irrational about me making this investment. That doesn't change the fact that 50% of the time when I make this investment, I end up losing money. That number could even be 90% or 99% if the benefit from success is high enough.

[Nessus]

I think you have an inaccurate idea of what "acting in one's interest is". Let's say if I invest my money in something, I have a 50% chance of getting an extra $1 million and a 50% of losing $500k. The expected benefit to me from this investment is $250k. Therefore, there is nothing irrational about me making this investment. That doesn't change the fact that 50% of the time when I make this investment, I end up losing money. That number could even be 90% or 99% if the benefit from success is high enough.

Yeah, people invested in what was supposed to be a good product, but it turned out it wasn't. So?

[Flixy]

I think you have an inaccurate idea of what "acting in one's interest is". Let's say if I invest my money in something, I have a 50% chance of getting an extra $1 million and a 50% of losing $500k. The expected benefit to me from this investment is $250k. Therefore, there is nothing irrational about me making this investment. That doesn't change the fact that 50% of the time when I make this investment, I end up losing money. That number could even be 90% or 99% if the benefit from success is high enough.

Except the numbers were a lot worse than people knew, or were told. Isn't that a sign of all bubbles?

[Loki]

Sure, some people were providing fraudulent information, and they should be jailed.

[Khendraja'aro]

I think you have an inaccurate idea of what "acting in one's interest is". Let's say if I invest my money in something, I have a 50% chance of getting an extra $1 million and a 50% of losing $500k. The expected benefit to me from this investment is $250k. Therefore, there is nothing irrational about me making this investment. That doesn't change the fact that 50% of the time when I make this investment, I end up losing money. That number could even be 90% or 99% if the benefit from success is high enough.

Strangely enough, people usually don't think that rational. This is where any of these market theories fall flat - people are not little logic machines.

[Loki]

Most people don't have to make decisions that complicated, while major corporations have armies of accountants and economists who do help them think like this.

[Khendraja'aro]

Most people don't have to make decisions that complicated, while major corporations have armies of accountants and economists who do help them think like this.

Soo, why are we harping on the small people again, then? I mean, you just made a case for "the banks should have known better".

[CitizenCain]

Soo, why are we harping on the small people again, then? I mean, you just made a case for "the banks should have known better".

No he didn't.

In the first place, the net result wasn't even bad for most of banks, given that they were deemed "too big to fail" and given free money to cover their loses. A moral hazard, which, I'm sure factored into the risk equation - either succeed big and make a big pile of money, or fail big and lose so much the government will have to reimburse you. Do it right, and there's practically no downside (from the bank's perspective), but the upside is humungous.

And even in the cases where the banks did lose big, and didn't get bailed out, that doesn't [necessarily] mean it was a bad decision.

To whit, there's a pile of ~$3000 in front of you. To have a ~92% of getting that pile of money, you have to accept a $500 bet. Do you risk your $500 in a wager, or walk away from the pile? (It's rhetorical, so don't bother listing the ridiculous objections and/or questions you undoubtedly have.) Well, the correct answer is that you do, every time, and do a little happy dance for the opportunity, because your expected value from this risk you're taking is ~$2750. (Meaning you should be willing to accept a bet of up to about ~$2750 for ownership of the money pile in question.)

But guess what, you ended up losing that money pile, and your $500 bet/investment, because the money pile in question was a poker pot, and the dumbass fishy hit his gutshot draw on the river after going all in for $500 on the turn. And as often happens in poker (or any other risk-based financial transaction), the losing play is actually the correct one, because you can't predict the future, and have to play the odds instead, even if you do have an undeserved arrogance and unquestioned confidence in your future-telling abilities.

[Steely Glint]

In the first place, the net result wasn't even bad for most of banks, given that they were deemed "too big to fail" and given free money to cover their loses. A moral hazard, which, I'm sure factored into the risk equation - either succeed big and make a big pile of money, or fail big and lose so much the government will have to reimburse you. Do it right, and there's practically no downside (from the bank's perspective), but the upside is humungous.

As a direct result of which, they're now actually talking about breaking up the banks in the UK, i.e splitting off the investment arms from the retail arms, so I'm not sure it's really such a big win from the banks perspective at least long term.

[CitizenCain]

As a direct result of which, they're now actually talking about breaking up the banks in the UK, i.e splitting off the investment arms from the retail arms, so I'm not sure it's really such a big win from the banks perspective at least long term.

Why not? You seem to be under impression that this would destroy value... why?

(Just for the record, I was specifically referencing the American situation, since that's the one I'm familiar with... should hold true for the general case, but one never knows.)

[GGT]

As a direct result of which, they're now actually talking about breaking up the banks in the UK, i.e splitting off the investment arms from the retail arms, so I'm not sure it's really such a big win from the banks perspective at least long term.

The US used to have that separation, but it was repealed in 1999. Still plenty of debate about its role in the debacle. But it did seem to make TBTF worse, depending on whose opinion you believe.

http://en.wikipedia.org/wiki/Glass_steagall

[GGT]

Most people don't have to make decisions that complicated, while major corporations have armies of accountants and economists who do help them think like this.

Of course. Soooo...the Big Banks and Financial Firms (plus credit rating agencies, central bankers, comptrollers of currency, Treasury officials, SEC and the FDIC) with their armies of accountants, economists, analysts, math quants and actuarial experts to "help them think" this way....also got it wrong.

Besides Lehman, who went belly up bust? Is Dick Fuld in the unemployment line or homeless? Of course not. And is Country Wide's Mozilo eating ramen noodles? Of course not. Any CEOs from Citi, BofA, WaMu, Wells Fargo---are any of them no longer millionaires? Nope. Someone was using and/or hiding fraudulent information and/or passing it off to unsuspecting investors and Little Guys. Who's in jail besides Bernie Madoff? Anyone?

[CitizenCain]

their armies of accountants, economists, analysts, math quants and actuarial experts to "help them think"

j000000000s!

[RandBlade]

[modhat]This is the serious discussion forum, please refrain from repeated j00 references everywhere[/modhat]

[GGT]

j000000000s!

WTF is wrong with you?

[CitizenCain]

[modhat]This is the serious discussion forum,

Where we apparently blame everything on the armies of Jews (accountants, economists, analysts, "math quants," actuarial experts and bankers), which is fine, as long as we list them by their brainy professions, instead of calling them j00s.

Got it, thanks for the clarity.

[GGT]

Where we apparently blame everything on the armies of Jews (accountants, economists, analysts, "math quants," actuarial experts and bankers), which is fine, as long as we list them by their brainy professions, instead of calling them j00s.

Got it, thanks for the clarity.

You are the ONLY one who's ever made those connections. Knock it off already.

[CitizenCain]

Granted, I am the only one to ever make the connection between white-collar professions requiring a lot of education and offering high income earnings with Jews (), but I'm far from the only one on here who's commented about your compulsion to blame everything related to the financial sector's woes on armies of educated professionals. Gee, thank God the anti-Semites haven't historically used a perceived Jewish connection to the financial sector to make crazy conspiracy claims about the Jews secretly running the world, or I might be onto something there!

In other words, YOU knock it off already. If you stop making arguments that are interchangeable with crazy, racist conspiracy theories about greedy Jews (or j00s, as I prefer) secretly running the world and controlling our monies, I'll stop pointing out that you're making arguments that are interchangeable with crazy, racist conspiracy theories about greedy Jews (or j00s, as I prefer) secretly running the world and controlling our monies. You'll probably just have to deal with the fact that I'm not about to put a whole bunch of time and effort (--> "lots of words") into a post I'm certain you'll ignore or forget about by the next day, though, and prefer to abbreviate concepts I've spelled out repeatedly to you, to no avail.

For example:

"j00s" ~= stop making "arguments" that are interchangeable with crazy, racist conspiracy theories about greedy Jews secretly running the world and controlling our monies and blaming all our current problems on a long list/grouping of people that's practically interchangeable with "Zionist-Jew pig-dog overlords."

[GGT]

Get a grip, Cain. Nothing I've posted can't also be found in any news source or academic web site around the world, trying to find cause or correlation to the financial meltdown of '08 in the US, or the current crisis in Europe. Banks are involved, highly paid CEOs are involved, these are the facts. Stop injecting your own...whatever the hell....and calling it a conspiracy...or whatever it is you're implying. Above all, please stop projecting your issues onto other people, and especially me.

[CitizenCain]

So, that being the case, you got "their armies of accountants, economists, analysts, math quants and actuarial experts to 'help them think' this way....also got it wrong" from which specific academic or news source?