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Thread: Too big to fail? Nationalize?

  1. #1

    Default Too big to fail? Nationalize?

    If an institution is too big to fail, shouldn't it be nationalized.
    That way it would never fail. And if it is profitable, profit would help to reduce government deficit.

    What do you think?
    Freedom - When people learn to embrace criticism about politicians, since politicians are just employees like you and me.

  2. #2
    It would never fail because it is nationalized? That's not really the case, it just drains the budget until the whole country fails. You heard about Greece?
    "Wer Visionen hat, sollte zum Arzt gehen." - Helmut Schmidt

  3. #3
    Earthjoker: that was a lovely comment. I couldn't have said it better myself.

  4. #4
    Let's see how it goes with AIG, Fannie and Freddie and our GM stock. That's a lot of nationalized debt right there. With AIG alone we have assumed over $400 billion in obligations not to mention the $123 billion cash infusion we propped them up with. Finding the numbers for Fannie and Freddie is much more difficult.
    Faith is Hope (see Loki's sig for details)
    If hindsight is 20-20, why is it so often ignored?

  5. #5
    The problem of US is that it nationalizes failed institutions, therefore nationalizes deficit.
    I mean nationalize profitable ones and let failed ones to fail.
    Freedom - When people learn to embrace criticism about politicians, since politicians are just employees like you and me.

  6. #6
    So basically nationalize the profitable sectors of the economy and turn us into Venezuela.

    Yeah. No.

  7. #7
    Quote Originally Posted by Dreadnaught View Post
    So basically nationalize the profitable sectors of the economy and turn us into Venezuela. Yeah. No.
    The problem of Venezuela is that they nationalized economic activities that created value added, where there is physical transformation of goods. But in financial institutions the inventory is money, and money can't add value to itself, so there is no loss in nationalizing it. All the ideas about "efficiency" would nto apply because there is no creation of value added there.
    Freedom - When people learn to embrace criticism about politicians, since politicians are just employees like you and me.

  8. #8
    Quote Originally Posted by ar81 View Post
    The problem of US is that it nationalizes failed institutions, therefore nationalizes deficit.
    I mean nationalize profitable ones and let failed ones to fail.
    You got me confused now. Should this be a clarification of your first post? Because it contradicts is.
    "Wer Visionen hat, sollte zum Arzt gehen." - Helmut Schmidt

  9. #9
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    Quote Originally Posted by ar81 View Post
    If an institution is too big to fail, shouldn't it be nationalized.
    That way it would never fail. And if it is profitable, profit would help to reduce government deficit.

    What do you think?
    If you study the case of Iceland, then you would know that the answer is no.
    Congratulations America

  10. #10
    Quote Originally Posted by ar81 View Post
    The problem of Venezuela is that they nationalized economic activities that created value added, where there is physical transformation of goods. But in financial institutions the inventory is money, and money can't add value to itself, so there is no loss in nationalizing it. All the ideas about "efficiency" would nto apply because there is no creation of value added there.
    Value is not created just by creating physical goods. EG tourism or online gambling businesses in Costa Rica. It's not industrial, but it adds value and generates revenue. And nationalizing it all would likely kill most of it.

    Jesus, you really don't know what you're talking about. I've ignored most of your posts so far, not sure why I stopped with this thread.

  11. #11
    Quote Originally Posted by Dreadnaught View Post
    Value is not created just by creating physical goods. EG tourism or online gambling businesses in Costa Rica. It's not industrial, but it adds value and generates revenue. And nationalizing it all would likely kill most of it.

    Jesus, you really don't know what you're talking about. I've ignored most of your posts so far, not sure why I stopped with this thread.
    Momentary lapse of judgment. It happens to all of us at times.

    What it wants is for us to nationalize the good financial institutions to pay for the bad ones we "nationalized." I can't figure out what its next step is, but I am going to assume it involves a military coup and a new dictator.
    We're stuck in a bloody snowglobe.

  12. #12
    Good point.

    Indeed. Because I would get much more value out of my bank if it operated more like my city's water department.

  13. #13
    Quote Originally Posted by Dreadnaught View Post
    Good point.

    Indeed. Because I would get much more value out of my bank if it operated more like my city's water department.
    You under fund your city water department to keep taxes artificially low and then you claim it doesn't operate adequately?
    Faith is Hope (see Loki's sig for details)
    If hindsight is 20-20, why is it so often ignored?

  14. #14
    Or we could just let those institutions fail? Seriously people scream the sky is falling but in the long run (I know what politician cares about the long run) sharp short term pain will cost us less then continually bailing out failed business models.

  15. #15
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    Quote Originally Posted by Lewkowski View Post
    Or we could just let those institutions fail? Seriously people scream the sky is falling but in the long run (I know what politician cares about the long run) sharp short term pain will cost us less then continually bailing out failed business models.
    If we could be certain the collateral damage is limited I don't think anybody but the staunchest socialist would have a problem with that. It is something different though to pull the rug from under the entire financial system because there are some bad apples in the basket.

    Letting Bear Sterns go bust led to a near fatal freezing up of credit lines for everybody. Businesses that otherwise had no problems all of a sudden couldn't function normal any longer because an investment bank in NYC went out of business. Sometimes the quick remedy is the exact same remedy that kills the patient. One has to wonder if that makes it a good remedy.
    Congratulations America

  16. #16
    Quote Originally Posted by Lewkowski View Post
    Or we could just let those institutions fail? Seriously people scream the sky is falling but in the long run (I know what politician cares about the long run) sharp short term pain will cost us less then continually bailing out failed business models.
    THAN.

    Some are too big, some are too entangled in everything. Like Lehman and AIG, fannie and freddie. It's easier to remove one big festering mass blockage, it's harder to remove bunches of metastatic tentacles that are wrapped up in nerve and blood.

  17. #17
    Quote Originally Posted by Dreadnaught View Post
    Value is not created just by creating physical goods. EG tourism or online gambling businesses in Costa Rica. It's not industrial, but it adds value and generates revenue. And nationalizing it all would likely kill most of it.
    Online gambling does not add value. Its merchandise is money, and money can't add value to itself.
    Tourism is not "industrial" in the usual way, but it modifies physical goods for the customer: clean bedroom, clean towels, food cooking, transport.

    Lottery is nationalized in Costa Rica and it did not kill lottery. Indeed its revenue helps to reduce government deficit, so in a way it works like some sort of tax for those who gamble.

    You are confusing revenue with value. Price (that generates revenue) is what you pay, value is what you get. With gambling you pay and you get nothing in return, unless you win. Profit comes from having more money being paid than the money that is given as winner's prize. There is no value there. Price in a way becomes perceived value, or exchange value. Real value is value of use, which is the price you would pay in a time of crisis. When exchange value and value of use are different, the difference becomes a toxic asset.

    The difference between value of use and exchange value may seem insignificant, but in macroeconomic terms it is quite relevant. If you use exchange value as US currently does, government can't spot asset bubbles and monetary policy would respond to overestimated numbers based on perception that are very likely to go up and down, which would mislead government policy as it overestimates GDP and distorts inflation measurement.

    Quote Originally Posted by Hazir View Post
    If you study the case of Iceland, then you would know that the answer is no.
    Iceland bank's toxic assets exceeded government tax revenue.
    Last edited by ar81; 03-26-2010 at 09:19 PM.
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  18. #18
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    Quote Originally Posted by ar81 View Post
    Online gambling does not add value. Its merchandise is money, and money can't add value to itself.
    Tourism is not "industrial" in the usual way, but it modifies physical goods: clean bedroom, clean towels, food cooking, transport.

    Lottery is nationalized in Costa Rica and it did not kill lottery. Indeed its revenue helps to reduce government deficit, so in a way it works like some sort of tax for those who gamble.

    You are confusing revenue with value. Price (that generates revenue) is what you pay, value is what you get. With gambling you pay and you get nothing in return, unless you win. Profit comes from having more money being paid than the money that is given as winner's prize. There is no value there.



    Iceland bank's toxic assets exceeded government tax revenue.
    Which toxic assets? Iceland's banks were brought down by an old fashioned run on the bank.
    Congratulations America

  19. #19
    The PA lottery 'benefits older citizens'. Brings in a lot of money for the state, and each store that has the machines gets a cut.

    The computer screen at the gas station said Today over 46,000 seniors have been assisted with their prescriptions with a bunch of marketing lures and flashing things. The only jobs it generates are in the computer end of things, and accounting. Our OTB places employ wait staff and food service people.

    ar, you're saying money doesn't add value to itself, unless it's traded or exchanged (for a profit) on the underlying service or good. I thought everyone knew that almost intuitively and goes without saying.....

  20. #20
    Quote Originally Posted by Hazir View Post
    Which toxic assets? Iceland's banks were brought down by an old fashioned run on the bank.
    Toxic assets, assets that did not exist. It was purely debt. Banks can't refinance its debt.

    El Mundo
    La banca no encuentra cómo refinanciar su fuerte endeudamiento
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  21. #21
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    Quote Originally Posted by ar81 View Post
    Toxic assets, assets that did not exist. It was purely debt. Banks can't refinance its debt.

    El Mundo
    Sigh, the financial crisis in Iceland was caused by savers withdrawing their money faster than the banks could stomach.
    Congratulations America

  22. #22
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    Quote Originally Posted by GGT View Post
    The PA lottery 'benefits older citizens'. Brings in a lot of money for the state, and each store that has the machines gets a cut.

    The computer screen at the gas station said Today over 46,000 seniors have been assisted with their prescriptions with a bunch of marketing lures and flashing things. The only jobs it generates are in the computer end of things, and accounting. Our OTB places employ wait staff and food service people.

    ar, you're saying money doesn't add value to itself, unless it's traded or exchanged (for a profit) on the underlying service or good. I thought everyone knew that almost intuitively and goes without saying.....
    Keep in mind you're dealing with an Alberjohns whose first language isn't English. That really explains a lot. He also doesn't read spanish too well it seems, as the article he quotes also mentions what brought Icelandic banks down for real.
    Congratulations America

  23. #23
    Quote Originally Posted by Being View Post
    You under fund your city water department to keep taxes artificially low and then you claim it doesn't operate adequately?
    I like how you just said that without knowing the water billing situation in NY.

  24. #24
    Quote Originally Posted by Dreadnaught View Post
    I like how you just said that without knowing the water billing situation in NY.
    What makes you think he doesn't read the news? Every city is facing some shake-up in water delivery and sewage treatment systems. Some of them are 100 yrs old with corroding bursting pipes, and people are pissed off their rates will increase. We've had cheap water for decades, artificially cheap. Time to pay the piper, pun intended.

  25. #25
    Because the New York DEP and the City Water Board are the departments/bodies that other government agencies laugh at.

  26. #26
    Quote Originally Posted by GGT View Post
    THAN.

    Some are too big, some are too entangled in everything. Like Lehman and AIG, fannie and freddie. It's easier to remove one big festering mass blockage, it's harder to remove bunches of metastatic tentacles that are wrapped up in nerve and blood.
    See here is the issue though. If the underlying business failure consistently sucks up tax payers down the road this is worse then the sharp pain. So what would have happened if AIG failed without bailout? Oh no Goldman makes less money? Some domestic and foreign investors lose out on some money?

    Same concept with mortgages. Why are we trying to prop up housing prices? Let them fall to the bottom and then people will start purchasing again.

  27. #27
    THAN! THAN!!

    I agree we shouldn't be trying to keep the RE bubble inflated.

    But the financial meltdown was a totally different scenario that involved global banking and commerce at every level. If they'd have let that fall or fail as you suggest, it would have been worse than the Great Depression.

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