Is the Market working? Yes, Unfortunately.
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I’ll glad you pay you Tuesday, for a hamburger today. – Whimpy
Intervention in Markets, with artificial price controls (high or low) taxes and regulation is never pretty when things revert back to their natural state, but a purely capital society cannot be left to itself without some regulation. Monopolies are bad for competition, Trickle down economics does not work, because the corporation isn’t a feeling entity, (some would argue that those who run them are not feeling entities either).
Unfortunately for the panicy, the market is working just fine. At this time, 9-30-08, There is risk of a large financial melt down. Yesterday, The house rejected the “plan.” bail our or resuce as you decide. Credit markets are freezing up and locking people and companies into being unable to pay their bills.
As I pointed out, Money is a pyrmaid scheme that works only as long as /everyone/ does not want their money back. Right now! Credit inflates Demand, and then supply. It is a tool that we’ve added to our market, and we are living with that consequence.
In a normal world, a $40,000 car without credit is too much. Simply supply and demand states if A car cost $40,000 and 95% cannot buy said car for more than $5000, the price of the car is too much. But with credit, the promise to buy the car now, and pay over time, (at a fee), demand for the car is artificially higher and supply is pushed higher to feed that demand.
Face it, When credit market’s freeze because banks (or loan sharks) don’t believe you’ll be able to pay them back, then what we are left with is the only true accepted currency -cash- and a return to the natural Level of supply and demand!
The rush to cash creates other pressures. Since credit is the only thing that exists, and those with something to sell know that only cash is good, they tend to raise prices, to get more cash (hoping) that prices will stabilize and they will be left with a wind fall. This is where greed comes in, and Inflation starts to rise; soon, suppliers are asking for buckets of money.
But, let’s take a look at the root of all this mess. Home loans. Republicans like to say “bailing out people who bought a house they can’t afford.” It’s actually rather insulting. People /could/ afford their houses. THey did so until the variable loans all ballooned. Those talking heads” like to say “well, it’s riskier, ” so that’s why rates went up? I don’t know what makes less sense, “I as a home owner can’t afford to pay you -for ex- $10. a month, so to make it less riskier for you, you are going to charge me $12 a month instead? and oh, your solution to my deepening crisis? you’ll offer me a new loan to canel out my debts but at $15 a month?”
Refusal to write down these loans, or renegotiate back to a fixed (And reasonable ) rate is pure greed; Paper money lost. Face it, the bank doesn’t want the house, so why are they so annoyingly nasty about helping you out? Wall street, wall street and the quarterly earning statements. Instead of X in profits, it would be y % less and that’s bad!
Greed, unfortunately, is the ultimately regulator of the market, because when greed totally infuses the system, the system collapses. Adam smith pointed out that pursuit of one’s own “self interest” is a measure of necessity when dealing with free markets. He’s right. It’s in one’s self interest to be greedy. It’s not to let the system fail.
Zero return makes you want to turn up your note. But know what’s worse? Default. Bankruptcy. Failure of the financial system. Accepting Zero for 3 months is far better than having the cash flow you were expecting for 30 years gone. Predatory lending practices made Variable interest loans far more attractive to “those who can’t afford.” while smart risk management would have kept those at 80/20 to stable fixed loans to stable customers.
We need regulation because people , companies, … everyone, is unable to regulate themselves. Voluntary regulation does not work. Never did. Won’t now. We shouldn’t allow companies to become so large they threaten several governments when they fail. We shouldn’t allow immediate short selling of stock you don’t own to drive a companies price down. (btw, ) margin selling (again, credit problem where you bought something you didn’t own on a promise to pay later, contributed to the first SNL crisis. It seems allowed to balloon keeps leading to a pretty standard problem)
Let’s face it. Risk was played on both sides, the lenders and the receivers..
Risk lost.
The market is now righting itself; Unfortunately.
Karl Marx would be smiling now if he knew what we’d done to ourselves.
OceansOfThought @ September 30, 2008