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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: alanrs who wrote (623590)	1/28/2017 12:05:39 AM
From: frankw1900	Read Replies (1) \| Respond to of 794363

Alan, It's not that the loans in themselves are good or bad, it's that eventually individuals and non-financial companies have taken on enough debt they will not take any more until they've paid down some of what they already have. This is just the sort of plain vanilla aspect of business cycles in various industrial groups and geographical areas as private debt formation and its rate of formation drives economic growth (and money creation) or its decline (money destruction). However, the overall growth becomes a boom and bonus hungry bankers become creative in selling debt and increase their loan/capital ratio, and debt takers start to Ponzi their loans. And why not? They're all getting rich, success breeds success, etc. etc. This sort of thing can go on for some years as it did in the period leading up to '29 crash or during the five years leading up to '08, which head of the Fed, Bernanke called "the great moderation." It should have been the 'great fragility.' Eventually busted outfit can't roll over its paper, is formally bankrupt, and the over leveraged bank holding busted outfit's paper representing a very small part of its portfolio is now insolvent. And all hell breaks loose since all the other financial companies have similar portfolios and similar leverage. You ask, this is a problem exactly how? I Think it's clear that fewer bad loans are made in the period leading up to the boom times than during and at the end. So clearer regulation of what sort of loans and credit instruments banks can not make and with serious personal penalties for violation. I don't think financial downturns can be prevented, (see top 2 paragraphs) but I'm sure their severity can be ameliorated. No, we can not know the future. But we can know a great deal about economic and financial processes and we certainly know an awful lot about human nature and there is no reason to reward financial people for stupid and bad behavior and every reason to penalize them for it. Personally, I don't think thousands of pages of regulation is the way to go. Personally I think banks and bankers are given too much respect especially those in NY and London. If we look at banks as money factories, (I'm trying to remember who said this), since we give them a license, then we should demand a high quality product, no Ponzi money, no margin money. And this is a problem exactly how? It would be one thing if those bad -ions only happened under x circumstances, but they seem to happen under all circumstances, at minimum from investments that misread the future, however generated. Also, I don't think there is any reason to fall victim to superstitious ideas about government debt when we are looking at full fledged depression and deflation. I don't believe the depression of 1930s, Japanese stagnation the past 25 years, or our stagnation post 2008 is the most efficient outcome neither in human deprivation and lost opportunities, nor in time, if there is an alternative. A big if. The sticker after a series of financial wobbles and a crash is the very high level of private debt, NOT public debt. So the logical thing for a responsible government to do is figure out how to get that private debt paid out, NOT cancelled, as fast as possible. The forgone opportunity cost under conditions of depression and deflation are astronomical.