Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The world economy is heading towards a black hole unless bold action taken

economist.com

Post reply on HN
Print view View original

111–120 of 140 posts

Re: The world economy is heading towards a black hole unless bold action taken

#111

Post by Estragon »

anigbrowl wrote: post #14
OstiaAntica wrote: post #8

"Bold" action by the politicians and the central banks created much of the current mess. If we'd just cleared the pipes by letting the banks fail, recapitalizing new banks, and basically rebooting the financial system, we'd be much further along. Instead, we got bailouts and crony capitalism and ad hoc intervention, and today the global system is in many ways in worse shape now than in 2008. (Banking is more concentr…

letting the banks fail, recapitalizing new banks, and basically rebooting the financial system Please tell us how that works in practice rather than in theory. I really, really want to know how you just 'reboot' the financial system without massive disruption to retail banking or the payments system. How do you 're'capitalize a new bank? If you just mean create new banks, who is running these banks? I mean, I'd like…

The FDIC does this kind of thing all the time, especially these days. Yes, it would cause some pain and mayhem, but nothing compared to what will probably result from the current paralysis. If the money spent so far on propping up insolvent institutions had instead been put towards FDIC takeovers of insolvent banks, guarantees of their retail deposits, and prosecutions for mortgage fraud a la the S&L crisis, there would be a lot more confidence in the world's economic future by now.

Such a response has only been politically infeasible in the US because the financial industry has such a stranglehold on US political discourse. (See Confidence Men, and in particular its description of the resistance Obama faced when he tried to do this kind of thing with Citigroup.)

Re: The world economy is heading towards a black hole unless bold action taken

#112

Post by Estragon »

anigbrowl wrote: post #89
theoj wrote: post #59

Earlier quoted context omitted.

Contrary to what some pundits would like you to believe, this is not new ground. A real estate bubble followed by a balance sheet recession has happened in at least 2 other places before: Sweden in 1992 and Japan in 1991. Different choices in these countries led to different outcomes. In Sweden, the government demanded steep losses from equity holders before it took over a large part of the financial system (unlike U…

I don't listen to media pundits. I'm asking the grandparent poster for specifics of how s/he intends a reboot of the entire financial sector because I think this is actually a rather hard problem. I have been through a real estate bubble followed by a recession before (in the UK, at the same time as the Swedish one). I think there are some definite upsides to the Swedish approach, but the people who keep bringing it…

  > The idea that we can just lift one bit of regulatory policy from
  > there, apply it to our financial sector, and call our problem solved
  > is not just misguided, it's flat-out magical thinking.
It's also a straw man. He said "we'd be much further along." He didn't say it would be simple or painless. He did imply that it would be less painful overall than what we're doing now, which is not saying much.

Re: The world economy is heading towards a black hole unless bold action taken

#113

Post by Estragon »

anigbrowl wrote: post #94
jpdoctor wrote: post #46

Earlier quoted context omitted.

> I really, really want to know how you just 'reboot' the financial system without massive disruption to retail banking or the payments system. There will be massive disruption in any case. It can come in the format of recapitalization (Iceland) or inflation due to inflating their insolvency away (Latin America). > How do you 're'capitalize a new bank? OP meant recapitalize the failed banks. Short version: 1. Fire th…

Total time is probably 1 week for the BoA sized guys You're telling me the government could have rebooted BofA, AIG, Wells Fargo, CitiGroup and Chase (to name just the top 5 - http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#P... ) in the space of a week or two. I would love if that were possible, but I don't see how it is. Proposals like this were debated at some length back in 2008, after all, and I disti…

  > I distinctly remember them being decried as Communism, for
  > understandable reasons.
Yes, if I was a stakeholder in the financial industry whose wealth and connections afforded me a huge mouthpiece, I too would resort to emotive namecalling of any policy which might force me to take a haircut.

Re: The world economy is heading towards a black hole unless bold action taken

#114

Post by Estragon »

danmaz74 wrote: post #110
jbooth wrote: post #82

Earlier quoted context omitted.

"Bold" action by the politicians and the central banks created much of the current mess. No, bold actions by financial instrument designers, sellers and buyers created much of the current mess. Agreed on the crony capitalism and ad hoc intervention, and the real shame is that the cowboys who got us here did great out of the deal, but let's lay the blame appropriately.

Moreover, excessive deregulation by the politicians allowed all that. But, it could be argued that eliminating the regulations was "bold action"...

The bold action was the imposition of those regulations back in the wake of the Great Depression. The repeal of them was business-as-usual cronyism for the sake of incremental financial gain.

Re: The world economy is heading towards a black hole unless bold action taken

#115

Post by jwingy »

Get money out of politics so politicians can make unbiased, level-headed decisions.

I don't doubt the complexity of our current economic situation, but the way our government is currently run by lobbyists who naturally have their own myopic view, I think it would be more an accident than on purpose that our economy gets better.

Re: The world economy is heading towards a black hole unless bold action taken

#116

Post by Estragon »

rwmj wrote: post #107
flourpower wrote: post #15

Earlier quoted context omitted.

We shouldn't practice financial regulation like it's holistic medicine. Metaphors about cleaning the pipes and taking the pain should be weighed against the evidence we have about what happens when you let banks fail, and that didn't go very well when we did it with Lehman Brothers.

Out of interest, what bad stuff happened when Lehman Brothers collapsed? Beyond a few thousand job losses (likely temporary, and about 0.01% of the US economy).

  - Credit markets seized up because no one could tell who 
    was insolvent.

  - Massive outflow of foreign capital from the US as  
    investors realized what a mess the US financial system
    must be in.
I'm in favor of letting a bank like Lehman Bros collapse despite that. The most important thing for day-to-day economic health is to make sure no one loses retail deposits, and Lehman Bros wasn't even in that business. But what should have followed is much more intrusive regulation and oversight of the financial industry to determine exactly who is insolvent and arrange an orderly writedown of people's bad financial positions. Unfortunately, the disproportionate political power of the financial industry made such a policy impossible to implement. (See the recent book Confidence Men.)

Re: The world economy is heading towards a black hole unless bold action taken

#117

Post by Estragon »

scarmig wrote: post #80

On one hand, I really hate the Economist. It's a magazine that thinks an ideology, a smart tone, and providing the only decent coverage of world events widely available makes for a compelling magazine. Even if that coverage is ridiculously biased and not really knowledgeable about facts on the ground. On the other, it's perhaps the pre-eminent mouthpiece for the ruling Anglo-American elite, and it's comforting that t…

Greece's failure will only destroy banks that France and Germany aren't interested in preserving. They can play the zombie-bank game for a long time.

Also, I really disagree that this crisis has evolved from idiocy. It's more a matter of misaligned incentives. Many of the people who have caused this mess have already profited handsomely from it.

Re: The world economy is heading towards a black hole unless bold action taken

#118

Post by iqster »

Estragon wrote: post #116
rwmj wrote: post #107

Earlier quoted context omitted.

Out of interest, what bad stuff happened when Lehman Brothers collapsed? Beyond a few thousand job losses (likely temporary, and about 0.01% of the US economy).

- Credit markets seized up because no one could tell who was insolvent. - Massive outflow of foreign capital from the US as investors realized what a mess the US financial system must be in. I'm in favor of letting a bank like Lehman Bros collapse despite that. The most important thing for day-to-day economic health is to make sure no one loses retail deposits, and Lehman Bros wasn't even in that business. But what s…

Good response.

I recall reading (think this was in Too Big To Fail) that the deciding powers were afraid that if there was another Lehman, cash would stop coming out of the ATM machines. This is what prompted AIG and a few of the other shotgun marriages.

Re: The world economy is heading towards a black hole unless bold action taken

#119

Post by rick888 »

Confusion wrote: post #88
rick888 wrote: post #78

Earlier quoted context omitted.

If Obama is your idea of a Republican, I don't want your idea of a Democrat in office...ever.

The horror... you might just end up like Germany or France.

70%+ taxes, no thanks. I thought this was HN, not reddit...

Re: The world economy is heading towards a black hole unless bold action taken

#120

Post by jpdoctor »

anigbrowl wrote: post #94
jpdoctor wrote: post #46

Earlier quoted context omitted.

> I really, really want to know how you just 'reboot' the financial system without massive disruption to retail banking or the payments system. There will be massive disruption in any case. It can come in the format of recapitalization (Iceland) or inflation due to inflating their insolvency away (Latin America). > How do you 're'capitalize a new bank? OP meant recapitalize the failed banks. Short version: 1. Fire th…

Total time is probably 1 week for the BoA sized guys You're telling me the government could have rebooted BofA, AIG, Wells Fargo, CitiGroup and Chase (to name just the top 5 - http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#P... ) in the space of a week or two. I would love if that were possible, but I don't see how it is. Proposals like this were debated at some length back in 2008, after all, and I disti…

> Proposals like this were debated at some length back in 2008

No, they were not. The proposals were about how to avoid doing the above list.

Firing the management and BoD would take less than a day. Wiping out the shareholders and bondholders would also take less than a day. Injecting new capital would take less than a day.

All of those could be done on the same day. I'm alloting a week in order to find/promote the correct caretaker CEO.

Post reply on HN