Marcus Aurelius: So, under-regulating banks is a bad thing.

Gotcha.

Article - Risky investments have higher yields - Umm and we are supposed to be "EVIL SOCIALISM!!" about this? Isn't that a big part of capitalism? Isn't this true for private business bonds too?

GaryPDX: I don't think so. Capitalists don't like monopolies very much

But "Free market" types and laize fair capitalist do. Are you against those now Gary?

And why are we so "outraged" about this?

Because the NRO told us to.

DamnYankees: vpb: DamnYankees: Dinki: even the debt of countries with weak economies such as Greece and Italy

Can someone explain to me how the economy of Italy is weak? They are one of the largest economies in the world and they run a primary budget surplus. What is particularly weak about it?

I think it is more about high debt to GDP ratio and expense of borrowing money. Italy has to pay very high interest rates because anyone with Euros to invest will invest them in Germany unless Italy pays high interest.

If you owe a lot, that can get expensive.

This is true, but I don't know what it has to do with a "weak economy".

Weak in the sense that it doesn't have much capacity to grow - and hence they are going to be saddled heavily with the government debt they've racked up.

Dinki: Under the Basel rules [broadly speaking, the global regulatory system for banks], sovereign debt-even the debt of countries with weak economies such as Greece and Italy-is accorded a zero risk-weight. Holding sovereign debt provides banks with interest-earning investments that do not require them to raise any additional capital.

Ah typical republican thinking- a rule makes a certain kind of activity attractive, if you are willing to ignore the risks. Therefore the rule is actually a requirement to perform that activity.

Yes. If you offer to pay me $5 to masturbate with a cheese grater, then you must take responsibility for my shredded genitals.

And that debt wouldn't be toxic if the Germans allowed the ECB to act like a real central bank. Well, maybe the Greek debt, but it wouldn't have spread that far.

Same reason our banks hold/held so many bad mortgages. The govt told them to.

wib: austerity is going to crush those puny euro members

Austerity has frozen the European markets. Basically the austerity programs in Europe is causing a financial collapse in Europe like the housing collapse in the US did. They made a bad situation worse. Why do you think now they need to flood Europe with money? Because austerity plans all over Europe is reducing cash in the system and now they are being pressure to "print money" or use US cash because the Euros are no longer flowing.

They made a bad situation much much worse. It would of probably been cheaper in the long run to let Greece fail.

Dinki: if you are willing to ignore the risks

...If you are specifically ordered to ignore the risks...

And no one says it was a requirement - but to the worker-bee on the desk holding money in his account, his incentive is to keep his job. He does that by putting together a portfolio with high yield and low risk. Ergo he buys shiatty bonds.

There's a lot of blame to go around here. But you can't ignore the total delusion created by the nations at Basel which acquitted Eurozone national bonds of carrying the risk of the underlying sovereignty. It's no different than mixing-and-matching good-and-bad mortgage tranches to produce a AAA rated MBS.

whidbey: And why are we so "outraged" about this?

Because the NRO told us to.

OMG institutions bought high risk debt because the rates were high. Just scream it's socialism loud even though that is how it works always in markets.

This is why the housing market collapsed them buying private mortgages because they were not regulated to not be able to make so much investments in high risk debt, and they private institutions that we were told would take care of this failed because they had conflicts of interests, but lets just gloss over that and blame government.

vaderstg: his incentive is to keep his job. He does that by putting together a portfolio with high yield and low risk. Ergo he buys shiatty bonds.

THIS. the system is set up for: You take high risks and win - You get a huge bonus. You take high risks and fail - you say everyone else is doing it too and nothing happens to you.

That's how business works.

adamgreeney: Capitalists LOVE monopolies! That's what they want! The stongest win, which is the point of the game.

Pretty sure the strongest "winning" is not necessarily a monopoly.

Monopolies have, throughout history, had government protection to ensure their monopolistic status. So saying that monopolies are a natural ending point of winning is leaving out a very, very important part of the equation.

monoski: Same reason our banks hold/held so many bad mortgages. The govt told them to.

Except they didn't. They were being pressured to buy more by investors. private Investors were demanding more CDO's and the banks who were putting them together, made money from putting them together (so they were under pressure for lying about how risky they were) and reselling them but had none of the risk if they failed.


That is what happened. Government was not pressuring them to make high risk loans.

vaderstg: Monopolies have, throughout history, had government protection to ensure their monopolistic status.

What government protections did the oil and rail road monopolies have?

Corvus: What government protections did the oil and rail road monopolies have?

SOCIALISM!!

vaderstg: Monopolies have, throughout history, had government protection to ensure their monopolistic status. So saying that monopolies are a natural ending point of winning is leaving out a very, very important part of the equation.

That only applies to governmental monopolies -- which are created for specific reasons. Otherwise, the market will create monopolies unless government stops it -- like in the example of Standard Oil.

vaderstg: Pretty sure the strongest "winning" is not necessarily a monopoly.

Monopolies have, throughout history, had government protection to ensure their monopolistic status. So saying that monopolies are a natural ending point of winning is leaving out a very, very important part of the equation.


Why wouldn't 100% of market share be winning?

vaderstg: Monopolies have, throughout history, had government protection to ensure their monopolistic status. So saying that monopolies are a natural ending point of winning is leaving out a very, very important part of the equation.

So if I am a large corporation what would stop me in a "Free market" from signing exclusive deals with all purchaser to force out competition and/or buy out any competition so I could control the price of my product with no competition?

I have had no one ever answer this.

When the govt. regulator requires the bank to carry specific deposits-to-investments ratios defined by investment risk, and then orders the bank to assign sovereign debt a "zero" risk rating, it does three things with the authority of the government:

1) It orders the bank to lie about its risks (not an illegal lie, just a lie about reality)
2) It incentivizes lending to government over other types of lending. This is actually counter-productive as an increase in borrowing makes sovereign debt MORE risky.
3) It implicitly guarantees that the Eurozone governments will pay off the debts of any sovereign government that goes belly up. Otherwise how could it make sense to assign zero risk to an investment that actually has some degree of risk?

One reason why it's stupid to mandate these kinds of things. In the U.S. many government retirement funds were ordered by their boards to only invest in "AAA" investments, meaning they had to sell any positions when they went under "AAA", thereby losing huge in 2008 and regaining nothing in the rebound. Also encouraged them to invest in real estate which was being given "AAA" lies by everyone, even though there might have been better investment opportunities out there.

Corvus: monoski: Same reason our banks hold/held so many bad mortgages. The govt told them to.

Except they didn't. They were being pressured to buy more by investors. private Investors were demanding more CDO's and the banks who were putting them together, made money from putting them together (so they were under pressure for lying about how risky they were) and reselling them but had none of the risk if they failed.


That is what happened. Government was not pressuring them to make high risk loans.

Agreed it was not pressure, more of an opportunity created by and fostered with the philosophy that the US needed to increase home ownership. Hence Fannie Mae accepting no-doc, 110% loans and lowering the required down payment to virtually nothing.

GAT_00: Lucky LaRue: Ah.. I see. I mistook you for someone with a misguided opinion, but I see now that you are merely a troll.

Oh, you didn't know that? This is actually more coherent than he usually is.

troll /trōl/ n Someone who disagrees with me on the internet.

GaryPDX: Capitalists don't like monopolies very much

Seriously? Monopoly is the natural evolution of capitalism. When business finds it's more profitable to join than to compete (as it naturally is), that's what they do.

As far as the European debt crises, Spain, Portugal, and Ireland's problems are essentially based in capitalism: huge real estate bubbles that over extended the banks. Italy and Greece are the products of tax evasion being the national past times in both countries.

Corvus: What government protections did the oil and rail road monopolies have?

You're kidding right? You're familiar with the concept of "Right-of-Way"? The rails and the government go way back.

Ma Bell existed because the gov't outlawed competition writ large. Your local flavor of cable company has a monopoly because it acceded to municipal demands and got the rights to lay cable in that municipality.

Any time you find a monopoly that's not enforced by government action - whether it be permitting, zoning, restriction of technology, the perversion of patent law, whatever - the monopoly doesn't last.

monoski: Hence Fannie Mae accepting no-doc, 110% loans and lowering the required down payment to virtually nothing.

[citation please]