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The Forum > Article Comments > Financial deregulation and the sub-prime crisis > Comments

Financial deregulation and the sub-prime crisis : Comments

By Bill Lucarelli, published 24/11/2008

The logic of capitalist crises and the 'slaughtering of capital values'.

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Foyle no matter which way you look at it - the reserve sets interest rates.

Why did the reserve not increase them when asset prices were ballooning due to asset speculation on low interest rates' Why because you only look at inflation was their faddish mantra and hell I guess growth is occurring - so nothing to worry about. They were worse than useless and now run around like headless chickens to 'solve' the problem - THEY ARE THE PROBLEM.

Like judges all are political appointees.

"Only one in ten thousand understand the currency question and we meet him every day."

If you are going to quote someone - Kin Hubbard was a humourist and cartoonist - had no idea what economics was. It is interesting to see he died before the Great Depression.

The problem is that the vast majority think that Reserve banks are mana from heaven, without questioning their cost. All economic thinking at University if a mistake is made by a Central Bank, is 'this is what they should have done'. Interesting because there is no way to test the validity of this so called knowledge.

Like all General's train for the last war, all Reserve Bank governors train to avert the last crisis; without realising that the new interventionist model is brewing a new unforetold crisis.
Posted by password123, Tuesday, 25 November 2008 1:01:52 PM
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Foyle,
There is no such thing as excessive profits for a firm: if you own a business you will seek to maximise your profit!

As interest rate spreads have trended down over the last 20 years or so I can only assume that these "excessive profits" have come in the form of recent increases in bank fees?

Bank fees have been rising because banks have been switching to a more transparent 'user pays' system. As a result, interest rate spreads have reduced as they are not needed to cover the costs of other services provided by the bank. Moreover, de-regulation of the financial services sector has increased competition and thus also contributed to the lower spreads.

Furthermore, the owners of equity in a firm receive a return made up of both dividends and capital appreciation. Therefore shareholders would quite happily exchange dividend payments for capital appreciation if it were to bring greater returns, subject to the inter-temporal discount rate. Therefore if, as you imply, there is such a large incentive to create tier 1 capital - in the form of retained profits - then dividend payments would have dramatically reduced. This has not been the case.

Consequently, the acceptance of capital adequacy ratios have not been the principal cause of higher bank fees - as you suggest.
Posted by kroizyjack, Tuesday, 25 November 2008 5:37:23 PM
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It is apparent to me that Bob Sanatamria who predicted the fall of Wall Street firms and of the whole system two years before his death in 1998, was right all along.
I suggest that people consider voting for the political party that I am a member of now- the Democratic Labor Party ( DLP).
It is registered and can be found above the line on the Federal Senate ballot paper. Remember it.
I left the ALP because of its anti Australian policies in relation to unions and home industries and on moral grounds. I am most happy to be a rat because when I considered the pro abortion and pro 'free' trade polices and pro big business policies of the Coalition and the ALP, I thought to myself that those kind of policies are most unAustralian and anti the life of unborn Australian babies.
It was time to leave the rot and their media lackeys behind me.
Some of them say that makes me a 'rat' ( ALP talk about those who leave the fold).
My response is that I couldn't care less what the morally bankrup who have led Australia and the State of NSW down the chute, have to say.
They have no credibility.

Only family Aussies in my view are credible and should band together against both the Coalition and the ALP.
The watering down of WORKCHOICES didn't go far enough.
The ALP and the Coalition are much the same and are pro big business and pro radio disk jockeys.
We need a new political party such as the DLP to make these other parties and folk less influential for the moral and big business rot they all love promoting to the average Aussie worker.
Posted by Webby, Tuesday, 25 November 2008 7:32:14 PM
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All you have described are economic history and subsidiary effects of a prime cause that you have ignored, or failed to understand.

The root cause is the biggest fraudulent scam, parasitic financial practice, and Ponzi scheme of all – government’s monopoly control of the money supply. Prices are the steering mechanism of markets. Government, by manipulating the price mechanism, influences economic calculation. This causes mal-investments on a massive scale, because it misrepresents the true state of time preference and of demand. It makes investments appear profitable which in fact are not profitable. It diverts capital into investments that are unsustainable.

The bust is the process by which capital invested in things that people were never really willing to pay for, is liquidated and allocated to productive purposes that they are.

Actions have consequences, and massive actions have massive consequences.

According to the ‘blame the market’ school of thought, the fact that the crisis arose in a government-favoured industry (housing), in government-sponsored enterprises (Fannie Mae and Freddie Mac), using money that government conjured out of thin air, for government’s purpose of making housing more ‘affordable’, lending hundreds of billions of dollars to tens of millions of people, all these are just a strange coincidence, nothing to do with the cause of the boom and bust, which just arises mysteriously and spontaneously out of non-existent ‘unregulated capitalism’.

Underlying the author’s argument is a double standard. Whereas it is assumed that the markets cannot figure out the most economical way of doing something, it is assumed that governments can. But where did this magic power come from? If it were true, then we could just abolish private property and human freedom, give total power to government, sit back and hey presto: the best possible society.

The current crisis is not a crisis of unregulated capitalism, but of socialist government interventionism, under cover of erroneous theories that have already been refuted.

Anyone who has not refuted the Austrian theory of the trade cycle (http://mises.org/story/3128) is not qualified to comment, and to quote Marx on the topic is nothing short of laughable
Posted by Diocletian, Monday, 1 December 2008 10:13:36 PM
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