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The Forum > Article Comments > Wall Street dodges a bullet, how about the next one? > Comments

Wall Street dodges a bullet, how about the next one? : Comments

By David Dapice, published 19/9/2008

By rescuing AIG and others, the US may be biting off more than it can chew.

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When will governments wake up to the lessons of history and realise that there is a fundamental conflict of interest in the banking or any other sector being allowed to self regulate their activities to maximise their profits?

Separation of control is good governance 101. to do otherwise is to put the fox in control of the the chicken house.

Self regulating power generators in Canada emitted 20 times the pollution that they said they did under de-regulation.

The Glass-Steagall law was the legislative response to regulate the financial sector to ensure it never happened again. In 1998, Bill Clinton signed the repeal law that gave greedy bankers an open cheque. Both Obama and McCain say never again. Let's regulate. I hope they do - with regulations that hold fast.
Posted by Quick response, Friday, 19 September 2008 12:03:46 PM
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Do you like conspiracy theory? I think the collapse might have been engineered.

If the Bible tells us that the final economy is a mark on either the right hand or forehead (Revelation 13:16-18/14:9-11...read also microchip) what has to go before the new system comes in?
Cash has to go.

Everything is going over to big brother survellience ...what better way to keep everyone under control than a microchip on the right hand etc with a satellite link to the grand control room.

Pastor Barry Smith of New Zealand in his books "Warning", "Second Warning" and "Final Notice" spoke a lot about the fact that the money will crash in a flash...the antichrists global money managers having engineered it.
Many other christians will agree with this theory no doubt.
Posted by Gibo, Friday, 19 September 2008 12:44:46 PM
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Professor Dapice paints the grim picture that those of us in America are now facing and Quick response has quickly muttered the magic words, "Let's regulate". The Glass-Steagall Act of 1933 was put into place because it was believed that the de-regulation of the 1920s and early 1930s were a cause of our great depression. Now, seventy-five years later we are at a similar situation. A period of deregulation, high stock valuations, retiring boomers - and no one knows where we are headed.

At the present time we need more than the Glass-Steagall Act because Bear Stearns, Lehman Brothers, Morgan Stanley, Goldman Sachs, and some other firms are big originators of asset-backed securities and standalone investment funds. The passage of legislation restoring Glass Steagall alone wouldn't affect their capacity to continue doing what they are presently engaged in. It is the commercial banks who were the primary beneficiaries of the repeal of Glass Steagall.

The author also mentioned the many mortgage foreclosures. Sadly, some Republicans in the state of Michigan are preparing to collect names of those who are kicked out of their homes so that they can be denied the right to vote in the upcoming election. At the polling places, voters names can be checked against their addresses; if they do not match, they can be denied the right to vote. As they say, "Only in America"!
Posted by Joe in the U.S., Friday, 19 September 2008 1:58:20 PM
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Joe

Bill Clinton in 1998 relaxed the regulations regarding loans. That action resulted in the sub prime type loans. This occured under the Fannie Mae management of Franklin Raines who paid himself $90 Million over 6 years. One of those corrupt CEO and obviouly a Washington 'insider'.

Bush, and neither the Republican nor the Democrat controlled Congresses ever acted to reverse this even after the worst of the excessess of the sub prime mess became apparent.

McCain co-sponsered a Bill to regulate the activities of unscrupluous lenders ... it was defeated in the Democrat controlled Congress.

'Obama had received nearly $10 million in contributions from the finance, insurance and real estate sector through October, and he's second among presidential candidates of either party in money raised from commercial banks, trailing only Clinton. Goldman Sachs, which made $6 billion from devalued mortgage securities in the first nine months of 2007, is Obama's top contributor. When asked if Obama would hold these financial institutions accountable for losses incurred by homeowners and investors, his campaign refused to comment.'
http://www.thenation.com/doc/20080211/fraser

Published on 24 January 2008.

Fannie Mae former CEO Franklin Raines is now Obama's Campaign Financial Advisor.

McCain's right, the US economy fundamentals are still pretty good ... it's Wall Street greed, speculation and manipulation that is the problem.

As you said 'It could only happen in America.' It has and it still is...apparently.
Posted by keith, Friday, 19 September 2008 3:21:26 PM
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the amusing activities on wall street are not an aberration, they are characteristic of capitalism and oligarchy. it is not a 'bad apples' problem, but rather a case of bandits running a society for the ease of banditry.

you want a better result? get a better system.
Posted by DEMOS, Friday, 19 September 2008 4:31:04 PM
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Why, why, why do voters here and in other supposed democracies continue to vote for governments that present the status quo in the face of repeated evidence that these governments have been corrupted by big business and WILL NOT act responsibly if to do so would face opposition from these businesses.

When things go wrong, as with the current financial crises, or when governments fail to react decisively in the face of overwhelming evidence of that need, as in the case of climate change and, closer to home the Murray Darling crises, we blame them.

Yes governments are at fault but the ultimate blame rests squarely on our, the voter's shoulders. We seem incapable of making the switch. We risk far more by not doing so than if we were to bight the bullet and back an alternative force such as, in Australia, the Greens
Posted by kulu, Saturday, 20 September 2008 2:17:59 AM
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I agree with Demos.

Crisis is not an aberration under capitalism. It is built into the system.

Why would anyone in their right mind invest in sub-prime loans?

First, the risks may be hidden behind opaque risk shifting arrangements. This means that the fall out (and I note the buy out of mortgage debt isn't covered in the article becuase it is a day or two later in the rapidly changing story) could spread further and further as the light shines into all the shadowy areas.

But sovereign funds (eg petro dollars, Chinese Government owned investment arms), hedge funds, pensions funds etc who invested in these loans are not fools.

They invested for the high returns. I think the general rate of profit is lower - certainly much lower than the 60s and even the last decade.

So the competitive drive forces them to look for outlets for their capital in a world awash with capital.

The bail out merely transfers the risk to US taxpayers and others outside the US.

Bush has spent maybe $1 bn to save Wall Street as a consequence of the failure of dodgy loans designed to house poorer people.

Perhaps a more sensible approach would have been to use the money to build public housing for all who want it in the US, and with what's left over provide health care for all Americans. Instead the money goes to the rich bludgers of Wall Street. Interesting priorities, priorities I doubt either candidate will in fact challenge, let alone successfully do so.

The down stream consequences? Higher commercial interest rates (irrespective of what the Fed or RBA do), increasing unemployment, less tax (and less public services). And if the crisis spills over further into the productive economy?
Posted by Passy, Saturday, 20 September 2008 10:13:57 PM
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Put very basically, people in America and around the world will come to feel a lack of trust for financial institutions.

A similar thing happened in the great depression, it took a world war for people to be distracted enough to be able to move on.

The real mistake is to see these larger investment banks as being the main problem and not looking at the sub-prime catalyst.

We should as a global society look now at every individual and company who knew there was no way their salary or profits could ever sustain what they where purchasing or investing in.

If more people and companies where responsible with their debt levels the sub-prime mortgage crisis would of never occurred.

Spending way beyond your concievable salary or profits is economic suicide.

Fed reserve bailouts on high interest is only prolonging the problem and it really surprised me how such an irresponsible solution made the markets rally.
Posted by bluealien, Sunday, 21 September 2008 12:28:12 AM
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Once upon a time there was a little happy village where everyone knew everyone...food plentiful and there for the picking...all were happy...and quite content...

One day two villagers met who did not know each other...and inquiring discovered that their village had grown with so many villagers that their paths did not cross before...

soon villagers noticed food and lifes needs becoming difficult to get in and around the village...needing to travel further and further indeed...villagers got together and decided they need villagers to know about their village and arrange what was needed to keep the village happy for which all other villagers fed a clothed them out of their own hard work...soon they called this the government...and taxes...and soon when village kept getting bigger and 'government' villagers were too busy keeping the village running...it became obvious further villagers needed to do what government did...so they decided get some villagers who only watched for problems that affected the village then tell the government...soon they called this the parliament...and laws...and all was good...government built bigger places and roads and water ways...so village kept getting better...

then nasty little villagers whom wanted more than other villagers quietly realized if they did the work government had to do...then charged the government for it plus more...then they will have more than other villagers...o joy...so they got about whispering is the ears of the villagers in the government and parliament till they got the jobs to do...soon they called this corporations for profit...

and now we have this...corporations fannie may aig cant manage themselves so governments have to pay their debts...and bill the common public increasing public debt...while in good times all the large profits of fannie may was fannie mays'...and gee in whose pockets did most of that money go to?

seems 'governments' have lost sight of the true interests of the whole 'village' and now focused on money making parts of the village as number one priority...while give us convinceable reasons why it was changed...

cont
Posted by Sam said, Sunday, 21 September 2008 10:09:05 AM
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Keith, our financial problems extend far beyond Obama and the Democratic Congress.

As I'm sure you are aware, the Democratic Congress and Obama's senate tenure have existed for less than 2 years. From 1995 until 2006, the Senate and the Congress were both Republican. From 2001 to 2006, Republicans controlled all three branches of our government. There is enough blame to be shared by both parties but the Republican Party, in their own words - is the party of "small" government and deregulation. McCain has called himself “The Deregulator”. He has been around for decades and has done little to protect the consumer.
http://progressiveaccountability.org/2008/09/17/john-mccain-the-deregulator/

McCain’s support for the deregulation of major industries is widely known. First McCain supported deregulation of the Savings and Loan industry while accepting gifts and trips on private jets from Charles Keating who would benefit directly form the legislation. The Savings and Loan industry later crashed costing our taxpayers $30 Billion. McCain was one of the "Keating Five" senators who were investigated. Keating went to prison but fortunately for McCain, he was not punished and had simply exhibited "bad judgement".

Later McCain advocated deregulation of the energy industry. This led to the Enron scandal, and $20 billion in manipulated energy costs.
McCain supported deregulation of the Mortgage industry which led to rampant lender abuse and the current mortgage crisis. Now with the just passed bailout legislation this will cost taxpayers $150 Billion.
http://www.politicor.com/uncategorized/john-mccain-deregulation-hawk-criminal/

Top advisors of McCain were lobbyists for Fannie Mae and Freddie Mac
http://www.motherjones.com/mojoblog/archives/2008/09/9663_mccain_fannie_freddie.html

The McCain record on deregulation is long and impressive if you are in favor of no regulation and little oversight.
http://thinkprogress.org/wonkroom/2008/03/25/mccain-housing-speech/

And by the way, Keith, McCain changed his mind just one day after saying that "the fundamentals of our economy are basically sound". He now says that he was referring to the hardworking American workers who are the basis of our economy!

Finally, let me say that Franklin Raines denies having been an advisor for Obama at any time and an Obama spokesman calls the assertion, a "flat out lie".
Posted by Joe in the U.S., Monday, 22 September 2008 5:01:53 PM
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700billion+ public money used by federal reserve to prop up financial market...this improper use of public funds...while education/health etc underfunded and huge opposing arguments in parliament to increase this sector...federal reserve simply gets huge public loan and dumps for corporations benefit...then these people move on leaving debt...usually fixed by selling already limited public assets...yep corporation rule...

corporate newspaper and tv claiming this a success...more reflection of their masters position than educating public to issues affecting them...worse 'miseducating' public...lots of posters use media terms like 'rudds government'...no such thing...perhaps 'rudds parliament'...one has to clearly differentiate parliament from government...as in previous post...and presumption is the government is tool of the people...but increasing reasons say we the public better reassess that fundamental presumption...eg iraq, terror laws removing public liberty...bush era had terrible worldwide changes for worse...we now need to be careful...before totalitarian control effected and obvious...

'government' using public funds/debt to ensure income to afford basic necessities like food, water and shelter to people who may loose work for a while ...think still be less than 700billion...while prevent 'entities' in these sinking corporations from sucking out what capital left to themselves...probably 'government of people' should be doing in this situation...while market readjusts...

corruption of government bodies/process always existed...but government workings no longer transparent to own people in many countries...particularly developed...while corporate media sings and dances to daily peripheral issues to keep the public distracted and keep up the image the public in control while not a word about how 'government and its staff' acts...read news articles and youll see what I mean...and in other lot of things say 'corruption of process' more dominant than 'true purpose of countries government'...meaning vested interests have indeed been hard at work whispering and succeeding...

just because our day to day life is manageable not reason we dont act to always keep close watch on our governments...for when day to day life does become unliveable...so process of parliament/government/judiciary has failed...and yep civil uprising...once should read about origins french/english revolutions..lets start forcing better balance now by more public monitoring/corrections/accountability...then maybe this financial crisis may never got to this...

Sam
Posted by Sam said, Monday, 22 September 2008 6:33:25 PM
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Joe

I agree both parties share large licks of the blame for the current crisis ... and I expect both candidates to back peddle on support for Bernanke's blunder and don't expect your Congress to approve this folly.
Originally I was merely responding to your anti-Republican rumour post in an attempt at some semblence of balance I probably didn't convey my belief in joint culpability at all.

I respect your anti-Republican and pro-Democrat attitude. It is great. That just goes to show you support the continuation of the greatest right-wing capitalist system ever.

Good for you mate.
Posted by keith, Tuesday, 23 September 2008 9:05:46 AM
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Keith, I appreciate your response but I must say that I did not consider my first post anti-Republican. The attempt to deny citizens who lost their homes the opportunity to vote was, in my judgment, anti-American. That it was being done by Republicans was cited because that was a fact! My comment about the Republican plans to cage the election was more than a rumour. Plans had been formulated and a suit to prevent this has been filed. http://michiganmessenger.com/4463/obama-campaign-files-suit-over-foreclosure-lists

Best wishes, Keith and let's hope that those of us in America can have an election without cheating by either side!
Posted by Joe in the U.S., Tuesday, 23 September 2008 10:21:22 AM
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