antiquary

The Virtue of the Republic

"So essentially, by artificially lowering the price of capital (interest rates) supply dries up, as it does in every market where price fixing is allowed. If you can't earn a decent return on your money, why would you take it out of your wallet?"

The posit you take as granted is that the ceiling set by the Fed is below a decent return. This is not necessarily true; what a "decent return" is will depend on what the alternatives are in the current economy. The general level of paranoia is not a legitimate factor. I think the way you get banks to lend is by showing them that they're being outcompeted by other people or entities who are lending, even if that has to be the Federal government for a time to prime the pump.

The Economy, And Why It's Taking So Long to Fix It

It's not 20 years in the making, it's 30. The credit culture at the root of this addiction to leverage began with the US Supreme Court case Marquette National Bank of Minneapolis v. First of Omaha Service Corp. (1978). That case gutted state anti-usury laws by saying that nationally chartered banks can apply the interest rate laws of the state where they operate from, not the state the borrower is in. That, of course, set up the classic "race to the bottom" among states that we're now seeing in gambling; states without anti-usury laws attracted the big credit card companies and became addicted to the taxes on the huge amounts of money that began rolling in, providing the incentive for other states to repeal their anti-usury laws.

Congress, of course, should have then stepped in and amended the federal law to reverse Marquette National Bank, but they didn't.

On Feb 27 06:06 PM User 365859 wrote:

> The mess we got into is 20yrs in the making. It started with the
> most favorite nation status to China(by Bill Clinton). Since then
> we have shipped 7 million manufacturing jobs to China. and the 20
> million support jobs that go with them This was done with the help
> of wall street and complicity of our managerial and political class.
> In order to maintain the standard of living in the face of these
> losses of good paying jobs american middle class borrowed too much
> and again wall-street was complicit in selling mortgages credit cards
> and every other form of debt that they knew people would not be able
> to laon back.
>
> Let the larger banks fail and create an RTC which will then sell
> those assets that are worth something to the next tier of banks.Wipe
> out the common share holders and start over. There would be much
> less pain in the medium term and we could make the medium banks the
> abilityh to make good profits and grow.
>
> The individual howeowner like me who has 70 percent equity is just
> going to suck it up. There are a few million too many homes in this
> country and we have to work through the inventory which could take
> a long time.
>
> I am my brothers keeper so we the better off have to help those less
> fortunate.
>

The Gloom Talk from the Top Needs to Stop

I agree. The general level of optimism or pessimism frequently becomes a self-fulfilling prophecy, since a lower share price and worse recent public reputation, including on boards like this one, lower a company's credit rating, which increases its cost of borrowing and thus makes a higher share price in the future less likely. This is only one of the ties between the stock market and real-life business.

This is true even without the bubble effect caused by those seen to be making money: short sellers making money produce more short sellers. It's a reverse bubble. Selling pessimism for profit that only helps your shorts take money from other investors in ordinary times is one thing; spreading unhelpful degrees of gloom for profit nowadays when it actually helps to cause higher unemployment is truly evil. They should ban short selling altogether until this recession is over, because it incentivizes people to help prolong it by spreading gloom. Or at the very minimum, they should bar trading firms from including in their investor contracts a requirement that they be able to lend out a shareholder's stocks for short selling, so that an individual shareholder can decide whether his or her shares get loaned out.