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Attacked by a Leftist, need help with Economics

Hi, in the main forum i posted that a long-time leftist was attacking my Ron Paul post on Facebook.. I am trying to get others who are reading the attack to become interested in Ron Paul, not necessarily to convince this attacker that he is wrong. I could use some help with his latest attack. I am currently listening to Murray Rothbard's intro to Economics, pt 1 - 7, but am still a newbie. Per the comments by one user, he suggested explaining how RP would change the system. Any thoughts on how to best explain this?

The post to the other link is here, and I agree I drank too much of the koolaid, so will work this week on rewriting to tone it down, and redirect my efforts.
http://www.dailypaul.com/184650/please-help-attacked-by-left...

Here is his latest attack (the video he's referring to is http://www.youtube.com/watch?v=TNDvLRUevSo

I'll watch the video but if he's a supply sider he is not smart. If you want to see smart, check out work by Nobel Prize winners Stiglitz and Krugman or even Robert Schiller."

"Sure, he was right on the war and you know who else was? Most of the Democrats and of course Bernie Saunders. In this video RP supports Clinton's impeachment which was pure vendetta and not substantive. On economics, he talks about the Fed and makes no mention of his party not putting the war costs on the federal budget. He makes no mention of the Bush tax cuts. He predicts a return to the gold standard which is never ever ever going to happen, thank god. He claims the welfare state will expand satisfying the liberals. Of course there has been a contraction and not an expansion of social programs and regardless, liberals don;t support increasing welfare. He's a dick. Class warfare has come not because of the war but as a result of the EXACT policies he advocates. Less regulation. Less regulation of derivatives, of Repos, of investment and commercial banking, of insurance companies. RP quite literally recommends the policies that screwed us big time and he's learned nothing. God, so much nonsense in this clip. Fannie and Freddie only became a problem once they were deregulated and allowed to act as investment banks. Who wants deregulation? Ron Paul does. Fannie and Freddie didn;t create the problem. Let me know if you want to get serious about understanding these issues. But I'm not going to watch another heavy metal soundtrack propaganda clip. Fortunately, kooky RP will be a side note soon and then we get to hear his even nuttier son spew this idiocy."



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Pure Gold

You guys are amazing! enemyofthestate1776, thank you. i printed your post it was so good. we're going to give him a lot of food for thought, and then when he's ready, direct him to this board. and hopefully pick up a few others along the way.

You are

perfectly welcome! Glad all this reading I do is worth it!

Oh, and don't forget to try to boil the points down to make it easier to explain. That's the main problem I have with Socialists (like my Dad), they only want quick, magic-pill solutions that take ten seconds to blurt out, like "We have to help the needy" or "Capitalism has proven itself to be a broken, immoral system". While I like to take the time to make my points, it's always important to remember that we all have two ears, one mouth. If you take the time to listen to others, when the time comes to open your mouth, they are much more likely to listen to you. Socialists drive me crazy because they leap all over everything you say, with emotional statements and prevent you from explaining what you really mean. But we all have to fight the good fight and avoid acting like them. We may be right, but we don't want to seem like fanatics. I applaud Ron Paul here, as many mainstream'ers show him respect simply because he refuses to act like they expect him to.

"Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!" - Patrick Henry

Well, other than after the

Well, other than after the recession, when have welfare programs gone up with Democratic backing? The welfare state was smaller in 2007 than it was in 1984 or 92

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

First

Ron did not vote for the repeal of Glass-Steagal (the deregulation that your friend talks about), he voted against for the exact reason your friend states. Banks should not be allowed to take part in "broad banking" (which is when banks and investment firms join together into one)in a system with a lender of last resort and moral hazard through gov bailouts. In a free market it would be fine because there is no lender of last resort or gov bailouts. He states this many times... You should teach your friend the important idea of "moral hazzard" ..
Second, Ron was very much against the War in Iraq, so he went against his party there and was very much against putting in "on the credit card".
Overall, i think your friend does not really understand Paul's positions and would probably agree with him on a lot, if he understood..
I wrote my thesis on the Austrian business cycle, would happy to send it to you if you'd like, and my teacher was a socialist. However, he was a socialist in reaction against the flawed, corrupt system we have today, without understanding that free markets are not what we have at all. I opened his mind up big time and he became very interested in what I was talking about. Though, like most, these type of liberals think that the GOld Standard is unreachable, I am sure after learning more we could all agree that there need to be limitations on central banks ability to print money, whether it be a strict standard or not.

It's good to argue about

It's good to argue about things like this. It gets the message out there and educates people that are ignorant to our way of thinking. Just know what you're talking about so you can keep people thinking and hopefully change minds and ways of thought. To simply dismiss the idea of debate by calling somebody an idiot isn't going to change anything but making them disinterested in the idea that much more. I've opened people up that were complete statists, to the ideas of liberty. Keep at it. Educate yourself on the matter and then educate the masses.

I totally agree

It's very educational if it remains civil and both sides are committed to increasing knowledge and understanding. Keynes and Hayek were good friends and held a good deal of respect for each other. Fundamental opposites who, through their civilized disagreement, has educated countless numbers of people. And continue to do so to this day.

educating the bystanders

"I am trying to get others who are reading the attack to become interested in Ron Paul, not necessarily to convince this attacker that he is wrong."

If this is the goal;

- clearly define the debate
* He's arguing Keynesian (from top to bottom) scholars. You are arguing Austrian (from bottom to top) scholars.
*He advocates boom-and-bust economics. You advocate free market economics.

-present your audience with creative lesson and leave the decision up to them to make individually.

"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem
http://youtu.be/d0nERTFo-Sk

Fight of the Century: Keynes vs. Hayek Round Two
http://youtu.be/GTQnarzmTOc

Leave it at that. Don't argue with him any further.

PS
Part two is my personal favorite.

arguing with haters

Don't invest time trying to reason with a hater. You're not the jackass whisperer.

Why argue with a weeney

"Never argue with an idiot; they'll drag you down to their level and beat you with experience." ~ anonymous

You would not in a million years convince this guy of anything.

Naton

Have him

watch this recent Ron Paul video:

http://www.youtube.com/watch?v=S7WVfsDjkY0&feature=youtu.be

I think Dr. Paul here does a great job explaining why his economic views are superior. It's only 7 min of his time.

ok

tell them to study leftist historian Gabriel Kolko's research on regulations... regulations were brought about because mega corporations begged for them because the free market could not guarantee their staying power at the top of their industry.
therefore, the only way to protect themselves from upstart competition is to beg the govt to protect their hegemony with force of law.
Its a tangled web the corporations and the govt have woven together, and it had deceived millions including your friend, sounds like he/she will not change their mind... but it never hurts to tell the truth. your friend has to start with the idea, "maybe i don't know everything," and that takes a thoughtful person with little ego interested in the TRUTH at all costs.
also, the definition of regulate is to make regular, not to restrict... thats the governments definition, not reality.

He's an idiot and not worth that much typing...

Americans love to talk regardless of whether or not they understand what they're talking about. He needs to educate himself. I'd block him.

NOTE: I am not advocating violence in any way. The content of the post is for intellectual, theoretical, and philosophical discussion. FEDS, please don't come to my house.

Word up!

You have absolutely no chance with this guy. He is also completely unworthy of your "respect"...whether he led you to politics or not. He is a partisan sound-biter who can only parrot what he hears and will be unable to process anything anathema to his team. I mean to point to Krugman as the Nobel Prize winning economist and Ron Paul as a dick?

Dude regulation is hard at work in Washington County PA where fracking is turning Pittsburgh and its surrounding area into a perpetual brown field. Try suing one of the drillers for polluting your water and see what steps in front of you and instead disallows any suit (in such saying "We will handle this") and then tells you where the drop points to pick up some clean water each day/week at the drillers expense...as more rock is cracked!

Block him from showing on your wall and move on with those more open to debate and exercise.

Wha? .....hey....who stole my country?

Fayette County's Ron Paul

If Ron Paul were a local gov't official he would be the lady sitting center-right in this video - my friend and County Commissioner Angela Zimmerlink. She's battling cronyism and the gas companies for years (seeking her 3rd term). She is responsible for forming the Marcellus shale task-force in hopes of exposing the double-dealing. Her and Ron Paul are the only politicians I've had the fortune to vote for and support who I truly believe are honest, un-corruptable, and trustworthy. Transparency, rule of law, free markets

http://youtu.be/FD_rc4WKkvI

PS
The gentleman sitting front-left is somewhat of an ally. A non-establishment Democrat - not a progressive - more of a classical liberal. A product of our local libertarian effort to advance the liberty message on all political fronts.

The other 2 candidates are the special-interest's candidates. Gas companies, public contractors, and unions.

the guy in the center, moderating, is the editor of Herald-Standard. He has no love for libertarians.

Thanks

Anyone who wants to talk environmental regulation gets a full broadside from me using this as my shot. Then, I gybe around and give'em another broadside, board their flimsy arguments and make them explain regulation to me at the tip of my cutlass.

I have yet to see one of my opponents hold his weapon aginst me. I hate these freakin' protectionist bureaucrats and their adoring minions as well.

Hoist the flag and weigh anchor, we've gots us some booty to kick...

Wha? .....hey....who stole my country?

There is just so much

wrong with that guys post. In fact, nothing he said was accurate.

I'd find the 5 major things he disagrees with Ron Paul about and start there. You're essentially talking with a very conditioned mind. A mind that wants the security of government, it's programs, and it's information. No question that you'll need to be patient, loving, and most importantly someone who will always address the philosophical concern verses any direct individual attack.

I would initiate with the argument of force or in this case not participating in the use of it. I'd discuss that you do not believe in the wars and do not believe that anyone has the right to impose violence on anyone else.

Ask about the proper role of government.

I would then continue.

Set the precedent that the government at it's core, is a violent entity and that it is upon violence which all government action rests.

Compare violence to freedom. Force to liberty.

I'd give this example: If government is asking me to pay a tax and I dont, what happens? I get a fine. What if I dont pay the fine? I get levied. What if I refuse to pay the levy, the fine, and the tax through use of the courts system? I am placed in jail. What if I refuse to go to jail? I am taken by force. And if I refuse hard enough? I am killed.

Taxes therefore are an enslavement through threat of force, coercion, or direct force.

Since the state is the only entity with the ability to initiate violence upon others without reprisal we have to consider the root nature of government.

The only way that people in want can receive "something", an entitlement of any kind, money, benefits, or whatever - the government (who owns nothing) must first take that property by force from someone unwilling to give it, someone reluctant to give it, or someone who unknowingly gives it. Even those who willingly pay taxes do not agree with where all the money goes. Either way, its a violation by the government of our property rights. It assumes that they own our labor and allow us to keep a portion of it - even if that tax rate was as little as one percent.

Ask about the Constitution. What is it for? Who is it for?
The founders were very explicit about this. The Constitution was not designed to restrict the people of the United States. It was designed to restrain the reach and power of government.

You'd need to write a book for this guy - it's going to be a ton of work.

"It does not take a majority to prevail but rather an irate, tireless minority keen on setting brushfires of freedom in the minds of men."

--Samuel Adams

Ron Paul would change the system

by:
* seeking to end the Fed's ability to monopolize the money supply, which would end crony bailouts and inflation, malinvestment
* reduce federal spending, starting with the wars, which would enable him to seek reduction in taxes. This would re-invigorate the economy.
* Remove federal monopoly control of many national laws and regulations, allowing the states to legislate appropriately and according to their particular citizens wishes and needs.

(This would return control of government to a more local level, meaning that, in the extreme, if you don't like the law in your state, you can move to another that is more preferable to you. Right now, if you don't like federal law, you have to leave the entire country...)

* Get the federal government out of your personal life, whether that means tapping your phone calls or defining what marriage means, groping you at the airports, or raiding Californians for medical marijuana use.

* Well, begin to right the listing economic ship!

Also, read "The Bastiat Collection", by Bastiat, and "Economics in one lesson" by Henry Hazlitt, both from Mises Institute. Fantastic arguments for your purposes.

"Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!" - Patrick Henry

ok i'll give this my best (WARNING: LONG WINDED BUT THOROUGH)

"Sure, he was right on the war and you know who else was? Most of the Democrats and of course Bernie Saunders." - Yes they were, but where are they now that their party controls the White House? Oh yeah, toasting the 'success' in Libya. But war is moral when carried out by the left, huh?

re: Clinton's impeachment - Paul supported impeachment, but mainly wanted to impeach Clinton on the grounds that he overstepped his Constitutional bounds as President by bombing countries without a declaration of war. (Much like he later expressed the very same sentiment towards Bush, and now Obama.)

re: fed, war costs - Paul constantly makes the point that the cost of war is bankrupting the USA. Any recent foreign policy speech he has made proves this. Also, the Federal Reserve is like the 'Credit-card' for the Federal Government and allows the government to fund these wars by incurring further debt. Without the Federal Reserve, the government would have to directly tax the citizens, meaning that people would feel the pain earlier, before a giant debt is built up, and perhaps make different voting choices, stopping the wars.

Gold would ensure that the money supply cannot be endlessly increased, meaning that it would put a responsible limit upon government's ability to spend (and tax). Also, to combat one of the most common arguments against gold, "but there isn't enough gold in the world to represent all the dollars"... say this : There would be an exchange value of gold to goods, called prices of goods. This in fact already exists, but it is fiat dollars (Fed money) exchanging to goods, rather than gold to goods. With all the extra money they borrow and create, the prices have to adjust to the new money supply level, which of course, in the present situation, means increased prices. Thats where your inflation comes from. (Please note that this applies to the GENERAL price level, not just some goods increasing in price compared to others) If gold was used, we can only increase its quantity by the rate at which it is mined, and this automatically places a limit on how much new money can be created, and thus limits the amount of inflation (price increases) that can occur, and thus creates a more stable price situation for the people in general.

Another major point against Fed money is that by definition, this money is always distributed first to senior corporates and friends of the government, meaning that they receive (and spend) the new money BEFORE price inflation occurs. Therefore, they are able to purchase goods like investments, houses, gold!, and anything they wish in large quantities at the low price, then the prices rise, and then the general population receives the new money. But now that prices have gone up, the money is worth less and so the people foot the bill for the crony's benefit. Free market? Capitalism? Yeah, right! Cronyism!

Liberal's don't support increasing welfare? Wow, I never knew that! Perhaps the misunderstanding here is that this person defines welfare simply as "Income support payments" or "direct aid". Welfare to subsidize rents, food, medical care, schooling is still welfare. Further, when these things are subsidized, it artificially raises the level of demand for these things, which, of course, causes price increases. The government often reacts to this by enacting price controls (think urban housing for the poor). The problem is that by causing an artificial increase in price, and then artificially lowering the price in some portion of the market for that good (like housing for the urban poor), that good now does not appear to be a profitable investment for the person who owns it, or is considering purchasing it. So maintenance is not done, people don't invest in the first place, or they sell it to get out of the government-created situation. Because of this, SUPPLY falls, making the good even more scarce, putting even more upward pressure on price, and causing the urban poor to live in dilapidated housing, or not finding housing at all. Vicious circle, indeed.

(To make the point clearer, in the free market, high price would signal to investors that there are profits to be made, triggering investment, purchase and construction, which would increase supply, which then lowers price. So in the end, we would end up with a level of housing supply that meets demand as best it can, at a lower price than today. In the long run, on the free market, real profits disappear as more entrepreneurs and capitalists move into a market (causing prices to fall as production increases). So its not a case of perpetual 'looting' of the population by the rich. These rich guys then move onto another area where there is profit (ie supply is too scarce), driving the same patterns into place for other goods.)

I take issue with the guy's attempted point that Paul's solutions create these problems. Perhaps you could direct him to the examples of Weimar Germany, or Zimbabwe, or Argentina, all strong examples of the results of government imposing itself on the banking system (and beyond).

re: Fannie and Freddie - These are government owned mortgage companies, not rich capitalists trying to make a buck. So this guy is saying that the government removed its own regulations from itself, and that crashed the mortgage market? No, these loans should never have been made to the people that got these mortgages. Why do we believe that it is better that poor people own their own home? Especially when you consider that they never had a snowball's chance in h*** of ever paying them back. The banks were able to do this, not because of a lack of regulation, but an enormous, enormous, ENORMOUS amount of money lent to them at RIDICULOUSLY low rates of interest by.... (wait for it)..... the Federal Reserve System. Also created by government. Hmmmmmmm.

So here's a simple sum-up of the Austrian view, as I so far understand it : Resources, whether land, labor, or capital goods are scarce; they are not unlimited. Efficient use of these resources is very important, and this importance only grows as an economy becomes more modern and complex. In order to ensure that these resources are allocated to their most urgent uses, we must have a mechanism by which they are allocated. This is the pricing system. Prices are set by the interaction of supply vs demand. The more of a good there is, relative to the level of demand, the lower the price will be. This is because the supply of the good more easily satisfies the most urgent uses, and likely there is an excess that can then be sold on to other, less urgent uses. If supply is low, relative to demand level, the price will be relatively higher. Those willing to pay a higher price will receive the good. This probably indicates that these buyers will employ the good in a more productive process, that may make them a profit (also indicating that what they produce is desired by the buyers). Goods will tend to flow towards the uses that most benefit society at large. It is easy to see this, simply by the fact that the price is high for the produced goods. People are willing to pay this higher price, instead of a lower price for an alternative use of the good. As entrepreneurs see the high prices for demanded goods, they invest their saved capital into these markets, increasing production, erasing profits over time and lowering prices. This is a (very basic) picture of the free market. Now think about the effect of government coming and handing money to those who wish to use the good for less urgent uses, IE (sadly) the poor. Frankly, everyone would like to own a house, a nice big car etc. So when this occurs, extra money flows into the market for a particular good, increasing demand and thus increasing price. This has several effects. First, it increases the price of the good on everyone who might have demanded that good. This includes the people that could only (marginally) just afford to pay for that good, prior to government intervention. So poor people achieve home purchases, while people who were only marginally able to afford to purchase, now cannot purchase. The action creates a new "marginal" group of citizens. A new poor that may not be able to receive government aid, because their incomes exceed some limit the government may have placed upon receiving that aid. To top that off, if they are working, they pay for the original poor people's houses through taxes, if the government chooses to tax and spend. But if the government chooses to use Fed dollars instead, we ALL pay through increased price levels in general, and the 'new working poor' now cannot afford to purchase their homes, even if they are not working. This highlights the true theft going on through this process. Secondly, to re-highlight my earlier example, when prices rise due to government inflation of demand, this drives up rents on the ORIGINAL PEOPLE YOU WERE TRYING TO HELP IN THE FIRST PLACE. This is what Mises and others warned of, when they talked about how, when government intervenes, it sparks a chain reaction of further interventions, undertaken in order to correct the unintended effects of past interventions. So the next logical step for government is housing price controls. (Rent ceilings) Another possibility is subsidies paid directly to the landowner, to enable the poor to be able to pay a lower rent. Either option keeps demand artificially high, although they differ in their effects. In the first case (Rent ceilings), some landowners fail to earn a profit, or, more likely, cannot meet their costs at all. (Because when housing prices increase, this signals entrepreneurs to invest in housing, construction of new houses is undertaken elsewhere, increasing demand (and prices) for goods involved in housing construction, which also happen to be needed for housing maintenance, and so the original landowners, now with a 'cap' on their possible income, cannot afford to maintain their asset. This is exacerbated by the fact that government also regulates housing itself, eg mandating disabled access, building standards etc, which further drives up costs to the owners. So they may either sell up (if the building is still worth anything) or go bankrupt, and the building may be converted to some other use (because its no longer economically viable as housing) or be demolished if it is in poor enough condition. Prices then rise further in the market for 'housing for the urban poor', as supply has now fallen. So in the end, government intervention tends to hurt the very people it was trying to aid, and also sucks more of the economic life out of everyone else in the process. At the end of all this, we have consumed further capital, have a reduced supply of the good in question, higher prices for said good, and demand will be as high as before, if not higher. General economic performance falls.

Again, remember in the free market, we would see, (generally) higher supply of goods, in amounts close to what people demand, at low prices, and we don't even have to pay taxes to achieve it. Also, Rothbard's (and many others) work shows how, in the long run, REAL wages (not money wages) would increase over time, meaning that wage prices fall while goods prices fall even faster, due to the ever-increasing efficiency of capital that the free market creates. So a free market would create precisely the REVERSE of what is happening in the world today.

Another very important point to note when discussing this with leftists, socialists or 'liberals' is that in the free market, NOBODY gets bailed out. The rich may only keep their wealth by creating more goods that people actually want to purchase. If they become tyrannical in any way, creating goods we don't want, or raising prices to levels we will not pay, they will use up all their wealth, because they are no longer earning anything, and the mantle of producer will be passed to someone compliant with our wishes (our purchasing decisions), someone who WILL produce what we wish to buy. This places a natural limit on power in a free market. In the current system, whether its GM or the big banks, whether its Solyndra or any other rich company with its hand out, we pay the cost of their bailout. This is flat out wrong. But we also need to adjust our view of welfare and related programs, because otherwise we are simply being inconsistent. Bailing out the rich is certainly more infuriating than bailing out the poor, but both are still theft from productive people (people who are helping to build capital, which will increase production and lower prices, which then helps the poor). Further, I have shown above that bailouts of the poor don't actually help them anyway. This crony system ALWAYS benefits the 'connected rich' at the expense of everyone else. And those 'on the margin' (just paying their bills), ie the poor and the people only just staying in business, are always the group that suffers MOST from these interventions.

Tell the lefties that they should have some pride and faith in themselves as people by realising that it has never been government that has built great societies, but rather the people from the ground up. The State just adds the pomp and pokes holes in the hull.

(I've always thought that the trouble with the truth is that it doesn't sound-bite too well!)

I would suggest Rothbard's "Man, Economy & State, with Power & Market" if you want to logically step through Austrian Economics from the ground up. My eyes have been opened by this (and many other books).
Download : http://mises.org/resources/1082/Man-Economy-and-State-with-P...
Buy : http://mises.org/store/Man-Economy-and-State-with-Power-and-...

"Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!" - Patrick Henry

Great post. However, think

Great post.

However, think about your statement on malinvestment by the banks. Yes, the federal reserve might have created an environment where money was easy to come by...yes, the government allowed fractional reserve banking and relaxed lending standards...

But ultimately, the banks made the investments. Just becaus the money was there doesn't mean they had to invest it. That is like a person in debt complaining that because he kept on getting credit card offers, it is the fault of the cc company that he is in debt...

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

I agree,

the banks should be allowed to fail due to their bad decisions. Hence, no bailouts.

But I would argue that it is precisely because of the presumed availability of these bailouts, and low interest rates, that many in the banking sector made these decisions in the first place. If you have no skin in the game, why worry about the investing consequences? They weren't involved in lending their own money, but instead money pumped out by the fed.

The Fed's distortion of interest rates also causes another major, and insidious, effect to take place. Prevailing interest rates (in the loan market) signal to entrepreneurs, bankers and others looking to borrow or lend, the amount of savings that are available for lending purposes. By artificially keeping interest rates low, these investments look much more profitable than they would have under a free-market interest rate. So even the banks themselves (although I would assert that it depends how far up the chain you go..) have distorted information as to whether the loans are a safe bet. The investments/loans they are considering investing in or loaning out SEEM to be a good bet. This is easily seen by thinking about whether you would make the same decision to borrow money, perhaps to buy a new car, if the interest rate was 20%, or 3%? While interest rates stay low enough, if you cant pay the loan back, your in the hole for less than you would be if the rate was higher. But if the situation changes......

Of course, after this system had become entrenched in the banking sector, many of the banks did in fact realize the errors that had been made, and this was the point where these derivative schemes were put into play, basically to obscure the view of the real problem, and make these investments appear profitable, rather than taking the losses they should have and possibly going bankrupt themselves, they sold them on to other people. THIS I think was the supremely immoral and perhaps technically illegal action that the banks took. At the very least, the purchasers of these derivatives products weren't fully aware of what they were buying, which would suggest a breach on contract law on the grounds that they misrepresented their product. A simple disclaimer would dispense with that, however. And based upon the sales of these derivatives, their reserves increased, so they could lend more, package more and perpetuate the cycle once again, all the time pulling more of their skin out of the game. (Goldman Sachs, anyone?)

So while I personally believe that there are several major banks that are profiting greatly from this mess, and are working closely with 'friends' of theirs inside government to pressure for preferred outcomes in their interests (lobbyists), I do believe that there are also many banks that simply fell for the same guff that the people did. They were led to believe that should these loans be defaulted upon, the government would come to their rescue. It's harder to say no when someone offers you a golden handshake (although I'm guessing most of us here are a teensy-weensy bit smarter!). Privatize the profits, socialize the losses.

There have also been reports that there was a lot of pressure applied to banks from the top-down to make these loans, although I can't remember where I got this from. A search on Mises.org would probably turn up some details.

"Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!" - Patrick Henry

"But I would argue that it is

"But I would argue that it is precisely because of the presumed availability of these bailouts, and low interest rates, that many in the banking sector made these decisions in the first place."

It is a tough call to make. There was no legal backing of the bailouts...they might have presumed it, but the US government had no legal obligation, even with Fannie and Freedie, contrary to popular thought.

"If you have no skin in the game, why worry about the investing consequences? They weren't involved in lending their own money, but instead money pumped out by the fed."

Ah, your theory is correct, but your conclusions wrong. Banks had no money in the game because they weren't betting with their money. They were betting with the money of depositers, and gambling with the value of shareholders. People who run the bank do not own the bank...from the CEOs who got bonuses for the # of mortgages on the books to the salespeople who got bonuses for signing people up for mortgages. Their own capital was not at risk because they were a publically owned company.

"The Fed's distortion of interest rates also causes another major, and insidious, effect to take place. Prevailing interest rates (in the loan market) signal to entrepreneurs, bankers and others looking to borrow or lend, the amount of savings that are available for lending purposes. By artificially keeping interest rates low, these investments look much more profitable than they would have under a free-market interest rate."

The problem I have with this line of logic, is that every investor knows that the Fed distorts interest rates. Therefore, if he is rational, he factors in that the low interest rate is making their investment look better than it is.

And the interesting this is, the Federal reserve since hte 90s has increased the money supply using its many tools. But they have mostly done so because the private sector has demanded it. The banks and hedge funds went to the Fed and said, "hey, we think there are a lot of untapped investments, but we need the capital to make those investments. Increase our access to capital". That was the clear message from the private sector. Same on the Fed for obliging them, but shame on the private sector for making those demands.

In a free-market, we would have a had a big benefit in that there would be no fractional reserve banking. That would have prevented the banks from accessing all this capital. Without T-bills, or the ability to borrow from the Federal reserves, they would have had less access to capital. However, I don't think the free market would have tempered the ridiculous expectations the markets have had over hte past ten years. Everyone was drinking the kool-aid...malinvestment would still prevail.

Again, contrary to now, the malivestment would be with "real" money, and not leveraged money. But malinvestment would have still created a bubble.

"The investments/loans they are considering investing in or loaning out SEEM to be a good bet. This is easily seen by thinking about whether you would make the same decision to borrow money, perhaps to buy a new car, if the interest rate was 20%, or 3%?"

Yes, but any competent investor should realize that their is manipulation of the interest rate.

"There have also been reports that there was a lot of pressure applied to banks from the top-down to make these loans, although I can't remember where I got this from"

I 100% disagree with this. Why would there be pressure to make these loans from the government? The government doesn't benefit from helping poor people, because corporations do not benefit from helping poor people.

There was pressure being applied to banks from their CEOs who wanted big bonuses. Even shareholders put pressure; those who salivated at short-term gains and forgot about the long-term solvency of their investments.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

It is a tough call

"It is a tough call to make. There was no legal backing of the bailouts...they might have presumed it, but the US government had no legal obligation, even with Fannie and Freedie, contrary to popular thought."

No, but we are all familiar with the 'revolving door' of Washington and the way that Wall Street insiders (particularly from banks like Goldman Sachs) work very closely with, or indeed are, part of the administration. Perhaps they knew something the rest of Wall Street/Main Street (and the banks that actually did go bankrupt) didn't?

"Ah, your theory is correct, but your conclusions wrong. Banks had no money in the game because they weren't betting with their money. They were betting with the money of depositers, and gambling with the value of shareholders. People who run the bank do not own the bank...from the CEOs who got bonuses for the # of mortgages on the books to the salespeople who got bonuses for signing people up for mortgages. Their own capital was not at risk because they were a publically owned company."

I think you are right when you say they were gambling with depositer's and shareholder's money. But the Fed does indeed make very low-interest loans to the major banks, and they do indeed use those funds to make loans available at rates they otherwise could not. I agree with everything else you point out here re: CEO's and salespeople. I don't think my conclusion was wrong, but I concede I didn't cover the angles you did in your reply.

"The problem I have with this line of logic, is that every investor knows that the Fed distorts interest rates. Therefore, if he is rational, he factors in that the low interest rate is making their investment look better than it is."

I don't think I would presume that every investor is aware of this issue. I agree that the better investors indeed would be aware of this issue, but 'investors' is a group that could encompass people as diverse as mom and dad figuring out which local business they want to invest their bank loan in, to people at the top of the corporate food chain. My argument here is the fact that mom and dad, at least in the build-up to this crisis, were likely not aware of this issue. These types of investors are the huge majority of people in the economy, doing the investing (not in dollar amounts, but in how far the damage may spread when things are distorted). However, professional investors may well be aware of it. It's not just Goldman Sachs and AIG that make up the economy. Which is precisely the problem. Goldman Sachs and AIG get a surge in their liquidity from the Fed, but the rest of the group called 'investors' borrow money from them. Yes, they receive funds, but they receive them at low interest rates at the same time that they do not have the awareness and knowledge required to account for the artificial interest rate. Plus, they pay it back at a greater rate of interest. If these banks had saved and lent their own capital, then I could agree with this. But they did it (in concert with the fed) by diluting the value of every dollar in existence, and passed the cost on to everyone else as a hidden tax. Moreover, the current situation has not encouraged people to seek out this knowledge, as the media and government has tried to cotton-wool all of these issues with assurances of "Everything is fine, the fundamentals of the economy are sound", and to the average person trying to start a small business, this sounds likely (Not anymore, though). It's not just bad information being present, it's the lack of good information, or more correctly, confusion generated by vested interests in the status quo. In a free market, I advocate personal responsibility, and I don't support absolving people of their ignorance. But this is not a free market. The people who were ignorant enough to make the decisions that they did, made them under a false sense of security that is created and encouraged by the government, media, Wall Street itself and the endless printing by the Fed.

"And the interesting this is, the Federal reserve since hte 90s has increased the money supply using its many tools. But they have mostly done so because the private sector has demanded it. The banks and hedge funds went to the Fed and said, "hey, we think there are a lot of untapped investments, but we need the capital to make those investments. Increase our access to capital". That was the clear message from the private sector. Same on the Fed for obliging them, but shame on the private sector for making those demands."

Your point makes perfect sense. The overall message is that government/fed shouldn't have the power to pick winners by increasing the 'capital' of some, at the expense of others. Where I think you err here, is that you say "the private sector has demanded it". First, some in the private sector did demand it. Others did not. Perhaps I could theoretically even accept that ALL of the private sector did demand it, by way of indirect demand, in a distorted market. But that's not the point. The connected few received it. Those who are likely to directly receive Fed funds are also more likely, as professionals, to have the resources/time/incentives to make sure they do account for the artificial interest rate. The victims, however, were mostly blissfully unaware. So pointing to 'the private sector' is too broad a term for me. Poor people are also part of the private sector.

My overall position on this issue is not to blame only the Fed. Do I blame the drug dealer for giving me drugs, now that I am addicted? No, the drug dealer may be at fault, but I chose to take the drug, so I am to blame also. I am more to blame than the drug dealer, but he/she still plays a role. The fact is, without the (central) drug dealer, it would be harder to get the drugs. Where my analogy breaks from the reality of money-printing, is that in a free market, there would certainly be drugs, but there wouldn't be a central organisation printing money, money that is forced upon us by government monopoly (legal tender) law. We might have counterfeiters, but the problem would not be systemic.

"In a free-market, we would have a had a big benefit in that there would be no fractional reserve banking"

This is hotly debated among Austrians themselves, some arguing that in a free market, there would be nothing to stop it happening. Some conclude that point by saying that people wouldn't trust the bank if they took this path, so banks who used the fractional reserve system would lose their customers and disappear. I stand with this line of argument. Others say that it would actually be defrauding your customers by not actually having the money to pay them back with, and I am also sympathetic to this line of thought. But it's not a forgone conclusion that it wouldn't exist.

"malinvestment would still prevail" - A statement like this seems to suggest that economic conditions would have been similar in a free market, and therefore many of these mistakes would still have been made. But what we have been discussing is an economic environment that does not exist in isolation from the low interest rates and fractional reserve banking. These are not recent phenomenon. Yesterday leads to today, which leads to tomorrow. The economy is a living pool of activity, and every component of it (every human being) makes decisions every day based upon the information they have, which is provided by the current state of the economy. These decisions lead to the next 'status quo', which then is a new environment, which leads to new decisions based on that environment (and the expectations of the future environment), and then on to a further new environment and so on. For this reason, I think it is impossible to predict whether the malinvestments would indeed have been made.

"Yes, but any competent investor should realize that their is manipulation of the interest rate." - This is correct, and the point I made about your previous statement about 'every investor'. Lucky in this environment to be 'competent'. And most people aren't.

"I 100% disagree with this. Why would there be pressure to make these loans from the government? The government doesn't benefit from helping poor people, because corporations do not benefit from helping poor people.

There was pressure being applied to banks from their CEOs who wanted big bonuses. Even shareholders put pressure; those who salivated at short-term gains and forgot about the long-term solvency of their investments."

I never mentioned government. I said top-down. But now that we are in that arena:
The following piece was taken from Thomas Dilorenzo's article on Mises.org http://mises.org/daily/2963
It is mainly in reference to the The Community Reinvestment Act 1977.

"When the CRA was created during the Carter administration, the administration also funded with tax dollars numerous "community groups" that have helped the Fed, the Comptroller of the Currency, and other federal regulatory agencies to enforce the act. Under the CRA, if a bank wants to make virtually any change in its business operations — merging, opening up a new branch, getting into a new line of business — it must first prove to regulators that it has made "enough" loans to the government's preferred borrowers. The (partially) tax-funded "community groups" like ACORN (Association of Community Organizations for Reform Now) can file petitions with regulators that stop the bank's activities in their tracks, perhaps defeating them altogether. The banks routinely buy off ACORN and other "community groups" by giving them millions of dollars as well as promising to make even more dubious loans."

Do you still 100% disagree?

Also, from the same article:

"In order to try to diversify the risk of these loans, the Federal Home Loan Mortgage Company ("Freddie Mac") pioneered the "securitization" of bundles of these high-risk loans so that they could be sold on secondary markets. Such "securitization" exploded during the 1990s as a result of government regulation. As Fed Chairman Ben Bernanke himself stated in a March 30, 2007 speech entitled "The Community Reinvestment Act: Its Evolution and New Challenges" (published online by the Fed),

Securitization of affordable housing loans expanded, as did the secondary market for these loans, in part reflecting a 1992 law that required the government-sponsored enterprises, Fannie Mae and Freddie Mac, to devote a large percentage of their activities to meeting affordable housing goals. (p. 3)"

What this describes is the first securitization (ie derivatives) market. Being pioneered by Freddie Mac. A government entity.It also highlights that making these loans to poor people was a matter of government policy. The big banks simply milked it for all it was worth. And yes, I do blame them for that decision.

Also from the same article,
"The government also "streamlined" the regulatory requirements for CRA loans in 1995, allowing — and indeed pressuring — banks to make such loans without the benefit of many traditional credit-worthiness criteria, such as the size of the mortgage payment relative to income, savings history, and even income verification! Instead, the Fed told banks that participation in a credit-counseling program, many of which are federally funded, could be used as "proof" of a low-income applicant's ability to make his mortgage payments. In other words, federal bank regulators required banks to make bad loans based on nonexistent credit standards."

Have I made my case?

"Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!" - Patrick Henry

Ron Paul on Clinton impeachment and predicts 911

http://www.youtube.com/watch?v=6ldfDCSG6DQ

"It does not take a majority to prevail but rather an irate, tireless minority keen on setting brushfires of freedom in the minds of men."

--Samuel Adams

Precisely.

Thank you.

"Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!" - Patrick Henry

A sample of Krugman's "smarts" from 2002

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip...

And yes, it was after this in 2008 that he was awarded the Nobel Prize in Economics.

Freedom did not get us into this mess

Corporatism did -This guy spouts the same lies as the Dems and Repubs and seeks to divide us when there is no major difference between the two.

Krugman thinks he knows better but he doesn't. Freedom works because the fear of failure is a great incentive to succeed and success is a great incentive to try. People must be allowed to fail so that they can learn and best products and practices can emerge and be emulated..

Why hasn't the justice dept of Bush or Clinton or Obama gone after this corporatism -because they are all in on it. They certainly have no problem arresting almost a million a year for pot as a payoff to the prison industrial complex. See wall street has already paid off the politicos so they have free reign to steal our freedom,our property, pollute our air and water and get away with it.

Government is supposed to protect our freedom, our property, our privacy, not invade it. Ron Paul 2007