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Thread: It Is Looking More And More Like 1929, Folks

  1. #41
    Veteran Member Madeline's Avatar
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    Quote Originally Posted by BigLeRoy View Post
    Short answer: No. Long answer: It's complicated. We do have the Federal Deposit Insurance Corporation, or FDIC, which was one of the best reforms introduced during the Great Depression. And, as you say, it provides government insurance for the bank accounts of ordinary people in their banking institutions, which was vital to restoring trust in the banking industry, because many, MANY Americans lost their life savings when more than nine thousand banks collapsed in 1929-1933. But the FDIC only guarantees depository institutions. It did not apply to the Big Five investment banks on Wall Street in the years leading up to the Great Recession: Goldman Sachs, Bear Stearns, Morgan Stanley, Merrill Lynch, and Lehman Brothers. Goldman Sachs was the only one of those five that survived the carnage of 2008-2009, the rest either went bankrupt or were swallowed up by larger institutions, sometimes almost at gunpoint by the Federal Reserve! So we DID have a big run on banks in the financial/banking/credit crisis of 2008/2009, despite the FDIC. We have developed a very large shadow banking system, almost completely unregulated, that operates alongside our more carefully regulated banking system. During the housing bubble, for example, Countrywide Mortgage, run by CEO Angelo Mozilo, was a major player in the mortgage market, and it was completely unregulated. All kinds of funny business, with Congressmen getting special deals from Countrywide, if they were "Friends of Angelo"......
    Okay. And thank you, really, for bothering to answer my questions.

    So.....why is the current stock market bubble worse than the tech stocks bubble of the late 1990's?

    How much would the U.S. stock market have to fall to touch off another depression?

    And, lastly, is it really the stock market at all? Because I feel most threatened by shitty banks who have been lending enormous sums of money on the strength of magically disappearing assets.

  2. #42
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by Madeline View Post
    Okay. And thank you, really, for bothering to answer my questions.

    So.....why is the current stock market bubble worse than the tech stocks bubble of the late 1990's?

    How much would the U.S. stock market have to fall to touch off another depression?

    And, lastly, is it really the stock market at all? Because I feel most threatened by shitty banks who have been lending enormous sums of money on the strength of magically disappearing assets.
    Regarding your bolded question, I'm not really saying that at all! It is very hard to compare the relative sizes of different economic bubbles before they definitively burst, I'll tell you that much. I knew we had a huge housing bubble in the 2000's, but when it burst, I was very surprised by how much damage was transmitted overseas, because I didn't realize to what extent sliced-and-diced junk American mortgages were being repackaged into fancy financial instruments called things like collateralized debt obligations [CDOs] and then sold to unsuspecting investors abroad, in places like Germany, for example. So even though Germany didn't have a housing bubble, they got hurt a lot when our bubble burst. That stock market bubble we had in the late 1990s was a HUGE stock market bubble. So I actually doubt that our current stock market bubble is bigger than that one. But we have other issues besides that stock market bubble. Also, housing bubbles are a lot more dangerous than a stock market bubble. We do have housing bubble conditions today in some parts of the country. Zero down mortgages are making a return, which I think is a danger sign.

    There were plenty of reasons for being angry at our banks, especially our bigger banks, back in 2008-2009. Some folks back then took to calling them 'banksters'. Would say things like, "Nowadays, the best way to rob a bank is to own one." Wells Fargo appears to be a crooked bank today. I wouldn't touch that bank with a ten-foot pole. But in general, we do want our banks to be healthy. The banking industry was in crisis ten years ago. That was one of the things that made the Great Recession so bad, the financial/banking/credit crisis that we went through. We surely don't want that again. We're not likely to see that again, because our banks do look pretty healthy this time around. I'm more worried about some of our big industrial companies. If we get into a serious trade war, our car companies could be in trouble. General Motors tried to warn Trump that they might end up being a much smaller company if he goes through with his car tariffs.

    If the stock market fell by say 30% to 40%, I think it would trigger a fairly severe recession. I think it would have to fall some 60% to 70% to be talking depression. I'm not expecting that. I think there is too much technological innovation going on for any kind of genuine depression. But I DO think the stock market is severely overvalued. That's what the Shiller P/E ratio is telling us, that graph in the OP.

    And, the tariffs between the U.S. and China go into effect on Friday, and neither side seems to be in the mood to back down. Only one more day to go. I think it is possible we could have a Black Friday in the stock markets, and maybe around the world. We shall see if anyone backs away from this game of Chicken at the last moment....
    Thanks from Ian Jeffrey

  3. #43
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    Quote Originally Posted by BigLeRoy View Post
    Are you referring to the repeal of Glass-Steagall? That would be the Gramm/Leach/Bliley Act. Gramm, Leach, and Bliley are all Republicans, by the way. And that bill passed Congress by a veto-proof margin. Even if Clinton had vetoed it-----and he SHOULD HAVE----his veto almost certainly would have been over-ridden. A strong majority of the House Democrats voted against repeal, IIRC. But Clinton himself did favor repeal. So he did sign the bill. I agree that was a mistake on his part. America was in a deregulatory MOOD in the late 1990's, you know. The economy seemed to be going gangbusters. We wanted to make it GO even better. We were in the mood for experimentation. We should have listened to the warnings of Democratic Senator Byron Dorgan.

    To my mind, the WORSE thing Clinton did was to raise the amount of tax exempt profits from the sale of a home to half a million dollars. That just poured FUEL on the escalating prices of homes. It fueled the speculative fever that really took off in the early 2000's. So, like I said, I am NOT absolving Clinton of blame in the housing bubble. But, really, George W. Bush WAS the number one cheerleader all the time he was in office. I guess you just were not paying attention to what HE was doing.
    Gramm_Leach_Briley had strong bi-partisan support, it was bi-partisan legislation. Why lie about it?

    https://www.govtrack.us/congress/votes/106-1999/h570

    Three times as many house dems voted for it than voted against.

    You think that raising the capital limit on residences contributed more to the housing bubble than refusing to to regulate derivatives? That's just silly. Bill Clinton's actions played much larger role in the housing bubble than anything GWB did.

  4. #44
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by Libertine View Post
    Gramm_Leach_Briley had strong bi-partisan support, it was bi-partisan legislation. Why lie about it?

    https://www.govtrack.us/congress/votes/106-1999/h570

    Three times as many house dems voted for it than voted against.

    You think that raising the capital limit on residences contributed more to the housing bubble than refusing to to regulate derivatives? That's just silly. Bill Clinton's actions played much larger role in the housing bubble than anything GWB did.
    Yeah, I garbled that first statement; what I MEANT to say was that a strong majority of the Congress that voted AGAINST repeal were Democrats. Which is perfectly true: by a 51-5 margin. Sorry for the miswording.

    But your last sentence is BULLSHIT. Here is a useful link which you should read CAREFULLY:

    https://georgewbush-whitehouse.archi...ent/chap7.html
    Thanks from BigBob

  5. #45
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    Quote Originally Posted by BigLeRoy View Post
    Yeah, I garbled that first statement; what I MEANT to say was that a strong majority of the Congress that voted AGAINST repeal were Democrats. Which is perfectly true: by a 51-5 margin. Sorry for the miswording.

    But your last sentence is BULLSHIT. Here is a useful link which you should read CAREFULLY:

    https://georgewbush-whitehouse.archi...ent/chap7.html
    So you would trying to make a statement that implied Dems did not support repeal when the vast majority voted for it? 155 Ayes versus 51 Nays?

  6. #46
    Veteran Member Madeline's Avatar
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    Quote Originally Posted by BigLeRoy View Post
    Regarding your bolded question, I'm not really saying that at all! It is very hard to compare the relative sizes of different economic bubbles before they definitively burst, I'll tell you that much. I knew we had a huge housing bubble in the 2000's, but when it burst, I was very surprised by how much damage was transmitted overseas, because I didn't realize to what extent sliced-and-diced junk American mortgages were being repackaged into fancy financial instruments called things like collateralized debt obligations [CDOs] and then sold to unsuspecting investors abroad, in places like Germany, for example. So even though Germany didn't have a housing bubble, they got hurt a lot when our bubble burst. That stock market bubble we had in the late 1990s was a HUGE stock market bubble. So I actually doubt that our current stock market bubble is bigger than that one. But we have other issues besides that stock market bubble. Also, housing bubbles are a lot more dangerous than a stock market bubble. We do have housing bubble conditions today in some parts of the country. Zero down mortgages are making a return, which I think is a danger sign.

    There were plenty of reasons for being angry at our banks, especially our bigger banks, back in 2008-2009. Some folks back then took to calling them 'banksters'. Would say things like, "Nowadays, the best way to rob a bank is to own one." Wells Fargo appears to be a crooked bank today. I wouldn't touch that bank with a ten-foot pole. But in general, we do want our banks to be healthy. The banking industry was in crisis ten years ago. That was one of the things that made the Great Recession so bad, the financial/banking/credit crisis that we went through. We surely don't want that again. We're not likely to see that again, because our banks do look pretty healthy this time around. I'm more worried about some of our big industrial companies. If we get into a serious trade war, our car companies could be in trouble. General Motors tried to warn Trump that they might end up being a much smaller company if he goes through with his car tariffs.

    If the stock market fell by say 30% to 40%, I think it would trigger a fairly severe recession. I think it would have to fall some 60% to 70% to be talking depression. I'm not expecting that. I think there is too much technological innovation going on for any kind of genuine depression. But I DO think the stock market is severely overvalued. That's what the Shiller P/E ratio is telling us, that graph in the OP.

    And, the tariffs between the U.S. and China go into effect on Friday, and neither side seems to be in the mood to back down. Only one more day to go. I think it is possible we could have a Black Friday in the stock markets, and maybe around the world. We shall see if anyone backs away from this game of Chicken at the last moment....
    Well, then, why do you think it's 1929 again?

    If there's no real risk of a 60% drop in stock market values, then where is the inciting incident to touch off the next depression?

    As for tarrifs.....fears about their impact doubtless will affect the stock market immediately. What remains to be seen is whether actual, real gains in GDP, etc. occur a year or two after they are implemented.

  7. #47
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by Libertine View Post
    So you would trying to make a statement that implied Dems did not support repeal when the vast majority voted for it? 155 Ayes versus 51 Nays?
    I said I garbled the statement; what more do you want? I was trying to say that a strong majority of the Congressmen who voted against repeal were Democrats. Are you disputing that? 51 Democrats voted against repealing Glass-Stegall, vs only 5 Republicans. Chew on that.

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    Quote Originally Posted by BigLeRoy View Post
    I said I garbled the statement; what more do you want? I was trying to say that a strong majority of the Congressmen who voted against repeal were Democrats. Are you disputing that? 51 Democrats voted against repealing Glass-Stegall, vs only 5 Republicans. Chew on that.
    155 House Dems voted for repealing Glass-Stegall, I would consider that overwhelming Dem support, wouldn't you?

  9. #49
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by Madeline View Post
    Well, then, why do you think it's 1929 again?

    If there's no real risk of a 60% drop in stock market values, then where is the inciting incident to touch off the next depression?

    As for tarrifs.....fears about their impact doubtless will affect the stock market immediately. What remains to be seen is whether actual, real gains in GDP, etc. occur a year or two after they are implemented.
    Things could spiral out of control in a trade war. Our tariffs against China go into effect at 12:01 AM Washington DC time tonight. China has vowed immediate retaliation. And Mr. Trump has said if China does that, he will impose tariffs on $200 billion more worth of Chinese products. And China has vowed retaliation for THAT. Meanwhile, the Federal Reserve said yesterday that Mr. Trump's trade policies are already having a detrimental impact on American investment. I.e., his trade policies are hurting his own supposedly 'pro-growth' agenda. Well, DUH! Yes, this could affect the stock market first, and then the impacts could reverberate through the REAL economy with a time lag. I suggested as much earlier in the thread, when I noted that the stock market is SUPPOSED to function as a forecaster of the economy----but that the inside 'joke' in economics is that the stock market has predicted nine of the last five recessions. Example: the stock market crashed in 1987, but that was followed by no recession. An 'inciting incident' for a truly major downturn could be a bankruptcy or two of truly iconic American industrial firms, that would shock the nation and undermine confidence in a serious way.

  10. #50
    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by Libertine View Post
    155 House Dems voted for repealing Glass-Stegall, I would consider that overwhelming Dem support, wouldn't you?
    Yes, I have granted that a majority of Democrats favored repeal. Now, will YOU admit that a STRONG Majority of those AGAINST repeal were, in FACT, Democrats? Will you ADMIT that?

    51 Democrats voted AGAINST repeal.

    As compared to ONLY 5 Republicans.


    That's more than a 10-to-1 margin, by the way.

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