The impact of baby boomers

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I respectfully disagree with you, though likely only in the details. Government spending is OUT of CONTROL, but I don't think its all related to war or any military action. Frankly, if I even thought there was the possibility of a threat I'd rather take it to them than wait for it to come here.

On the other hand, OUR government - those WE put in office - have continued to spend on government programs, many of which have shown no positive progress. We have more government programs than every before and our economy continues to decline.

Suppose I said that the FDIC was a bad idea to start with!

Prior to the FDIC banks had to maintain enough cash to cover any need depositors might have. They did some investing to make money,to keep from charging fees to depositors, but they were careful about their lending practices. The FDIC allows banks to make risky loans, loans that they should NOT make. So what if the bank fails, the FDIC will make depositors whole so it doesn't really matter, or does it.

If I came to you and said I was going to Vegas and while I usually win a little I sometimes lose BIG, but I don't want to risk all of MY money so would you mind giving me some of yours. If I win I promise to share it with you, but if I lose you'll be out too. I doubt you'd loan me any money.

But that is exactly what the FDIC has allowed the banks to do. And congress exacerbated it by forcing the banks to make loans to low income, bad risk clients.

Now we have a Federal Banking Oversight System to watch the banks and guess what, the ones that made bad loans failed - JUST LIKE THEY SHOULD HAVE. But instead of the depositor taking the hit, like he should have for trusting a bank that made bad loans, society takes the hit because our tax dollars are used to make the depositor whole.

AND the Banking System Oversight employees are still employed, still drawing a check from our taxes.

I think the answer here is to move back to the Free Market System - if your business fails it is because it isn't efficient enough to survive in the economy. No shame in that, but suck it up and move on.

Gene E. Utterback, EA, RFC, ABA

You mean the financial industry that government pushed into make bad business decisions? The same financial industry that is driven by investors to produce greater returns, thus pressuring the industry to take larger and larger risks?

This isn't magic or voo doo - what happens in the market and government happens because WE put politicians in office and then let them tell business how to operate. Consider this -

A businessman knows he has to provide a reasonable service or product at a reasonable cost - he must satisfy his customers or he won't stay in business very long.

Government's job is to provide services unavailable in the private sector. Things like law enforcement, military protection from invasion, infrastructure like roads and bridges. And these things MUST be provided regardless of cost, to a large degree. If we need X number of military to protect us then we need X number of military and if that costs more than we would like to spend, too bad. And overall, we have no choice, individually, on how this money is spent or how much is spent.

A politician exists in the world of a captive customer. While I can choose to send mail via FedEx, Federal law prohibits competition against the U. S. Postal Service. So when you take a politician who has never had to please a client or operate at a profit and put her in charge of how business is operated you have opened the door to disaster.

It should come as no surprise to us that we're in the financial shape we're in now as a country. Most anyone who's ever had a job and had to pay their own way has know, deep down, that the country cannot continue spending more than it makes - and yet, we sit quietly by and let it happen.

Shame on us, Gene E. Utterback, EA, RFC, ABA

The Fed Gov ENCOURAGED making loans to a more diverse population (remember red-lining). They NEVER forced anybody to make bad and dishonest loans. The so-called financial brains dug themselves their own unregulated hole, dragging us all down. They dreamed up unsustainable schemes they they admitted last week in hearings that they themselves couldn't understand. This whole mess was based solely on greed, ignorance, and hubris- from the home owner to the CEOs. Everybody wanted a piece of the pie. But by far the biggest offenders, and they are still doing it, are the financial insiders and their obscene salaries and bonuses.

Chip

I do not think either government or individual investors control the financial industry to the extent you imply. There are real people at the helm of banks, brokerage houses, mortgage companies etc. who had incentive to profit from the bubble and/or naively thought the bubble's money flow would not stop.

Right. The SEC is the regulating body, from my reading (not the FASB). I'm not authoritative on this, but it seems evident that the repeal of Glass-Steagal by Congress handcuffed the SEC, and 'investment banks' did not report their financial positions.

You are further correct that these CEO girls didn't understand what those positions were. Some Chinese guy (Xi or Li) who reportedly contributed a good deal of the math stated in his papers that it was hypothesis only. The 'banks' took the math and used it, ignoring his warnings.

An interesting exercise: You are the CEO of a major bank-cum-hedge- fund; you are facing Heaven or Hell for eternity, depending on 100% bleeding-through-the-nose honesty, or lies; presuming you prefer your prospects in Heaven, how do you truthfully report to your shareholders, the financial community, and the world at large?

Let's start with the premise that in most situations most people will do what they believe to be in their own best interest. If you do not accept that then read no farther.

A bank is a business. The purpose of any business is to increase the wealth of its owner(s). To avoid discussing executive compensation schemes and related issues let's consider the case of a bank that is run by its owner.

Banks have never maintained enough cash on hand to cover any need depositors might have. Let's look at a community bank of 100 years ago before the existence of the FDIC. Banks make money by accepting short term deposits and making longer term loans. The maximum need that depositors might have is to withdraw all of their money. Since the bank has loaned some of the depositor's money to others it cannot possibly meet the depositors demand for payment if a run occurs and all of the depositors demand payment at once (unless the bank can borrow the funds required). FDIC insurance prevents a run on the bank from occuring if depositor's lose confidence in the bank. That is its only purpose. It is an insurance scheme and is no different from fire insurance, liability insurance, life insurance or any other insurance scheme. Would you ban them all?

As you say, the FDIC protects depositors. It does not protect the owner(s) of the bank. If the bank's owners take foolish risks and the bank fails the owner(s) still lose everthing. Therefore, the existence of FDIC insurance has no impact on the decisions made by the bank's owner(s) because it has no impact on the result of those decisions for the bank's owners. The bank and its owner(s) are in exactly the same situation whether the bank fails with or without FDIC insurance in place.

It certainly matters to the bank's owners because they lose everthing whether there is FDIC insurance or not.

Certainly in the real world, except for small privately owned banks, of which there are very few left, things do not work that way. Banks are owned by large numbers of shareholders, the majority of whom know nothing about banking. In theory the shareholder's interests are represented by the board of directors that the shareholders elect. This system might work if all of the director's were large shareholders and if the only compensation they received was the dividends and growth in value from the stock they own. Of course the directors do not run the bank. The bank is run by hired managers and their decisions are based on what is in their own best interest and what is in the operating management's best interest depends on their compensation scheme which may or may not coincide with the interests of the owners (shareholders). However, none of this is relevant. I mention it just to show that I am aware of it. Regardless of who is running the bank and what drives their decisions one thing that has no impact on their decisions is FDIC insurance because FDIC insurance does not protect the owners or managers of the bank.

You can, as long as you can find someone to lend you the difference between what you spend and what you make. Of course that can't go on forever either for yourself or for the country. Look at Argentina. The same thing could happen to us.

Precisely. As our minds un-numb and more data clarifies the scene, I think we can perhaps begin to see interrelationships of coincident events in various sectors (e.g. "Who did what").

I believe it was yourself who (presciently) posted way back in 2005 a link to an article written by one of the head guys at Fannie Mae, in which he supplied data for housing booms and busts. The timing of that article was probably not pure happenstance. Someone recently mentioned the roles of "etceteras" you refer to - real estate agents, appraisers, home inspectors. If the FNM data play out this bust, we should be flattening out in real estate.