Financial Crash - now and then

[RedDenver]

I don't think any of her claims were as bold as TGHusker portrayed in the opening line of this thread. Try to see what she's trying to say here. We're not in the midst of a "Shall we strengthen Dodd-Frank further" debate. We're more than a few ticks south of that.

From the first link:

She also made a bold prediction: that another financial crisis the likes of the one that exploded in 2008 was not likely "in our lifetime."

If she's just predicting that a crash of that magnitude is not likely, then that's a really weak prediction (and the article is over-stating it as "bold") and is a good guess even if we had not implemented any regulation since it had been 80 years since the last one.

[zoogs]

Yes, I do think the article is really dramatizing this. See the slightly fuller and more in context quotes from Reuters.

 

It seems to me she's really just trying to defend the regulations that were put in place and stressing how important they were. I can't begin to comment on how adequate, flawed, or inadequate Dodd-Frank is (there's a lot to it!), but in broad strokes, this seems both reasonable and the right thing to be saying right now.

[84HuskerLaw]

Fed Chairs almost never say anything that could possibly be construed as 'negative' or ominous or doom and gloom and most certainly never will one forecast a major financial collapse or crisis. The reason is obvious: the mere suggestion of such a calamity would likely cause one. Yellen has of course led the United States and perhaps the entire world down the path toward financial ruination with the absolutely unpredented government debt build up and the zero and near zero interest rates which have do distorted the financial markets in general.

 

The 2008 financial crisis was REAL and was primarily the result of the insanely reckless mortgage lending / financing the prior decade. Home loans were going out to unemployed and even never employed at 110% of real market values with negative amortizations etc. Home values were grossly overstated and of course credit card lending was totally out of control. These 'roaring 90s' were not economically justified as American debt skyrocketed. The only difference between the 90s and the current decade is that in the 90s most of the debt was being amassed by the private sector while in the past 8 years the federal, state and local governments have been spending like drunken sailors with 'no limit' credit cards. The spending continues although there are signs that some in D.C. atleast are interested in cutting back a tad.

 

Yellen is flat out wrong about the crisis that is coming. It is unavoidable as the interest rates will have to return to more historic normal levels. As they do, the Federal government will face interest payments alone of over a trillion dollars a year MORE than the artificially low rates currently being financed. We've been rolling over the interest and adding to the principle and not paying back any of our federal government borrowing for about 15 years. As debt service becomes almost "Biblical' in scale, there will be no room for paying for all the on-going funding requirements for the usual programs and so on. This will be a CRISIS unlike any in about 90 years and maybe ever as even during the FDR Great Depression era, the government borrowing was from basically a debt free state. We are practically buried in debt already.

 

Runaway inflation, devaluation of the currency and the value of labor will follow. Short of some miraculous new technology and innovations such as limitless free energy (only God can save us there), I don't see anything that can save us in the long term. The next 25 years are going to be one hell of a ride!

[HuskerNBigD]

Fed Chairs almost never say anything that could possibly be construed as 'negative' or ominous or doom and gloom and most certainly never will one forecast a major financial collapse or crisis. The reason is obvious: the mere suggestion of such a calamity would likely cause one. Yellen has of course led the United States and perhaps the entire world down the path toward financial ruination with the absolutely unpredented government debt build up and the zero and near zero interest rates which have do distorted the financial markets in general.

 

The 2008 financial crisis was REAL and was primarily the result of the insanely reckless mortgage lending / financing the prior decade. Home loans were going out to unemployed and even never employed at 110% of real market values with negative amortizations etc. Home values were grossly overstated and of course credit card lending was totally out of control. These 'roaring 90s' were not economically justified as American debt skyrocketed. The only difference between the 90s and the current decade is that in the 90s most of the debt was being amassed by the private sector while in the past 8 years the federal, state and local governments have been spending like drunken sailors with 'no limit' credit cards. The spending continues although there are signs that some in D.C. atleast are interested in cutting back a tad.

 

Yellen is flat out wrong about the crisis that is coming. It is unavoidable as the interest rates will have to return to more historic normal levels. As they do, the Federal government will face interest payments alone of over a trillion dollars a year MORE than the artificially low rates currently being financed. We've been rolling over the interest and adding to the principle and not paying back any of our federal government borrowing for about 15 years. As debt service becomes almost "Biblical' in scale, there will be no room for paying for all the on-going funding requirements for the usual programs and so on. This will be a CRISIS unlike any in about 90 years and maybe ever as even during the FDR Great Depression era, the government borrowing was from basically a debt free state. We are practically buried in debt already.

 

Runaway inflation, devaluation of the currency and the value of labor will follow. Short of some miraculous new technology and innovations such as limitless free energy (only God can save us there), I don't see anything that can save us in the long term. The next 25 years are going to be one hell of a ride!

 

Such a bullsh#t statement, I don't even know where to begin. For starters, would you mind telling me what years QE 1-3 started? Also, would you mind telling me who the Fed Chairman was during this time frame. Hint, it wasn't Yellen.

 

Runaway inflation? Ok pal. Any idea on what spreads of 10-yr TIPS over Treasuries have been lately?

[HuskerNBigD]

 

Janet Yellen is not an idiot.

 

Anyone in her position that publicly predicts that there won't be a financial crisis "in our lifetime" is either an idiot or not expecting to last long.

 

 

Please send prayers to her and her family.

Looks like the article was a bit click bait, cause her actual comment mentions a crisis equivalent to the 2008 meltdown, which I do believe there will be nothing like that again and really that crisis started in early 2007 with Bear falling and the rest of the banks letting egos and old grudges get in the way of realizing how big of an issue it would all turn out to be.

[TGHusker]

I do think we are better prepared now than where we were in 2007. However human nature is such, that we relax, remove restraint after time and bingo - we are back in a bad situation. I'm not an economist, nor do I play one on TV, however, I can't think that the massive govt debt - both state and federal - is good for the economy. I hope that this admin can fulfill its promise to bring manufacturing back as that sector has traditionally been the foundation for the economy- spurring many support jobs - and providing typically higher paying jobs as a result. Maybe in our new technocentric world, that old theory is no longer valid

[zoogs]

I do think there's a human nature component of that, but there's also voting people in charge who have always opposed those restraints and dream of taking a blowtorch to them. I gotta a little here because this is another topic that makes me want to scream was it not COMPLETELY OBVIOUS who we were electing???!???

[zoogs]

http://www.politico.com/story/2017/06/10/illinois-debt-deficit-budget-election-239384

 

I had heard zero about Illinois prior to this thread, so thank you for bringing up the topic, TG. This is one hell of a partisan gridlock between governor and legislature, or perhaps specifically between two men, but there's also this:

 

Illinois was creative in how it pays its bills long before Rauner took office. It has for years taken the politically palatable option of avoiding tax hikes while borrowing from pension funds, allowing its pension backlog to balloon and failing to sock away money for emergencies. Illinois is just one of nine states to not have a rainy day fund, according to the National Association of State Budget Officers.

Just levy taxes when you need to. How's the "no tax" thing working out in Kansas? No, nobody likes to pay more in taxes, but is this sort of dysfunction the price we'd rather pay?

 

“Every single member of the General Assembly has a vote. We’ve been asking for a long time, who do we blame? When we started, we went and visited over 40 legislators in both parties and said, please don’t do this. Exclusively, they’d say: ‘It’s their fault,’ and point to the other chamber. The other leader. I’m like: You are elected, you have a vote,” Durbin said. “So for us to boil it down to two individuals is a bit of a cop-out. Right now, the General Assembly and the governor — none of them are choosing to do what’s in the best interest of the state.”

[TGHusker]

^^^ good post Zoogs.

 

Related to the OP: this article tries to explain the mixed messages coming out of the fed - "we are on fumes" and "no crisis"

 

http://www.marketwatch.com/story/how-feds-williams-can-say-stock-markets-on-fumes-while-yellen-says-another-crisis-wont-happen-this-lifetime-2017-06-27?siteid=yhoof2&yptr=yahoo

[Hooked on Huskers]

Time to time, I'm tempting to cash in my tiny Wall Street semi-safe stocks. I really didn't pay attention for my stock quarter-annual Edwards Jones statements (regular mail; mostly toss it). I think five times values within last 15 years or so (wild guess).

[zoogs]

Illinois back in the news after passing a budget, finally: http://www.npr.org/sections/thetwo-way/2017/07/06/535811049/illinois-lawmakers-override-governor-pass-budget-for-first-time-in-2-years

 

The budget negotiated by the Democrat-controlled Legislature is the first one passed in Illinois since 2015. Rauner, a Republican, had been firmly opposed to the deal and particularly critical of the income tax hike it included. He vetoed the package of bills on Tuesday. (...)

 

The state's long budget crisis began when Rauner took office and vowed, among other things, to take on the state's influential public-sector unions. The AP reports that the governor wanted a budget that would freeze property taxes, change workers' compensation programs and cut the cost of state employee pensions. He was also opposed to any permanent tax increase.

Rauner really "took on" those public-sector unions.

[TGHusker]

Illinois back in the news after passing a budget, finally: http://www.npr.org/sections/thetwo-way/2017/07/06/535811049/illinois-lawmakers-override-governor-pass-budget-for-first-time-in-2-years

 

The budget negotiated by the Democrat-controlled Legislature is the first one passed in Illinois since 2015. Rauner, a Republican, had been firmly opposed to the deal and particularly critical of the income tax hike it included. He vetoed the package of bills on Tuesday. (...)

 

The state's long budget crisis began when Rauner took office and vowed, among other things, to take on the state's influential public-sector unions. The AP reports that the governor wanted a budget that would freeze property taxes, change workers' compensation programs and cut the cost of state employee pensions. He was also opposed to any permanent tax increase.

Rauner really "took on" those public-sector unions.

 

Appears he wanted to be another Scott Walker in neighboring Wisc.