Hard Light Productions Forums
Off-Topic Discussion => General Discussion => Topic started by: Kosh on June 18, 2009, 11:49:26 pm
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So, any thoughts? (http://digg.com/political_opinion/Forbes_Audit_the_Federal_Reserve_by_Rep_Ron_Paul_R_TX)
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"If you've nothing to hide, you've nothing to worry about." :drevil:
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Doesn't he just want to basically remove all powers from the Fed? This is not the guy I want to listen to in terms of how to fix it.
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This isn't de-powering the Fed, though. This is just finding out what it's doing.
Even massive top-secret defense programs have congressional oversight committees. They're classified and not open to the public, but they do take place. The Fed has nothing - no oversight, no accountability, nada.
So when the Fed can't explain what happened to over nine trillion (http://www.hard-light.net/forums/index.php/topic,63446.0.html) of my taxpayer dollars, I want to know what's going on.
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This isn't de-powering the Fed, though. This is just finding out what it's doing.
Even massive top-secret defense programs have congressional oversight committees. They're classified and not open to the public, but they do take place. The Fed has nothing - no oversight, no accountability, nada.
So when the Fed can't explain what happened to over nine trillion (http://www.hard-light.net/forums/index.php/topic,63446.0.html) of my taxpayer dollars, I want to know what's going on.
His stance is to remove the Federal Reserve. What do you think his stance is going to be after any audit?
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Doesn't matter, because if the audit uncovers something nasty then many people will. But really, how is the federal reserve going to get us out of this mess when they have a big part of the responsibility (http://www.amazon.com/GREENSPANS-BUBBLES-IGNORANCE-FEDERAL-RESERVE/dp/0071591583) for this mess?
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Their part of the mess is not having the power to regulate these institutions correctly. Do you feel they should have more power to do so?
And frankly I could come up with another author about how we need MORE power for the Fed.
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So I guess the ultra loose monetary policy and artificially low interest rates had nothing to do with it?
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So I guess the ultra loose monetary policy and artificially low interest rates had nothing to do with it?
Which was not decided by the Fed as much as it was by higher up in the Executive Branch.
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So I guess the ultra loose monetary policy and artificially low interest rates had nothing to do with it?
As opposed to those natural interest rates?
And yes they had something to do with it. But I had something to do with it. TV had something to do with it.
You can sit there and shake a fist and say "These guys have too much power!" and that's all well and good. So who do you give the power to? The corporations?
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So who do you give the power to? The corporations?
Real regulators, which would be cut back (http://www.reuters.com/article/businessNews/idUSTRE55F7QV20090616) under the Obama reform plan.
Which was not decided by the Fed as much as it was by higher up in the Executive Branch.
I was under the impression they decided on interest and monetary policy independantly. In fact according to the feds themselves they can act without any approval from the president or congress. Look at the "Who owns the Federal Reserve" question. (http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#9)
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Real regulators, which would be cut back (http://www.reuters.com/article/businessNews/idUSTRE55F7QV20090616) under the Obama reform plan.
Real Regulators? Is banking regulation going to be in the hands of the Federal Government or not? And is it really an issue as to how many regulators there are? If he is reducing staff but increasing power (as he is proposing) is it really a cut back?
I was under the impression they decided on interest and monetary policy independantly. In fact according to the feds themselves they can act without any approval from the president or congress. Look at the "Who owns the Federal Reserve" question. (http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#9)
You're right. In regards to making decisions, they don't have to "answer to" the executive or legislative branches of government. That is the entire point. This independence allows them to make decisions essentially without political concerns (or as close to it as you can get).
Secondly, and the main point of Ron Paul's entire fit, the Fed IS audited and DOES have oversight. The Fed answers to Congress, they ARE audited by the Comptroller and the GAO (Which isn't past releasing scathing reviews of crappy departments) can and does make regular checks on their books. The very fact that there was a link posted here where the guy was being grilled by Congress just shows it.
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The Fed answers to Congress
Which is really a case of the weasel guarding the fox guarding the hen house. We will see what the result of this latest audit is if the bill goes through, frankly I'm a little curious to know where that $14 trillion they managed to lose went to.
If he is reducing staff but increasing power (as he is proposing) is it really a cut back?
Yes because if they have a broader scope it means more work to be done, and if they have fewer people to do more work that makes the staff cuts even worse.
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Which is really a case of the weasel guarding the fox guarding the hen house. We will see what the result of this latest audit is if the bill goes through, frankly I'm a little curious to know where that $14 trillion they managed to lose went to.
So if not Congress, then who? Who should have oversight of the Fed? Would the private sector watching them be any better? Would it even be equal?
Yes because if they have a broader scope it means more work to be done, and if they have fewer people to do more work that makes the staff cuts even worse.
So they're overworked? That's the reason? Somehow I don't think that's it.
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This whole thing infuriates me.
This whole thing started because someone didn't say "Enough is enough" and actually use the regulatory power they already had. It's not a question of not enough power to do they're job, it's the Federal Reserve for crying out loud. It's a case of a bunch of bureaucrats who decided it would be better to smile and say yes than to throw a box of tacks into the path of an out of control economic bus, simply because someone with some political clout suggested they might benefit from it.
The problem with this whole thing, the cause and the current "solution" is that Government is trying to fix what is primarily a private matter between privately owned entities. If you think it's bad now, wait till His Highness has complete control of the banking system.
One of the great statesmen of our time says the following of the current political organizational layout of the US right now: "The two parties are arguing about where we're going, they're arguing about what gear we are going to use to get there. At the same time they are keeping the citizentry frothed up about issues that are distracting them from the general take over and swelling of Governmental excess and lessening of any kind of restriction or enforcement on Government itself."
The biggest problem the United States has right now is not economic, it's that it has a Government and by and large a Press that has lost touch with the citizens they are charged to protect and serve.
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Ok wait, the problem was that the people in power under Bush (when the problem started) didn't do their job because they were sucking up and the new solution now isn't to do that job, presumably because of His Highness (that name shoots your credibility by the way)?
You said it was caused by the government not doing it's job and then say it's not the job of the government to fix it? Which is it?
You think these banking institutions should be left on their own? They'll do what's best for us? I would think the previous problems we've had show they don't give a rat's ass about us and are only concerned with making money.
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Well it wasn't too long ago that ethics and morals meant something in public life.
I view this as a Consumer Protection issue. The only dog the Government has in this fight is to ensure that people are not getting taken advantage of in a situation where they aren't knowledgeable, they didn't do that. What's happening now is nailing the barn door shut after the horses have run off and the equipment stolen.
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I view this as a Consumer Protection issue. The only dog the Government has in this fight is to ensure that people are not getting taken advantage of in a situation where they aren't knowledgeable, they didn't do that. What's happening now is nailing the barn door shut after the horses have run off and the equipment stolen.
Which is, while not as laudable as doing so before, not purposeless.
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Except for the tiny issue of not being able to put things in the barn any more.
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Except for the tiny issue of not being able to put things in the barn any more.
Hayloft door. Sorry.
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So if not Congress, then who?
Good question. Here's the problem, the fed's stockholders are the private banks, many of these same banks also have hundreds of lobbyists in congress to push their agenda, often successfully. See the folly of having the federal reserve act as a regulator for the banks?
So they're overworked? That's the reason? Somehow I don't think that's it.
Which I'm pretty sure that somehow is not what I said. The problem is when you cut back the number of people and have the remaining ones do more, stuff slips through the cracks easier.
You think these banking institutions should be left on their own?
They practically are.
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Good question. Here's the problem, the fed's stockholders are the private banks, many of these same banks also have hundreds of lobbyists in congress to push their agenda, often successfully. See the folly of having the federal reserve act as a regulator for the banks?
The real problem is you didn't actually answer the question. And no, I don't see the folly. Mostly because you could take out "bank" and replace it with any industry and you'll get the same exact thing. Lobbyists.
Secondly, the Fed is a not for profit institution, so it has no desire to earn profits. And quite frankly this independence is one of its greatest assets. It is not held to the administration, only the economy.
Which I'm pretty sure that somehow is not what I said. The problem is when you cut back the number of people and have the remaining ones do more, stuff slips through the cracks easier.
That's overworked. That's exactly what I said. And no, that's not really going to happen.
They practically are.
Yea except for the whole federal oversight thing there is no one watching them :rolleyes:
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Well it wasn't too long ago that ethics and morals meant something in public life.
I view this as a Consumer Protection issue. The only dog the Government has in this fight is to ensure that people are not getting taken advantage of in a situation where they aren't knowledgeable, they didn't do that. What's happening now is nailing the barn door shut after the horses have run off and the equipment stolen.
So...... too late for regulating banks now? Oh no the banks screwed up so lets all go home?
You're still not making yourself clear (on purpose I think) should the federal government be regulating these banking institutions? Do you think the government was unnecessarily meddling in the banks or did the banks have too much of a free hand and screwed us all over?
I get the distinct impression most people here dislike the government interference but they know without the regulation the banks and such would totally screw everyone over to get rich. So everyone complains about government but won't actually say they think the banks should regulate themselves.
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There was something about the Community Reinvestment Act that encouraged banks to make subprime loans, mainly to poor minorities in the name of increasing home ownership among the underprivileged. Which is something the Democratic members of Congress love because they can say they are helping people. The CRA was started by the massive failure that was Carter, and expanded by Clinton. And there were Fannie Mae and Freddie Mac that bought up those subprime loans from the banks, allowing the banks to keep making them. Fannie Mae and Freddie Mac both received massive government subsidies from the government at the end of the Bush Administration and are now wholly owned by Uncle Sam (at Congress's request, not Bush's), and were big contributors to key members of Congress as well.
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There are two problems with that...... post.
1. You said encouraged to make subprime loans as if it's a bad thing. Subprime loans aren't bad. The practice they engaged in to get the loans were bad. You also said encouraged, not forced. So it is said that these companies could have simply not done it. You also talk about Freddie Mac and Fannie Mae buying up mortgages as if it wasn't their job.
2. You called Carter a massive failure
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Subprime loans can be bad, if the people who receive the loans can't pay them back. In a case like that, not just the lendee loses by having their home foreclosed, the bank loses out as they get a useless home. Banks hate foreclosed homes, as they have to maintain it in the hopes of selling it at auction (often for less than it is worth, ending up with it being a net loss). A foreclosed house costs a bank money. And if the banks didn't make the loans, ACORN would show up and protest them for not giving poor people a chance, which is horrible PR.
And Carter was a failure. He let the mullahs overthrow the pro-West Shah, giving rise to the fanatical theocracy in place in Iran today, he failed at getting our hostages out of Iran, he handed the Panama Canal over, and he was responsible for the stagflation of the '70's. Tell me how Carter succeeded.
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Subprime loans can be bad, if the people who receive the loans can't pay them back. In a case like that, not just the lendee loses by having their home foreclosed, the bank loses out as they get a useless home. Banks hate foreclosed homes, as they have to maintain it in the hopes of selling it at auction (often for less than it is worth, ending up with it being a net loss). A foreclosed house costs a bank money. And if the banks didn't make the loans, ACORN would show up and protest them for not giving poor people a chance, which is horrible PR.
I was under the impression that ALL loans worked that way. All loans had to be repaid, not just the subprime ones. But plus points for throwing in ACORN for no real reason.
The lenders disregarded lots of things in giving out loans to people who couldn't pay them back really. This has less to do with the evil Democrats making them and more to do with it meant they could make tons of money off it.
And Carter was a failure. He let the mullahs overthrow the pro-West Shah, giving rise to the fanatical theocracy in place in Iran today, he failed at getting our hostages out of Iran, he handed the Panama Canal over, and he was responsible for the stagflation of the '70's. Tell me how Carter succeeded.
He didn't get involved in Iran, he gave the Canal back to Panama and the Camp David Accords. I find it funny two of things you named as downsides I see as pretty good.
Do you think we should be meddling in the current Iranian affair now?
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And no, I don't see the folly.
So an institution with a blatant conflict of interest should regulate itself?
Mostly because you could take out "bank" and replace it with any industry and you'll get the same exact thing. Lobbyists.
Last time I checked no other industry had anything like this situation. Farmers do not have shares in the USDA for example.
Secondly, the Fed is a not for profit institution, so it has no desire to earn profits.
The fed might not be, but its shareholders, the private banks, are. So do you really think it cares about the people's interests?
That's overworked. That's exactly what I said. And no, that's not really going to happen.
What makes you so sure it won't happen?
Yea except for the whole federal oversight thing there is no one watching them
Fat load of good that did until this point.
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So an institution with a blatant conflict of interest should regulate itself?
It's a semi public and semi private institution. It has federal oversight AND is mostly independent from the other branches of government. It has been this way for almost 100 years.
You're still tiptoeing past the issue. Federal oversight or private oversight?
Last time I checked no other industry had anything like this situation. Farmers do not have shares in the USDA for example.
You're right. The USDA's job is not to ensure the well being of the agriculture economy. The Federal Reserves primary job is to fend off banking panics..... kinda like the one we had just now.
The fed might not be, but its shareholders, the private banks, are. So do you really think it cares about the people's interests?
The Fed cares about the economy as a whole. Not if one bank makes more money. EVERY bank is part of the Federal Reserve. You're saying the people in the Federal Reserve who make all the decisions (who are nominated by Congress) are making those decisions for the purpose of pleasing the private banks in disregard of the Federal Reserves stated purpose?
What real say do the banks have in the issue?
What makes you so sure it won't happen?
If they were understaffed, they would put in for extra workers and probably get it. Because government loves to have extra staff. Do you think these guys will apply for more people due to overwork and the government will say "nah, we don't want more workers and/or oversight"?
Fat load of good that did until this point.
Because they didn't do it, not because they couldn't do it
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The USDA's job is not to ensure the well being of the agriculture economy.
Actually it does.
The United States Department of Agriculture (informally the Agriculture Department or USDA) is the United States federal executive department responsible for developing and executing U.S. federal government policy on farming, agriculture, and food. It aims to meet the needs of farmers and ranchers, promote agricultural trade and production, work to assure food safety, protect natural resources, foster rural communities and end hunger in the United States and abroad.
The Federal Reserves primary job is to fend off banking panics..... kinda like the one we had just now.
And it failed....AGAIN. Throughout its history it has often failed to stop banking panics. Can anyone say "1929"?
The Fed cares about the economy as a whole.
It cares about its member banks far more than anything else.
EVERY bank is part of the Federal Reserve
Only national banks are, state banks are not.
they would put in for extra workers and probably get it.
Not if their activities are not politically favorable.
Because they didn't do it, not because they couldn't do it
So what you're saying is that they could have stopped the current crisis with their current powers but didn't. That's actually a pretty good case against giving them more powers, they are saying they didn't have powers. Why give them more when they don't use what they have properly?
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To be fair, the steady decrease in the frequency and severity of economic depression can probably be attributed to good monetary policy by the Fed.
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Actually it does.
*Snip*
That's great, right off Wikipedia. That mentions nothing about ensuring the well being of. They can't do the things with farms that the Federal Reserve can do for banks. They regulate the farms and the food but they really can't do anything about the economy as a whole.
And it failed....AGAIN. Throughout its history it has often failed to stop banking panics. Can anyone say "1929"?
And? What's your point? I've been asking you for numerous posts now. Do you want them removed or do you want them given more powers?
It cares about its member banks far more than anything else.
So.... what you called them up and asked them? They don't care about their job, they care about individual (and thousands) of banks that can't reward them?
Only national banks are, state banks are not.
You're right. Every national bank.
Not if their activities are not politically favorable.
Which is why it's an independent organization so they don't have to worry about what is politically favorable.
So what you're saying is that they could have stopped the current crisis with their current powers but didn't. That's actually a pretty good case against giving them more powers, they are saying they didn't have powers. Why give them more when they don't use what they have properly?
I'm pretty sure that's what I said. I never really suggested giving them more powers to avert this crisis. Are there powers they could have to avert other things? Maybe.
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That mentions nothing about ensuring the well being of.
So what do you think those inspections and regulations are for?
Which is why it's an independent organization so they don't have to worry about what is politically favorable.
Whatever you want to believe.
You're right. Every national bank.
Nice to see you only paid attention to half of what I said. Which set of banks do you think they care about?
They don't care about their job, they care about individual (and thousands) of banks that can't reward them?
Their job is to look out for their member banks. Always has been.
I'm pretty sure that's what I said. I never really suggested giving them more powers to avert this crisis. Are there powers they could have to avert other things? Maybe.
I'm pretty sure that is what you said.
From you:
Their part of the mess is not having the power to regulate these institutions correctly.
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So what do you think those inspections and regulations are for?
To protect the farmers and the people who eat the food?
Whatever you want to believe.
YAY! Way to sidestep it again! Do you feel banks should be regulated by the Federal Government or no? I'm gonna guess since you haven't answered the question the numerous times I've asked it, you don't know and just feel like arguing!
Nice to see you only paid attention to half of what I said. Which set of banks do you think they care about?
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All of them. That's their job. If you're implying they're only looking out for member banks, why did all these banks go bad?
Their job is to look out for their member banks. Always has been.
I have never seen anything that mentions them "looking out for" the member banks any more than they would look out for the economy as a whole. Secondly, what does that even mean? You're implying some kind of buddy buddy system they have with only member banks, but I can figure out what that system could be. Perhaps you could enlighten me.
I'm pretty sure that is what you said.
From you:
Their part of the mess is not having the power to regulate these institutions correctly.
We were talking about Ron Paul's proposed audit of the Federal Reserve and the power they held. We didn't start talking about the current economic crisis until pretty recently. I thought it was fairly well know why these banks went tits up and that it was something we (as in the the government) should have been watching. As for the concept of the entire Federal Reserve, which we were talking about earlier, that's a different idea.
That... that was my whole point at the start of this thread. It wasn't about the current crisis, Ron Paul just doesn't like the Federal Reserve.
The reason it's getting confusing is you're jumping all over the place and not answering the question I asked in the 7th post of this thread and continued to ask over and over.
Do you feel the Federal Reserve should have the the power or not? Who should be watching these banks?
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If you're implying they're only looking out for member banks, why did all these banks go bad?
Because they were so blinded by the massive profits they were reaping before the bubble burst?
I have never seen anything that mentions them "looking out for" the member banks any more than they would look out for the economy as a whole. Secondly, what does that even mean? You're implying some kind of buddy buddy system they have with only member banks, but I can figure out what that system could be. Perhaps you could enlighten me.
Every private organization always puts its shareholders first.
Do you feel the Federal Reserve should have the the power or not?
I'm pretty sure I did. No, it shouldn't.
Who should be watching these banks?
An agency that doesn't have ties to them.
EDIT: And now that this has come about, do you really want them to have more power to do more shady stuff? (http://www.reuters.com/article/wtUSInvestingNews/idUSWEN096120090624)
WASHINGTON, June 24 (Reuters) - The Federal Reserve sought to hide its extensive involvement and concerns about Bank of America Corp's (BAC.N) acquisition of Merrill Lynch amid the latter's worsening financial condition, a top Republican congressman said on Wednesday.
"The committee has already learned that Ben Bernanke and the Federal Reserve made inappropriate threats to fire Bank of America management unless they went ahead with the 'shotgun wedding' that was the Merrill Lynch acquisition," Rep. Darrell Issa of the House Oversight and Government Reform Committee said in a statement released to Reuters.
"The Federal Reserve also engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies," the statement said.
The committee has obtained a number of emails and documents from the U.S. central bank about its behind-the-scenes role in the merger, according to sources familiar with documents. (Reporting by Julie Vorman and Kim Dixon, editing by Leslie Gevirtz)
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Because they were so blinded by the massive profits they were reaping before the bubble burst?
Then how is the Fed looking out for these guys?
Every private organization always puts its shareholders first.
Not exactly true, but ok. Good thing the Fed isn't a private organization. Because it is... you know, public AND private. The whole "people run it appointed by Congress" and "answers to Congress" thing kinda shows that.
I'm pretty sure I did. No, it shouldn't.
Not really. The closest you got was when you stated "Real regulators" but you really never stated who those regulators should be.
An agency that doesn't have ties to them.
But any agency WILL have ties to them because they're going to regulate them.
What you're essentially saying is you don't want a national bank?
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But any agency WILL have ties to them because they're going to regulate them.
What I mean is someone who is not owned by them.
Then how is the Fed looking out for these guys?
By helping them get richer then bailing them out when it explodes in their face?
Because it is... you know, public AND private. The whole "people run it appointed by Congress" and "answers to Congress" thing kinda shows that.
And yet they ignored a house panel's request for information about above mentioned deal, leading to a subpeona.
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What I mean is someone who is not owned by them.
The banks don't own the Federal Reserve. It's not like a regular company so owning stock doesn't translate to ownership. Those banks don't get to influence the decisions of the Fed. The elect part of a board of directors who answer to the elected officials, who answer to Congress.
By helping them get richer then bailing them out when it explodes in their face?
That's their job? You brought up 1929 for when they failed to do something. Which is it? Are they supposed to help the banks or leave them on their own?
And yet they ignored a house panel's request for information about above mentioned deal, leading to a subpeona.
I'm still failing to see how this changes anything. The fact that they did get a subpoena means they do answer to them.
A subpoena IS answering to Congress.
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Which is why it's an independent organization so they don't have to worry about what is politically favorable.
Which sounds good right up unto the point where the Congress passed a bill instructing the Fed to relax existing restrictions to make it easier for people who have no damn business buying a house in the first place to do so. Which is how we ended up here in the first place. You cannot guarantee someone who can't even get a small loan to buy a used car the mortgage they need to buy a house valued at over $100,000. Yet they did, do you see what I'm getting at?
So yes, the Fed, like every other politically created organization, is lousy with corruption and back-scratching.
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Which sounds good right up unto the point where the Congress passed a bill instructing the Fed to relax existing restrictions to make it easier for people who have no damn business buying a house in the first place to do so. Which is how we ended up here in the first place. You cannot guarantee someone who can't even get a small loan to buy a used car the mortgage they need to buy a house valued at over $100,000. Yet they did, do you see what I'm getting at?
Wouldn't you blame the banks for actually giving the people the loans without doing proper background checks? None of these banks were forced to give out these crappy loans, it was simply easier to do so. The banks just jumped on it because it could make them a ton of money.
As if we can't possibly blame the banks for actually walking through the door because they're banks and banks are greedy. We're going to blame the Fed for opening the door.
So yes, the Fed, like every other politically created organization, is lousy with corruption and back-scratching.
I still have yet to see real evidence of how these banks somehow pay off the Fed. How are these banks sending stuff to the Board of Governors?
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I'm just gonna deal with the flaw in understanding you seem to have about banks:
Wouldn't you blame the banks for actually giving the people the loans without doing proper background checks? None of these banks were forced to give out these crappy loans, it was simply easier to do so. The banks just jumped on it because it could make them a ton of money.
Banks exist to make they're account holders and stock holders money. Not to fund some nutjob social scheme. Banks make loans because you sign a contract with them saying that you'll pay the loaned amount plus some agreed upon amount above the loaned amount as a fee for receiving the loan. The situation we have was precipitate, at least in part, by politicians deciding that it would be good for they're political fortunes for they're constituents to have access to affordable housing. That's a good thought, admirable thought, one that deserves examination. The problem stems from the fact that you have people who understand less about how good fiscal management than I understand about attracting a female. They released the reins and the horse took off and for a while it was a great ride, but horse has tried to jump a ravine that was too wide and now we're stuck with a lamed up horse and no one wants to put it out of it's misery.
Using less anologies, a person who makes $30,000 at the hairdressers with 3 kids and no savings has ABSOLUTELY no business buying a house worth 3 times they're annual income much less 10 times, like they were doing at the peak of the bubble. It's like asking the gangster to leave your incisors in when he beats you to a pulp for reneging on a deal. Nothing but trouble.
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I'm just gonna deal with the flaw in understanding you seem to have about banks:
Oh goodie.
Banks exist to make they're account holders and stock holders money. Not to fund some nutjob social scheme.
I assume the following story will tell me how these banks did this to make money and not out of some social scheme. This was a good preface so I can tell.
Banks make loans because you sign a contract with them saying that you'll pay the loaned amount plus some agreed upon amount above the loaned amount as a fee for receiving the loan.
I'm glad you explained the concept of a loan to me.
The situation we have was precipitate, at least in part, by politicians deciding that it would be good for they're political fortunes for they're constituents to have access to affordable housing. That's a good thought, admirable thought, one that deserves examination. The problem stems from the fact that you have people who understand less about how good fiscal management than I understand about attracting a female. They released the reins and the horse took off and for a while it was a great ride, but horse has tried to jump a ravine that was too wide and now we're stuck with a lamed up horse and no one wants to put it out of it's misery.
So who's the one with bad fiscal policy? The banks or the politicians? Because I have yet to see anyone tell me how these banks were FORCED to give these loans out, forced to ignore salary levels and credit checks and forced to engage in any of this activity.
"The stupid politicians made it easier for banks to give out stupid loans!"
Using less anologies, a person who makes $30,000 at the hairdressers with 3 kids and no savings has ABSOLUTELY no business buying a house worth 3 times they're annual income much less 10 times, like they were doing at the peak of the bubble. It's like asking the gangster to leave your incisors in when he beats you to a pulp for reneging on a deal. Nothing but trouble.
So why did the banks give the loan? Banks can't reject loan applications based on ability to pay?
Let me see if I get this right.....
Politicians, in an effort to garner votes among the poor (people would be using these loans to buy homes) passed laws forcing banks to give loans to people who couldn't possibly pay them back. Banks, knowing they had zero say in the matter, gave out these loans they knew couldn't be paid back. They then sold those loans to other institutions, earning a nice fee.
And it's NOT
Banks use relaxed lending laws to give massive amounts of credit to people who couldn't get it before in an effort to get in on the giant rise in housing prices?
Really? People were (and are) getting huge loans and giant lines of credit because the government made them do it? These poor defenseless banks didn't have a say in the process that made them crazy rich until it all fell apart and we needed people to blame?
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So why did the banks give the loan? Banks can't reject loan applications based on ability to pay?
To make money off of it, duh. Whenever you take out a loan that amount of money gets added to the banks balance sheets because they assume you will pay it back, they only get into trouble and have to write it down if you default.
Banks use relaxed lending laws to give massive amounts of credit to people who couldn't get it before in an effort to get in on the giant rise in housing prices?
Because for them that's where the profits were.
Are they supposed to help the banks or leave them on their own?
They're supposed to stop situations like 1929 or what is happenening now from happening, and they didn't. The main selling point of the 1913 federal reserve act was to setup a system to stop bank panics.
The fact that they did get a subpoena means they do answer to them.
A subpoena IS answering to Congress.
Congress can subpeona anyone for anything, that they had to go to such an extreme measure to get answers (the fed did ignore an info request leading to this) shows the contempt for congress.
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To make money off of it, duh. Whenever you take out a loan that amount of money gets added to the banks balance sheets because they assume you will pay it back, they only get into trouble and have to write it down if you default.
That's my point. This is not a "evil politicians made us" scenario (well not entirely), this is a "lets make a ton of money off these new lenders cause of this new law!"
Because for them that's where the profits were.
They made an assload of money selling these mortgages to investors. Not because the lawmakers wanted them to give houses to poor people for votes.
They're supposed to stop situations like 1929 or what is happenening now from happening, and they didn't. The main selling point of the 1913 federal reserve act was to setup a system to stop bank panics.
Two things:
1. It's kinda hard to thank the Fed for banking panics they avert.
"Hey. Remember that banking panic that didn't happen?"
"....No?"
"Thank the Fed!"
2. IF you assume the buddy buddy system that has been generalized here, wouldn't you have to agree that they would have done what they could to help their buddies in this crisis?
If these guys have this "scratch my back" thing going on and STILL managed to screw it up and it all go to hell, then I am not worried because these guys suck at corruption then.
Congress can subpeona anyone for anything, that they had to go to such an extreme measure to get answers (the fed did ignore an info request leading to this) shows the contempt for congress.
You're showing the mechanism by which Congress is exerting its authority. We've already established they answer to Congress, we've seen how they must comply with audits by other parts of government.
Them trying to get out of one request is a dick move, and sure to fail, but it is not "These guys are above the law!"
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They're not above the law, they just think they are, that applies to both Fed managers and also, unfortunately, Congress these days.
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And it's time to show them they aren't. They have rules and laws they have to follow because it's their job to watch these things.
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[quote\
That's my point. This is not a "evil politicians made us" scenario (well not entirely), this is a "lets make a ton of money off these new lenders cause of this new law!"
[/quote]
Which is exactly what I said, and the fed should have reigned it in.
You're showing the mechanism by which Congress is exerting its authority. We've already established they answer to Congress, we've seen how they must comply with audits by other parts of government.
By that logic Mark McGuire also answers to congress.
1. It's kinda hard to thank the Fed for banking panics they avert.
Like what?
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Which is exactly what I said, and the fed should have reigned it in.
That's what I've said since the thread started. They don't need to be removed or replaced, they need to do their job.
By that logic Mark McGuire also answers to congress.
We know they answer to Congress because a law exists that says they do. If my boss calls me in for a meeting and I don't go... I STILL answer to my boss.
Like what?
You want me to point out when we didn't have banking panics?
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That's what I've said since the thread started. They don't need to be removed or replaced, they need to do their job.
No it isn't, you said we should give them all kinds of new powers. Are you not understanding what you said earlier or are you just trolling?
You want me to point out when we didn't have banking panics?
You made the claim, you back it up.
We know they answer to Congress because a law exists that says they do. If my boss calls me in for a meeting and I don't go... I STILL answer to my boss.
Congress can subpeona anyone for any reason.
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No it isn't, you said we should give them all kinds of new powers. Are you not understanding what you said earlier or are you just trolling?
As I've said before, I think they need new powers, but new powers wouldn't have solved this particular crisis. Considering the article wasn't even about this crisis and the thread only derailed to it later, my opinion on the Federal Reserve as a whole could be somewhat different.
You made the claim, you back it up.
Uh ok...
"every single time the Fed changed or didn't change an interest rate and it didn't lead to a banking panic"
You're asking me to show how good driving averts accidents by pointing out all the times I didn't have an accident.
Remember any point in the past 100 hundred years where we didn't have a banking panic? Then.
Congress can subpeona anyone for any reason.
And here is the reason.......
The Fed answers to Congress.
Why do you think they're using a subpoena? They're supposed to answer to Congress and they're not.
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They're supposed to answer to Congress and they're not.
I think so too.
I think they need new powers, but new powers wouldn't have solved this particular crisis.
Then they don't need no powers, simple as that.
You're asking me to show how good driving averts accidents by pointing out all the times I didn't have an accident.
No, I'm asking you to point out all the accidents that would have happened if you weren't a good driver.
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No, I'm asking you to point out all the accidents that would have happened if you weren't a good driver.
:wtf:
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I think so too.
We know that, we don't think that.
Then they don't need no powers, simple as that.
Someone has to and I can say for sure whoever has it will mess up at some point. To expect a regulatory agency to never make mistakes is kinda weird. It's never going to happen.
No, I'm asking you to point out all the accidents that would have happened if you weren't a good driver.
:wtf:
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BL, he's asking you point out times in economic history where the fed has done they're job and it's been all over the news. It's not news when somethings works the way it's supposed to, it's only news when it doesn't.
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BL, he's asking you point out times in economic history where the fed has done they're job and it's been all over the news. It's not news when somethings works the way it's supposed to, it's only news when it doesn't.
:nod:
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BL, he's asking you point out times in economic history where the fed has done they're job and it's been all over the news. It's not news when somethings works the way it's supposed to, it's only news when it doesn't.
That's what I said when I said...
Two things:
1. It's kinda hard to thank the Fed for banking panics they avert.
"Hey. Remember that banking panic that didn't happen?"
"....No?"
"Thank the Fed!"
He then said "like what?"
As you've pointed out, that's almost impossible to do. So does he really want me to point out all the banking panics that didn't happen or is he just being argumentative because he's run out of arguments?
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That's what I said when I said...
I'm pretty sure that is not what you meant.
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I even gave a fake example to spell out what I meant. :wtf:
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And that made it quite clear you didn't understand what I was asking.
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What exactly was your point then when you said
"They're supposed to stop situations like 1929 or what is happenening now from happening, and they didn't. The main selling point of the 1913 federal reserve act was to setup a system to stop bank panics."
This outta be good.
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Ok, I saw video of Bernake saying that if they were to allow people to look at they books it might destabilize the dollar and wreck the economy...
This guy's outta control.
This is why I didn't want Obama in office. Not cause he's a black man, not cause he's a Democrat, but because I knew he was gonna appoint people who were gonna try and do a power grab for whatever department he made them head of.
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Obama must be pretty powerful if he could put in this guy in 2006 when he took over for Alan Greenspan.
Remember 2006? When Bush was still in office?
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Ok, I saw video of Bernake saying that if they were to allow people to look at they books it might destabilize the dollar and wreck the economy...
This guy's outta control.
This is why I didn't want Obama in office. Not cause he's a black man, not cause he's a Democrat, but because I knew he was gonna appoint people who were gonna try and do a power grab for whatever department he made them head of.
Sweet lord, you're thick.
I mean, I know we're not supposed to make personal attacks, but...seriously. That just takes the cake.
As Blue Lion pointed out, Bush appointed Bernanke.
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Ok, I saw video of Bernake saying that if they were to allow people to look at they books it might destabilize the dollar and wreck the economy...
This guy's outta control.
This is why I didn't want Obama in office. Not cause he's a black man, not cause he's a Democrat, but because I knew he was gonna appoint people who were gonna try and do a power grab for whatever department he made them head of.
Bush did exactly the same stuff man.
What exactly was your point then when you said
"They're supposed to stop situations like 1929 or what is happenening now from happening, and they didn't. The main selling point of the 1913 federal reserve act was to setup a system to stop bank panics."
This outta be good.
Are you just trolling or do you have a hard time understanding simple concepts? Name one case of a near miss which was only averted by intervention from the Federal Reserve.
I mean, I know we're not supposed to make personal attacks, but...seriously. That just takes the cake.
Helicopter Ben really is out of control though.
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Are you just trolling or do you have a hard time understanding simple concepts? Name one case of a near miss which was only averted by intervention from the Federal Reserve.
Why does it have to be a near miss? Secondly, how do you define a near miss banking panic?
Thirdly, why is this to the exclusion of non near misses? Why are we skipping the time when the Federal Reserve actually does their job? Are you saying that every time the Fed changes something (or announces they aren't changing something) they are doing it for giggles? They lost a bet?
I love this because the only way you'll agree the Fed actually does something is if they let the economy totally tank and then jump in at the last second to save the day.
Right now, when they didn't change interest rates, because we weren't on the edge of falling into another banking panic, it doesn't count as anything.
This is my entire point. People will only jump on them when they do things wrong, because if they do things right, it's not supposed to stand out. We've had 3 banking panics since the Fed came. The Great Depression, S&L and now. And you're saying those panics were caused by the Fed and none averted?
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I haven't seen a panic yet.
There haven't been any runs on any banks or anything. There's not been any riots in the street.
The only run I've seen on banks has been the government rushing to take over...
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I haven't seen a panic yet.
There haven't been any runs on any banks or anything. There's not been any riots in the street.
The only run I've seen on banks has been the government rushing to take over...
Bear Sterns went right down the tubes. Luckily the FDIC took care of most people's fears, but still.
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Which is what it's for.
What's been established is that certain businesses won't be allowed to fail, even if they should. GM shoulda been gone several years ago.
It's cold, I know that, there are living, breathing people who depend on these businesses for a living. But what about the other people who have poured they're retirement or life savings into a business or corporation that mishandled they're money and it's all gone? Don't they deserve some kind of recompense for they're investment?
Bankruptcy isn't a dirty word.
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I haven't seen a panic yet.
There haven't been any runs on any banks or anything. There's not been any riots in the street.
The only run I've seen on banks has been the government rushing to take over...
Give me time, just give me some time ;7
whoooo hahahahahahhahaahahhahahaha :drevil:
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Which is what it's for.
What's been established is that certain businesses won't be allowed to fail, even if they should. GM shoulda been gone several years ago.
It's cold, I know that, there are living, breathing people who depend on these businesses for a living. But what about the other people who have poured they're retirement or life savings into a business or corporation that mishandled they're money and it's all gone? Don't they deserve some kind of recompense for they're investment?
Bankruptcy isn't a dirty word.
You want these people to get money for nothing? That's very bailout-y of you.
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Which is what it's for.
What's been established is that certain businesses won't be allowed to fail, even if they should. GM shoulda been gone several years ago.
It's cold, I know that, there are living, breathing people who depend on these businesses for a living. But what about the other people who have poured they're retirement or life savings into a business or corporation that mishandled they're money and it's all gone? Don't they deserve some kind of recompense for they're investment?
Bankruptcy isn't a dirty word.
Bankruptcy should be a dirty word (not in the porno sense :p )
It should be treated very seriously. Blue collar crime, (as its called) is causing thousands of people to lose their savings, jobs and way of life. Not simply good enough, that people get off with it, while keeping their personal millions. Free to make the same mistake again.
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I think what Liberator was trying to say is that bankruptcy can be a vital part of the creative destruction necessary for capitalism to function properly. Right now GM is making poor use of its available resources, preventing other companies from making better use of them. If GM were to dissolve, companies that would make more efficient use of its former resources would get the resources, and put them to better use. GM's employees that are not being used to their highest productivity would go and be hired by another company, possibly for higher pay, and the financial capital that is invested in GM would go to a different company, that would probably put it to use expanding their plants and hiring workers, increasing productivity.
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That I definitely agree with.
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Thanks Sparda, I apparently wasn't clear enough in my comment.
GM is being dragged down by they're all but biological ties to the UAW, which now owns part of the company from what I've seen/heard/read. I guess that's a big "Thank You for your support and getting me elected!" from certain politicans.
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Of course they're making poor use of their assets.... they're in bankruptcy. If workers and investors want to go elsewhere, they are certainly entitled to. If these other car companies (or I guess any company) want their assets (like what, anyways? Workers? Factories? Contracts with parts manufacturers?) there is nothing stopping them.
They can't just dissolve and go away. They have debts they have to pay and ARE currently selling off parts of the company.
But the only people who have the money to BUY all the stuff is Vehicle Acquisition Holdings LLC. If you've never heard of this company, you should. If you're an American or Canadian citizen, your government is part owner.
60.8% US treasury
11.7% Government of Canada and Ontario
17.5% UAW
10% "Old" GM
But I am curious, is the UAW dragging the company down by getting the workers more money, or can these workers get even more money somewhere else? And why isn't THAT company being dragged down?
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But I am curious, is the UAW dragging the company down by getting the workers more money,
They are already overpaid. I've heard wages for your typical assembly line worker are $60+ per hour.
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Take this article for what it's worth. But the "assembly line worker makes an ungodly amount of money" is just untrue. As stated in the article, if that were true, the average assembly worker would be making 150k a year.
http://www.tnr.com/story_print.html?id=1026e955-541c-4aa6-bcf2-56dfc3323682
I won't post the whole article but I'll put some tidbits.
More important, and contrary to what you may have heard, the wages aren't that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories. While we can't be sure precisely how much those workers make, because the companies don't make the information public, the best estimates suggests the corresponding 2007 figure for these "transplants"--as the foreign-owned factories are known--was somewhere between $20 and $26 per hour, and most likely around $24 or $25. That would put average worker's annual salary at $52,000 a year.
But then what's the source of that $70 hourly figure? It didn't come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits--namely, health insurance and pensions--and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages--again, $28 per hour--and you get the $70 figure. Voila.
Except ... notice something weird about this calculation? It's not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that--probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees--in other words, the cost of benefits for other people. One of the few people to grasp this was Portfolio.com's Felix Salmon. As he noted yesterday, the claim that workers are getting $70 an hour in compensation is just "not true."
If regular old workers in Detroit were making 150k a year, Detroit wouldn't be Detroit.
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If regular old workers in Detroit were making 150k a year, Detroit wouldn't be Detroit.
A.) There are very few of those workers compared with before, most of them have been laid off by now.
B.) What's left made a run for the suburbs.
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A.) There are very few of those workers compared with before, most of them have been laid off by now.
So what does the average worker make then?
There aren't average assembly line workers who make $70 an hour. The average worker in the UAW makes about the same as other workers or other companies. They just extra health care and pensions. The simple fact that you thought an assembly line worker would be one of the highest paying jobs in the country is very telling.
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It's not how much they were making, it's certain other concessions, like a job pool where you can go and sit in this room for 8 hours a day, playing cards or gameboy or whatever, waiting for a job to come along, and then have the freedom to turn it down and continue to sit there, drawing pay and benefits, because the job wasn't exactly what you wanted.
I heard about this policy from a gentleman on NPR of all places, he had called in to talk about this subject and he related the story about how he had used this service the company offered him and after about 3 weeks a posting came up that this other guy was offered and he didn't take it, it was exactly what he wanted except that he would have to move to Minnesota, which he was apparently unwilling to do. What would you have done?
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Not moved. I'm not moving to MN. Even if they didn't pay me in the meantime.
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There's the point, he was allowed to turn down the job offer AND stay in the pool. I can understand once or twice, but we dont' know how many people sat in and possibly continue to sit in that room drawing vital monies away from more company critical usage.
I've been accused of being a union buster, but I don't see the point of striking for a $5 an hour raise when I'm already comfortable. Unions are obsolete in all ways except that they are major Democratic contributors, even though the rank and file probably would donate to the other side(s) given the choice.
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Can't these companies just not use unions? If they're so outdated, why don't these companies just stop using them? Can't they just hire people outside of unions?
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Can't these companies just not use unions? If they're so outdated, why don't these companies just stop using them? Can't they just hire people outside of unions?
In many cases, no, due to contract issues.
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Forever? Then these guys are morons then for signing permanent contracts with a workers union.
But I'm going to guess it's not permanent and these companies can let the contracts lapse.
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Forever? Then these guys are morons then for signing permanent contracts with a workers union.
But I'm going to guess it's not permanent and these companies can let the contracts lapse.
The unions have significant monetary and political clout (which is usually a sign a union has outlived it's usefulness, but I digress), and more to the point, this is not unskilled but skilled work. If they break from union contracting, there's no source of replacement workers because they are union shops. The system is a very effective trap. Something similar has more or less destroyed education in California.
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And ever other state in the nation... :sigh:
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It works the other way too doesn't it? If they fire them, where will the workers go to get jobs?
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Forever? Then these guys are morons then for signing permanent contracts with a workers union.
But I'm going to guess it's not permanent and these companies can let the contracts lapse.
It wasn't always that way, but american labor in the industrial cities got organized because of abusive employers in the late 19th and early 20th centuries, ever since then they have been entrenched and virtually impossible to remove.
So what does the average worker make then?
There aren't average assembly line workers who make $70 an hour. The average worker in the UAW makes about the same as other workers or other companies. They just extra health care and pensions. The simple fact that you thought an assembly line worker would be one of the highest paying jobs in the country is very telling.
What I meant by there aren't as many of those workers as before was that since the 1970's the majority of assembly line workers have been laid off.
And they did make the equivelent of $73 dollars an hour, at least until 2007
According to Bloomberg.com, hourly pay and benefits for non-core jobs will be $28, compared with $51 for current UAW workers. GM estimates its hourly labor costs for current UAW employees at $73.
source (http://www.wsws.org/articles/2007/oct2007/uaw-o05.shtml)
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It wasn't always that way, but american labor in the industrial cities got organized because of abusive employers in the late 19th and early 20th centuries, ever since then they have been entrenched and virtually impossible to remove.
So you're telling me unions have signed unending contracts with companies. This just sounds like incompetent management. Why would companies even sign these insane contracts they can never ever break when a lot of these companies were created after all this union stuff happened?
What I meant by there aren't as many of those workers as before was that since the 1970's the majority of assembly line workers have been laid off.
And they did make the equivelent of $73 dollars an hour, at least until 2007
So what you're saying is these companies paid employees... for at least 40 years if not more... the equivalent of $73 an hour THEN gave them pensions, THEN gave them health benefits? That's a complete lie.
According to Bloomberg.com, hourly pay and benefits[/i] for non-core jobs will be $28, compared with $51 for current UAW workers. GM estimates its hourly labor costs for current UAW employees at $73.
source (http://www.wsws.org/articles/2007/oct2007/uaw-o05.shtml)
I highlighted my own part. Did you not even read the article I posted?
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It's was not like that 50 years ago, the union peeps were well paid, but not outrageously so comparatively with similar semi-skilled labor.
It wasn't until more recently that increasing demands for higher and higher wages and more and more healthcare on the part of the Union, not the employees.
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So what you're saying is these companies paid employees... for at least 40 years if not more... the equivalent of $73 an hour THEN gave them pensions, THEN gave them health benefits? That's a complete lie.
That is not what I said, and this isn't the first time you "misunderstood" what I said. Learn how to read. Equivelent means that if they didn't have the extra stuff that is what their wages would come out to be.
This just sounds like incompetent management. Why would companies even sign these insane contracts they can never ever break when a lot of these companies were created after all this union stuff happened?
You were right for once, it was because of incompetant management. The same management made several other major blunders too.
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And ever other state in the nation... :sigh:
Not hardly. Back in VA, the teacher's union was nowhere near as powerful because the contract from the state was with individual teachers. Some states, unwisely, contract with the union as a whole to provide teachers, making non-union members in schools an effective impossiblity.
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That is not what I said, and this isn't the first time you "misunderstood" what I said. Learn how to read. Equivelent means that if they didn't have the extra stuff that is what their wages would come out to be.
Ok, then who are you talking about making $73 an hour til 2007? Current employees or retired ones? If it's current employees, we've already established they make $28 an hour.
You were right for once, it was because of incompetant management. The same management made several other major blunders too.
Then it's not really the fault of workers for asking for pay raises and then getting them... right? Wouldn't this be about a company not being able to run itself and NOT evil evil unions?
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Ok, then who are you talking about making $73 an hour til 2007?
It is true I originally said that, but it was not the post you were referring to when you accused me of lying.
Then it's not really the fault of workers for asking for pay raises and then getting them... right? Wouldn't this be about a company not being able to run itself and NOT evil evil unions?
That they refused to make concessions in this latest round of negotiations makes it partly their responsibility.
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It is true I originally said that, but it was not the post you were referring to when you accused me of lying.
"And they did make the equivelent of $73 dollars an hour, at least until 2007"
No assembly worker, now or in the 70s, has made the equivalent of $73 an hour. That's upper management pay. There is no average worker who has a salary triple everyone else. No assembly worker comes home with a $3000 paycheck a week.
We established where that total came from. It's includes health benefits and pensions to people who aren't current employees. The average pay for an assembly line worker is about 25-28 an hour. For ALL auto companies. Ford, GM, Toyota, Honda... they all pay their employees about the same. The kicker from GM comes from the legacy pensions and the health care. THAT is where all the money is tied up, not base salary for workers.
It is disingenuous (and I think a flat out lie in this case) to imply that union auto workers for GM make in their base salary 3-4 times what non union workers do.
That they refused to make concessions in this latest round of negotiations makes it partly their responsibility.
GM was willing to take on this health care and benefit package in the 50s and 60s as a means to keep salary low. They saved money then at a cost to them later. It is now later. They don't get to back out a deal they made (it made them sweet money back then).
For more info....
GM's Problems are 50 Years in the Making
by Nate Silver @ 7:45 AM
Let's take something of a 30,000-foot view on the condition of General Motors. The chart below details GM's operating margin -- its profits divided into its revenues -- over the past 50 years:
(http://i699.photobucket.com/albums/vv359/BlueLion/gm.png)
I haven't provided the dates on the chart because they aren't important. The auto business is highly cyclical because consumers are buying expensive assets that last for years at a time. Nobody ever really has to buy a new car (they can buy a used one if their car breaks down), and therefore consumers are willing to hold on to their existing vehicles and wait out economic slumps. You can't do that with, say, a loaf of bread, or even something like a cellphone, which has a much shorter lifespan.
But you knew all of that already. The remarkable thing is that, once you account for the economic cycles, the trend for GM is exceptionally steady -- an exceptionally steady trend downward. There were still bad times thirty years ago -- but they weren't bad enough to threaten GM's survival, and conversely, the good times were much better. These are General Motors' operating margins by decade:
Average Annual Operating Margin, General Motors
1960s: 8.7%
1970s: 5.5%
1980s: 3.0%
1990s: 1.3%*
2000s: -0.5%
* Excludes one-time $20 billion accounting charge for retiree health benefits in 1992.
If I were an alien beaming down from Rigel-3 looking at this pattern -- an alien with an MBA degree -- my first guess is that it would reflect some sort of systemic problem, some chronic imbalance that magnified over time. Something, in other words, like the costs of GM's retiree pension and health care programs. It's difficult to get a precise figure on these so-called legacy costs, but they averaged about $7 billion per year between 1993 and 2007 and are probably at least $10 billion per year now. Considering that GM has never made as much as $10 billion in profit in a year and that its entire operating lossses in 2008 were $13.8 billion, you can see why this is a significant problem.
Of course, GM benefited by promising its employees access to lucrative retirement programs -- it benefited by being able to pay less to those employees in the form of salary. But whereas the benefits to GM came long ago, the costs come now. This, indeed, is the entire crux of the problem, as is cogently explained by this Washington Post article from 2005:
GM began its slide down the slippery slope in 1950, when it began picking up costs for medical insurance, pensions and retiree benefits. There was huge risk to GM in taking on these obligations -- but that didn't show up as a cost or balance-sheet liability. By 1973, the UAW says, GM was paying the entire health insurance bill for its employees, survivors and retirees, and had agreed to "30 and out" early retirement that granted workers full pensions after 30 years on the job, regardless of age.
These problems began to surface about 15 years ago because regulators changed the accounting rules. In 1992, GM says, it took a $20 billion non-cash charge to recognize pension obligations. Evolving rules then put OPEB on the balance sheet. Now, these obligations -- call it a combined $170 billion for U.S. operations -- are fully visible. And out-of-pocket costs for health care are eating GM alive.
GM was willing to cut its employees some very attractive deals in the 1950s through the 1980s -- provided that they took them in the form of retirement benefits rather than salary, which wouldn't hit GM's books until much later and which until 1992 weren't even required to be carried on its balance sheets all, making its financial statements (superficially) more appealing to its shareholders. That health care costs have risen so substantially in the United States have made a bad matter worse.
This issue is wrongly portrayed by both the liberal and the conservative media as one of management versus labor, when really it is a battle between General Motors past and General Motors present. In the 50s, 60s and 70s, everyone benefited: GM and its shareholders got the benefit of higher profit margins, and meanwhile, its employees benefited from GM's willingness to cut a bad deal -- for every dollar they were giving up in salary, those employees were getting a dollar and change back in retirement benefits. But now, everyone is hurting.
Nor does this provide for much in the way of solutions. The retirees might have benefited from GM's short-sightedness -- but they also worked hard Monday through Friday every week of in expectation of receiving the benefits that GM had promised them. From the standpoint of fairness, it would be much better to require GM to take the hit -- but there isn't much of GM left to punish, as its outstanding retiree obligations exceed its market capitalization many times over, and as the decision-makers who led GM into this position left the company decades ago. Today's employees at GM, and the unions that organize them, likewise don't have anything much to do with the problem -- most of the excess costs it requires to produce a Buick versus a Toyota come in the form of legacy costs, not what those employees are receiving in salary and benefits today. And the taxpayer is bound to to get screwed either way, either picking up the tab to bail out GM, or bearing the costs of the pension programs, which are guaranteed by the government (although the legacy health benefits aren't guaranteed).
Policy-makers, finally, share in the blame too. General Motors might be the latest casualty of the distorted incentives created by our employer-based health care system. Meanwhile, the government would probably improve incentives by providing a more generous Social Security guarantee in lieu of guaranteeing private pension programs. The whole idea of Social Security is that people do an inadequate job of saving when left to their own devices. But companies, even companies as big and proud as General Motors, are overly concerned with the present as well.