Help me battle my teacher's indoctrination

[PLOlover]

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Starts working at 20 and retires 30 years later at 50? That's some damned early retirement.

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I think it's just your top ten earning years. but in the example I just made it a 2:1 ratio.

[Copernicus]

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I don't know enough about Enron. Some of the problems may go all the way back to our government conception of a corporation. I'll let others comment on this.

Sub-prime lending is a natural result of moral hazard created by government in the first place. <font color="red"> irrelvant interjection of your own morality</font>

First in the way the Fed runs out monetary policy to promote borrowing and spending over saving. This might take a lot of study and I guarantee your professor wouldn't understand it. <font color="red"> do you? monetary policy favors moderate inflation over risk of deflation, which can promote borrowing. So what? </font>

Second is our governments favoring of mortgage debt through interest tax deductions amongst a variety of other subsidies. The governement favors people who take out giant mortgages. <font color="red">the mortgage issue itself is no different than the first issue of favoring debt over savings. if individuals cant afford a home without a mortgage deduction, they rent, and the landlord takes a deduction for his mortgage. the real import of the mortgage deduction is that it does encourage individual ownership, which in turn helps drive the economy since people naturally spend more on their own home than they would on a rental property </font>

Third is our government has created an atmosphere were people expect to be bailed out, leading to moral hazard and a propensity to take risks. Ask about the S+L crises in the 80s, the LTCM bailout in '98, the "Greenspan put". <font color="red">I dont think there is a single company that bases a single decision based on expectation of a bailout </font> Recentely our new Fed chief slashed rates 50bp, devauling the savings of Americans to bailout the sub-prime crowd, no doubt ensuring people will engage in the same practices next decade expecting another bailout. <font color="red"> how is it a bailout of the subprime crowd? be specific. why do you think that a reduction in interest rates wasnt appropriate given other economic conditions? </font>

Social Security is a giant ponzi scheme. <font color="red"> no its not</font> The program uses the same accounting as Enron. <font color="red">no it doesnt, but its irrelevant if it did. Its not the accounting system that caused Enrons failure it was greed. </font> If the government was a private entity it would have been shut down for massive fraud related to these programs. <font color="red"> no it wouldnt, because government accounting is not the same as GAAP and shouldnt be for several reasons </font>

Your professor likely advoates reduced military spending to pay for SS and Medicare. In addition to not being enough a much better question to ask is why such funds should go to SS and Medicare when they can be given back to the people through lower taxes. People can then invest that money for thier own retirement, ensuring money is actually there for thier retirement rather then being squandered by the governemnt. <font color="red"> one has nothing to do with the other, conflating them is just political rhetoric </font>

Scandanavia does great because it is sitting on as much oil as Saudi Arabia. They are better run the the rest of Europe due to thier smaller size, but they suffer from many of the same demographic problems and if not for the oil they would have the same financial problems as France. France is a good example of how [censored] things would be with socialism in America.

[/ QUOTE ] <font color="red">you got one right, congrats </font>

Lehigh should be embarassed if this the quality of thinking they turn out.

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Odd you say that considering you don't even know what moral hazard means. quote:
him: "Sub-prime lending is a natural result of moral hazard created by government in the first place."
you: " irrelvant interjection of your own morality"

hint: He's not making a moral judgment by identifying a moral hazard. It's a specific terms that describes a specific kind of financial or public policy situation.

natedogg

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Odd that you say that when moral hazard specifically refers to one party's ability to act to the detriment of the other party (ie to act immorally by some standards) because of its insensitivity to risk.

"moral" didnt get into the phrase by accident.

[knowledgeORbust]

Your teacher clearly is not being objective, and is presenting his own thoughts. Debating him in class seems like a good route, I'd just wait until you had a very strong line of points to make, about a subject you were very familiar with. I very recently learned that universities welcome students to approach department heads about problems with teachers. I've had some very [censored] teachers at my school, and plan to talk to the university about them before I graduate; I'd suggest you talk to someone about a professor blatantly spouting his own subjective beliefs.

I've read up on Enron and have been thinking about how this company might represent companies' actions in ACland. Ken Lay was a huge proponent of unregulated markets and Enron tended to follow this notion. Problem is that I have not studied AC enough and am not sure whether or not organizations like the FTC would arise or not. Even in ACland, there would likely be laws against the blatant deceit that ran rampant through Enron; as mentioned earlier, these guys seems like exceptions to human behavior: they were taking massive risks, and even in an unregulated market, those risks would still exist and deter crazy mofos.

The problem in ACland is if these guys just pay off the security companies.

[Copernicus]

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Starts working at 20 and retires 30 years later at 50? That's some damned early retirement.

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I think it's just your top ten earning years. but in the example I just made it a 2:1 ratio.

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thought I responded to this but my comp froze and I dont see it. Benefits are based on all years of earnings back to 1951, adjusted for inflation.

In the heritage example you arent taking into account post-retirement cost of living adjusments, which increase the payouts.

In your original quesiton (1990 retiree, 30 years earnings and 15 years of payout), my comp froze before I could save the spreadsheet but the ROR that exactly exhausted his theoretical "self savings" on his date of death was 7.76%. And that doesnt take into account the potential for a lower earning or non-working spouse increasing the value.

[lehighguy]

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irrelvant interjection of your own morality

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It means that people are more likely to engage in risky behaivor if they think they will get bailed out. What is hard to understand about this?
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do you? monetary policy favors moderate inflation over risk of deflation, which can promote borrowing. So what?

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I hardly call double digit yearly expansion of M3 and a 50% decline in the value of the dollar over five years moderate inflation. Hell they won't even track M3 anymore cause it has gotten so embarrasing. Thank god the Chinese buy so much of our inflation.

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the mortgage issue itself is no different than the first issue of favoring debt over savings. if individuals cant afford a home without a mortgage deduction, they rent, and the landlord takes a deduction for his mortgage. the real import of the mortgage deduction is that it does encourage individual ownership, which in turn helps drive the economy since people naturally spend more on their own home than they would on a rental property


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Are you listening to yourself. The property owner (whether direct or for renting out) get a huge tax deduction on thier interest payments. This artificially lowers the cost of debt for just one product. Are you surprised that people take out a tone of debt to purchase that product?

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I dont think there is a single company that bases a single decision based on expectation of a bailout


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This assumption has absolutely no basis.

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how is it a bailout of the subprime crowd? be specific. why do you think that a reduction in interest rates wasnt appropriate given other economic conditions?


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Most of these loans were ARMs. The payments go up with interest rates. Lower interest rates means lower payments. Duh.

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no it doesnt, but its irrelevant if it did. Its not the accounting system that caused Enrons failure it was greed.


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Of course it is relevant. They run a retirement fund with no assets. What happens when you have a ton of liabilities, no assets, and projected revenue isn't enough to cover liabities.

The government has been actuarial insolvent for a long time. Reports get published every year. They keep the future cost of these programs off the balance sheet and use the current revenue surplus to fund current expenditures not even related to the programs.

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because government accounting is not the same as GAAP and shouldnt be for several reasons


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Yes, and those reason include misinformation and theft.

[BCPVP]

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Sub-prime lending is a natural result of moral hazard created by government in the first place.

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irrelvant interjection of your own morality

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Uh, no. A moral hazard has little to do with morality. The only morality that comes into play is deciding whether the outcome is a good or bad thing. But you can't deny that the outcome exists.

Lol, first section from wikipedia under moral hazard:
"Moral hazard in finance

Financial bail-outs of lending institutions by governments, central banks or other institutions can encourage risky lending in the future, if those that take the risks come to believe that they will not have to carry the full burden of losses. Lending institutions need to take risks by making loans, and usually the most risky loans have the potential for making the highest return. A moral hazard arises if lending institutions believe that they can make risky loans that will pay handsomely if the investment turns out well but they will not have to fully pay for losses if the investment turns out badly. Taxpayers, depositors, other creditors have often had to shoulder at least part of the burden of risky financial decisions made by lending institutions."

[DcifrThs]

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irrelvant interjection of your own morality

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It means that people are more likely to engage in risky behaivor if they think they will get bailed out. What is hard to understand about this?

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and you think that this moral hazard came from the governemnt? how come this hasn't happened in countries that had similarly low interest rates and even higher runup in housing prices and subprime mortgages?

answer: the moral hazard came from financial innovation in moving loans off of the balance sheets of those who made them. without that financial engineering (CDOs, ABCP etc.), the subprime problem wouldn't be nearly as bad as it has become.

you can blame the lower interest rates (i.e. the fed &amp; china) for SPURRING that innovation since many market participants searching for yield had a large demand for more complex, similarly rated higher yielding (which shoulda been a sign) securities.

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do you? monetary policy favors moderate inflation over risk of deflation, which can promote borrowing. So what?

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I hardly call double digit yearly expansion of M3 and a 50% decline in the value of the dollar over five years moderate inflation. Hell they won't even track M3 anymore cause it has gotten so embarrasing. Thank god the Chinese buy so much of our inflation.

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whenever people make the statement of the fed not tracking M3 anymore b/c it is embarrasing, i laugh. M3 yields no more information about the money supply than M2 does and it costs more to collect. how is this hard to understand?

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the mortgage issue itself is no different than the first issue of favoring debt over savings. if individuals cant afford a home without a mortgage deduction, they rent, and the landlord takes a deduction for his mortgage. the real import of the mortgage deduction is that it does encourage individual ownership, which in turn helps drive the economy since people naturally spend more on their own home than they would on a rental property


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Are you listening to yourself. The property owner (whether direct or for renting out) get a huge tax deduction on thier interest payments. This artificially lowers the cost of debt for just one product. Are you surprised that people take out a tone of debt to purchase that product?

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again, this isn't the cause of the subprime crisis. this is a factor, but not even a major one relative to financial innovation/engineering

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I dont think there is a single company that bases a single decision based on expectation of a bailout


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This assumption has absolutely no basis.

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agreed. but neither does the inverse.

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how is it a bailout of the subprime crowd? be specific. why do you think that a reduction in interest rates wasnt appropriate given other economic conditions?


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Most of these loans were ARMs. The payments go up with interest rates. Lower interest rates means lower payments. Duh.

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yet the bailout (lower interest rates) isn't helping. mortage rates are still high, lenders can't offload the loans for securitization and resale so they are now finally restricting their loans to those who they would WANT to ahve on their balance sheets.

further, i do highly doubt that subprime borrowers made the decision for arms based on the expectation of falling rates seeing as how rates have been rising for 4 years. they did it based on the increase in housing prices. they felt that they'd have more equity in the value in their home in a few years to cover the cost of not paying downtheir debt.

the bailout is far more germane to risk takers in the securities markets than subprime borrowers. it isn't even close.

50bps doesn't even TOUCH the amount they've lost in home price decline.

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no it doesnt, but its irrelevant if it did. Its not the accounting system that caused Enrons failure it was greed.


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Of course it is relevant. They run a retirement fund with no assets. What happens when you have a ton of liabilities, no assets, and projected revenue isn't enough to cover liabities.

The government has been actuarial insolvent for a long time. Reports get published every year. They keep the future cost of these programs off the balance sheet and use the current revenue surplus to fund current expenditures not even related to the programs.

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because government accounting is not the same as GAAP and shouldnt be for several reasons


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Yes, and those reason include misinformation and theft.

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i stopped reading after that since i stopped caring. i am most qualified to talk to monetary aggregates and the subprime issue.

Barron

[Low Key]

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So at the beginning of your post you seem to be defending this poor excuse for a teacher, but at the end you point out the right way to teach. Which is it? If the teacher "pointed out when he was inserting his particular bias," the OP wouldn't have posted here!

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Here's all we know. The OP disagrees with the POV of his teacher. Could it be possible that the teacher is making it obvious that it's his POV and not fact? Could it be that the OP has tainted the story with his own subjectiveness? (He obviously disagrees with the teacher) Maybe. That's why I both defend the teacher and condemn 'his way of teaching' (i.e. the way we're told he teaches).

[Bedreviter]

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Scandanavia does great because it is sitting on as much oil as Saudi Arabia. They are better run the the rest of Europe due to thier smaller size, but they suffer from many of the same demographic problems and if not for the oil they would have the same financial problems as France.

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Norway is the only country in Scandinavia with oil, and Im fairly sure we have a lot less oil than Saudi Arabia.

[AlexM]

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So at the beginning of your post you seem to be defending this poor excuse for a teacher, but at the end you point out the right way to teach. Which is it? If the teacher "pointed out when he was inserting his particular bias," the OP wouldn't have posted here!

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Here's all we know. The OP disagrees with the POV of his teacher. Could it be possible that the teacher is making it obvious that it's his POV and not fact? Could it be that the OP has tainted the story with his own subjectiveness? (He obviously disagrees with the teacher) Maybe. That's why I both defend the teacher and condemn 'his way of teaching' (i.e. the way we're told he teaches).

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Not impossible, but it's excessively unlikely.