[QUOTE=__HRB__;163639]None.

In Europe I would call it [URL="http://en.wikipedia.org/wiki/Classical_liberalism"]liberalism[/URL], but here in the US I have to use the term [URL="http://en.wikipedia.org/wiki/Minarchism"]minarchism[/URL].
[/QUOTE]

Thanks. Where has this model worked best, without evolving into something else?

[quote=__HRB__;163758]This doesn't work because of 'moral hazzard' phenomena.[/quote][quote=Fusion_power;163767]Gaming the system is a well entrenched American tradition.

< snip >

Now apply this scenario to your 'vouchers' that banks could use to make loans with.[/quote]
I gave the readers of this thread credit for being able to figure out that there would be legal terms that would restrict voucher use to legitimate loans of the sort intended, such as mortgages. My bad.

Have either of you ever actually seen any government vouchers? I have. The ones I saw had very specific restrictions and requirements printed right on them, even though they weren't about anything nearly as significant as a bank loan.

[quote=__HRB__;163758]For instance, the bank can give someone, who is deep in debt a loan at 50% interest per day.[/quote]Why do you assume that vouchers would be so simplist... oh, never mind.

[quote]This someone then goes to a casino (i.e. invests into something with negative expected payoff with a large variance), places everything on black:[/quote]... which could be done with any cash loan, vouchers or not, so what's your point? Ever heard of cash advances on a credit card?

[quote]If he loses, no problem: he and the bank would have gone bankrupt anyway and the taxpayer is left with the loss.[/quote]But that's no worse than in the case of giving cash to the bank instead of vouchers -- [I]if[/I] the vouchers could be used for such loans ... but they wouldn't be because of the obvious (I thought, but what do I know?) legal restrictions.

[quote]Funding investments that have negative payoffs, is a bad allocation of capital.[/quote]So, don't do it.

- -

Does anyone have a thoughtful, realistic criticism of the voucher idea?

[QUOTE=cheesehead;163772]
Does anyone have a thoughtful, realistic criticism of the voucher idea?[/QUOTE]

Scenario:

I approach bank with can't miss need for a $1M loan. Withou vouchers, bank says: "can't miss - let's do it".

In voucher world bank says: "Can't miss - let's do it - but we can use this new voucher money to do it and use the $1M we 'saved' for bonuses, gold toilets, whatever.

In short: you can't write enough regulatory restrictions to make vouchers work (or at least work any better than the less paperwork option of just giving the banks cash)

[quote=Prime95;163776]In short: you can't write enough regulatory restrictions to make vouchers work[/quote]I think you haven't tried hard enough with motivation to make it work instead of motivation to find fault.

[QUOTE=AES;163770]Thanks. Where has this model worked best, without evolving into something else?[/QUOTE]

That is an interesting subject. Just because Minarchism is a [URL="http://en.wikipedia.org/wiki/Pareto_efficiency"]pareto-optimal[/URL] solution, doesn't necessarily mean it's a stable strategy.

Free markets work by wiping out the unfit, and become more and more efficient over time. Unfortunately, this means that given a rational choice between 'make it' or 'take it', it becomes more attractive to try to 'take it' and not make it: Companies will start to eliminate the competition by law and not by making better products. Individuals will chose to become unpoductive, e.g. by forming political majorities and re-distributing the weath of the more productive minorities by threat of force.

Don't forget: we *are* a bunch of apes, fighting for the best spot in the troop.

I believe that qualitativ the most accurate model is that of parasitoid-host interaction, because cultures tend to self-destruct, i.e. the parasitoid exterminates the host and perishes with him.

Predator-prey models are stable, which would mean that we should see changes in productive/unproductive behavior pi/4 out of phase in with fairly regular amplitudes.

[QUOTE=cheesehead;163772]I gave the readers of this thread credit for being able to figure out that there would be legal terms that would restrict voucher use to legitimate loans of the sort intended, such as mortgages. My bad.[/QUOTE]

[URL="http://en.wikipedia.org/wiki/Moral_hazard"]Moral Hazard[/URL] is a direct consequence of information asymmetry: the bank knows more about itself than the regulator. You cannot eliminate it by law, in the same way you cannot eliminate gravity by law. You can try to find an optimal point at which the cost of Moral Hazard is lower than the reward, but this is a highly quantitative problem.

Your belief that 'we only got to put it in proper words' shows that this will definitely end up being a fiasco.

The end is near. Repent your sins.

[QUOTE=cheesehead;163778]I think you haven't tried hard enough with motivation to make it work instead of motivation to find fault.[/QUOTE]

You are an idealist :) Let me turn your statement around. You and 100 of your favorite Senators come up with the verbiage that an army of a million bankers, lawyers, and accountants won't find a hole in large enough to drive big truckloads of money through. Not to mention that most of the 100 Senators "helping" you write the verbiage will be getting "help" from the banking community.

Put some meat on your voucher proposal before asking for us to shoot it down - especially if you respond to every critique with some vague "we could find some way to make that impossible".

Cheesehead, I make a point to listen to your opinions because they are usually thoughtful and reasonable. In this case, my gut instinct is that you are totally wrong. No criticism of you as a person intended. The long and short of it is a simple question: What tried and proven strategy can turn a zombie bank into a viable institution? The only answer that has historically worked is to take over the bank, wipe out shareholder equity, sell off or otherwise restructure assets, and then sell the viable institution to investors. Instead of telling me about vouchers, try telling me why the govt should NOT wipe out this farce and resolve the banking problems in the proven effective way? Please note, I [U]can[/U] do the math, you are looking at a $5 trillion problem so where would the money come from?

As I write this, the following systemic problems are rearing ugly heads:
1. Auto industry is on life support and barely making it
2. Insurance industry i.e. AIG is back with its hand out for another $100 billion.
3. 12 major banks are in up to their eyebrows with assets vs equity upside down, at least 3 of them on the verge of failure.
4. Worldwide stockmarkets are tottering on the edge of collapse.
5. Government idiots worldwide are scared sh*tless of calling a spade a spade and dealing with the consequences.

Until you acknowledge that there is a problem and that throwing money at it will NOT make it go away, you can't possibly fix it.

Here is a question for all of you:

Why can't the major banks with toxic assets form their own 'bad bank' and move those assets into the bad bank for resolution [U]without government intervention[/U]? No flippant answers allowed, make it a well reasoned and valid approach.

DarJones

Excellent post fusion. All these voucher/bailout plans are only going to make the denouement worse when it finally comes - and it will. This is S&L to the power of 10.

[quote]The only answer that has historically worked is to take over the bank, wipe out shareholder equity, sell off or otherwise restructure assets, and then sell the viable institution to investors.[/quote]I agree but the thing most people are not acknowledging is that wiping out shareholders is not going to be enough. You need to wipe out ordinary shareholders and preferred shareholders as well as lower tier unsecured debt and then restructure senior unsecured debt into equity and/or warrants/preferred shares. That is the what is required but no one in power has acknowledged that.

Note that when WaMu went belly up they did something of this sort. All shareholders - ordinary and preferred - were completely wiped out. Of course the receiver bank was JP Morgan and they know how to drive a hard bargain. How I wish there was someone in government doing the same for the taxpayer.

Bad News Bears Rally Time! | CA Mulls "Bong Tax"
 

[url=http://money.cnn.com/2009/02/24/real_estate/Case_Shiller_December/index.htm]Home prices in record drop[/url]: [i]S&P Case-Shiller national index down 18.2% in final three months of 2008; No slowdown apparent[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aTYWzd5CWck8&refer=news]Bernanke Says U.S. Will Acquire Bank Ownership Stakes Only as Losses Occur[/url]: [i]Federal Reserve Chairman Ben S. Bernanke said the U.S. government’s bank-capitalization plan is designed to shore up lenders’ common equity only if the economy worsens and creates more losses for financial institutions.[/i]

[i]My Comment:[/i] Which will certainly happen ... but trying telling delusional "party is back on!!!" Wall Street bulltards that:

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=av419NV.FDIA&refer=news]Stocks in U.S. Advance as Bernanke Signals Banks Need Not Be Nationalized[/url]: [i]U.S. stocks advanced the most in a month, halting a six-day decline, after Federal Reserve Chairman Ben S. Bernanke’s statement that banks need not be nationalized helped lift equities from their lowest valuations in two decades.[/i]

...all of which will hopefully inspire a several-days-long bear market rally which one can short the snot out of. The idea being that any resulting proceeds can be used to help pay my new, improved, higher California taxes and thus reward our wonderful huge state government bureaucracy for their profligacy. Ain`t free-market capitalism and representative democracy cool?


[b]
Signs of the Times: Shrinkwrapped Housing, California mulls "Up in Smoke" tax
[/b]
[url=http://money.cnn.com/2009/02/23/smallbusiness/wrap_party.fsb/index.htm]Booming biz: Shrinkwrapping stalled construction[/url]: [i]Mike Enos didn't foresee the recession when he launched Fast Wrap, a Reno company that seals buildings and other very large objects in protective plastic. But after the markets crashed last fall, he was pleasantly surprised to find that the downturn was working wonders for his sales.[/i]


[url=http://www.sacbee.com/topstories/story/1646399.html]California: Bill would legalize, tax marijuana[/url]


[b]Attention Seniors![/b] The "Experts" who helped you lose most of your retirement nest egg last year, have more great advice for you:

[url=http://money.cnn.com/2009/02/24/markets/thebuzz/index.htm]What's next for responsible investors?[/url]: [i]People living on fixed-incomes and other 'safe' investments have been punished. Pros give tips on how to move forward in a rocky market.[/i]

[i]My Comment:[/i] Presumably these are the same "pros" who didn`t seen the housing bust coming, denied that it was happening for at least a full year after it had clearly begun, then, once further-denials-of-the-obvious became untenable, claimed it would not have a major impact on the wider economy, all the while telling all the near-retirement folks they`d help steer into far-too-risky-investments-for-that-age-group that "now is not the time to sell", "bottom is near", "you don`t want to lock in your losses", "over the long haul, the stock markets beat every other kind of investment", et cetera, while those poor suckers were losing upwards of half of their retirement nest egg. Oh yeah, I`m *really* inclined to listen to the "experts" now. But let`s see what kinds of sage advice the author of the article and the "experts" he cites have to offer to our dear seniors:
[quote]So what can be done? I'll admit that I've tried to preach that people remain level-headed. If you're investing for the long-term, this is obviously a scary time. But it's not reason to panic and dump all your 401(k) into gold stocks.[/quote]
[i]My Comment:[/i] Right, that time would have been last year, once the extent of the housing bust and the banks` exposure to it began to become shockingly clear, but while the permaBulls were still deeply in denial.
[quote]However, there is no hard and fast rule for investing for the long haul since it all depends on how close you are to retirement.
[u]
It's easier for me to stress a level-headed approach because I'm probably three decades away from retiring. I fully expect to see many more booms and busts (hopefully not as bad as this one) during my lifetime, and I can afford to ride them out.[/u][/quote]
[i]My Comment:[/i] And that means you should probably STFU when it comes to advising folks close to retirement (and oh how we wish that blanket STFU could be enacted retroactively), since you haven`t a fucking clue what being in that situation in the current economic climate means from a real my-money perspective - you`re the equivalent of a paper "fantasy" trader in that regard. And where were you and your "expert" buddies when it came to dispensing the "fully expect to see many more booms and busts" advice during the past several decades? None of y`all "expected" to see the dot-com bust, either. And when that was followed by the most insane housing-price runup in U.S. history, none of you bright lights "expected" the resulting bust. Sound familiar? It should.
[quote]For those whose time horizon may be shorter, experts say sticking to a diversified investing approach makes sense, even though there will probably be more turmoil ahead.[/quote]
[i]My Comment:[/i] That`s right - you want to spread your horrific losses across as many investment sectors as possible, and thus maximize your broker`s commissions at the same time.
[quote]Schwab has a list of recommended tax-free bond funds on its Web site, including the American Century Tax-Free Bond fund, Federated Short-Intermediate Duration Municipal Bond fund and Wells Fargo Short-Term Municipal Bond fund.[/quote]
[i]My Comment:[/i] Schwab also has the [url=http://finance.yahoo.com/q/bc?s=SWYSX]Schwab YieldPlus Select fund[/url], which it touts thusly:

[i]"The investment seeks high current income with minimal changes in share price. The fund primarily invests in investment-grade bonds. It may invest in bonds from diverse market sectors based on changing economic, market, industry and issuer conditions. The fund may invest to 25% of assets in below investment-grade bonds that are rated, at the time of investment, at least B by at least one nationally recognized statistical rating organization (NRSRO) or are the unrated equivalent as determined by the investment adviser. It maintains an average portfolio duration of one year or less."[/i]

OK, so 25% is in riskier assets... so even if the unthinkable happens and these all decline to zero simultaneously, worst-case I lose 25% of my investment, right? Strangely, things didn`t quite seem to work out that way for folks who invested in it, since the fund has lost fully half its value in the past year. Predictably, those folks are [url=http://finance.yahoo.com/q/h?s=SWYSX]none too pleased[/url]. But I digress from my original rant...
[quote]And for those willing to tolerate more risk, some money managers say that investing in select stocks still makes sense. They suggest seeking quality companies, not necessarily high dividends.

Jason Tyler, senior vice president and director of research operations with Ariel Capital Management in Chicago said JPMorgan Chase's decision to cut its dividend is a perfect example of why investors can't rely on quarterly payments in this environment -- even from companies holding up better than their peers.

"Dividends can go away in a heartbeat. They are so fragile," Tyler said. "Frankly in this market, dividends are discretionary on the part of management."[/quote]
[i]My Comment:[/i] "Frankly, in this market, even seemingly-quality companies can go away in a heartbeat". Hey, if my 1000 shares of [pick a recently-seen-as-quality company] purchased for $100,000 decline at a rate of 10% per month and the dividend is fixed at 8%, how long until I can retire? Can your experts help me with the math here?
[quote]Instead, Tyler said he's looking to invest in companies with strong enough balance sheets to survive the recession and whose stocks may have been unfairly punished in this year's market rout.

One example Tyler gave is luxury retailer Nordstrom (JWN). Even though the company reported a big decline in sales during the holiday season on Monday, expectations were so low that Nordstrom wound up doing better than what analysts feared. As a result, the stock surged nearly 15% Tuesday. [/quote]
[i]My Comment:[/i] So Nordstrom plays the "let`s just barely beat our own drastically-lowered earnings estimates to give our share price a quick pop and dump those suckers on the herd of retail fools who think beating near-zero earnings estimates is a sign that the company is 'weathering the downturn'" game with a nice 1-day success, and suddenly luxury retail is the next bull market? I think not.
[quote]Now before the Dow 4000 believers out there flame me, please keep in mind that I'm not suggesting you put all your money in these stocks...or the stock market in general.[/quote]
[i]My Comment:[/i] Right, "suggesting you put all your money in these stocks...or the stock market in general" was what you experts were doing the last 20 years - that`s just so yesterday, that`s the kind of thing you used to do when your clients still had "money".


[b]The Economy According to M.C. Escher:[/b]

We close this post on a visual-arts note - the really scary thing is how many economists and politicians appear to believe that the depicted economic models are truly sustainable:

[url=http://www.ritholtz.com/blog/2009/02/the-economy-according-to-mc-escher/]The Economy According to M.C. Escher[/url]

[QUOTE=ewmayer;163876][
We close this post on a visual-arts note - the really scary thing is how many economists and politicians appear to believe that the depicted economic models are truly sustainable:

[/QUOTE]

Let's paraphrase Shakespeare: First, you shoot all the bankers.......

Is there any hope that seniors who had their IRAs shredded can sue the bastards for malfeasance??? Fat chance. Even if such were to succeed,
there is nothing to recover.......