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Originally Posted by Baraka_Guru
It still doesn't work. You're assuming that everything about the test was hunky dory. Do you think that the banking and auto industries were hunky dory?
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I don't know what you mean by "everything about the test hunky dory". I assume the test was related to the material covered and would be an accurate assessment of a students knowledge and understanding of the material.
The same is true in banking and in the auto industries. I assume those making decisions in those industries have the knowledge and understand of their industries as to understand risks and consequences. With that understanding, if excessive risks were taken I would expect them to live with the consequences.
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That everyone knew what was going on (i.e. what was going to be on the exam)? Examinations within post-secondary institutions are heavily regulated. The banking system in the U.S. is not.
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I disagree. Banks are heavily regulated. I have and would argue that the regulations were part of the problem and that regulators are in over their heads. Regulators by definition are reactionary.
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While it's true that some decisions of government are poor, there are many that make sense. The biggest influence government has is over monetary and fiscal policy. You don't seem to know the full picture of the Canadian economic and banking systems. Canada's monetary policy has followed suit with many other policies around the world. We've had rock-bottom interest rates. Also, Canada's banking system is well-regulated. The banks didn't take on excessive risk because it's illegal for them to. Furthermore, it's virtually impossible for Canadians to do such things as strategically default on mortgages. Americans walk away from their mortgages; Canadians just don't do it.
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Canadian banks have a presence in the US., and their US portfolios of loans are and have been much stronger than their US based counterparts. If you argue that the Canadian government has a system of superior regulations - you support my position that that the US government made the financial crisis worse. US banks were not de-regulated as is the false belief, but they were regulated in a manner that gave incentive to risky sub-prime loans. Also, the US through Fannie and Freddie (GSE's) greatly expanded the secondary mortgage market, which as you know created the highly leveraged situation that lead to the so called crisis.
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The problem in America's system is that it's modelled too much after the free market.
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People say this all the time without being specific. The problems primarily involve blurring the separation between true banking activity and investment banking activity. US banks are and have been strong, however highly leveraged investment banking activity decimated the balance sheets of entire entities. Government made conditions worse by making banks mark assets to market in a draconian manner. If a bank has illiquid assets on their balance sheet, market to market simply puts an unneeded strain on the bank. this in turned caused the banks to raise or conserve capital to sure up reserves, taking loanable funds out of the market. In Washington we had one part of government doing one thing and the other part trying to do the opposite. I was and is like watching the Keystone cops, it is a joke.
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Furthermore, you have people like Bill Clinton who kicked the shit out of inflation.
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I argue that Clinton benefited from the policies of Reagan. Also, during Clinton there was no war, and a Dot Com boom. It is hard to see any policy enacted by Clinton that had an actual impact on economic growth and low inflation during his 8 years.
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What's wrong with a government that enacts policies that reduce inflation?
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Governments generally are the cause of abnormal inflation.
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What if taxes are already relatively low? I could see the positive impact of lowering taxes to the lower and middle classes, but even this can only go so far. Tax cuts are not an economic panacea. If they were, shouldn't the Bush tax cuts have had a bigger impact by now? How's that recovery coming along?
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Bigger impact?
The most important question involves what is the equilibrium tax rate or tax system. How do you maximize taxes collected? Just like prices, in some circumstances price can be lowered and income goes up, or in other circumstances prices can be increased and income goes up. In both cases the opposite can be true as well. I argue that our current system is inefficient. I argue that class warfare is not helpful. I want a fair tax code.
Again using a college analogy:
Student A gets a full scholarship or government grant, valued at $100,000, pays no tax on the value.
Student B works and earns $100,000, pays tax on the income.
Student C gets loans for $100,000, pays no current tax, but may be subject to significant lower net income after loan payments plus interest than than A and B for 10 to 30 years.
Student D has parents who saved putting money in a 529 plan that grows to $100,000. The income or capital gains from the plan never gets taxed.
Etc.
Etc.
Why are all the situations treated differently? I suggest we simplify the tax code. It may never happen but i support a consumption tax. Tax them all based on the value of the $100,000 education or don't tax money spent on education period but tax 'luxury" consumption.
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Companies also respond to reduced sales by reducing their prices. They do this to encourage sales increases. It's just like our bigger-picture discussion about balancing spending and savings. You want to boost sales, so you reduce prices, but you also need to cut costs, so you become more efficient. But you can only go so far in either direction. You need to strike a balance to find success and growth.
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I agree, there is a need to find the equilibrium price or the best price. It is clear that "rich" people and big business spend large amounts of money to avoid paying current tax rates, I doubt we are anywhere close to the most effective tax rates or tax system.
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I'd like to know what sort of items you would consider as micromanaging. I'm not sure what you mean by that.
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Home-ownership in this country was a big badge of honor, so politicians enacted polices to encourage it. Hence they encouraged excessive risk in the market. This lead to our housing crisis. Government attempted to micromanage home-ownership.
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I know this about small companies. My example of the sitting on cash was just one aspect, but it's a good example of why many companies (i.e. bigger ones) aren't necessarily looking for investors. The extra cash that goes to the top earners from the tax cuts isn't really in demand from the economy in the form of investments. It's more in demand as spending, which isn't as likely to happen in the hands of the wealthiest Americans to the same proportion as the lower income earners.
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"Rich" people do not put money in mattresses they save it or invest it. However, in economic uncertainty, useless investing in things like gold occur to a higher degree. But even as the speculation price or risk premium of gold goes higher, there are winners and losers - or there is money flow.
I will finish later.