What do Tax Breaks Tell Us About Governments?

Do the tax cuts and the fact that the Government is preferring to allow the people to spend the money rather than the Government spending it itself show us that the Government recognises that individuals are better at spending money sensibly than Governments? Do they recognise that Governments waste money while individuals do not?

Does the reaction to this "crisis" show that free-marketeers have been right all along?

It was the "free-marketeers" got us into this mess in the first place. And now the financial sector is on its knees begging for publicly funded bailouts left, right, and center - right across the globe. If it wasn't for billions of dollars of public money that is being pumped into economies (especially the financial institutions) around the world the "free market" would be lying on a slab by now.

And I don't believe that Gordon Brown and the Labour Party; champions of enormous government; have suddenly decided that the individual citizens of Britain are all in fact financial geniuses who if given a bit more pocket money will spend wisely and pull the country out of its worse financial crisis in 60 years. There's only really two ways of doing this - a massive program of government spending on public works is one way - giving a tax break in the hope that it is spent in the High Street is the other. Brown has simply gone for the easiest option. Not only that, Brown can win greater popularity by giving away a tax break than he can by more central government spending.

I'd have to disagree with this as we patently do not have a free market in the markets that caused all the trouble. You're certainly not going to claim that banking and finance is a free market, are you? What with the regulations and governing bodies. It certainly is not free. Add to this the sub-prime problems caused by two huge banks in the US that were under Government orders to make sub-prime loans.

Indeed. I think often people read comments like yours here - and I have made similar ones - and think to themselves "Well, yeah, Ok, it's not strictly a free market, but basically." but that distinction really is the crux of the issue here. Freddy and Fannie backing all the sub-prime loans in the US were what caused this problem in the first place. Banks knew they could just ship off any old crappy mortgages to these two companies because they were backed by the government just so that poorer families could get on the property market, so there was no reason for them not to sell these terrible loans. Without this backing, they'd never have taken them out precisely because they are so dangerous, as has been demonstrated.

Likewise here, we have a central bank that sets interest rates, which have been set at totally artificial levels which distorted the markets completely.

And I think we should add one convincing point to the argument that Freddy and Fannie fuelled the sub-prime lending lest some still doubt whether it is true or not. We must realise that the very fact that the US Government repeatedly passed laws to force those two banks to make sub-prime loans proves that without Government intervention these loans would not have taken place.

And I think we should add one convincing point to the argument that Freddy and Fannie fuelled the sub-prime lending lest some still doubt whether it is true or not. We must realise that the very fact that the US Government repeatedly passed laws to force those two banks to make sub-prime loans proves that without Government intervention these loans would not have taken place.

And I think we should add one convincing point to the argument that Freddy and Fannie fuelled the sub-prime lending lest some still doubt whether it is true or not. We must realise that the very fact that the US Government repeatedly passed laws to force those two banks to make sub-prime loans proves that without Government intervention these loans would not have taken place.

But it was the free market which allowed UK banks to get stung by buying up some of this debt - no wonder the US has a special relationship with us.

You have to look at what caused a lot of the toxic debt though - The US government intervening in an attempt to get poorer families onto the property ladder.

First of all, Fannie May and Freddue Mack do not make loans. They are assurers, not lenders. But, granted, they did receive congressional instruction to assure sub-prime loans so government has some culpability.

But, the free market fed on this environment and poured more and more petrol on the flames.

After all, it was the greedy unregulated banks that came up with several thousand different loan programs; even a corpse could quality. They didn't care who they lent money too because they only held the loan for a few days before selling it on; they made money on volume. And it was greedy realtors and appraisers that overvalued property.

But the true master strokes came from the geniuses on Walls treet - the Harry Potters who managed to come up with ever more ingenious and complicated ways of securitizing these loans. It was they who managed to turn all these loans into huge sausages, cut them up, grade them as AAA securities and sell them to investors all over the world.

It was the free market that took really bad debt, disguised it, and sold it as AAA grade assets.

And this didn't just happen with sub-prime mortgage debt either. The "masters of the universe" took any sort of debt you can imagine was put through the mincer; unsecured credit card debt, store card debt, lot's of middle aged men's "Harley Davidson" debt etc - all of this utter crap was rolled up and sold as premium assets. It it any wonder that now, as the economy cools, unemployment goes through the roof and people stop paying for their Harleys and making payments against their credit cards, that these AAB securities are going to look more and more like an investment in Dutch tulips?

But it was the free market which allowed UK banks to get stung by buying up some of this debt - no wonder the US has a special relationship with us.

You'll have to forgive me but I don't know what you mean by AAA assets etc.

However, your other point is in my opinion, ridiculous. Having recognised that it was the Government that created the market for poor loans how can you then blame the free market for selling them? The job of the free market (in this case lenders) is to lend money at a profit. If someone ensures there is a profit in making sub-prime loans then of course those loans will be made.

As I said before, the very fact that the Government felt the need to force Fanny and Freddy to buy up these loans proves that the free market itself would not have made them otherwise. If you say "I'm going to buy up all the guns you can build" it is then incredibly stupid to blame the free-market for producing lots of guns. You blame the person who encouraged everyone to do it.

As for the housing market - greedy estate agents cannot inflate the price because at the end of the day people must buy them. And there is competition among estate agents to get things sold. So if one estate agent inflates the price by 10% the others can make nice big profits by only inflating prices by 9% and so the price falls back to stability. Governments, though, can and do inflate the price of houses by strangling supply.

There was nothing wrong with the debt as far as the free market was concerned because a Government backed bank was buying them. It was only when those banks stopped buying them did the problems start.

There was nothing wrong with the debt as far as the free market was concerned because a Government backed bank was buying them. It was only when those banks stopped buying them did the problems start.

With respect, if you don't know what I mean by terms such as securitization and AAA grade assets/securities/investments you are in NO POSITION at all to tell me I'm ridiculous.

And again, you clearly have no idea how the housing market in the US works. FM and FM do not buy up loans. They are assurers.

And please don't tell me about realtors and appraisers in the US either. Since 2001 I have personally bought 5 homes and sold 2 in the US. Prices were massively inflated by appraisers and I have personally worked with appraisers who have "made the numbers work" to secure a sale or purchase. As for "competition" between realtors there really was none - all realtors tended to charge a 6% fee - houses moved so quickly and the market was so hot that you really didn't find realtors fighting for your business at that time.

I don't even follow your argument that if one estate agent inflates the price by 10% the others can make nice big profits by only inflating prices by 9%. Can you explain this to me?

Let's say I think my house is worth $500,000
A realtor tells me it's worth $550,000
B realtor tells me it's worth $545,000

How exactly does B realtor make a "nice big profit" here? For a start, I'm going to have A realtor sell my home for me aren't I?