I heard the president’s speech at Cooper Union College today and thought it was quite bizarre that he would criticize Wall Street for bad behavior when Washington is currently running our national debt through the roof and the policies that emanated from there in the last ten years caused our current financial crisis. The old adage about those that live in glass houses and stone throwing immediately came to mind. But, the president really believes that the financial crisis we still find ourselves in, despite trillions of dollars in Keynesian spending, is somebody else’s fault. In fact, he indicated that, “…the system as it stands is what led to a series of massive, costly, taxpayer bailouts.” And I thought it was Mr. Obama and his big government colleagues in the Congress who voted unconstitutionally to give away our money to the greedy, misbehaving banks.
Now, the president’s bizarre remarks are one thing, but the financial regulation bill before the Senate is even more bizarre. Crafted by Connecticut Senator Chris Dodd, the bill will do nothing to fix the real causes of the financial crisis. In actuality, the bill amounts to nothing more than a political payoff for Dodd’s benefactors on Wall Street. And this should come as no surprise since Dodd’s donor list reads like a who’s who of the financial services sector.
First of all, Dodd’s bill does nothing to address the primary culprit of the financial crisis – the Federal Reserve. Yes, consumers took out mortgages they could not afford and loan officers falsified applications knowing that they would collect their commissions long before the bad loans defaulted on a bigger institution up the line. But the Fed supplied the poison for it all to happen – easy money. After 9/11, Alan Greenspan’s Fed kept interest rates artificially low at 1 percent for three years. This encouraged a mortgage craze as trillions of dollars were borrowed. It was a government sponsored get rich quick scheme as many housing investors bought homes with low teaser rates and no money down.
You know the rest of the story – homeowners leveraged their homes to the max, rates adjusted up, and the bubble burst when many folks could no longer afford their payments. To add insult to injury, the Fed came to the rescue of financial institutions, even foreign ones, at the expense of taxpayers. Make no mistake about it, the Federal Reserve exists for the profit making of banks alone. It was established by bankers; it is run by bankers; it allows banks to inflate dollars through fractional reserve banking; and it is there for them when they need a few dollars to keep the charade going. No other industry has a full government agency to support its shady dealings like the banking industry. Dodd’s bill, by ignoring the Fed’s culpability in the crisis, has no chance of preventing financial calamities in the future. Additionally, it only benefits the big banks since their benefactor, the Fed, will continue to operate unencumbered by any new regulations or oversight.
Article comments
— go to most recent comments1 - Glenn Contrarian
Other than a mention of fiscal irresponsibility over the past decade, Mr. Jacobine completely ignored what the Republicans, what the oh-so-fiscally-responsible conservatives did that brought about this crisis.
But, the president really believes that the financial crisis we still find ourselves in, despite trillions of dollars in Keynesian spending, is somebody else’s fault.
Ah - so the Great Recession didn't start until AFTER Obama took the oath of office? Hey - weren't you recently part of that group down in Texas who were deciding what history our kids were supposed to learn, like Joe McCarthy was actually a great man, and Thomas Jefferson (who authored the Declaration of Independence) didn't need to be mentioned?
No, you weren't part of that group - but you seem to have the same grasp of history that they do. What a crock! You point out how terrible things went with the economy, but you don't want the government to regulate the system to keep it from getting any worse, never mind that it was the epic scale of DEREGULATION that got us to this point!!!
You continued:
In fact, he indicated that, “…the system as it stands is what led to a series of massive, costly, taxpayer bailouts.” And I thought it was Mr. Obama and his big government colleagues in the Congress who voted unconstitutionally to give away our money to the greedy, misbehaving banks.
I seem to recall that the TARP was passed under the BUSH 43 administration - but you're slick, aren't you? You point out that Obama voted for it...but you conveniently left out the fact that it was a REPUBLICAN at the helm of the ship of state at the time...and for the eight years that led up to the point.
So, um, Kenn:
- Didja happen to notice where the Dow is right now? It's what, something like 60% HIGHER than when Obama took office.
- Didja happen to notice that the nation's employment is growing now, instead of losing 700,000+ per month when Obama took office? And how about you look back to the recessions under Bush 41 and Bush 43 (the dot-com bubble) and see how long it took the nation to start hiring again. Maybe you'll find out why they called those 'jobless recoveries'.
- Didja happen to notice that GM just paid off their loans to the U.S. and to Canada, with interest (profit for the taxpayer), five years early? AND did you happen to notice that they are on track to put their stock back on the market later this year...which means that the American taxpayers will make even MORE profit when the stock sells! Reagan did the same thing with Chrysler - but THAT was okay, 'cause Reagan wasn't a socialist like Obama, right?
In other words, Kenn, don't give me your rhetoric. Give me the FACTS. Give me the RESULTS. "By their fruits shall ye know them." Jesus said that...and I think that is very wise. That's why I look at what happened to the economy under Reagan, Bush 41, and Bush 43...and what happened under Clinton, and what IS happening right now under Obama.
DEEDS, not words, Kenn. Don't give me your rhetoric. Give me the facts, the results...the fruits of the labors of the Republicans...and of the Democrats.
2 - Glenn Contrarian
And on the subject of government stimuli, picture this:
You own a business. The economy takes a serious downturn, so there are fewer buyers for your products...and you're making less money. You see that you've got to cut some of the fat from your company. What do you do?
If you're like the vast majority of business owners, you don't want to get rid of your bought-and-paid-for infrastructure, then the first thing to go are employees, right? That's just the way it is. You just added some more people to the ranks of the unemployed. And at the same time, tens of thousands of businesses across the country are facing the same problems you're facing and are ALSO laying off people because THEY are cutting business costs...which means even more people unemployed.
So what does this mean? More unemployed people...which means that many fewer people with money to buy things or services.
Which means the business climate gets worse for you and the other business owners - and you can't demand business, so you have to cut more employees. Which leads to MORE people unemployed and FEWER people with money to buy things and services.
Do you see the vicious circle? It's quite real, Kenn. But we're not done yet!
Now, Kenn - YOU'RE the American President. You see this vicious circle with worsening unemployment and worsening business climate. What do you do? Just let it go? Let the business world fix itself?
Considering the vicious circle I described above (which we have seen three times before), tell me exactly HOW the business world and the marketplace would 'fix itself'.
DETAILS, Kenn - how's it gonna happen? How do you get businesses to start hiring again?
I'm really looking forward to your answers.
3 - Kenn Jacobine
You don't understand Glenn. I consider big government Republicans and Democrats to be one in the same. "Obama and his big government colleagues in Congress" includes the Republicans.
Two - you want to still ignore the culpability of the Fed and Fannie and Freddie for the crisis. Do you really believe that with the exception of deregulation the federal government's hands are clean? How convenient since you can blame capitalism (deregulation) for the crisis and not your beloved government.
three - the Dow is where it is because it is the next Fed induced bubble to pop. Where do you think the trillions of dollars the Fed has infused into the economy has gone? Interest rates are going up. Big banks will soon pull out of the market before it bursts. I would get out soon Glenn before it blows.
four - "the nation's employment is growing now" I love the liberal speak. So we aren't losing as many jobs per month so therefore we are gaining jobs? That's like saying a freeze on spending equals a cut in that program.
Glenn, I am a Ron Paul Republican. I criticize Democrats because they are in charge right now. When Bush was in charge I criticized him and his cronies - Paulson, Rumsfeld, et. al. I am against statists of all stripes.
4 - Kenn Jacobine
Glenn,
The government causes recessions and depressions. The market is not perfect but it will always correct its own excesses. That is what recessions are: a correcting of the malinvestments made during Federal Reserve, government spending induced booms. Please indulge yourself, click on my name, and go to a previous article I wrote on booms and busts. The link for Austrian Business Cycle Theory is http://mises.org/daily/672.
The scenario you painted is a familiar one. I did own a business in a previous life and had to layoff workers. It is a self-fulfilling prophecy. The best thing for the government to do is let the economy liquidate all its bad investments - no stimulus at all. In the short run it would be very painful, but recovery would come sooner and more robustly. That is the way we use to deal with recessions until 1929. First Hoover and then FDR primed the pump and we had the longest depression in our nation's history - 15 years. Our leaders have done an even worst job of hindering our economy's ability to cleanse itself this time. Thus, in my view we are headed for another collapse and in the view of many Keynesian economists the recovery will be slow, long, and sluggish.
5 - Baronius
I haven't heard much about the Dodd bill. It sounds like the "too big to fail" institutions are extra-protected and extra-regulated. How that's different from being nationalized, I don't know.
As for the Federal Reserve, I just don't see the problem. I'm not going to get in an argument with a Paul supporter over it, but it just doesn't strike me as a big deal. I also don't get worked up about campaign contributions generally.
This bill will also keep banks out of the derivatives market. That makes sense. Call me a wuss, but derivatives scare me. On the other hand, banks can lose a fortune on any number of risky moves, and you can't regulate away risk. But derivatives scare me.
6 - Kenn Jacobine
Baronius,
Monetary policy is not that hard to understand. Just like anything,too many dollars in circulation means each dollar is worth less. Thus, this is where inflation comes from. When the trillions of dollars that the Fed has loaned to banks for loans is finally put into the economy and banks employ the money multiplier general price increases will be through the roof. My hope is that when this happens more Americans will finally be interested to learn how the Fed has destroyed our free market system in favor of profiteering by the big banks. Many still aren't listening even though there is a lot of incriminating evidence against the central bank.
7 - roger nowosielski
"The government causes recessions and depressions."
One of the most asinine statements I've ever heard. (I suppose the concept of a business cycle is a myth.)
8 - Baritone
If this bill is such a boon for Wall Street and the big banks, why are they spending millions of lobbying dollars fighting it? Just for show?
ALL pols depend on big corporations INCLUDING banks and Wall St. firms for money.
If I'm not mistaken, it would be tough to run a muli-million dollar campaign out of bake sale profits. If it didn't cost millions to run for public office, just maybe the pols wouldn't be obliged to be beholden to all the deep pockets in this country.
There are all kinds of finger pointing that can be done. But government is hardly the only culprit. Kenn obviously believes that business should simply be left to its own devices and everything will be ducky.
BARtender
9 - roger nowosielski
Kenn's been living in Fantasia since he was born.
10 - handyguy
The bill would not 'bail out' failing institutions -- it would dismantle them. They would not be given taxpayer money to continue operating. The funding in the bill is similar to what is required when the FDIC shuts down a failing bank, just on a larger scale.
And blaming the amoral risk-taking of investment banks in the 2006-2008 period on the Fed -- which is what Kenn, securely bound in his ideological straitjacket, blames everything on -- is simply uninformed and ludicrous.
Since Kenn doesn't believe the Fed should even exist, of course he doesn't like the Dodd bill, which gives new authority to the Fed.
But the Fed doesn't make campaign contributions to politicians. Wall St does. And Wall St is lobbying furiously against the bill, especially the derivatives part, but also the consumer protection provisions.
By the way, there is a total of $600 trillion worth of derivatives in investors' portfolios, all largely unregulated. These bizarre and labyrinthine devices do not behave according to market logic, and the markets will not magically clean up the mess, as Kenn suggests with blind faith.
11 - roger nowosielski
I'd like to believe that, Handy, but then again, it looks like a compromise from the get-go, just like Obamacare.
The best approach is the most direct one: break up the suckers - BofA, Citibank, Morgan & Stanley, Goldman Sachs - so they'd never be "too big to fail." Not only would it invigorate competition; it'd rendered all such incapable of impacting on the nation's economy. Everyone would be a winner.
But that takes balls. Sorry to say, we ain't there yet.
12 - handyguy
Whenever I see the header that accompanies Kenn's articles, I am reminded of a memoir by Bette Midler, punningly titled "A View from a Broad."
Needless to say, her prose is rather more entertaining than Mr. Jacobine's. And I'd venture to say she knows at least as much about the Fed -- the real world version, as opposed to the paranoid fantasy version.
13 - handyguy
Roger, on what legal basis would you "break up the fuckers"? And how would you execute it so that "everyone would be a winner"?
Easy to say, a lot harder to actually do.
14 - roger nowosielski
Exercise the same prerogatives, Handy, that we used with GM. All those financial firms and investment banks contributed to the present crisis. None of them are clean - if the suit against Goldman Sachs - only civil, unfortunately, not criminal - serves as any indication. Reinstate the anti-trust laws. Break up the suckers just like AT&T was broken up once. They are monopolies.
I don't see why you object to radical solutions when radical solutions are the only once that will do the job. Stop apologizing for a lukewarm administration and think instead of what's good for the country.
15 - Roger B
An opening statement warned me that Kenn is naive:
"But, the president really believes that the financial crisis we still find ourselves in, despite trillions of dollars in Keynesian spending,..."
Keynes advocated directing money to PEOPLE, consumers, not banks, corporations and other large institutions. Money directed to low income consumers spreads out thru the rest of the economy with a high Economic Multiplier effect. Money directed to companies and rich people has a low Economic Multiplier. Thus, money directed to corps at the expense of people has a negative effect.
Indeed, that is the problem of both the Bush and Obama administrations: they directed tax money (which is predominantly paid by individuals) toward businesses (largely as tax cuts, ironically), thus depriving consumers of discretionary spending while parking the money where it is least effective.
16 - roger nowosielski
He ain't naive. He's perverse.
17 - pablo
Glenn comment 1 you said:
"Didja happen to notice that GM just paid off their loans to the U.S. and to Canada, with interest (profit for the taxpayer), five years early?"
Doesn't the US govt own GM? How exactly does one lend money to oneself then pay themselves back.
This type of convoluted logic eerily reminds me of those that believe that 19 Sauds operating out of one of the most backwater countries in the world successfully penetrated the airspace of the most militarily powerful nation in the world. Some people will believe anything.
No Glenn it is not possible by virtue of what a loan is to loan oneself ones own money even it that money was printed on demand and made out of thin air, and is fiat in nature.
18 - handyguy
The US govt does own 61% of GM, and they also loaned the company money. The loan has indeed been paid back.
The company plans to do a stock offering, hopefully this year, which would allow the govt to get cash for its stock and get out of GM altogether, much faster than originally planned.
It was all supposed to be a loan, but GM's finances were pretty dire at the time, necessitating the stock deal. Their turnaround, while by no means complete, is pretty remarkable.
19 - Kenn Jacobine
Roger B,
What about the hundreds of billions of make work money in Obama's stimulus of last year. Didn't that go to workers directly who are also consumers?
And to advocate that government can break up companies is insane. The market is the best mechanism to do that. There are effective bankruptcy laws on the books. What if Uncle Scam wanted to break up Ford to help its position in owning GM?
When we eventually go off the cliff due to the government's meddling, spending, and "regulating" my blog that week will unfortunately be "I told you so". Of course, that is assuming that martial law is not declared and there is still 1st Amendment rights in America.
20 - Jordan Richardson
When we eventually go off the cliff due to the government's meddling, spending, and "regulating" my blog that week will unfortunately be "I told you so".
If you don't "go off the cliff," will your blog be "I was wrong, I'm sorry?"
21 - Kenn Jacobine
I would say I was wrong, but why do I have to be sorry?
22 - Glenn Contrarian
Kenn -
As Roger said, you're in fantasyland. Check out this list of charts showing how the economy has performed in the past two years Pay particular attention to the job growth and housing prices charts.
You don't understand Glenn. I consider big government Republicans and Democrats to be one in the same. "Obama and his big government colleagues in Congress" includes the Republicans.
The fact that the parties do share similarities does NOT mean they are one and the same. The last year's worth of fight over Health Care Reform should have taught you that, what with the most strictly party-line legislative fight since the Civil War.
Two - you want to still ignore the culpability of the Fed and Fannie and Freddie for the crisis. Do you really believe that with the exception of deregulation the federal government's hands are clean? How convenient since you can blame capitalism (deregulation) for the crisis and not your beloved government.
Fannie and Freddie were part of the problem, but only PART. And what YOU are ignoring is the fact that rampant deregulation WAS the biggest single factor in enabling the Great Recession. You've bought into the line that the less governmental regulation, the better - never mind that there is NO historical evidence for your claim. What we NEED, Kenn, is a continual search for "Goldilocks regulation" - neither too much nor too little. Too much regulation, and you wind up with the Soviet Union. Too little regulation, and if you're lucky, you wind up with China. If you're not so lucky, you wind up with Somalia.
When you're dealing with millions of people, Kenn, the IS such a thing as too much freedom.
three - the Dow is where it is because it is the next Fed induced bubble to pop. Where do you think the trillions of dollars the Fed has infused into the economy has gone? Interest rates are going up. Big banks will soon pull out of the market before it bursts. I would get out soon Glenn before it blows.
Fear! Fear! FEAR! The sky is falling! And you know something, Kenn? You're right. If you wait long enough, there WILL be another recession. There WILL be another depression. There WILL come a day when the dream that is America will end. But the key is to delay each of those as long as humanly possible. You can go hide your money under the mattress if you want, but I'd recommend that you invest in land - some here, some overseas.
Y'know something? This Monday I'm seeing a bankruptcy lawyer. I'm buried in debt, and I don't see a way out. I might lose my house and car. But you know what? We're still operating one business, and next month we're starting another. In other words, you ride the wave as well as you can, for as long as you can...and when you do finally have to take a dive, you tread water till the next wave comes along.
four - "the nation's employment is growing now" I love the liberal speak. So we aren't losing as many jobs per month so therefore we are gaining jobs? That's like saying a freeze on spending equals a cut in that program.
Well, Kenn - it seems that to you, up is down and in is out. The vast majority of the economists and Big Business both disagree with you. You can hide your head in the sand and tell yourself that the sky is falling...but the vast majority of the professionals who know what they're talking about see something else. I refer you again to the list of charts I referenced in the beginning of this comment.
Glenn, I am a Ron Paul Republican. I criticize Democrats because they are in charge right now. When Bush was in charge I criticized him and his cronies - Paulson, Rumsfeld, et. al. I am against statists of all stripes.
Problem is, Kenn, when you are dealing with millions and millions of people, government is ABSOLUTELY NECESSARY. Problem is, you - and Ron Paul - are ignoring history. To give Ron Paul his due, there ARE countries that work more on the principles he espouses - little or no regulation, no overseas troops, taxes are low. And you know what? They're ALL third-world countries.
And why is that? Why is it, Kenn, that ALL first-world countries have what you see as high taxation and too much regulation, and countries who are closer to Ron Paul principles are ALL third-world countries.
Why is that, Kenn? Do you really, truly think that's just a coincidence?
The government causes recessions and depressions.
Yes...and no. That statement's oversimplification is breathtaking. Let me correct it for you: government causes recession or depression by OVERregulation or UNDERregulation. The three worst economic times since WWI all came after Republican administrations slashed taxes and massive deregulation in the years leading up to the economic crises. Do you think that this is also a coincidence?
"Goldilocks regulation", Kenn - that's the key.
The market is not perfect but it will always correct its own excesses.
Of course! Let the market take its course! The Weimar Republic did that (remember the wheelbarrows of money just to buy bread), and what happened? Hitler!
When, oh WHEN will you conservatives start paying attention to HISTORY!!!!!! "Those who forget history will be doomed to repeat it."
That is what recessions are: a correcting of the malinvestments made during Federal Reserve, government spending induced booms.
Ah - so the GOVERNMENT caused the dot-com bubble! And the GOVERNMENT caused the S&L crisis of the late eighties. If you don't like government, Kenn, then move to Somalia!
Please indulge yourself, click on my name, and go to a previous article I wrote on booms and busts. The link for Austrian Business Cycle Theory is http://mises.org/daily/672.
Yes, I know - the Austrian school of thought versus the Keynesian school of thought. So I looked it up...and found out exactly WHY conservatives love Austrian economic theory: it's based on logic and rhetoric but NOT on mathematics or historical economic events!
Critics have concluded that modern Austrian economics generally lacks scientific rigor, which forms the basis of the most prominent criticism of the school. Austrian theories are not formulated in formal mathematical form, but by using mainly verbal logic and what proponents claim are self-evident axioms. Mainstream economists believe that this makes Austrian theories too imprecisely defined to be clearly used to explain or predict real world events. Economist Bryan Caplan noted that, "what prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics."
The scenario you painted is a familiar one. I did own a business in a previous life and had to layoff workers. It is a self-fulfilling prophecy. The best thing for the government to do is let the economy liquidate all its bad investments - no stimulus at all. In the short run it would be very painful, but recovery would come sooner and more robustly.
After the economic meltdown that happened in the Weimar Republic, their economy DID boom. With a highly-regulated economy. With universal health care. With government stimulus of a degree far beyond anything we've done. And it was all done under Hitler.
Kenn, are you really so clueless as to what happens when an economy melts down? Look not only at the Weimar Republic, but also at Russia of 1917, and at what became of Yugoslavia after Tito died, and at Zimbabwe.
When an economy melts down, so does society...and as HISTORY shows, this is often the best opportunity for tyrants to rise and take control. Do you really, truly want to subject America to that possibility? Do you?
That is the way we use to deal with recessions until 1929. First Hoover and then FDR primed the pump and we had the longest depression in our nation's history - 15 years.
I really do wish you'd learn your history. In the 1920's the Republicans slashed the tax rate down to 25% and deregulated the business credit industry, and we had boom times...until a certain day in October of 1929. The government took a hands-off approach for the next 3.5 years...and that's how we wound up with soup lines and Hoovervilles.
THEN in March of 1933, FDR was sworn in, declared a bank holiday to stop the rampant bank runs, and began government-sponsored jobs on a grand scale. Our economy began improving almost immediately to the point where we were finally above the 1929 levels...and then FDR made a mistake and listened to the Republicans in 1936 about taking austerity measures and cutting government spending - and you know what? The economy started stagnating once more!
And what got us out of the Depression? You know as well as I do - WWII. And HOW did WWII get us out of the Depression? Government spending on an unprecedented scale to build our military and industry. In other words, after adjusting for today's dollars, the government stimulus FDR made for WWII is the largest in human history.
And we are STILL getting benefits from it in countless ways. Does that mean the bigger the stimulus, the better? Of course not. What it DOES mean is that HISTORY SHOWS that in times of recession or depression, a government stimulus is a tried and true method of helping the economy back on track. And history ALSO shows that when economic times get really bad, the LACK of swift and effective government action can result in the rise of tyrants.
HISTORY, Kenn. Times change, technologies change...but human nature and basic economic laws do NOT change.
Our leaders have done an even worst job of hindering our economy's ability to cleanse itself this time. Thus, in my view we are headed for another collapse and in the view of many Keynesian economists the recovery will be slow, long, and sluggish.
Please do not take this as an insult, but your belief is directly attributable to your lack of understanding of history. Historical event after historical event proves you wrong.
23 - Baritone
Kenn's warnings about our inevitable failure has a familiar ring to it. Is it possible that Kenn is smoking whatever Ruvy tokes on?
I'm just sayin'...
BAR none
24 - Ruvy
Kenn,
Glenn has been rehashing the same "spend, spend, spend," hash for as long as Obama's been in office. All I can say is I hope he gets to the Philipines with his family before the meltdown.
As for you, stay overseas - even if it is in an Arab country. You don't want to be in America when Obama's kamikaze plane finally crashes. That'll make you one of his passengers....
25 - Kenn Jacobine
Ruvy,
You are a sage. Perhaps, like myself you are not constantly deluged with the love fest the lamestream media has given to Obama in the U.S. and therefore can look at things much more objectivly.
Glenn,
I will respond to your diatribe, but first I have to work today so I can pay for my own health care and to put my son through college.