Let's not put lipstick on this pig.
The break-up of Lehman Brothers, the fire sale of Merrill-Lynch, and the woes of AIG are, sadly, not fundamentally symptoms of corporate malfeasance, or the sad lot of an unlucky few, but, rather, signs of a worsening storm. The storm has several fronts:…
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26 - Don Jarrett
The path of least resistance in a financial crisis such as the current one is for the government to print more paper money.
A government in financial free-fall finds the easiest path is to print more and more money until the money loses its value. What will happen is the government will inflate the dollar up to the point where the national debt is wiped out, and a fresh start can be made. Of course, this will be at the expense of all those who lose their savings. The process is accompanied by explanations, propaganda and new regulations which hide the truth from the people until they have lost almost everything.
The day of reckoning can’t be far away.
Those in the know will buy gold -- but most will not understand what the politicians have done to them until it too late.
But settle back, keep watching Britney, Paris and NASCAR and enjoy your six-pack of Bud as long as you can afford it.
27 - bliffle
Credit markets will unlock immediately with an injection of cash at the bottom of the income scale because that's where we have the largest Propensity To Spend, which, in addition to some cash, is what we need. All the rest will follow.
Why give more money to the idiots who caused the problem? When you find yourself in a hole the first thing to do is stop digging.
How could cash given to dolts possibly improve their performance? The banking business is exactly the wrong thing to rescue.
28 - alessandro
#4. So true. How do you feel about that, Nick?
And yes, cuervodeluna does sound a lot like moonraven, eh?
29 - alessandro
I wonder what the "storm of a lifetime" would be like if there was no government intervention.
30 - Franco
#25 "Nick First
"For those looking for an articulate argument against the administration's proposal you might want to read this."
Nick, the University of Chicago economist Luigi Zingales that your link takes us to makes a very stronge logical argument against the federial bailout and as it states, this is the arugments bottom liine.
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The decisions that will be made this weekend matter not just to the prospects of the U.S. economy in the year to come; they will shape the type of capitalism we will live in for the next fifty years.
Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms?
Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalized and prudent behavior rewarded?
For somebody like me who believes strongly in the free market system, the most serious risk of the current situation is that the interest of few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists.
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What are your thought son this?
Start with this. Shouldn't these federal rescue ballouts have unbreakable strings obligating full repayment to taxpayers over time?
31 - alessandro
Franco, I'm with you.
I once took a von Mises test. Apparently I would fit right in with the Austrian school.
32 - Franco
Funny you would say that alessandro, I also took a similer test and feel right in with the Austrian school of thought as well.
33 - Franco
alessandro,
It came about for me when reading "The Law" written by Frederic Bastiat in 1850. He is credited with being the forerunner in thought leading to the Austrian school.
You probably already know this but...
Frederic Bastint, was a French classical liberal theorist, political economist, and member of the French assembly in the first half of the 19th century who wrote extensively on liberty.
Bastiat asserted that the only purpose of government is to defend the right of an individual to life, liberty, and property. (Sounds like something I once read in the Declaration of Independence if I'm not mistaken)
As Bastiat maintained, government control of private individuals and regulation of private industry was inefficient, economically damaging, and morally wrong.
From this definition, Bastiat concluded that the law cannot defend life, liberty and property if it promotes socialist policies inherently opposed to these very things. In this way, he asserts, the law is perverted and turned against the thing it is supposed to defend.
Selected quotations from "The Law"
"Government is the great fiction through which everybody endeavors to live at the expense of everybody else."
"Life, faculties, production -- in other words, individuality, liberty, property -- this is man. And in spite of the cunning of artful political leaders, these three gifts from God precede all human legislation, and are superior to it. Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place." -- from The Law
"If the natural tendencies of mankind are so bad that it is not safe to permit people to be free, how is it that the tendencies of these organizers are always good? Do not the legislators and their appointed agents also belong to the human race? Or do they believe that they themselves are made of a finer clay than the rest of mankind?" -- from The Law
"When under the pretext of fraternity, the legal code imposes mutual sacrifices on the citizens, human nature is not thereby abrogated. Everyone will then direct his efforts toward contributing little to, and taking much from, the common fund of sacrifices. Now, is it the most unfortunate who gains from this struggle? Certainly not, but rather the most influential and calculating." -- from The Law
"But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime. Then abolish this law without delay ... If such a law is not abolished immediately it will spread, multiply and develop into a system." -- from The Law
Bastiat is commemorated by a road bearing his name in Pairs, France. Maybe with all of Frances real social economic troubles they'll start taking more of his logic to heart.
34 - alessandro
Thanks for that Franco. I must profess I've only heard of him before and not more. But will endeavor to learn more.
He certainly hit a chord with regards to government I always held close to me:
"Or do they believe that they themselves are made of a finer clay than the rest of mankind?"
35 - Jeremy Gin (Nick First)
Franco: honestly, I don't know if the bailout is the right thing to do. But, frighteningly, I don't think anyone else does either. Let's consider the alternatives:
Bailout-
pros: get credit markets working again, which could prevent a deeper recession/depression by freeing up capital that can be borrowed by businesses and individuals. a new regulatory structure, if done properly, could actually make markets more efficient and protect the financial system in the future. also, a bailout may not have to cost a lot of money bc just the mere presence of an approved proposal may get markets working again - also if the federal gov't were to buy the mortgages, they could potentially turn a profit on some of them in the long-run.
cons: potentially costs a lot of money that could be used for more useful things like paying down the deficit. creates moral hazard - people who took risks get bailed out, could take more risks like this in the future (unless proper regulation is put in place). we don't know the long-term market distortions that may be caused and we don't know what precise regulatory framework will be used... could be worse for the economy and country in long-run.
No bailout-
pros: risk-takers are punished and perhaps will learn their lesson and not take so many risks in the future. no risk of a poorer regulatory structure (the current structure may work fine now that big losses have been made). no big price tag.
cons: financial markets grind to a halt. all lending dries up, banks collapse. economy enters a long and deep depression. Rome falls.
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in my view, the underlying problem is uncertainty. as i see it, no one really knows:
(1) what the "right" regulatory structure is to ensure well functioning markets and economic prosperity in the future. historically, when politicians mettle in these things they make them worse, not better.
(2) how bad things would get if the bailout did not happen now.
but like it or not, a bailout will probably occur - it is too politically risky for our weak-willed politicians to do nothing (if things get worse, at least they can tell their constituents they tried). let's just hope they do this right....our economic future depends on it.
from the economist.
36 - alessandro
I think you summarized it perfectly and succinctly Jeremy. There are no easy answers.
37 - bliffle
Jeremy didn't even mention the third alternative: apply the bailout elsewhere in the economy.
As I've shown in another thread, it is best to apply the bailout to individual citizens, such as those who've had their homes foreclosed. It's only 8% as costly to apply the money where the intrinsic value is, rather than to the extrinsic value, i.e., the paper facade of our potemkin capitalism.
We could do the same thing with $80billion instead of $1trillion. Isn't that a better deal?
38 - Jeremy Gin (Nick First)
bliffle: I sympathize with your desire to directly aid citizens, but in practice, it is very difficult to do well. Historically, boosting the economy using fiscal stimulus targeted at consumers has had a poor record. I wrote blog post on this in August.
39 - bliffle
But that was a sham, designed to achieve political, not economic, goals.
Yes, it will take work to figure out how to distribute the money. Yes, it will take struggle and arbitration among contending supplicants to figure out who gets what.
Maybe that's a burden, but that it's the burden we have fated ourselves to by not regulating the untamed use of Frankenstein Capitalism by pirates.
How many times have we listened to the enablers on the BC right contriving reasons why some criminal businessman should not be prosecuted? That Greed is Good? That all an exec owes is to return the highest profit to shareholders?
Yes, it's WORK to do it, but it's what we owe to our society. We have to make up for GWBs laziness and no-work attitude for the past 8 years. And for his cowardice.
If we don't a storm of economic and societal war awaits us.
The Paulson/Boehner bailout of wallstreet will NOT solve the problem that US citizens have in front of them. It will only result in further indebtedness of US citizens to slavemasters in distant lands.
40 - cuervodeluna
alessandro,
Since cuervodeluna MEANS moonraven, wouldn't it be logical?
Duh.
41 - Cindy D
hee hee
42 - alessandro
I wasn't talking about your name, Moonraven.
Duh.
Heh, heh.