I've been hearing from economic thinkers on both sides of the bailout -- I mean, those who believe that it's awful but necessary, and those who believe that it will only make things worse. I honestly don't understand the issues well enough to make an informed judgment, so I just put them all up to you for consideration (Joe Nocera said in his NYT column today that the truth is, nobody knows for sure if this thing is going to work or not, no matter what they say). Anyway, Ron Paul said to Congress about the bailout:
We want to do this, it is said, to prevent the recession or depression, because that is "unbearable". But the truth is, you should have thought of that about 10 or 15 years ago, because the financial bubble created by the excess of credit and the lowering of the interest rates is the cause of the recession.The recession is a demand. It's a must. You can't avoid it. Yes, it's been papered over several times over these last several decades, but that just made the bubble bigger. But the message now is you can't paper it over any longer, so the recession and/or the depression will come.
My sincere conviction is that by doing more mischief and not allowing markets to adjust, debt to be liquidated, you're going to guarantee a depression. It's going to be prolonged, the agony is going to be there a lot longer than if you allow markets to adjust. Liquidation of debt, let the bankruptcy occur, let the good assets come up, and let it react.
I'm never sure what to make of Paul's economic talk, but it was startling to read today in the Washington Post the same point being made by James Grant, who, it seems, is a noted mainstream authority on financial matters. Excerpt:
Low interest rates, easy money and malleable accounting rules are what plunged Wall Street into crisis. Yet it is low interest rates, easy money and malleable accounting rules that top the list of federal fixes. The unifying theme of the new bailout bill, all 451 pages of it, is the hair of the dog that bit you.The unblinkable fact is that Americans own too much house. We overpaid and overborrowed, and many of us are "upside down," as the car dealers say. What to do? Recognize the losses and write them off. What not to do? Inflate the currency and debase accounting standards.
But inflation and debasement are the very policies being put in place. The Federal Reserve, not waiting for Congress, embarked last month on a radical program of money-printing. Reserve Bank credit -- the raw material of bank lending -- is growing at the year-over-year rate of 61 percent.
More:
Long after the crisis burst into the open, the Fed and Treasury downplayed it. It was, they insisted, "contained." Last week they asserted that, unless the House voted "yea," the wheels would come off this $14 trillion economy. President Bush himself has broadly hinted that the nation is on the cusp of disaster.How can they be so sure? And how can they know that the unintended consequences of the radical policies they are pushing through won't be worse than the panic that they themselves are helping to foment? When the Fed insists it has no choice but to print up hundreds of billions of new dollars and when the keepers of accounting standards bend in the face of criticism that market prices hurt, what they are really saying is the that financial truth is too awful to bear. Heaven help us all if they're right.
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Pyrrho, you appear to have a fixation with pumping money into the credit markets.
But other that, I've seen you suggest little.
You really don't seem to believe in free market economics, either. You also seem to think that Japan was the model. Why would that be?
I haven't noticed it was a spectacular success.
As for the focus on the single idea... I was looking back and I think the term was "cultists".
Nightstalker--
Please. Religious devotion to the notion of "free market economics" is what brought us the financial crisis--from the repeal of Glass-Steagall to the gelding of the SEC.
"More deregulation!" sounds a lot like "More Jesus!" to my ears. Not appealing to the intellect, one might say.
Hey Doc...
I see no evidence whatsoever that any current modifications of Glass-Steagall has any bearing whatsoever on the current issues under discussion.
Second, the current madness concerning subprime mortgages is mostly due to congressional and presidential attempts to violate free market principles. The creation and then politicization of Fannie and Freddie, with their ultimate disposition being to flood the markets with inflated real estate mortgages, far too many of which were excessive risk.
In other words, had congress not thought they could accomplish social goals with lending regulations, this mess would not now exist.
There is no evidence whatsoever that ANYONE has ever successfully bested free market capitalism. The world is full of arrogant failures, and all the evidence says it works.
Read this article:
www.cnbc.com/id/27036340
You have to read it from end to end.
Fannie and Freddie are largely responsible for otherwise cautious firms jumping into the subprime business. They made it "mainstream", and they exploded the number of them.
All driven by the fact that these buffoons actually believed they could use "models" to tell them the future and defy the risk/return equations.
Altogether, this is an indictment of NOT following free market economics.
Doc: one last comment: Believing in Congress to "regulate" the markets and economy is a thought that doesn't just "not appeal to the intellect" it defies all sense, intelligence, and intellect.
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