Category: Uncategorized

Warning: rocket scientists at work:

Ms. Born was concerned that unfettered, opaque trading could “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it,” she said in Congressional testimony. She called for greater disclosure of trades and reserves to cushion against losses.

Ms. Born’s views incited fierce opposition from Mr. Greenspan and Robert E. Rubin, the Treasury secretary then. Treasury lawyers concluded that merely discussing new rules threatened the derivatives market. Mr. Greenspan warned that too many rules would damage Wall Street, prompting traders to take their business overseas.

“Greenspan told Brooksley that she essentially didn’t know what she was doing and she’d cause a financial crisis,” said Michael Greenberger, who was a senior director at the commission.

Here’s an observation. If merely discussing new rules for the derivatives market were liable to cause a financial crisis, didn’t that make it completely obvious that the derivatives market was fundamentally unstable and bound to cause a crisis sooner or later?

John Scalzi declares that it is absolutely an act of hate to destroy legal, existing “marriages”, never mind that they weren’t legal three months ago, they probably won’t be legal in another month, and the legal state of the relationship is not tantamount to the relationship itself. This declaration also raises the obvious question: if there is nothing wrong with homosexuality, then what is wrong with hate?

Meanwhile one of his commenters demonstrates that liberal fascism is alive and well: “I think the people behind prop 8 should be treated like anyone else guilty of hate crimes.”

The amusing thing is that she almost surely calls herself a “Democrat”.

The negligence and incompetence of the nominally conservative commentariat on economic matters has really been quite remarkable when one considers how often and how favorably they tend to write about the so-called “free market”. I wrote this email to Rich Lowry in response to his amazing assertion on NRO that the failure of the Paulson plan to “restore confidence” to the markets should not be taken as a failure of the Paulson plan.

Mr. Lowry, with all due respect, you’re missing the point. The Paulson plan cannot and will not work. It is hopeless and was from the very moment of its conception. It’s a Keynesian solution to an Austrian problem; all the Treasury is doing is ensuring that the crisis is exacerbated and extended in exactly the same way that Hoover and FDR did. This is the classic “pushing-on-a-string” problem that all the contrarians have been warning about for some time now. You cannot correct fundamental investment misallocations caused by cheap money by providing more liquidity. It’s spraying gasoline on the fire.

This is not about “a crisis of confidence” or “animal spirits” or all the usual Keynesian blather that is spouted by the half-educated in political economy. They’re only addressing the symptoms, not the disease which as they try to fight off the contraction that inevitably stems from previous inflationary expansion. It worked in 1996 when they inflated equities. It worked again in 2003 when they inflated housing. Now, there’s nothing left to inflate and the contraction will be much more painful than it would have been if they hadn’t tried to fight it off the two previous times. So, it doesn’t matter when the Paulson plan was put into play, since it couldn’t have worked anyhow. I know Mr. Kudlow and your other mainstream Keynesian and Monetarist contacts will tell you otherwise; they are wrong, as you will see.

It’s a basic matter of defying economic gravity. After the boom, the bust must come eventually. And please don’t confuse the bounce coming next week with an actual recovery; because just when everyone breaths a sigh of relief and starts writing about how the worst has passed, the bear will return with a vengeance.

It’s a beautiful ideal, it merely hasn’t been implemented properly. Now, where have we heard THAT ONE before?

UPDATE – NRO’s John Hood concurs with my take on the matter in a note to Rich Lowry:

You’ll get no disagreement from me that it’s very, very difficult to draw quick conclusions about the relationship between public policy and financial markets…. That said, though, think back to when the House initially voted down the Paulson plan. There was a large subsequent drop in equity values, which many pundits, including some Corner contributors, blamed on the irresponsibility of House Republicans. Now that the plan, more or less intact, has been voted into law, the markets have truly plummeted. Sure, it’s possible that the bear market would have been even hairier and growlier if the Paulson’s bailout notion had never passed, but a certain Medieval philosopher’s shaving equipment would tend to discourage that line of reasoning.

Your correspondent is correct, I think. This is an Austrian moment being described almost entirely in Keynesian terms. No wonder people are panicked and confused. I think the case against Treasury’s plan remains persuasive.

This is an interesting perspective on the situation. It’s not anywhere nearly as far-fetched as it may seem, as I recall that years ago, Alan Greenspan smugly explained how it was European investors who would be sent the bill for the irrational exuberance of the American economy:

What has emerged are the outlines of two opposite approaches to the unfolding crisis. The Paulson plan is now clearly part of a project to create three colossal global financial giants – Citigroup, JP MorganChase and, of course, Paulson’s own Goldman Sachs, now conveniently enough a bank. Having successfully used fear and panic to wrestle a $700 billion bailout from the US taxpayers, now the big three will try to use their unprecedented muscle to ravage European banks in the years ahead. So long as the world’s largest financial credit rating agencies – Moody’s and Standard & Poors – are untouched by the scandals and Congressional hearings, the reorganized US financial power of Goldman Sachs, Citigroup and JP Morgan Chase could potentially regroup and advance their global agenda over the coming several years, walking over the ashes of a bankrupt American economy made bankrupt by their follies.

By agreeing on a strategy of nationalizing what EU finance ministers deem are ‘EU banks too systemically strategic to fail,’ while guaranteeing bank deposits, the largest EU governments, Germany and the UK, in contrast to the US, have opted for what will in the longer run allow European banking giants to withstand the anticipated financial attacks from the likes of Goldman or Citigroup.

The dramatic selloff of stocks across European bourses and across Asia is in reality a secondary and far less critical issue. According to market reports, the selloff is being driven mainly by US hedge funds desperate to raise cash as they realize the US economy is going into economic depression, that they are exposed and that the Paulson Plan does nothing to address that.

A functioning solvent banking and interbank system is far the more strategic issue…. Certain more conservative EU hands are not about to buy the remedy being offered by Washington.

What those who correctly subscribe to the conspiracy theory of history often tend to forget is that there is no one great overarching conspiracy of bad men. Reading Roman, Byzantine, and Greek history quickly teaches one that there are multiple conspiracies of men who rapidly shift from one conspiratorial faction into another, always trying to maximize their own individual benefit at all times. Paulson’s long-term objective is very different than Bush’s, let alone Obama’s or the average Wall Street cheerleader’s. And none of these have the American public’s interest in mind, unfortunately, the American public has neither the capacity nor the interest in even beginning to grasp these tectonic struggles taking place beneath the foundations of their society.

Now that Iceland has fallen, it’s pretty clear that neither Europe nor Japan are going to be in any mood to tolerate Mr. Paulson’s master plan to salvage American financial dominance.

In which the blog collectively performs a service:

We were tracking a bug were in some very rare occasions the comment was improperly sorted after an edit. But as we were not able to reproduce it (although we spent lots of time creating and editing comments…..), we were struggling with it….. As you reported some comments with this problem on your blog, we have been able to identify the issue and this is fixed now.

God clearly works in some very mysterious ways… considering that even Jamie’s incoherencies work towards the common good.

I wonder which will be the next currency to go down:

People go bankrupt all the time. Companies do, too. But countries?

Iceland was on the verge of doing exactly that on Thursday as the government shut down the stock market and seized control of its last major independent bank. That brought trading in the country’s currency to a halt, with foreign banks no longer willing to take Icelandic krona, even at fire-sale rates.

As the meltdown in the Icelandic financial system quickened, with the government seemingly powerless to do anything about it, analysts said there was probably only one realistic option left: for Iceland to be bailed out by the International Monetary Fund.

That thumping sound you here is Jamie and I pounding our heads against the tables, having missed the opportunity to short the krona. I have to admit, though, I don’t think I was actually aware that Iceland had its own currency before yesterday. Some people in Britain are getting badly bitten by this one; it’s going to have a knock-on effect in the UK. And it’s not often that you get to bet against a paper money being flushed down the toilet, although we’ll probably get another opportunity soon enough.

Suddenly, that crazy concept of a gold standard doesn’t look so crazy anymore, does it. Why is the IMF in a position to help? Simple. They’ve got 103.4 million ounces of gold on hand, which is worth $9.4 billion these days, or, if you prefer, an infinity of krona.

Not that this is actually news, but the evidence has finally begun to leak out into the blogosphere. It’s clear that he was a member of the New Party in 1996 and it appears he may have also been a member of the Democratic Socialists of America. This doesn’t matter much for the election, given that his appeal is emotional, not rational, and his opponent favors socializing the banks and housing market anyhow, but at least it will give those of you who live in the USA some idea of what you can reasonably anticipate from his administration.

As a few of you have correctly ascertained, the question to which I took exception to the asserted “Austrian” position and instead chose the “socialist” answer was Question 20: “What is the Function of the Stock Market”. The “Austrian” answer was as follows:

The stock market constitutes a vital part of the process by which we coordinate production. Stock market prices reflect the productivity of business firms as well as entrepreneurial judgments concerning future productivity. Competition in stock markets enables us to ascertain the value of real investment. Takeovers, mergers, and insider trading are wrongly maligned because these practices represent real competition. Without the stock markets, rational coordination of production in modern society would be impossible. Governmental regulation cannot improve on the workings of stock markets because it is the market that most directly informs us regarding the best use of resources.

This statement is rife with errors. First, to explode one possible defense, the question is quite clearly referring to the particular entities known as stock markets; it is not a general reference to trade in the ownership of the means of production. Otherwise, this question could have just as reasonably been entitled “What is the Function of the Fruit Market?” It’s important to remember that a publicly-traded stock is itself a government creation, as it represents a percentage of a government-created entity known as a corporation and as such inherently represents government interference in the free market. To argue that there is no place for government regulation of an entity that government has itself created is intrinsically illogical.

As has become increasingly obvious, stock prices may in part measure corporate productivity, but they rest far more on other elements, most significantly inflation of the money supply. And it is downright false to assert that “rational coordination of production in modern society would be impossible” since the fundamental irrationality of the stock markets currently inhibits production; there is no evidence that it coordinates it in anything approaching a rational manner. It is certainly true that the free market is the best provider of information related to the complex calculation of intersecting values, but the point that the Austrians who concocted this answer appear to have missed is that the stock markets no more represent free markets than NAFTA represents free trade.

The truly Austrian position would be to reject the concept of government-created artificial persons in favor of historical free partnerships which sell shares to anyone willing to buy them through any mechanism it cared to sell them. Some form of recognizable bourse would surely evolve from these operations, but there would be no artificial limits on which organizations were permitted to sell shares through them, much less the bevy of government restrictions that currently exist.

The “socialist” answer, on the other hand, is demonstrably more correct. Only the last sentence is incorrect, but it doesn’t have anything to do with the actual question of the stock market and its functions and so can be safely disregarded. There’s nothing socialist about the rest of the answer except for the mention of “class”, which is not identified with any of the actual Marxian class divisions; the rest of the assertions made are undeniably true in the context of a government-regulated entity managing the trade in the ownership of other government-created entities.

The stock market represents the interests of an unproductive class in society. The investor class profits off of the labor of others, while roping the public into the system through investing schemes. Stock market speculation, insider trading, takeovers, and mergers, work to destabilize the economy. Financial acquisitions concentrate control of the means of production in the hands of a few. Bull markets produce no real wealth, and are really financial bubbles. These waves of stock market speculation lead to financial panics that disrupt the production of real wealth. What we need are not more high-flying financial centers but more common work at the local level toward common goals.

63 Alamo City Spartans (5-0-0)
48 Greenfield Grizzlies (2-2-1)

63 Silver Spooners (2-1-2)
45 Valders Valkyries (4-1-0)

66 Burns Redbeards (3-2-0)
63 Masonville Marauders (1-3-1)

65 Mounds View Meerkats (3-2-0)
50 Judean Peoples Front (2-3-0)

61 Black Mouth Curs (1-4-0)
52 Winston Reverends (0-5-0)

This appears to be somewhat of an odd season. I had all three of my keepers sitting on the bench this week. None of them have performed well yet this year, I haven’t scored a ton of points, and yet I’ve gotten off to a much better start than last year when I couldn’t buy a win. Alamo looks like the team to beat; I find Reggie Bush’s performance to be more than a little annoying considering that I had him for two years and he was rarely worth taking off the bench.

An English columnist notes the probable conclusion to these economic “rescues”:

A quarter of a century ago, in the era of the Labour manifesto that was dubbed (by a member of the Labour shadow cabinet) “the longest suicide note in history”, when one wanted to depict the absurdity of the view of the world advanced by Tony Benn and Michael Foot one simply had to say: “They want to nationalise the banks!” People fell about laughing.

Today, it is all considerably less funny. We are all socialists now.

For the Government to take stakes in our leading banks in order to re-capitalise them is not quite the sovietisation of Britain, but it is a pretty good start. Given the instinctively socialistic leanings of our Prime Minister, it may well have been a move he undertook calmly and, quite possibly, with a little excitement. Perhaps the consequences of his not having socialised our financial system in this way could have been catastrophic – a view taken not just by his closest Cabinet colleagues but also by the main opposition parties. Equally, the consequences of his having done so could be catastrophic, too, because the socialist experiment rarely ends up with people feeling happier, richer and more free until it has ended.

Anyone over the age of 40 will recall the abiding result of the days when we had a socialist economy in this country: poverty. We had better prepare for some more of that.

Fortunately, the USA isn’t going to take any steps that overtly socialist, because we’re fortunate to have a strong, Reaganite conservative, George W. Bush, at the helm instead of a Scottish socialist like Gordon Brown… hang on, strike that thought.

One can only conclude that one of my Australian friends was prescient a few months ago when he said, prior to the first bailout in the ongoing series: “Amerikih is f—–!”