My favorite paragraphs are the second and the last. He is merely being ‘reassigned’, not fired, and this after he was demoted following the Keating Five scandal.
As the left will often argue, the answer to our current financial crisis to have more of these people, with more power. Then our problems will be solved.
http://online.wsj.com/article/SB122998621544328009.html?mod=testMod
It’s sad. He shouldn’t just be demoted or fired, he should be locked up. Some time in prison for actions like this would help counteract the culture of corruption.
Strawman. The argument is that less oversight makes us more prone to financial instability and more oversight makes us safer not that we will be perfectly safe from problems. This situation does nothing to demonstrate otherwise.
Then how about Fannie and Freddie? Two of the most highly regulated, tightly controlled financial entities, which became perhaps the biggest part of the problem because the regulators decided they should get in the game themselves and start pushing mortgages on people who couldn’t afford them or who weren’t responsible enough to maintain them, for political reasons.
Here’s what Barney Frank had to say about it:
Roll the dice he did. And because this was a government entity, it had extra clout in the market because everyone assumed it couldn’t fail, and therefore it was far more dangerous and destabilizing than other financial firms.
Government already has too much power. Power corrupts. Government should tread very, very lightly in the market, because it is a distorting, destabilizing influence. Because it has a monopoly on force, it can govern by fiat, as we’re seeing now. The result is unpredictability and a reduction in private economic activity. The regulations raise the costs of doing business and increase uncertainty because it’s tough to invest in stocks when the random hand of government can tilt the playing field overnight.
Plus, government is just lousy at it. Look at how well government is working in Illinois. Look at how the Bush administration worked out. When Katrina happened, state and federal governments failed in their missions. But Wal-Mart managed to truck in goods very quickly, because they had an effective, tested disaster plan.
The thing I can never understand is why the left continues to cling to the notion that government is needed to make things work better, when all the evidence we have says that government is generally very poor at management and efficient allocation of resources, and that regulations are often twisted and perverted away from their original intent - captured by the special interests being regulated or other politically powerful groups.
Saying that something is the most highly regulated entity under the Bush regime is like calling someone the fastest runner at the Special Olympics. My understanding is that Fannie and Freddie got into subprimes for financial reasons and am unaware of any politicization of their lending practices. Nor were they the major players in the housing bubble. See this Nobel Prize Winning Economist.
I see the Barney Frank quote spread amongst the usual suspects around the internet in “Gotcha!” fashion but I don’t see any accompanying analysis about how this attitude translated into problematic policy. It’s from 2003 which, as the link above points out, is when Freddie and Fannie started pulling back on mortgages. Also, lets remember that these are not governmental entities. They used to be but were privatized. These problems didn’t occur back then.
Noting that power corrupts is not a useful observation for you in this situation because you aren’t proposing to halt economic activity. We aren’t discussing eliminating the power but only shifting it from public to private entities. It’s corrupting influence will still exist.
The standard conservative talking point is incorrect. Government does “distort” the market in the sense that it (like all the major financial players) affects it. This “distortion” doesn’t disturb the market. Without government there is no market, or at least not much of one. The monopoly on force provides the stability for trading to flourish. (Else the term “corporate raider” would take on a new meaning.) Certainly changes in policy do change the investment outlook. It would be better to settle on a consistant and sustained policy of comprehensive oversight. Unfortunately, this is not in the interests of powerful financial players who try to game the system. (See: power corrupts.)
Nixon and Dubya sucked!!! Obviously we should never elect another Republican!!!
If you actually look at those situations then you can determine reasons for failure without painting with such a broad brush. Illinios politics are incredibly dirty because the GOP refuses to moderate their radical agenda and our electoral system obstructs the rise of a multiparty system. This leads to one party rule in some areas and one party rule leads to problems. (See: power corrupts.) The Katrina disaster is symptomatic of the systematic GOP effort to degrade our government capability. The weaker the government the more powerful the private entities. (See: power corrupts.)
Perhaps that is because you are so infected with false conservative memes that you cannot see the truth in front of you. When regulation is lacking (1929, S&L crisis, now) business runs amok. (See: power corrupts.)
Fundamentalist free-marketers have now been revealed as cultists. The current situation is such that we no longer need to even pay lip service to their brand of insanity.
They are wrong in their beliefs, totally wrong and there is no more to be gained from engaging them in debate than there would be debating with Phelps about homosexuality.
That they still have the nerve to offer an opinion on anything related to the economy is breath-taking.
Man, that’s hilarious.
No, really it is.
We’re surrounded by the wonders of the free market, sitting in the midst of too many government scandals to count, and it’s the free marketers that have been totally discredited. Uh huh.
On the one hand, I would agree that it was largely the US government that’s to blame for the current state of things. On the other, it was largely a result of the market banking on the infallibility of the government that led to the current state of things. So even if it is at core the government that went wrong, most financial gurus didn’t seem to think that it would be a worry–and probably with some amount of history to back that choice.
The Hidden Hand is meant to be the most efficient guide. It has failed. Get over it. I’m sure there are de-programmers you can hire.
There is a difference a market-based economy and free market fundamentalism. The wondrous results of the former are indeed all around us. We are surrounded by the results of the latter, but I’m not sure I’d call them wonders.
Fannie and Freddie did not originate mortgages. They backed them after they were written. The fraud was committed before it got to them. They probably should have been more selective in which ones they backed though.
Fannie and Freddie were a lot more influential than just the percentage of mortgage-backed securities they held. Fannie and Freddie also acted as a sort of ‘government stamp of approval’ for those securities, and used their implicit government backing to secure capital at rates below which others could, which made those securities even more attractive. This pretty much forced other financial institutions to get into the game to be competitive.
We won’t know exactly how much influence they had for some time, but it wasn’t insignificant. But the larger point here is that this is a failure of a quasi-government institution to be a good gatekeeper, despite the fact that it had direct oversight by Congress.
There’s no doubt that the market bears some responsibility here as well, but I find it fascinating that you can take an episode in which government and the market failed, and somehow come to the conclusion that only the market failed, and that what is really necessary is more government control.
Did they start pulling back, or did they just lose market share because other financial institutions got into the game? And you don’t see how this translated into problematic policy? The Bush Administration was pleading with Congress since 2002 to do something about Fannie and Freddie. They certainly saw the problems. Congress did nothing. If you want to see what the problematic policy was, just go look at the transcripts of the multiple testimonies before Congress that Bush Administration economists and the treasury secretary made.
They are quasi-government agencies, still subject to congressional oversight (notice how easily the Feds took them over when it became clear that they had to). They enjoyed the implicit backing of the treasury for their debts, which gave them a competitive advantage in the market. The head of Fannie Mae and Freddie Mac was almost always someone with close ties to Washington. The government was heavily involved.
Power in a free market is limited. Companies can only spend money they raise in the marketplace, and must always be answerable to customers and shareholders. Even the largest companies can and do collapse if they do not meet those needs.
Government power is unlimited. Government has the bottomless well of taxpayer money to play with, has the legal right to print money and otherwise control the money supply, and of course has a monopoly on the use of force in getting what it wants. It can spend billions of dollars to no effect, and the only result will be a demand to spend even more. That’s why government distorts the market - it operates outside of it, unlike private enterprise.
Really? Do you think the steel tariff distorted the market? How about the heavy tariffs on cane sugar and ethanol from Brazil?
One of the things that helped ruin the domestic car industry was the tariffs and regulations on cars in the 70’s which were thinly disguised means to protect American auto makers from foreign competition. That allowed them to get fat and lazy and uncompetitive. That’s a distortion of the market - a barrier that prevents price signals from driving behavior.
Taxation distorts the market. Regulations distort the market. A new regulation which imposes costs on one type of business while exempting another can drive companies out of business and change the flow of capital permanently. This is exactly why governments do this. They attempt to manipulate the market from on high because they don’t like the path the market found for itself. A new $7500 subsidy for a hybrid car is intended to distort the market. Its intent is to push customers away from other types of cars. Woe to the investor that just put money in the car company that does not have a hybrid in its lineup. And too bad for the company that has non-hybrid cars with advanced technology that are just as efficient but $5,000 cheaper. They went from being market winners to market losers, and took their development money and investors down the drain with them.
No one disagrees with this, other than crazed anarchists. So that’s a bit of a straw man argument. There’s a large chasm between regulations required for the effective functioning of the market and the kinds of interventions we’re talking about here.
Wow, that may be the best spin I’ve ever read. Let me see if I’ve got this straight - the high levels of corruption in overwhelming Democratic Illinois is the fault of Republicans. My hat’s off to you for that one.
Actually, most of the Katrina failures came at the state and civic levels. The failure of the feds came much later, but the state and local governments are the first responders, and they failed utterly. Wal-Mart was more successful in helping the people than they were.
This was a failure of government at every level. That’s what should have been so illuminating those those of you who think more government control is a good thing. The levees failed in the first place because of multiple failures in oversight and management by the city, the state, and the feds. Everywhere you looked in that disaster, government came out looking bad. And many of the failures at the federal level pre-dated the Bush administration, and in fact went back through multiple administrations, both Democrat and Republican.
The causes of the Great Depression were numerous, but again government shares a large portion of the blame. Same with the S&L’s - they could not have created the problem they did if it were not for the FDIC insurance that gave them cover.
The real danger is when government and business play on the same field. That’s what opens the door to government corruption and business corruption. Statists always believe that whatever corruption is happening is the fault of a few bad apples (usually in the other party), and as soon as the right people get into power everything will run smooth as glass.
This never happens. What happens is gross incompetence, decision-making in the absence of the information needed to make those decisions, and high levels of corruption. Business decisions are no longer made efficiently, but based on what the politics of the decision are. Regulatory capture occurs. Taxes are raised to pay for it all. Protectionism rises, as once government is in the market it can use the force of arms to stifle foreign competition.
In the meantime, the market, consisting of billions of transactions a day, chugs along create amazingly complex supply chains in a vast web of interrelated transactions, the net result of which is to bring the goods we need to us with high efficiency, in exactly the right quantities. Billions of goods, moving throughout the country all day long. Capital ebbs and flows with changing demand, providing incentives and resources exactly where they are needed. Free individuals ‘vote’ numerous times a day, exchanging small bits of their labor for products made by people they will never know.
And yet, some of you insist that capitalism has somehow been completely discredited, and government has emerged out of this as our one and only savior.
F&F themselves were forced into the game to stay competitive. To imply or assert otherwise is just misinformation.
We can primarily blame the market because the market bears most of the responsibility for pushing these mortgages. F&F did not lead the revolution. They were followers, pressured into the subprime world by dwindling market share. They were late adapters to market conditions, and in doing so, they did make the situation worse, but it was Wall Street that originally screwed up by doping up on empty loans, as even a cursory look at the timeline will show.
I’m not precisely sure why Krugman was cited earlier, when he just goes on to cite Mark Thoma. F&F were moving away from the market just when it was starting to get dangerous, at least until they felt they had no other choice but to take the same plunge that Wall Street was doing. This New York Times article has the same information, with a bit of spicy drama added:
Emphasis added.
Fannie had lost so much precisely because it was smarter than Wall Street at the beginning. This commendable resolve eventually dissolved, and they joined the bandwagon, which of course contributed to our present problems. But none of that means that regulation is unnecessary, no more than the original market failure means that markets are unnecessary. Markets can fail, and regulation can fail. All this means is that we should be careful about some markets, even in the best of times, and also be committed to electing people who care about good government, which thankfully we appear to have done.
The government has the power to print money, but it doesn’t (at present) have a lot of influence in loaning it out for new homes or cars. The private banks reserve a great deal of power for themselves in the form of creating our money supply. In their fear of the current economic climate, they are strangling the money supply which is causing our present deflationary pressure. This is something that the Fed has not yet been able to successfully reverse despite all those vaunted government powers.
And frankly, plenty of markets aren’t efficient, even in the pristine world of economic theory. Firms are happy to dump their own costs into the environment if it means a better bottom line, and they refrain from pursuing projects with positive societal benefits if it won’t make them a buck. These are real distortions, too, same as any excessive tax or burdensome regulation.
The FDIC is a bulwark against the storm. I don’t agree with all their decisions during this crisis, but they exist to maintain the stability and security of our money supply, as well as preserve our confidence that our money will still be there no matter how shitty things get. Even if they have in the past contributed somewhat to finance problems like the S&L debacle (an argument I’ve never seen sensibly described before, and which I do not at present believe), you would still have to put that against the highly distortional effects of money panic and bank runs. Nobody has claimed they’re perfect, but they do a helluva lot more good with their stabilizing influences than any bad that could ever be reasonably attributed to them.
