Category Archives: Credit Crisis

A Failure Of Regulation

Credit Crisis, Economics, Government Regulation

Many folks these days are blaming our current financial woes on a lack of regulation. They seem to think that an abstract term like “regulation” somehow gives government amazing powers to ensure that bad things won’t happen. Which is why this interview with Warren Buffett (c/o Coyote Blog) is telling:

QUICK: If you imagine where things will go with Fannie and Freddie, and you think about the regulators, where were the regulators for what was happening, and can something like this be prevented from happening again?

Mr. BUFFETT: Well, it’s really an incredible case study in regulation because something called OFHEO was set up in 1992 by Congress, and the sole job of OFHEO was to watch over Fannie and Freddie, someone to watch over them. And they were there to evaluate the soundness and the accounting and all of that. Two companies were all they had to regulate. OFHEO has over 200 employees now. They have a budget now that’s $65 million a year, and all they have to do is look at two companies. I mean, you know, I look at more than two companies.

QUICK: Mm-hmm.

Mr. BUFFETT: And they sat there, made reports to the Congress, you can get them on the Internet, every year. And, in fact, they reported to Sarbanes and Oxley every year. And they went–wrote 100 page reports, and they said, ‘We’ve looked at these people and their standards are fine and their directors are fine and everything was fine.’ And then all of a sudden you had two of the greatest accounting misstatements in history. You had all kinds of management malfeasance, and it all came out. And, of course, the classic thing was that after it all came out, OFHEO wrote a 350–340 page report examining what went wrong, and they blamed the management, they blamed the directors, they blamed the audit committee. They didn’t have a word in there about themselves, and they’re the ones that 200 people were going to work every day with just two companies to think about. It just shows the problems of regulation.

There are all sorts of problems with regulation, such as the Bootlegger-Baptist phenomenon, regulatory capture, and all the corruption and back-scratching associated with lobbying and rent-seeking.

It just shows that despite 200 employees put in place to oversee only two companies, they still couldn’t overcome the institutional incentives against rocking the boat. As Stephen pointed out earlier today, even when there are voices pointing out these problems, the regulators couldn’t seem to find them because they wanted to “be collegial”. Collegial could also have described the relationship between Arthur Anderson and Enron, no? But of course, I’m overreacting… These are honest government employees with only the public’s interest at heart, so I’m sure there were no conflicts of interest…

Brad Warbiany
https://thelibertypapers.org/

The Credit Crisis: A Bipartisan “Achievement”

Corruption, Credit Crisis, Democrats, Doublespeak, Dumbasses and Authoritarians, Economics, Election '08, General, Government Regulation, Government Waste, History, Politics, Republicans, The Welfare State

First, President Bush in 2002 pushes for increased home “ownership” regardless of creditworthiness.

Second, despite what Nancy Pelosi says, the Democrats most certainly did their part to help President Bush succeed in his “ownership society.” These Democrats who scream that this credit crisis is a result of lax regulations didn’t much appreciate the regulators when they warned that Freddie and Fannie were in trouble as early as 2004.

The recent rescue package bailout was also a bipartisan “achievement.” Despite these bipartisan efforts, as of this writing, the Dow Jones Industrial Average has dropped to 9720 (-235 so far today).

In tonight’s debate we can almost certainly count on John McCain and Barack Obama talking about “bipartisanship” and how each will “reach across the aisle” to get things done. As McCain and Obama reach across the aisle, we’ll be reaching for our ankles and say “Thank you Mistress Helga, may I please have another?”

That’s exactly what we are going to do. We are going to elect one of these two collectivists into the White House in just a few weeks and we are going to send Democrats and Republicans back to the House and the Senate and ask them to abuse us more.

Make no mistake: this credit crisis is a bipartisan government achievement. What it is NOT is a failure of the free market.

Stephen Littau
http://fpffressminds.blogspot.com/

Fed Opens Spigot With Up To $900B $1.3T More

Credit Crisis, Economics, Government Regulation, Monetary Issues

With the reverberations of the Congressional fight over the $700B bailout still shaking Capitol Hill, the lingering question has been whether that $700B would be enough to do any good.

Nope. They’ll need at least double that. And Congress isn’t voting on this plan:

The Federal Reserve announced Tuesday a radical plan to buy massive amounts of short-term debt in a dramatic effort to break through a credit clog that is imperiling the economy.

The Federal Reserve, invoking Depression-era emergency powers, will buy commercial paper, a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls.

…

The Fed said it is creating a new entity to buy three-month unsecured and asset-backed commercial paper directly from eligible companies. It hopes to have the program up and running soon, Fed officials said.

Fed officials said they’ll buy as much of the debt as necessary to get the market functioning again. They refused to say how much that might be, but they noted that around $1.3 trillion worth of commercial paper would qualify.

And lest anyone be confused, this is not what went through Congress on Friday:

The Treasury will provide money to the Federal Reserve Bank of New York to support the new program, the Fed said. Fed officials would not say how much but believed it would be substantial. The money would not come from the $700 billion financial bailout President Bush signed into law on Friday.

Bernanke, a student of the Depression, took one lesson away from the 1930s. Never let liquidity dry up. He’s going to inject so much grease in the system that it will be FORCED away from seizure. What remains to be seen, though, is if that grease will cause it to spin right off the axle.

The current credit crunch is a largely deflationary phenomenon. Too much leverage existed in the system, and with our fractional reserve lending system, that led to too much money floating around.

The healthy way to let leverage unwind is to allow that fake wealth to evaporate. However, this is a very painful exercise. Leverage-induced inflation sends false signals to the market suggesting that natural demand for certain products (housing in this case) is increasing, and jobs and companies spring up to meet that demand. As the leverage unwinds, the money dries up, and people in those sectors are left out of a job looking for something to do.

The unhealthy way to unwind leverage is to flood the market with enough liquidity that the base of the lever expands. If you’re leveraged at 20-1, and the government steps in and loans you new capital while buying your bad assets, you can increase your capitalization and may only be levered at 10-1 while your actual holdings haven’t decreased. This is what the government is trying to do. The danger, of course, is that the new money injected into the system just adds to the leverage, and we end up in a hyperinflationary depression.

Many people I’ve spoken to who are involved in financial matters are saying things like “I’ve never seen anything like this before. The market is acting in completely unprecedented ways.” At the same time, we have a government that is so desperate to stave off another 1930s depression that they’ll sacrifice any sense of fiscal discipline or monetary stability. It sure is going to get interesting!

Brad Warbiany
https://thelibertypapers.org/

Just What Was The Administration Threatening Recalcitrant Representatives With? Martial Law?!?

Credit Crisis, Dumbasses and Authoritarians, Fascism in America, Federalism, Military, Monetary Issues, Separation Of Powers, War on Terror

I hope that Representative Sherman is the victim of a bad game of “telephone”. If he is not, if the administration really did threaten to impose martial law if the bill weren’t passed, then the time has come for us to cast out the vipers in Washington D.C.

Hat tip to The Crossed Pond and Dispatches from the Culture Wars

tarran
I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.
https://thelibertypapers.org/author/tarran/

Is It All Alexander Hamilton’s Fault

Credit Crisis, Economics

Thomas DiLorenzo of The Ludwig von Mises Institute and author of the forthcoming book Hamilton’s Curse: How Jefferson’s Arch Enemy Betrayed the American Revolution–and What It Means for Americans Today appeared on MSNBC’s Morning Joe to discuss both his upcoming book and what’s wrong with the banking system in the United States:

An interesting hypotheses to say the least.

Doug Mataconis
http://www.belowthebeltway.com
1 … 30 31 32 33 34