Megan nails it:
the government is using its intervention in the banking system to pressure banks to give special deals to the government’s special friends.
Archive for the ‘economics’ Category
obamanomics
Thursday, May 7th, 2009Securitization
Wednesday, May 6th, 2009From the point of view of oligarchs and crony capitalists, the crisis is not that a lot loans were made to no hablo English wetbacks. The crisis is that people are rejecting securitization of debt.
The Obama regime’s capitalism smashing measures are intended not to destroy capitalism, nor to install socialism, but to restore securitization of debt. This is socialism for the financiers, not for the proles: Crony socialism, crony capitalism, a fascist economic order.
Regular old fashioned loans are going through just fine. There is no credit crisis, the financial system is not freezing up. Securitization is freezing up, and it @#$% well should freeze up.
When debts are securitized, many different debts of many different borrowers are piled together into a great big pool of debt, and then shares in the pool are sold to lots of creditors – which means that there is no one person responsible for verifying that any one particular loan is sound, that the assets securing the loan are worth what they are supposed to be worth, that the person responsible for making payments on the loan can read and write, that he speaks the language that the papers that he signed were written in, that he was sufficiently sober when he signed them to remember signing them, or even that the paperwork exists and is in good order.
For securitization to work, the particular organization that arranged the loan, and the particular people in the particular organization, would have to remain responsible for that loan. The debtor would have to be making payments through the people that arranged the loan for the life of the loan.
Securitization leads carelessness with large sums of other people’s money. Such carelessness leads to crime. Crime destroys the trust that is necessary for the economic system to work. Securitization must stop. If securitization continues, capitalism will end. By and large, those who favor continued securitization are wealthy criminals, who personally benefited from stolen money, as over the years carelessness slowly became indistinguishable from deliberate fraud. The problem before Obama was not lack of regulation, but that the foxes were regulating the chickens, and now under Obama the foxes are still regulating the chickens. Each Obama intervention has the effect of keeping the criminals in power over other people’s money, resisting the natural propensity of capitalism to purify itself through creative destruction.
Securitization was born in fraud: The original motivation for securitization was the 1995 Community Reinvestment Act. If the government is pressuring you to make loans on the basis of race, rather than willingness and ability to pay one’s just debts, you want to get rid of the politically correct mortgages to some other sucker as fast as possible.
Securitization of debt is only legitimate when the people that arranged the loan remain linked to the loan. Otherwise, securitization is a scam, as the origins of mortgage securitization demonstrate.
Galt strike or inadequate aggregate demand?
Friday, May 1st, 2009The Randian concept of a Galt Strike is that if the elite slack off, the masses will be impoverished – that countries are rich or poor according to whether the elite is productive, while the masses and resources do not matter much, except in extreme cases such as oil rich sheikdoms.
There has been a large fall in GDP over the past six months:
The Keynesian explanation of this fall is inadequate aggregate demand – the economy could easily produce more, but no one is spending due to depression of animal spirits, in which case a big spending government will make everything rosy.
The Austrian and Chicago explanation is complicated, and perhaps confused.
The Randian explanation is that it is a Galt Strike – the elite are slacking off, and focusing on hiding their wealth and economic activities from the government, rather than creating value, in which case big government spending will merely result in inflation or massive borrowing from abroad.
Core CPI will in time tell us which account is correct. We will know by about November 2010.
- If late in 2010 core CPI is substantially higher, nominal GDP substantially higher, but real GDP still woeful, then Randians will have been proven correct.
- If late in 2010 core CPI is lower or unchanged, then both sides can argue they were right, and the Austrians will probably have some explanation that I will be disinclined to follow.
- If late in 2010 core CPI only rises moderately, but real GDP rises substantially, then Keynesians will have been proven correct.
I am betting on disturbing levels of core inflation with a distinctly unimpressive recovery in real GDP.
Trillion missing, top accountant dead
Thursday, April 23rd, 2009David Kellerman, the acting Chief Financial Officer and Senior VP at
Freddie Mac, was found dead early this morning from at his home in Virginia. It is described as an apparent suicide.
The press is rightly comparing this with the very similar “suicide” of Enron’s top accountant.
When large sums of money disappear, the person who knows most about where the money went often, by an interesting coincidence, winds up with his mouth permanently closed.
Freddy Mac and Fannie May have had accounting scandals before, but during the housing boom, all their sins were forgiven, and the offending executives retired with golden parachutes. This time around, the public is in a less forgiving mood.
There is an effort to link this murder with Obama, which is unreasonable because he has nothing he needs to cover up yet, not being in charge when the money vanished. On the other hand, his treasury department is full of friends of Obama who do have something to cover up.
Government pisses away the entire GDP in five months
Thursday, April 2nd, 2009Bloomberg reports that since November, the government has spent, loaned, or guaranteed 12.8 trillion, an amount very close to one year’s GDP – one year of everyone’s income, or $42,105 for every man, woman, and child in America.
Smashing capitalism
Wednesday, April 1st, 2009President Barack Hussein Obama tells us:
Your warranty will be safe. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty.
This reads like something out of “Atlas Shrugged”.
I predict fifty percent inflation or so over the next three or four years – and that is if we eventually turn back from this course, or at least stop walking along it. If, on the other hand, this goes on, with the government taking responsibility for one thing after another, as each intervention creates a crisis bigger than the last crisis, leading to more interventions, then I predict hyperinflation and widespread inability or unwillingness of government to provide order and protect property. Obama is not going to get under your car and fix it, and as the government takes on an ever growing multitude of tasks it is incapable of performing, its performance in its area of core competence (hurting people and breaking things) will deteriorate.
This crisis did not start with Obama, it did not even start with Bush.
During the final years of the Clinton presidency, Clinton greatly strengthened the CRA, which was glowingly reported by the newspapers
More than $1 Trillion Invested through CRA
Lenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000.
A more accurate report of the same facts would be
Politicians shovel one trillion dollars of off budget money to irresponsible and improvident members of narrowly targeted voting blocks, for which taxpayers are going to wind up on the hook
Government regulation winds up as off budget handouts to voting blocks (in this case mostly Hispanics) and well connected insiders (in this case some elements in Wall Street). Crisis ensues as the bill comes due. To maintain the superficial appearance of normality, there is a drastic increase in intervention, but the synthetic normality is a mere facade, like putting makeup on a corpse.
We now have trillions of dollars of capital flowing away from well managed businesses, to businesses with implicit or explicit government guarantees – businesses that will rapidly lose that money – a huge increase in the already huge off budget expenses of government, in addition to the huge and rapidly growing on budget deficit. Unacknowledged off budget government expenditures far exceed government’s ability to tax. They will not necessarily exceed government’s ability to borrow – yet.
Geithner’s plan explained
Wednesday, April 1st, 2009President Barack Hussein Obama tells us:
Your warranty will be safe. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty.
This reads like something out of “Atlas Shrugged”.
I predict disturbing inflation or so over the next three or four years – and that is if we eventually turn back from this course, or at least stop walking along it. If, on the other hand, this goes on, with the government taking responsibility for one thing after another, as each intervention creates a crisis bigger than the last crisis, leading to more interventions, then I predict hyperinflation and widespread inability or unwillingness of government to provide order and protect property. Obama is not going to get under your car and fix it, and as the government takes on an ever growing multitude of tasks it is incapable of performing, its performance in its area of core competence (hurting people and breaking things) will deteriorate.
This crisis did not start with Obama, it did not even start with Bush.
During the final years of the Clinton presidency, Clinton greatly strengthened the CRA, which was glowingly reported by the newspapers
More than $1 Trillion Invested through CRA
Lenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000.
A more accurate report of the same facts would be
Politicians shovel one trillion dollars of off budget money to irresponsible and improvident members of narrowly targeted voting blocks, for which taxpayers are going to wind up on on the hook
Government regulation winds up as off budget handouts to voting blocks (in this case mostly Hispanics) and well connected insiders (in this case some elements in Wall Street). Crisis ensues as the bill comes due. To maintain the superficial appearance of normality, there is a drastic increase in intervention, but the synthetic normality is a mere facade, like putting makeup on a corpse.
We now have trillions of dollars of capital flowing away from well managed businesses, to businesses with implicit or explicit government guarantees – businesses that will rapidly lose that money – a huge increase in the already huge off budget expenses of government, in addition to the huge and rapidly growing on budget deficit. Unacknowledged off budget government expenditures far exceed government’s ability to tax. They will not necessarily exceed government’s ability to borrow – yet.
The crisis explained
Saturday, March 28th, 2009I have been seeing a lot of references to “a speculative bubble”
Nope. They were not speculating.
The crisis consisted of people, mostly members of protected minorities with nothing to lose, buying houses they could not afford with borrowed money in the expectation that they would go up, and if they went down, it was the bank’s problem.
So the people who bought houses were taking no risk, since mostly they bought them with 100% loans, had no credit rating and no assets to lose.
So were the banks making the loans taking a risk?
No, because it was not the bank’s problem, because the loans were for the most part guaranteed by Freddy, or Fannie, or AIG – all of which had implicit government guarantees, and all of which had an AAA rating.
So why did AIG and the rest have an AAA rating?
AIG and the rest were issuing naked puts greatly exceeding their total capitalization, which pretty much guaranteed that sooner or later they would go broke in a big way. So why AAA?
Moody’s, who issued the ratings, was tweaked on this, and replied that it was unthinkable that the government would allow these institutions to fail. So it was not true that nobody knew what was happening. All the insiders knew what was happening, the regulators knew what was happening: they knew that businesses were taking big risks for big money in the expectation that if they won, they won, and if they lost, the government would take care of them. It was government policy. People have been complaining about this for years.
The fundamental cause of this crisis is government regulation: Governments cannot be trusted with money. They think only of short term political gain, so dispense money to the loudest pressure group, in this case those represented by ACORN, rather than to people who are likely to repay it with interest. In this case, the regulators decided that “traditional” standards of credit worthiness were racist and discriminatory, because too many Jews, and not enough Blacks, met “traditional” standards.
The problems with Laissez Faire sexuality
Tuesday, March 17th, 2009In traditional society, women were strongly encouraged to refrain from sex before marriage, and marry responsible men with good jobs who were able and willing to support a family.
Today, women are encouraged to follow their hormones, which tends to result in them have offspring with a long succession of sexy males who disappear, often into jail or dying violently, and who often rough them up and steal their money before leaving.
Bryan Caplan correctly argues that the non traditional family does not necessarily harm children, because the low conventional success rate of children from such families may well reflect them behaving like their fathers, who have a different standard of what constitutes success, and may well be very successful by that standard – more chicks banged, less time wasted from nine to five, and more enemies maimed. Further, women who choose to have a non traditional family presumably prefer it – there can be little doubt that the sex is hotter the badder the boy.
Now this is a good deal for alpha males, and lots of women argue it is a good deal for women, but it has a sizable externality, in that it encourages male behavior that causes problems for other men, and produces children that cause problems for other people. Bastards are bastards. The production of bastards creates large external costs. Encouraging fidelity, chastity, and female preference for responsible mates, even though their hormones tend to cry out for demon lovers, reduces other people’s costs – in traditional society the costs to fathers, uncles, and brothers of grown women, in modern society the cost of the welfare state, in all societies the cost of crime.
The welfare state reduces the costs of hormonal female behavior to parents of those females, since the cost of bastardy is externalized to the rest of society to a greater extent, and thus reduces the incentive of parents to inculcate their daughters with traditional values and deprecate the natural behavior of females – the natural inclination of women being more towards the demon lover. Women can be socialized, pressured, and monitored into fidelity to males that materially support them and help raise their kids, but it takes a firm hand and a watchful eye. While Islamic society takes this to extremes, the other extreme, total neglect of this problem, has costs also.
The crisis has barely begun
Sunday, March 8th, 2009“Naked capitalism” explains what has happened, and observes that the Bush-Obama policies caused it, are causing it, and are likely to cause a lot more of it.
Government guarantees will be abused – and the broader the guarantees, and more chaotic the situation the more they will be abused. The solution is that existing guarantees must be reduced, and existing government initiatives curtailed or at least allowed to expire. Extensive state intervention is extremely difficult to do right, easy to do badly, and the arrogant interventionists lack the necessary humility to do it right.