Wednesday, August 17, 2011

Crash of the Titans


The Crash:  Brought to You by Central-Planning Elitists

The economic crash is easy to understand.  Rampant credit (making money out of nothing) fueled a spending binge that was impossible to maintain.  The housing bubble and the toxic debt it spawned can also be seen as the inevitable outcome of ignoring human nature in favor of grand statist schemes.

Rational Self-Interest

Adam Smith explained that people act upon their rational self-interests, and that is what crashed the economy.  The federal government shielded mortgage lenders from the downside of their irresponsible lending by insuring them with quasi-governmental organizations like Fannie and Freddie.  Securitization of debt (hiding the bad debt by packing it in with good debt), created a "trust me" environment that allowed Wall Street to reap billions before the whole scheme unraveled, resulting in G-men frog marching thousands of financial pirates off to Ryker's Island.

OK, I made that last part up.  Government never turns on its own.

Back in the old days, a banker didn't have the luxury of packaging ticking debt bombs off to Wall Street, where wiz kids packaged them into even bigger stink bombs and then launched them upon the world.  No, the banker of olden times knew he was stuck if the person he loaned the money to couldn't pay it back, so he made sure the borrower was responsible and creditworthy.

20% down served a few purposes.  It immediately vested the borrower in the home, making it tough to just walk away.  Also, so much equity up front made it harder for the owner to be underwater in a downturn.  Remove all of this, as our government decreed, and you get irresponsible lending, people walking away from underwater property, and bad debt stamped triple A Plus by crony crapitalist ratings agencies who wouldn't know due diligence it it slapped them in the face.

Water flows downhill.  Electricity (and people) follow the path of least resistance.

Crash of the Titans

Jeffrey Snider has written an article entitled, The Aura of the Fed is Gone, Good Riddance. In it he explains the folly of monetarism and centrally-planned economies, even those with a patina of semi-free market kinda-sorta crony-infested capitalism variety.
Whatever crisis follows, this could be, as I said at the outset of this piece, the beginning of the end of the Age of Monetarism. Our economy, including the rest of the world, needs to see the Federal Reserve and central banks stripped down to reality. Monetary policy needs to be exposed as a broken, flawed theory consisting of nothing more than hubris and harmful ideas. From there, we can try to regain a fundamental capitalist footing that ensures long-term economic health.
The old statist models have failed.  What now?

45 comments:

Ducky's here said...
This comment has been removed by the author.
Ducky's here said...

he federal government shielded mortgage lenders from the downside of their irresponsible lending by insuring them with quasi-governmental organizations like Fannie and Freddie.

--------------

Why did the percentage of agency backed mortgages DECLINE significantly at the height of the bubble?

Ducky's here said...

20% down served a few purposes. It immediately vested the borrower in the home, making it tough to just walk away. Also, so much equity up front made it harder for the owner to be underwater in a downturn. Remove all of this, as our government decreed

-------------

When did the government degree any such thing? Were Countrywide and Ameriquest regulated in any way?

Did Ayn Rand's cabana boy Greenspan exercise his regulatory power in ny way? The butt nugget went so far as to say he didn't think fraud should be prosecuted because the market would manage it.

Once again you are blowing smoke out of your butt.

Silverfiddle said...

Easy money, Ducky. We were swimming in it. You're being studiously ignorant of my main point.

Government policy created easy conduits for lenders to fob off questionable loans on other.

Rob said...

We've got to steer our society back away from the immediate gratification and materialistic excess that credit so effortlessly encourages.

And with that in mind, I'm doing my own miniscule part to screw the system by using credit (in the manner in which we've been conditioned) as little as possible. Sure, I use the heck outta my dividend-earning credit Mastercard, but I never - ever - carry a balance. I'm making a buttload of extra principle payments on my mortgage to dramatically cut into the amount of interest I pay. I'm still driving my almost 9 yr old Honda and will continue to do so until I can buy something else outright - without financing.

Sure, these are probably trivial efforts, but if we all took more aggressive steps towards reducing our dependency on credit, maybe that would be a trendsetting movement.

conservativesonfire said...

Your analysis is spot on. I would like to believe that we have seen the last of this stupidity but I fear the political and the financial elite are planning a new and revised version of the same old failed ideas.

Ducky's here said...

Yeah, easy money and who was responsible for that?

An extension by the great devil Clinton of Raygun era deregulation and Greenspan at the Fed.

The suckers were singing the praises of the great genius Greenspan.

It was a LACK of policy which caused the bubble. It was a LACK of policy and regulation that allowed Lehman to leverage bad paper at 60 to 1.

The Randoid butt munch at the Fed thought he had discovered a perpetual motion machine. This was a failure of LIBERTARIANISM and the usual way the Libertarians dodge the fact is to argue that it all failed because there wasn't enough Libertarianism.

Like Communism, Libertarianism HAS NEVER WORKED. You want us back in the days of the robber barons.

Bastiatarian said...

>deregulation

I keep hearing about all this deregulation. The problem is that, in sum total, nothing really gets deregulated. The typical tactic is to show the gullible public what looks like deregulation, usually in a rather minor area, but to keep the massive and increasing regulation of just about everything that means anything hidden so their useful idiots can keep claiming that liberty (deregulation) caused the problems.

350,000 pages of federal regulations in 2010.

Yeah, too little regulation is the problem...

Anonymous said...

"You want us back in the days of the robber barons."

Yes, of course. Life was much better when very smart men capable of producing much that was wanted and needed efficiently and economically were in command.

And "little men" had a much greater opportunity to get ahead, build equity and own a home then than they do now. Society was cleaner, more orderly, public spaces were better maintained and far more attractive then than now.

Once the the Progressive Era began, the Fed and the income tax were instituted -- then the Oligarchs manipulated us into two world wars with a depression in between that gave them a lock on power, and we've been swirling down the drain to Perdition ever since.

Did you ever look at pre-WWI houses? Compare them with post WWII houses. The older homes were palaces in comparison. After Levittown -- i.e. cheese boxes laid out in squares on barren fields -- came trailer parks. What next? Tent cities?

Can't you see how the average person has been subjected to a continual grinding down process for the last hundred years?

All you have to do is look at Beaux Arts, Art Nouveaux and Art Deco to realize we've done nothing but degenerate since the 1930's.

Cheesy housing, trailer parks, fast food, crap pop culture, TV, highway America, alienation, death of the nuclear family, high rates of illegitimacy, divorce, unemployment.

The American Dream is fast becoming a Nightmare.

Why?

Because GOVERNMENT took over our lives, and turned the leaders of the private sector into Donald Trump and Bill Gates.

Oh for the days of J.P. Morgan, Andrew Carnegie, Henry Ford and the Mellon family -- to name but a few!

~ FreeThinke

Fredd said...

Of course the statist strategies have failed: they always do, throughout the history of mankind.

Once they have been thoroughly discredited among the masses, then revolutions occur to return justice to all things.

In this country, these revolutions occur first Tuesday in Novemeber in every fourth even year, next one in Nov, 2012. This year could be historically ugly for Democrats, even to the possibility that the Democrat Party as it has been known, will no longer exist in the 2014 midterms: courtesy of Barack Hussein Obama.

Ducky's here said...

All you have to do is look at Beaux Arts, Art Nouveaux and Art Deco to realize we've done nothing but degenerate since the 1930's.

--------------------

I see, you favor decoration. Fine, that's a preference and the era certainly featured that as it built on turn of the century Vienna.

However, to say we've done nothing but degenerate since the 30's is asinine.

We had more variety and creativity in the arts in the 50's and 60's than ever in history.

Ducky's here said...

2012 could be ugly for the Dems. Who the bleep cares, Fredd.

They're just a bunch of cheap pols in the vein of the Rethug clowns. Government has failed and it ain't getting any better any time soon.

Maybe Michele Bachmann, former IRS employee, big recipient of farm subsidies and recipient of Medicare payments for her closeted husbands "pray them Straight" clinic will wean us off big government. Yeah, us not her and hubby.

Or venture capitalist Romney can break up a few more companies and destroy more jobs in the name of efficiency and a widening wealth discrepancy that is destroying the nation.

Oh but you said "statist". You must think you live the life of the mind. Libertarians are children in the sandbox. The only one who's going to do well in the upcoming Republican economy is Silverfiddle because there will still be work for mercenaries.

Silverfiddle said...

Greenspan did not implement libertarian policies. He was and is a keynesian monetarist.

And you keep flagrantly flaming him as if you expect me to defend him. I will not because he is part of the problem, imho.

The only "deregulation" charge I agree with is Democrat Bill Clinton's repeal of Glass-Steagall. Big mistake and probably one of the prime causes of the crash.

Silverfiddle said...

@ Ducky: The only one who's going to do well in the upcoming Republican economy is Silverfiddle because there will still be work for mercenaries.

Do you realize how hard it is to blog over a satellite internet connection trying to punch through triple canopy Colombian jungle while also holding an M4?

Bastiatarian said...

>Do you realize how hard it is to blog over a satellite internet connection trying to punch through triple canopy Colombian jungle while also holding an M4?

Silverfiddle for the win.

Ducky's here said...

Then, in 25 words or less, just what are "Libertarian policies"?

A return to the gold standard and abolition of the Fed?

What else? I doubt it's going to be much of a growth engine but that growth issue is the Achilles heel.

Divine Theatre said...

Deregulation, eh? It's just not so.

Anonymous said...

"We had more variety and creativity in the arts in the 50's and 60's than ever in history."


DING! DING! DING! DING
DING! DING! DING! DING!
DING! DING! DING! DING
DING! DING! DING! DING!


And the FIRST PRIZE goes to DUCKY for making The Most Fatuous Statement of the Year -- and possibly of the CENTURY.

OY! OY! OY! OY! OY!

~ FreeThinke

Anonymous said...

"Greenspan did not implement libertarian policies. He was and is a keynesian monetarist."

RIght Ho! Old Potatonose was supposed to have been a Republican, but any claim to sanity, decency and integrity he might have had was removed the day he married the notorious newsbimbo Andrea Bitchell aka Schnozzola Pauerchicki.

And wouldn't you love to be a flea on THEIR pillow!

UGH!

~ FreeThinke

Anonymous said...

MEMO to DUCKY:

The Founding fathers were LIBERTARIANS. The Declaration of Independence and the US Constitution (as originally conceived and written) are LIBERTARIAN documents.

Progressivism has pushed us farther and farther away from our founding documents and closer and closer to the Communist Manifesto.

~ FreeThinke

Ducky's here said...

So what? If they were Libertarians they were backing the wrong horse.

What's this fascination with a bunch of guys who were just members of John Locke's cult of property and were pissed at the king?

Ducky's here said...

... I'm not even going to try to get through the utter silliness of assuming the left has not had a major positive role in the formation of this country.

Founding Father worship, just more dogma, revealed truth that feels no need for facts or analysis.

Finntann said...

Ducky, I know I've asked you before, but I'll ask you again.

You are down on the Democrats, Republicans, Libertarians... exactly who do you want to see in charge?

Ducky's here said...

I consider myself a Democratic Socialist.

I'm looking for two primary qualities in an economic/political system:

1. Sustainability

2. Reasonable distribution of wealth

Right now we have a corporate state and neither 1 nor 2 is at all close. In fact we make a mockery of the goals.

I understand the criticism of Isaiah Berlin that socialist systems lead to authoritarian government but I don't know that it's inevitable.

I see the capitalist house of cards as a far greater danger however.

As far as who is in charge ... there is no progressive movement in the country. The environmentalists are trying and people who think Obama is a liberal are among God's freaking fools.

Anonymous said...

And that, Ladies and Gentlemen, is what happens to a person's mind after spending years swimming in rivers of spit.

Truthout?

Lights out.

"Presentiment is that long shadow in the lawn
Indicative that suns go down --
The notice to the startled grass
That darkness is about to pass."


~ Emily Dickinson (1830-1886)

Tenebrae factae sunt ...

"And all our yesterdays have lighted fools the way to dusty death ..."

"This is the way the world ends -- no with a bang but a whimper."

I think I'll go slit my throat.

~ FreeThinke

Bastiatarian said...

What Ducky means is that she's in favor of stealing property from people she believes deserve to have their property stolen, then giving it to people she believes deserve to possess things that have been stolen from others.

I don't think a person that believes in thievery has much legitimacy, but then, I'm rather old fashioned.

Ducky's here said...

No you freaking ass rack you misread the post.

Trestin said...

Ducky, Libertarian policies provided the foundation for what would become the greatest nation on earth, until globalist/socialist goons turned it into a Marxist bizzaro-world. It worked quite well before before the dark times, before Wilson.

Anonymous said...

A little Ogden Nash usually helps clear the air -- and imparts a bit of whimsical wisdom in the process.

When You Say That, Smile! or All Right Then, Don't Smile

When the odds are long,
And the game goes wrong,
Does your joie de vivre diminish?
Have you little delight
In an uphill fight?
Do you wince at a Garrison finish?
Then here's my hand, my trusty partner!
I've always wanted a good disheartner.

Oh, things are frequently what they seem,
And this is wisdom's crown:
Only the game fish swims upstream,
But the sensible fish swims down.


Well, how is your pulse
When a cad insults
The lady you're cavaliering?
Are you willing to wait
To retaliate
Till the cad is out of hearing?
Then here's my hand, my trusty companion,
And may neither one of us fall in the canyon.

For things are frequently what they seem,
And this is wisdom's crown:
Only the game fish swims upstream,
But the sensible fish swims down.


~ Ogden Nash

And if you think that doesn't apply to this discussion, please think again. Often there's more truth in poetry than in the soberest recital of cold hard cheerless facts.

~ FreeThinke

Anonymous said...

Thank you, Trestin. You pack a world of wisdom into nutshell.

~ FreeThinke

Trestin said...

Ducky, Why do you want to steal my money? I don't want to steal your money.

Finntann said...

There are many flavors of Democratic-Socialism, the label in and of itself is fairly ambiguous. Would you characterize your vision of Democratic-Socialism as closer to the DSA or SPUSA? Or is it something completely different?

1. On the face of it our current economic system, despite the downturn would seem to me to be sustainable over the long term. On the political side, I would agree our current path is unsustainable.

There are two ways out of the current unsustainable political model, decreased spending or increased revenue. I remain unconvinced that increasing revenue will not result in a corresponding decrease in productivity (GDP wise).

2. As far as reasonable distribution of wealth goes, I would first have to ask are you speaking nationally or globally? The bottom decile in America is positioned roughly at the seventh decile globally.

Granted that there is a wide and growing disparity of wealth in this country; can you point to a redistribution model that will not result in an overall decline of median income compared to median GDP? Currently median income is 68% of median per capita GDP.

The current median income for full-time workers over 25 in the United States is 32,140 (a range of 25,505 for a High School Grad to 49,303 for a Bachelor's Degree) whereas the median per capita GDP for the United States is roughly 47,000 (IMF, World Bank, OECD, CIA Factbook). Note that I am talking personal income not household income which is roughly 66% higher.

Giving your socialist model 100% efficiency, and given the current GDP, the best you can hope to achieve is a $15,000 increase in median income. Giving your system 100% efficiency will see an increase in the income of people with high school diplomas and associate degrees, yet all college graduates with a bachelor's degree or higher will see income decline, some significantly.

While roughly 30% of the GDP is siphoned off by the wealthy, call them 1%, equitable distribution is not going to make a significant difference for the majority, the fat middle of the bell curve.

Admittedly it would affect those on the edges of the bell curve the most (for better or worse), but I think your vision fails in achieving any dramatic change overall. The lifestyle of the rich and famous may be flashy and ostentatious, but when you take from that 1% and spread it out evenly the results are underwhelming.

From a game theory perspective, people aren't going to bet the farm for little gain and a lot of risk.

Socialism as a concept is idealistic and even somewhat admirable, only every attempted execution of it has failed to some extent or another, often bringing great evil with it. Socialism's downfall is the corrupting influence of state.

As the employee of, until recently, an employee-owned company, I have to ask why is the socialist business model unsuccessful? My company, with whom I am still employed, was democratically sold to a multi-billion dollar investment group, all for sound business reasons. What's the opposite of a hostile takeover?

Finally, I would have to agree with you that Obama is not a liberal. If anything I'd say he is somewhere between Georges Sorel and Benito Mussolini. I don't believe he has a rational coherent ideology, more like bits and pieces taken off of an a la carte menu at a political science bar.

Cheers.

Ducky's here said...

Undertaking policies to narrow the wealth discrepancy when it gets as wide as it is in America is in the best interest of the vat majority.
Research, game theory and empiric data offer a great deal of evidence to support this contention. In other words, the snide folks who puke up memes like taxation is theft are too stupid to understand what is in their rational self interest.

Now we can deal with the issue through tax policy which is the easiest method and a move toward social democracy which is necessary to have anything like an efficient economy.

As for wealth, tax policy clearly can only address the national issue.
Internationally, there is clearly no way a significant portion of the world can support the western lifestyle. There wouldn't even be enough fresh water, so we have a problem. One that may be unsolvable. That's why I have so much disgust for the asinine meme that the American military is a force for "freedom and democracy". It is no such thing and we may never pay the price for our selfishness but somehow folks can buy into the game and still call themselves Christians.

Say you're grabbing for all you can get, fine but don't start with the bullshit that you have some moral right to it.

Shane Atwell said...

What next? Commodity money (gold, silver etc.), w/ no gov't involvement. And figuring out whether fractional reserve banking is fraud or not would be a good idea. I think it probably is fraud.

Finntann said...

I think that pretty much anyone on here would agree that as the wealth gap widens the risk of sociopolitical unrest increases.

My point in comparing median income with median GDP, is that even if you took the entire GDP and distributed equally, the change effected would not be as great as you might think it would be.

The median income is already 66% of the median GDP. Given that no state could achieve 100% efficiency, the results of a completely socialist system would not achieve great change, all you would accomplish is flattening the bell curve slightly.

The problem isn't the equitable distribution of wealth (and I am not saying that there isn't a problem there), the problem is that even with an equitable distribtion of national wealth, the change effected is not worth the risk given the historical performance of socialist states.

Say you achieve your goal and we divide the GDP amongst ourselves. Other than the fact that we all get the same amount of money, what are the impacts? What would that economy look like? You can pretty much eliminate any business whose primary clientele makes over 50,000 a year, there are not going to be customers to purchase their products.

Who wants to live in what is at best a subsistence economy?

That is why socialism has failed in all of its attempts. The inefficiences of state and bureaucracy have always reduced the end-state to one below that of capitalism. Sure, everyone is equal, but they are equally deprived not equally uplifted.

On the subject of the American military being a force for freedom and democracy. I believe your issue is not with the American military, which is just that, a military force, and comparatively, the premier military force in the world.

As to whether or not it is a force for freedom and democracy, that is a political decision, not a military one.

All that the military can do is apply force to achieve military objectives, which can be anything from retribution, humanitarian, to the elimination of a hostile state. Note that I said 'state' and not 'population', although that could be accomplished if it was the desired end-state.

Once the military objective is achieved, what is implemented afterward is a function of the executive branch, the Department of State and the local populace.

The military can eliminate governments, not create them, unless of course you wish to build an empire and are willing to spill a lot of blood to do it.

We can take a nation from the peak of civilization to the stoneage, we can not take a nation from the stoneage to the peak of civilization.

The fatal flaw in the American political application of military force is believing that the people who kill you can also be the people who win over your hearts and minds.

We have been misapplying military force for the last fifty years.
We are wonderful at creating power vacuums, horrible at filling them afterwards. The Chinese, Russians, Iranians, etc. are undoubtedly very grateful.

Just one soldier's humble opinion.

Cheers!

Bastiatarian said...

>you misread the post

I read your post (all of your posts) with perfect understanding, including what's in between the lines. When a person speaks (or writes) enough, he or she inevitably reveals his or her true nature. In some cases, it takes very little to see the darkness and decay behind the words. Congratulations.

As for the post I originally responded to (or rather, gave a more accurate rendering of), any time a person starts in with that goofiness about "reasonable distribution of wealth," it always means stealing from one person to give to another. Always. Your body of posts up to this point also thoroughly support such an interpretation. You support thievery, and, therefore, are a thief by proxy. Congratulations again.

jez said...

The state's influence is over-rated -- your government simply doesn't have power on the scale you credit it with. The problems we have were caused almost entirely by investment banks purposefully obfuscating their products to trick the ratings agencies.

Silverfiddle said...

Jez: I'm not saying the US government was the author of all of this. It was not, as you rightly point out.

The wall street investment gangsters crashed the system. US government policy perversely incentivized their evil behavior.

Anonymous said...

"Words, words, words, I'm so sick of words
We get words all day through
Till our faces turn blue
Is that all you blighters can do? ..."


AAAAAAAAAAAAAAAAARGH!!!

'Tis a crisis of SPIRIT from which we suffer, and all the number crunching, argumentation and spouting of economic theory in the world isn't going to resolve it.

Create in me a clean heart, O God
And renew a right Spirit within me.
Cast me not away from Thy presence
And take not Thy holy Spirit from me.

Restore unto me the joy of thy salvation
and uphold me with thy free spirit.
Then will I teach transgressors thy ways;
and sinners shall be converted unto thee.

Oh, let my mouth be filled with Thy praise
That I may sing of Thy glory all the day long.


~ Psalm 51

The wisest and wealthiest of us all is he who can be contented with what he already has.

~ FreeThinke

Anonymous said...

Banking, Business and Government have MERGED into one self-serving, oppressive entity.

There's no point in arguing which element is responsible for what, because THEY ARE ALL IN IT TOGETHER.

We the people are not represented, we are being flim flammed.

Left and Right are no longer in conflict. They have UNITED against US.

Maybe it doesn't matter? After all "someone" has to be in charge, right?

The Shakers had a great motto:

HANDS TO WORK: HEARTS TO GOD

"Render unto Caesar the things that are Caesar's"

As long as our hearts belong to God (Truth, Love and Principle) we cannot fail.

We cannot change the world, but we CAN "renew a right Spirit within ourselves as individuals."

"This is the day the Lord hath made, let us rejoice and be glad in it."

~ FreeThinke

Always On Watch said...

Ducky's here said...

... I'm not even going to try to get through the utter silliness of assuming the left has not had a major positive role in the formation of this country.


Wow.

And what is reasonable redistribution of wealth? A lot of relativism in that terminology.

Anonymous said...

AOW, I'd like to think Ducky means that no one should have to go through what you, yourself, are having to endure right now in any society that claims to be fair and decent.

I read through the long thread at Z's place where you described your travails in some detail. Of the two most odious, obnoxious, depressing and discouraging personalities there present Ducky was by far the lesser of the two. The greatest enemy of decency and compassion I've observed in the blogosphere is a fellow whose name begins with B and ends with H.

Ducky is merely sour and depressing. I think he's a very sad individual. B-boy is downright MALIGNANT -- a veritable wellspring of venom and vindictiveness.

That's not an opinion; it's a fact.

I wish I could do something to help ease your burdens. Z and I, unfortunately, are not talking anymore, but she may still have my email address. If you are in touch with Z by email, you might want to ask her how to contact me. I'd like to talk privately with you, if that would be agreeable? SilverFiddle also has my email address. You might want to email him, and ask to be put in touch with me if you'd prefer not to bother Z about it.

Best regards,

~ FreeThinke

Cheryl Pass said...

Can we step back for a minute and take a look at why our government would demand banks lend to high risk mortgagees, take on boatloads of toxic mortages, and then soak the American people for the broken banking system?? Why? What better way to dispose of two successful entities at once..the banking industry and the American way of life. Our "progressive / socialist/ oligarchy government forced the banks to create those loans through the Community Reinvestment Act. (Democrat Jimmy Carter and Democrat congress.) Democrat Bill Clinton doubled down on that and expanded the program through taxpayer owned Freddie and Fannie. Bush couldn't stop it due to the Democrat congress. Welcome to Obamaland who has not stopped the same practices. Whammo...you get two for the price of one. Eliminate the power of banks and destroy the power of Americans to be financially independent.

The banks had no choice but to make those loans...demanded by the government. And all Americans were screwed by it. Who wins? Government power brokers win.

Anonymous said...

BRAVO, Cheryl!

That desperately needed to be said.

Thank you.

Please come by more often -- and visit every blog you can get into and tell the TRUTH as you have done here. Most people do NOT understand this crisis was GOVERNMENT generated.

The evil behavior on the part of the banks was in truth a form of SELF DEFENSE against GOVERNMENT incursions -- not that returning evil for evil is ever a morally acceptable policy, but it sure is UNDERSTANDABLE.

~ FreeThinke

Always On Watch said...

FreeThinke,
My email address is toward the top of the sidebar at my site. Feel free to email me. I check my email once or twice a day on most days.

B and I did some dust-rolling. But in the end, he and I are not enemies.

Anyway, please email me for a private discussion.