It's the economy, I feel stupid.
Because I don't understand what has happened, at least not in enough detail to feel comfortable with the bailouts we are pushing through at record speed. My gut reaction is like this reader of Andrew Sullivan:
the administration's proposals continue a process of socializing loss and preserving profits and distributions, many of which were made with full knowledge of the pending losses.
You should read the whole thing. If you feel like you understand any of this, please feel free to enlighten us. Carmen and I are just scratching our heads.
Labels: economics, political class, twits on stilts
posted by Clemens @ 12:51 PM
1 comments
1 Comments:
I wonder, in all seriousness, if at the end of last week we didn't just see the big banks execute an old-tyme holdup on the Fed.
To wit: the Fed bailed out one investment bank, refused to bail out another, and helped a third without actually bailing it out. Bankers, unhappy with this, stopped lending again, but instead of holding their fists on mortgage lending as they did a while back, this time they held their fists on the money market.
As I understand it, the money market is used by businesses to secure short-term loans. It's supposedly a safe loan, and as far as I can tell it's completely unrelated to mortgages. There was no reason for this to happen, but there you had it. The Fed retaliated by injecting liquidity into the money markets, but the bankers had made their point: Stop the cascade and bail these people out, or we will shut down the economy. They seem to have enough control to do this. Now the Fed is preparing a massive bailout that will rescue anyone holding bad mortgages. Presumably this new bailout will include Lehman brothers.
I want to point out that the "conspiracy" I'm pointing to need not be a conscious, nefarious conspiracy. It can simply be the result of bad mass psychology, made worse by the government's knee-jerk habit of bailing out companies and ordinary taxpayers. I do think though that we just witnessed a game of chicken, and the Treasury Department blinked first.
Even if it was a conscious conspiracy by the bankers (unlikely) I find it hard to blame them. I've read increasingly that many of the bankers were complicit in such loans because Congress was pressuring them to do it. Listening to the administration the last few years, I suspect they were pressuring the bankers, too. Remember all the boasting a few years ago about how home ownership was higher than it had ever been? Who's boasting about that now?
It'll be impossible to know the truth of what's going on for a while, but I find it remarkable that a crisis that started with a mortgage bubble based on bad loans to people who couldn't afford the homes they were buying remains a mortgage bubble, partly because there are so many bad loans that are failing, partly because Congress refuses to remove certain laws that force lenders to make bad loans. Instead Congress and the Treasury have already conspired to deliver the bill to the taxpayer, since (1) Fannie Mae & Freddie Mac are taking some of the loans off the banks, and (2) Fannie Mae & Freddie Mac are in receivership, or conservatorship, whichever it is (I've lost track of the jargon).
My question is, "Where will it end?!?" A bailout here, a bailout there, sooner or later we're all socialists, in the name of avoiding moral hazard. Why stop with the banking industry? Should we bail out manufacturers who were losing money and decided to transfer overseas? Should we bail out Detroit? Who will bail out my children from the national debt?
The only silver lining I see is that the situation is much worse elsewhere. NPR reported today that Russia had to shut down its stock market twice recently to stop a mass selloff. Naturally, they're saying over there that it's an American conspiracy. :-)
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