Liverpool FC Forum

[Zidane]

I think i'll just blame Bush.

Edit: And republicans, mostly republicans.

[Judge]

Thanks for the answers.

As much as I don't like Bush, can we blame any government of the crisis? it seems to me that economical crisis have a cyclical nature and they come regardless who is in charge!

your correct sabre

it usually, and mick will love this, it (reccession) ROTATES every 30-35 years or so

[tubby]

I think i'll just blame Bush.

Edit: And republicans, mostly republicans.

Many would agree with that. Thankfully enough Republicans voted against that bail out bill yesterday.

[JoeTerp]

I got this email from a candidate that was running for the republican nominee. He is a bit crazy, and has very very libertarian beliefs but calls himself a republican (ran for Libertarian party in early 80s or late 70s) Anyway he has been out of the race for a while, but he got a lot of enthusiastic support and I guess is keeping in touch with his supporters.

I do NOT agree with a lot of what he says both in this email and his other policies, but at least we are in the same ballpark of ideas (wheras all other candidates are not even close to my ideology)





Dear Friends:
The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.
The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."

Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?

Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.
The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?
Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.
The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.
I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.
H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.
In liberty,



Ron Paul

[JoeTerp]

Disclaimer: my politics and economy knowledge are basic, more or less what a 17 year older knows.

Question:

Joe, am I right to assume that from your ideology, the proposal of Bush to make an intervention with tax payer's money to save the system is an error?

And to the american newkitters in general, I hear the the congress has said no to the measure. What's behind that denial? I mean, from an ideology point of view, a Republican may find direct intervention of the government in the system as left winged. But is that the true reason so that a few congressmen say no? or perhaps do they defend the interests of certain businessmen that think that the "crisis" of others might mean a lot of opportunities for them?

In the last days I hear that Obama has gained advantage due to the crisis, is that perceived like that aswell there?

Thanks for all your answers and remember that if you come to Spain you're invited to free drinks for your patience.

yes in my ideology it would be an error, but you have to also realize that it would have never been allowed to get so bad either.  And that means that if my ideology was to be implemented now, we would certainly enter a deep reccession or depression as the market would have to adjust itself from being tweaked with by the feds for so long.  But I do believe that in the long long long term we would be better off for it because people would KNOW not to trust the governmen to protect their finances and way of life. Therefore people would be more proactive in doing so themselves.

[JoeTerp]

Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.

This bailout was a terrible idea. Here's why.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.


Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.

[Lando_Griffin]

I say, all this is frightfully boring now. Why do our cousins across the Atlantic always have to take an age to do things, and in a Hollywood-esk brash way to boot?

Just vote one way or the other and allow the rest of the globe to switch the TV on in peace, without fear of an Americaning.

[JoeTerp]

goes along with another thing I hate about liberal governement. To think that EVERYONE should own their own house. You know what, for some people, it just doesn't make sense to BUY a house for themselves, especially if they have bad credit. And normally, in the free market, these people with bad credit would not be getting any kind of loan to buy a house, but when the fed messes with intrests rates to make it more appealing, and knowing that the governemnt is waiting behind you with a big safety net, it makes it worthwhile to lend money to people with bad credit with a big interest rate.

[JoeTerp]

this one might be my favorite




Bailout marks Karl Marx's comeback
Posted: September 29, 2008, 8:03 PM by Jeff White
Martin Masse, mortgage crisis
Marx’s Proposal Number Five seems to be the leading motivation for those backing the Wall Street bailout

By Martin Masse


In his Communist Manifesto, published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes power, with the aim of centralizing all instruments of production in the hands of the state. Proposal Number Five was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”


If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.


Indeed, analysts at the Heritage and Cato Institute, and commentators in The Wall Street Journal and on this very page, have made declarations in favour of the massive “injection of liquidities” engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled US$700-billion bailout package. Some of the same voices were calling for similar interventions following the burst of the dot-com bubble in 2001.
“Whatever happened to the modern followers of my free-market opponents?” Marx would likely wonder.


At first glance, anyone who understands economics can see that there is something wrong with this picture. The taxes that will need to be levied to finance this package may keep some firms alive, but they will siphon off capital, kill jobs and make businesses less productive elsewhere. Increasing the money supply is no different. It is an invisible tax that redistributes resources to debtors and those who made unwise investments.


So why throw this sound free-market analysis overboard as soon as there is some downturn in the markets?


The rationale for intervening always seems to centre on the fear of reliving the Great Depression. If we let too many institutions fail because of insolvency, we are being told, there is a risk of a general collapse of financial markets, with the subsequent drying up of credit and the catastrophic effects this would have on all sectors of production. This opinion, shared by Ben Bernanke, Henry Paulson and most of the right-wing political and financial establishments, is based on Milton Friedman’s thesis that the Fed aggravated the Depression by not pumping enough money into the financial system following the market crash of 1929.

It sounds libertarian enough. The misguided policies of the Fed, a government creature, and bad government regulation are held responsible for the crisis. The need to respond to this emergency and keep markets running overrides concerns about taxing and inflating the money supply. This is supposed to contrast with the left-wing Keynesian approach, whose solutions are strangely very similar despite a different view of the causes.

But there is another approach that  doesn’t compromise with free-market principles and coherently explains why we constantly get into these bubble situations followed by a crash. It is centered on Marx’s Proposal Number Five: government control of capital.


For decades, Austrian School economists have warned against the dire consequences of having a central banking system based on fiat money, money that is not grounded on any commodity like gold and can easily be manipulated. In addition to its obvious disadvantages (price inflation, debasement of the currency, etc.), easy credit and artificially low interest rates send wrong signals to investors and exacerbate business cycles.

Not only is the central bank constantly creating money out of thin air, but the fractional reserve system allows financial institutions to increase credit many times over. When money creation is sustained, a financial bubble begins to feed on itself, higher prices allowing the owners of inflated titles to spend and borrow more, leading to more credit creation and to even higher prices.


As prices get distorted, malinvestments, or investments that should not have been made under normal market conditions, accumulate. Despite this, financial institutions have an incentive to join this frenzy of irresponsible lending, or else they will lose market shares to competitors. With “liquidities” in overabundance, more and more risky decisions are made to increase yields and leveraging reaches dangerous levels.


During that manic phase, everybody seems to believe that the boom will go on. Only the Austrians warn that it cannot last forever, as Friedrich Hayek and Ludwig von Mises did before the 1929 crash, and as their followers have done for the past several years.


Now, what should be done when that pyramidal scheme starts crashing to the floor, because of a series of cascading failures or concern from the central bank that inflation is getting out of control? It’s obvious that credit will shrink, because everyone will want to get out of risky businesses, to call back loans and to put their money in safe places. Malinvestments have to be liquidated; prices have to come down to realistic levels; and resources stuck in unproductive uses have to be freed and moved to sectors that have real demand. Only then will capital again become available for productive investments.
Friedmanites, who have no conception of malinvestments and never raise any issue with the boom, also cannot understand why it inevitably leads to a crash.
They only see the drying up of credit and blame the Fed for not injecting massive enough amounts of liquidities to prevent it.

But central banks and governments cannot transform unprofitable investments into profitable ones. They cannot force institutions to increase lending when they are so exposed. This is why calls for throwing more money at the problem are so totally misguided. Injections of liquidities started more than a year ago and have had no effect in preventing the situation from getting worse. Such measures can only delay the market correction and turn what should be a quick recession into a prolonged one.


Friedman — who, contrary to popular perception, was not a foe of monetary inflation, but simply wanted to keep it under better control in normal circumstances — was wrong about the Fed not intervening during the Depression. It tried repeatedly to inflate but credit still went down for various reasons. This is a key difference in interpretation between the Austrian and Chicago schools.


As Friedrich Hayek wrote in 1932, “Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion. ... To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about ...”


The confusion of Chicago school economics on monetary issues is so profound as to lead its adherents today to support the largest government grab of private capital in world history. By adding their voices to those on the left, these confused free-marketeers are not helping to “save capitalism”, but contributing to its destruction.


Financial Post

Martin Masse is publisher of the libertarian webzine Le Québécois Libre and a former advisor to Industry minister Maxime Bernier.

[JoeTerp]

this is something from the other side, but IMO it gets a lot of things wrong


The end of the Reagan Revolution

Republicans killed the $700bn Wall Street bail-out plan, but their vision of laissez-faire capitalism won't survive this crisis 

Steven Guess guardian.co.uk,


Monday September 29 2008 21:30 BST With the failure today of the $700bn economic bail-out package before Congress, the Reagan Revolution died. Allowing this crisis to continue without any viable alternative represents the end of an era for the Republican party. With uncertainty growing in a market built on expectations, our economic woes will worsen. Ironically, as this crisis expands and continues to collapse major corporations, Americans will demand greater government intervention. A party whose platform opposes nearly any proposal that uses government as the medicine for a financial disease will not be able to survive this crisis.

Politicians voted today by putting their fingers to the wind, and used ideology rather than expert advice to determine their position. John McCain, who recently gave himself credit for suspending his campaign and shoring up House Republican support for the bill, boarded his plane without comment upon hearing of the bill's failure. And while Main Street's short-term cynicism about Bush's proposal may have been satisfied, such reservations on the part of the public was the result of a poor marketing job by an unpopular president, and ultimately Americans will hold accountable politicians who are seen as failing to rescue them from this crisis.

America is waking up to the fact that the brand of laissez-faire capitalism that has guided America since the Reagan Revolution is a farce. Everyone was saying it, but no businessperson really believed in it when it came to their own family. As Paul Krugman recently remarked: "Just as there are no atheists in foxholes, there are no libertarians in a financial crisis." Few people are willing to allow 35% unemployment and economic disaster to stand firm on the very principles that likely triggered this mess. It is true that over the long run, even if we did nothing America's markets would recover, and we would once again enjoy prosperity. But as John Maynard Keynes pointed out during our last great financial disaster: "In the long run, we're all dead."

If you listen to the politicians and pundits, we are not supposed to blame the economic philosophy that has deregulated the markets and made financial industry lobbyists the prime architects of the very legislation designed to oversee their businesses. Instead, Americans are supposed to view this financial collapse as a disaster which was the fault of greedy people and irresponsible consumers. They used bad judgment. But where is the sense in this analysis? We are blaming consumers for trying to get easy credit, and financial institutions for trying to make lots of money. Is that not how the system was supposed to work? How can we second-guess willing sellers and willing buyers who purchased mortgage-backed securities at their market rate? Their risk, their reward – but apparently not their loss. The invisible hand seems all too obviously elitist. The rich are in trouble, so we act. The poor have been in trouble since the beginning of time, but that's just background noise on our walk to work.

For the first time since 9/11, I've seen a president who has finally set aside his ideology and tried to govern. George Bush understands, at long last, that he cannot be remembered as being the 21st century's Herbert Hoover. Perhaps it is the sense of his legacy dawning upon him in the twilight hours of his presidency, but no one of sound mind is willing to allow financial institutions of the magnitude of AIG to collapse and trigger a once-in-a-century economic decline.

No one, apparently, but House Republicans, who killed a bill that Wall Street felt was necessary to cure this economic crisis, causing the market to plunge more than 400 points in 10 minutes. Fiscal conservatives tried and failed to make the central component of the bailout a combination of deregulation and tax cuts. While on paper giving financial institutions a temporary capital gains tax cut seems like a serious proposal, fiscal policy and regulatory changes are medium to long-term solutions that would do nothing to infuse cash into the system in the short term. This would have done very little to shore up confidence before the markets opened around the world this week, nor would it address the original sin of mortgage-backed securities.

To address this problem, House Republicans pushed for an insurance programme that could be used by the Treasury secretary, even though he has reportedly shown no interest in using such a tool. Such a proposal can hardly be characterised as anything other than a face-saving measure that does little to dampen the impact of a $700bn bail-out deal. How can fiscal conservatives explain to their constituents that in time of serious economic crisis, their philosophy simply is not a practical short-term solution? It seems that while Republicans can spin "victory" in Iraq, they cannot spin "profit" on Wall Street.

While no one can yet suggest America is on the verge of a second New Deal, paradigm shifts are often not obviously apparent at the time they occur. The second phase of the government's response to this crisis will involve regulatory overhaul. Congress will have to hold hearings on the cause of this disaster and they will no doubt find many instances of deregulation as the culprit. In 1982, Ronald Reagan pushed for the Garn-St Germain Depository Institutions Act, which in Title VIII specifically provided for the very adjustable-rate mortgages that have left consumers struggling to make their payments. They will find that in 1999 it was senator Phil Graham and a veto-proof Republican majority that demanded an overhaul of the Glass-Steagall Act of 1933 which separated commercial and investment banking. This might have contained this problem to one sector of the lending industry. Investigators will find that in 2000, Republicans and free market ideologues passed the Commodities Futures Modernisation Act which reduced transparency in the derivatives market. As Congress fulfils its oversight role, a picture will emerge of a comprehensive deregulation strategy which led to this crisis.

The end of the Reagan Revolution would not mean a sharp turn toward socialism, but a maturation of economic policy that understands the complexity and power of large financial institutions. Corporate executives should not have the right to risk the entire American economy – indeed the global economy – as part of their portfolio management, regardless of Ayn Rand's philosophical musings. While Republicans struggle to explain how the irresponsible decisions of executives and consumers are to blame, but their own policies which afforded them this opportunity are not, one wonders about the legacy of Reagan's economic policies. It seems that in a time of serious economic crisis, Americans will turn to Roosevelt rather than Reagan. Doing nothing simply isn't an option, and tax cuts and deregulation in a time of corporate excess makes little sense. It is only natural to wonder if this is more than a temporary shift in political discourse.

[JoeTerp]

something else that is sadly ironic is that Ron Paul predicted that this was coming about a year ago when he was running to be the republican nominee. Nobody wanted to listen to anything like that and wrote him off as some crazy old hack. (he did have some other crazy ideas though)

[JoeTerp]

read the comments at the end

made me feel pround to be an American to see so many people (about 97%) say no to this person who was trying to tell us what we need.  So many of the people commenting talked about how they would welcome a harsh short term in order to not have to deal with this kind of system any more and in order to not give the government any more power.