The Very Visible Hand

[prole]

Things are moving very quickly and getting mighty ugly in a hurry.

Some articles:

The Fed Throws Darts Blindfoled

 

Times Uses Dreaded "R" Word in Headline

 

The Dollar Circles The Bowl

 

The Domino Theory

[fear_and_greed]

GW needs to invade some more countries and fast to show the rest of us that America is still a bad ass. Oh wait that didn't work out so well last time....

[Jim]

Another great example of the "free market" at work. Financial institutions allowed to run amuck without adult supervision come up with ingenious schemes to turn risky investments into Wall Street AAA bonds. They start losing their shirts when the inevitable crash comes along. Instead of letting the market sort it out by punishing the losers what do we do? We guarantee the estimated $30 Billion in bad paper held by Bear Stearns and keep slashing interest rates.

 

Amazing that the "market forces" theory of governance is thrown out any time there's a consideration of more money for childern's heath care, transportation, etc. But when the masters of the universe need a monumental government bailout - well that's an exception to the rule. Always has been, always will be.

 

The Idiot and his cronnies are screwing things up even more than I expected. There is going to be more to this story. Seems like we're headed for another S&L type bailout.

[JayB]

Seems like that analysis should include the effects of monetary policy, and the failure of the folks making the rulebook to keep up with changes in the marketplace.

 

What kind of regulations would you put in place if someone gave you carte blanche?

 

 

 

 

[olyclimber]

you might start with analysing exactly WHY the government is providing a safety net here. there are many reason, but the focus would be on building a market that is resilient enough to correct such problems on its own. the problem isn't necessarily Bears Stearn (in my IMH uninformed O), but the state of the market in general. Of course Bears Stearn come down because of a cancer in that industry that many had, but there are so many other pressures on the market as well (the weak dollar, the debt, the war, oil prices, etc)

[prole]

...the failure of the folks making the rulebook to keep up with changes in the marketplace.

 

"What? Who? Li'l ole me?" Give us a break. You know damn well that free-market fundamentalists have fought tooth-and-nail to dismantle any such rules and keep any new ones from being put into place. The explosion in risky financial instruments, increased volatility, more frequent crises are part and parcel of the "casino capitalism" that deregulation has helped to create. As usual, it's all down the memory hole--"oh hey look, Lehman stocks are up!"

 

[olyclimber]

spoken from the armchair, of course

[prole]

Are you in a spaceship?

[olyclimber]

i am your friend. i traveled many light years to observe your kind and your constructs.

[prole]

OMG, please don't probe me.

[olyclimber]

the very visible hand of the market already gave a world class enema to BS shareholders

[sobo]

i am your friend. i traveled many light years to observe your kind and your constructs.

 

from where?

[Jim]

Seems like that analysis should include the effects of monetary policy, and the failure of the folks making the rulebook to keep up with changes in the marketplace.

 

What kind of regulations would you put in place if someone gave you carte blanche?

 

Well I'm not so sure the deciding factor was that they did not keep up with marketplace changes but chose to ignore the changes and the potential consequences. Some simple rules, which are now in the works, regarding oversight of lending practices (duh - don't lend money to folks who can't afford it) and more oversight of the credit rating firms and wall street who managed to turn investments worse than junk bonds into AAA rating investment vehicles.

 

Capitalism is inherently greedy and cares for nothing but short-term gains, particularly the way it is practiced on Wall Street these days. So with some relatively mild oversight the Feds could have avoided this mess. Instead, they chose to let the market self-regulate, with the ensuing effects well outside the sphere of Wall Street. And now they choose to ignore the market forces solution when the financial elite come knocking at the door.

 

No reason to throw the baby out with the bathwater. But a more reasoned approach to government regulation of capitalism will make for stronger long-term financial institutions. I'm really tired of the "get government off our backs" crowd, especially when they cost us billions when their get-rich-quck schemes go south.

[KaskadskyjKozak]

i am your friend. i traveled many light years to observe your kind and your constructs.

 

from where?

 

Uranus

[sobo]

I heard there were Klingons there.

[JayB]

Seems like that analysis should include the effects of monetary policy, and the failure of the folks making the rulebook to keep up with changes in the marketplace.

 

What kind of regulations would you put in place if someone gave you carte blanche?

 

Well I'm not so sure the deciding factor was that they did not keep up with marketplace changes but chose to ignore the changes and the potential consequences. Some simple rules, which are now in the works, regarding oversight of lending practices (duh - don't lend money to folks who can't afford it) and more oversight of the credit rating firms and wall street who managed to turn investments worse than junk bonds into AAA rating investment vehicles.

 

Capitalism is inherently greedy and cares for nothing but short-term gains, particularly the way it is practiced on Wall Street these days. So with some relatively mild oversight the Feds could have avoided this mess. Instead, they chose to let the market self-regulate, with the ensuing effects well outside the sphere of Wall Street. And now they choose to ignore the market forces solution when the financial elite come knocking at the door.

 

No reason to throw the baby out with the bathwater. But a more reasoned approach to government regulation of capitalism will make for stronger long-term financial institutions. I'm really tired of the "get government off our backs" crowd, especially when they cost us billions when their get-rich-quck schemes go south.

 

I think that the broad point about privatizing profits and socializing risk is well taken, and extends to many domains beyond the financial marketplace. Grazing rights on public lands, the forest service building and maintaining roads for timber extraction, etc, etc, etc, etc. GNMA, FNMA, and a host of other agencies distribute profits to private shareholders but enjoy privileged access to capital at below market rates because of the assumption that the US government will pay anyone who holds the securities face value for them when the chips are down. Given the size of the liabilities on their portfolios, this is more worrisome to me than anything that's surfaced in the IB's yet. Tarriffs that protect a particular subset of workers or employers from competition and transfer the costs of diminished competition to consumer, subsidies that transfer public revenues to favored constituencies are part of the same problem, and the list goes on...

 

I think it's possible to construct mechanisms and incentives that limit these abuses without the state being an active participant in the marketplace.

 

Turning to the current debacle, the reason that commercial banks have access to the discount window - and investment banks haven't - is that commercial banks are subject to regulation by the Fed. IMO if the investment banks want access to the discount window in the future, they are going to have to accept the same.

 

I'd also either explicitly make FNMA, GNMA, and the other agencies public so that the nature and scope of their liabilities gets everyone's attention - and the treasury benefits from the upside to the risk - or pass legislation that would make them disappear in increments so that they're gone in twenty years.

 

The basic problem with the entire real-estate market is that it's littered with more conflict of interests, information assymetries, and opacity than any other sector of the marketplace - starting with the appraisal process, and stretching all of they way to the point where the securitized mortgages are purchased or sold. The basic problem is that we've had horse-and-buggy era rules applied to a superhighway marketplace.

 

Unfortunately, I think that the likely outcome is going to be wind up transferring more risk onto the public, instead of rewriting the rules with an eye to eliminating moral hazard and confining both the profits and losses to the private sector.

[KaskadskyjKozak]

 

HEY PROLE CAN YOU SEE THIS VERY VISIBLE HAND?

 

[Brianmoore]

GW needs to invade some more countries and fast to show the rest of us that America is still a bad ass. Oh wait that didn't work out so well last time....

 

Funny

[Jim]

I agree with you. The lobbists looking over the shoulder of Congress are not pushing for public interest, but their own.

[JayB]

...the failure of the folks making the rulebook to keep up with changes in the marketplace.

 

"What? Who? Li'l ole me?" Give us a break. You know damn well that free-market fundamentalists have fought tooth-and-nail to dismantle any such rules and keep any new ones from being put into place. The explosion in risky financial instruments, increased volatility, more frequent crises are part and parcel of the "casino capitalism" that deregulation has helped to create. As usual, it's all down the memory hole--"oh hey look, Lehman stocks are up!"

 

So is the solution here better rules that increase transparency, etc or nationalizing the entire financial marketplace?

 

 

 

 

[KaskadskyjKozak]

...the failure of the folks making the rulebook to keep up with changes in the marketplace.

 

"What? Who? Li'l ole me?" Give us a break. You know damn well that free-market fundamentalists have fought tooth-and-nail to dismantle any such rules and keep any new ones from being put into place. The explosion in risky financial instruments, increased volatility, more frequent crises are part and parcel of the "casino capitalism" that deregulation has helped to create. As usual, it's all down the memory hole--"oh hey look, Lehman stocks are up!"

 

So is the solution here better rules that increase transparency, etc or nationalizing the entire financial marketplace?

 

 

 

 

The answer is collectivization and five-year plans.

[JayB]

I agree with you. The lobbists looking over the shoulder of Congress are not pushing for public interest, but their own.

 

Heck - the same indictment applies to most congressmen and other miscellaneous bureaucrats, not just the lobbyists.

 

As long as we have humans in government, the problem of people attempting to use the medium of government to enrich or benefit themselves at the public expense will be with us.

 

 

 

 

[KaskadskyjKozak]

I agree with you. The lobbists looking over the shoulder of Congress are not pushing for public interest, but their own.

 

Heck - the same indictment applies to most congressmen and other miscellaneous bureaucrats, not just the lobbyists.

 

As long as we have humans in government, the problem of people attempting to use the medium of government to enrich or benefit themselves at the public expense will be with us.

 

 

 

 

 

(Most) Everyone is pushing for their own interest.

[Peter_Puget]

1999: GLBA signed into law by Clinton………

 

and this ringing endorsement of bureaucratic foresight….…..

 

That damn Bush and his cronies! More regulation now!

 

[Jim]

1999: GLBA signed into law by Clinton………

 

and this ringing endorsement of bureaucratic foresight….…..

 

That damn Bush and his cronies! More regulation now!

 

I think you need to read your own links. I'm not clear why you posted the GLBA link, which gave banks the ability to get into securities. What was ignored by the Bushies, and to a lesser extent the Clintons, was the ramifications of monitoring investments vechiles, truth in advertising by the rating agencies, and scrunity of lending practices.

 

And as far as the second link to the Primary Dealer Credit Facility - that's just offering more guarantees to the freaked-out banking industry. Not much of a free hand there eh?