Print Story Everyone else is blogging about this financial crisis so why can't I?
Diary
By lm (Thu Oct 09, 2008 at 05:30:31 PM EST) (all tags)
Bollywood budgets cut due to global meltdown make me sad. The worst bit is that this will probably spark a return to formula. Over the last decade or so, there were some interesting film makers experimenting with some interesting themes in Bollywood.

Democracy Now! has an interview with Namoi Klein whereshe lays responsibility for the current crisis at the feet of those who put Milton Friedman's economic theories into practice. I found this especially interesting in an email being bandied about from someone educated at the University of Chicago in economics which made the observation that most of Europe is far less regulated than the US vis a vis the banking industry. Given the EU, I guess this makes sense that banks would be less regulated within member states.



There aren't many blogs over at LiveJournal that I follow. But every now and then, I'll scan the view of my wife's friends list. This past time there was an entry that argued that it was the liberals in the US Senate and the US Congress that pushed through the deregulation that led to the current crisis. To be honest, I'm not really up on who pushed what banking bill. And even though it might be counter-intuitive to have some of the most liberal folks in congress like Chris Dodd push deregulation when it's the GOP that is supposed pushing `the government that governs least governs best', I'm willing to concede the point. But it would really be odd to see the left wing pushing an agenda that contradicts their agenda. Not that stranger things haven't happened, mind you.

In other news His Excellency Honourable President of Pakistan should marry Sarah Palin for the greater good of humanity.

At the Asia Times, if I understand his point correctly, Spengler argues that Asia needs the US to be irresponsible because Asia isn't irresponsible enough to create massive wealth.

One of the big questions now is how much lower the market will go. The big indexes are just now getting to the point where I think they should be if growth since the early nineties had been of a health sort instead of irrationally exuberant. (Of course I'm pulling that entirely out of my derrier. There is no good reason to use the early nineties as a starting point. Nor is my estimate of healthy growth based on any economic theory.) If the markets keep falling, I'm going to start to enter the territory of `oh crap! this is bad!'

Maybe I'm too cynical, or maybe things are just too early to see the full brunt,  but it doesn't look anything like the Great Depression to me. It may build to that overtime if everyone starts unloading their stocks, as so many people put `savings' into investment vehicles rather than banks where savings should  go, it might be akin to the good old fashioned bank runs that kicked off the Great Depression. But on the other hand, I think most people, especially those that really need it, have their money in banks insured by the FDIC. And we have Social Security. At least in the US, we're not going to see the widespread starvation and destitution of the early and mid-thirties.

Not that this means it's going to be fun.

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Everyone else is blogging about this financial crisis so why can't I? | 16 comments (16 topical, 0 hidden) | Trackback
deregulation by R343L (2.00 / 0) #1 Thu Oct 09, 2008 at 06:15:28 PM EST
The bill that is cited most often for deregulation that could have contributed to the current crisis is the Gramm-Leach-Bliley Financial Services Modernization Act. Note that it was created by three Republicans. I would find it very curious that the Democrats were the ones to push such a bill through .. when the Republicans had majorities in both houses and the bill in question was introduced by Republicans. It is true that Clinton signed off on it (after there were adjustments to CRA related provisions), but that's hardly Democrats pushing it.

So, meh. I don't get the attempt to try to lay the majority of blame for the crisis on the mostly out of power Democrats. I've seen it all over though.

"There will be time, there will be time / To prepare a face to meet the faces that you meet." -- Eliot

Oops by lm (2.00 / 0) #2 Thu Oct 09, 2008 at 07:09:33 PM EST
Thanks for the link. I'm certain I'll find it useful in the days and weeks to come.

But I'm in error. I went back and re-read the blog entry again. In particular it was speaking of Fannie Mae/Freddie Mac and the arguments by the likes of Chris Dodd and Barney Frank against some of the proposed reforms. At one point, I had started to compose a rebuttal as there was a good deal of misinformation such as conflating the sum total of all Fannie Mae employee contributions to Obama's campaign with a personal connection between Frank Raines and Obama in his capacity as elected official. So I decided to ignore it.


There is no more degenerate kind of state than that in which the richest are supposed to be the best.
Cicero, The Republic
[ Parent ]
Instead, I'd probably blame by garlic (4.00 / 1) #4 Thu Oct 09, 2008 at 08:34:16 PM EST
the bill which mandated that CDS not be regulated. "sure, it looks like insurance, and acts like insurance, but we don't want insurance company regulations like actually having to have any money  reserved to pay out if a credit default actually happens."


[ Parent ]
Commodity Futures Modernization Act by georgeha (4.00 / 2) #8 Fri Oct 10, 2008 at 02:18:45 AM EST
I believe, and Gramm is involved in it.


[ Parent ]
Ahh, yes by R343L (4.00 / 1) #6 Thu Oct 09, 2008 at 08:37:17 PM EST
The meme that the Democrats blocked all regulation of Fannie and Freddie during the 2000s. I find that one especially amusing because the Democrats hardly bothered to filibuster (have a look at 110th vs 108th Congresses) anything and the Republican leadership started threatening to remove the filibuster. I mean, sure, the Democrats could make it hard for a regulatory bill to escape committee, but not impossible -- the Republicans did a lot to make it harder for the minority to block legislation (in both houses) -- but if the Republicans had really wanted to get something passed they could have. It would have been tricky in the Senate finding 9 Democrats in 2003-2005 (108th Congress), but probably not that hard.

A particularly stupid example of this meme in internet political ad format.


"There will be time, there will be time / To prepare a face to meet the faces that you meet." -- Eliot

[ Parent ]
Blame Game by codemonkey uk (4.00 / 1) #7 Fri Oct 10, 2008 at 01:59:06 AM EST
As far as I understand it now, isn't the root cause the credit ratings evaluation system (where the organisation selling a loan package pays for the package to be rated) enabling banks to sell high risk debt packaged up as low risk (AAA) debt?

End result is a lot of organisations suddenly discovering they bought a bad (high risk) deal, that had been "independently" evaluated as a good (low risk) deal.



--- Thad ---
Almost as Smart As you.

[ Parent ]
Also by jump the ladder (2.00 / 0) #9 Fri Oct 10, 2008 at 02:56:36 AM EST
Lack of regulation in the Credit Default Swap (basically an instrument that pays out if the company defaults on its borrowings) maket in that insurance companies like AIG insured the swaps and don't have enough assets to cover the defaults of Lehmans and the like. $400 billion of CDS of Lehmans is expiring today!

[ Parent ]
there are probably quite a few things by R343L (2.00 / 0) #14 Fri Oct 10, 2008 at 05:18:51 AM EST
I mean you can easily say:
  • If there had been fewer bad loans issue, then there would be fewer actually unperforming CDOs and hence less of a problem.
  • If the rating agencies hadn't rated CDOs with BBB loan tranches in them as AAA, then they would have been bought less often or by organizations that better understood the risk.
  • If credit default swaps had been regulated more like insurance with requirements for reserves, then a bunch of institutions wouldn't mow owe each an absurd quantity of money.
  • Etc. and so forth (I am almost certainly missing a few).
I am loathe to blame the crisis on any one thing or any one organization's failure because it seems like the crisis could be lessened if something had happened a little more rationally at various points. That said, it's absurd for the party that was in power to claim they had no power to keep it from happening (which is what a lot of right wingers are saying right now.)

"There will be time, there will be time / To prepare a face to meet the faces that you meet." -- Eliot
[ Parent ]
That last bit grates on my nerves by lm (4.00 / 1) #15 Fri Oct 10, 2008 at 06:41:27 AM EST
It seems to me that there are more conservatives than not arguing that when Carter and Clinton were in power, everything bad that happened was their fault but for Bush, Reagan and Bush, everything bad that happened was outside of their control. To go from `it doesn't matter who was president' to `vote McCain or else scary things will happen' makes no sense.

But to be fair, quite a few liberals are the same way in reverse.


There is no more degenerate kind of state than that in which the richest are supposed to be the best.
Cicero, The Republic
[ Parent ]
Naomi Klein by TheophileEscargot (4.00 / 1) #3 Thu Oct 09, 2008 at 08:24:16 PM EST
There was an interesting exchange with Johan Norberg lately: Norberg, Klein, Norberg.
--
It is unlikely that the good of a snail should reside in its shell: so is it likely that the good of a man should?
That back and forth is pretty interesting by lm (2.00 / 0) #10 Fri Oct 10, 2008 at 03:23:38 AM EST
But also unrelated to why I think her talk or interview was interesting. I'm not really interested in whether or not we can lie every problem the world has at the feet of Friedman as Klein apparently does in The Shock Doctrine, which I've not read and don't plan on reading.

Rather, I am interested in whether or not we can lay a significant portion of the blame for the present financial crises on policy that aimed at putting Friedman's economic theories into practice. That's a much more limited claim and one that seems to me to be on pretty solid footing.


There is no more degenerate kind of state than that in which the richest are supposed to be the best.
Cicero, The Republic
[ Parent ]
I think that's too simple by R Mutt (2.00 / 0) #11 Fri Oct 10, 2008 at 04:03:15 AM EST
To reuse an analogy: airliners have a load of safety features and procedures. When an airliner crashes, it usually not because of one cause, but because several things have gone wrong at once.

If you go back to the Great Depression of the Thirties: the reason it was so severe wasn't just one thing went wrong. There were a series of problems that made things worse. The stock market bubble of the Twenties, then the bank failures, cutting spending in a recession made it worse, the overly-tight monetary policy, the accompanying deflation, Smoot-Hawley and reduction in trade: all those things contributed to the overall effect.

There was a chain of causes. The reason it didn't recur was that several links in the chain were attacked. Almost everyone adopted fiat currencies, less prone to deflation than the gold standard. Counter-cyclical fiscal and monetary policies were used to stop recessions getting too deep. Bank deposit insurance and unemployment benefit were used to alleviate problems.

Remember adequacy's Why the Bombings Mean That We Must Support My Politics? There seems to be quite a lot of that going on. But it seems to me more that there was a chain of problems, and it's going to require several solutions.

Some of the factors behind the current crisis were due to failures of regulations: in particular the way that government regulators used the same financial models as the banks they were regulating. But other factors were governmental, like the way China and others pumped export money into the US and Europe in order to keep their currencies low-valued. Milton Friedman would have loved the first, loathed the second.

[ Parent ]
I certainly agree that there is no /single/ cause by lm (2.00 / 0) #12 Fri Oct 10, 2008 at 04:40:58 AM EST
But I think a good argument can be made so many governments had not started enacting regulations in line with Friedman's ideas that the crisis would be no where near as severe.

There is no more degenerate kind of state than that in which the richest are supposed to be the best.
Cicero, The Republic
[ Parent ]
aeroplane analogy by Merekat (2.00 / 0) #13 Fri Oct 10, 2008 at 05:18:45 AM EST
When a plane crashes, it is often because several things have gone wrong at once is true. But who says stopping errors in the marketplace is as mature a field as aviation safety? Maybe we have a few easily targetable unacceptable risks to eliminate before we hit the point of diminishing returns?


[ Parent ]
It's a good point. by garlic (2.00 / 0) #5 Thu Oct 09, 2008 at 08:37:03 PM EST
Looking at the money I have at the credit union makes me a little less freaked out about my stock account and 401k. As long as the government keeps guarenteeing money market accounts, , I'm good to go. Woohoo! I'm part of the bailout!


Great Depression by duxup (2.00 / 0) #16 Sat Oct 11, 2008 at 07:55:35 PM EST
Yar from my limited knowledge it seems the idea that this is somehow going to be like the Great Depression seems entirely disconnected from reality.  Just something like the FDIC puts a whole new spin on the process of how things have to fall apart for it to get insanely bad.  Not to say it can't all become a mess, but it won't / can't be quite the same.

I don't have the background / plan to spend the time dispute the whole "hey this is the democrat's fault" claims but considering the Republican rhetoric over the last few decades... unless they were just lying about supporting / implementing deregulation left and right and forgot to patch the holes left by those out of control deregulating Democrats when they controlled the government, I don't buy it.

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Everyone else is blogging about this financial crisis so why can't I? | 16 comments (16 topical, 0 hidden) | Trackback