The usual answer, of course, is the evils of capitalism: this country’s banks – virtually unregulated – to borrow more than 10 times their country’s gross domestic product from the international wholesale money markets. Watch as a Graf Zeppelin of debt propels its self-styled “Viking Raiders†across the world’s financial stage, accumulating companies like gamblers hoarding chips. In fact, of course, the government regulators made lots of easy money available …
China’s boom
China in the 20th century had two major revolutions, a civil war, a World War, The Great Leap Forward [sic], mass starvation, the Cultural Revolution, arguably the most tyrannical dictator ever and he didn’t even brush his teeth, and now they are going from rags to riches without even a business cycle burp. While the world plunges into major recession, China is suffering a barely noticeable hiccup, and has become …
The lesson of the 2008 American Presidential election
You win elections from the base, not the center. Obama appealed to the Democrat base, the Democrat wing of the Democrat party, and the lunatic wing of the Democrat of the Democrat party, Just as Reagan appealed to the Republican party base. McCain tried to appeal to the wobbly Democrat wing of the Democrat pary – mainly by spitting on the Republican party base. McCain followed in the path of …
How many CRA loans, how much affirmative action payout?
From 2000 to 2007, blacks and hispanics received six hundred and thirteen billion dollars more in home purchase mortgages than they would have received had they received the same proportion of the money that they received in 1999 – a figure that strikingly resembles the total cost of the bailout. In 1999, people warned that CRA loans, affirmative action loans, racial quota loans, began to endanger the financial system Fannie …
The crisis in unregulated financial markets
Observe that the unregulated Credit Default Swap market is now working just fine, despite handling gigantic money flows, such as the failure of the Icelandic banks, that shake other markets, despite, or perhaps because of, the fact that more highly regulated markets have frozen up. What went wrong in a short while ago in unregulated markets was that people in an unregulated market would look at a highly regulated participant …
The cause of the subprime crisis
The subprime crisis was caused by regulation and the expectation that some companies were too big to fail – that if those companies got in trouble, the government would make sure their debtors were paid. What did regulation tell financiers about subprime loans? It told them they had better make subprime loans, or face a lawsuit by ACORN, a lawsuit in which the regulators made it clear they would be …
The cause of the crisis
The bailout will fail. If the government offers implicit or expicit debt guarantees, if a firm is “too big to fail, then that firm can easily borrow lots of money cheaply, and lend that money to people not so guaranteed at a higher interest rate. Free Money! The too big to fail firm is going to take absurd risks that no one would ever take with their own money. And …
The cause of the crisis
If a company is too big to fail, then people will take risks they would not otherwise take. “Too big to fail†is an implicit subsidy for taking big risks – which results in people taking big risks. So we have just paid people seven hundred billion dollars for taking stupidly big risks. What do you think is going to happen?
What the bailout does to capitalism and the dollar
As we have seen, organizations that are too big to fail, fail big. The US government is the biggest of them all. For credit to work, people who need credit should not get credit. You should only be able to get credit if you can prove you do not need it. The major purpose of the bailout is to ensure that people who need credit will continue to get it. …
Wall Street Journal explains the bailout crisis
Wall street journal reports that this crisis was the predicted result of politically correct lending policies commanded by the Clinton administration, continued and worsened by the Bush administration. Carpe Diem reports that this crisis was predicted when these policies were introduced by the Clinton Administration. In 1999, the NY Times observed: Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But …