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 …
The financial crash
Brad de Long looks at the financial crisis, and concludes that the wise and good hand of government is necessary. Third, the market fundamentalists in other sectors will need to be quiet for quite a while. We have just seen financial markets rife with moral hazard, agency, and adverse selection problems crash spectacularly. Is this a situation in which we should move health care–also rife with moral hazard, agency, and …
carbon footprint
Do you want to reduce your carbon footprint Or do you want to drill here now.
Never forget, never forgive
Never forget, never forgive. Make them pay forever.
Thai middle class revolts against democracy
For two thousand years, it has been claimed that democracy inherently self destructs, that democracy destroys the conditions that make democracy possible. The fact that democracy worked pretty well during the twentieth century would seem contrary evidence – but a century is not a long time for such a test.
Diebold voting machines horribly wrong
xkcd gets it exactly right