No Time for Utopian Anti-Interventionism

[jtabeb]

Re: No Time for Utopian Anti-Interventionism

FYI

Dean Baker at CEPR disagrees with you


Dean Baker

Posted September 30, 2008 | 11:53 PM (EST)

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That's easy. You ask them how failure to pass the bailout will give us a Great Depression.
The odds are that your favorite DC intellectual type has uttered some dire warning like that. After all, they all heard some authority like President Bush or a highly respected news reporter make such a claim. All right-thinking people know that we just have to give $700 billion to the Wall Street crew or the economy will collapse.
While all right-thinking people might know we need the bailout, just about all right-thinking people don't have a clue as to what they are talking about.
The Great Depression story is of course the most extreme case. No one has yet sketched out the sequence of events that will give us ten years of double-digit unemployment. But hey, if the scare story helps get the bailout passed -- and gets those uneducated skeptics in the hinterlands to buy it -- why not talk about the Great Depression?
I was on a talk show today in which one of the other guests (a representative of the security industry trade group) told listeners that you can't get a mortgage unless you put 30-40 percent down. This is of course total garbage (the interest rate on 30-year fixed rate mortgages is a very low 6.0 percent) and the vast majority of loans are being made with 10-20 percent down, but lying for Wall Street is no sin.
The host of the show was appalled to find that neither I, nor the other in-studio guest, supported the bailout. At one point he became exasperated and told me that because companies can't get access to credit they might have to lay off workers. He told me that United and GM may have to begin laying off workers next month if the credit squeeze doesn't ease.
Of course if United and GM actually do lay off workers, the credit squeeze will be a very small part of the story. The airline and auto industry face really big problems for reasons that have nothing to do with the credit squeeze, although paying higher interest rates on borrowing clearly does not help.
It is remarkable how the contemptuous comments that the elites have directed at the masses for opposing the bailout can be so much more accurately directed back at themselves. In fear and anger they have embraced a bailout that makes little sense in the context of the economic crisis facing the country. Rather than listening people who actually understand the economy (I doubt a single economist in the country believes that the bailout is the best way to help the economy) they have shouted down and shut out critics of the bailout and have been willing to spread all manner of outlandish scare stories to advance their case.
It was impressive to see the mass outrage over the bailout at least temporarily stop the bill. But, the full court press by Wall Street, the media and the entire political establishment is hard to counter. If the bill is not stopped, those who vote for it should at least be held accountable for the economic mess they create. Remember, these are the folks that couldn't see the housing bubble.

[Thailandnotes]

Re: No Time for Utopian Anti-Interventionism

This is worth the listen or read...gets to the heart of the debate here.

http://www.democracynow.org/2008/10/...res_to_vote_on

WILLIAM GREIDER: I think the government needs, right now—I don’t think they’re going to go that way just yet, but I think ultimately they may have to—step up, exercise its full powers in emergency, and literally take control of the banking system and the financial system and supervise it as it deals with the realities of firms that will not survive and those that can survive; husband, if solvent, banks and make sure they stay solvent instead of tipping over; and then use that power to guide economic policy for the country, that is, make sure those financial institutions are lending and keeping the credit spigots open for businesses, for families, for all of the uses that go on in our society; and then add the stimulus alongside it, and I mean major stimulus, to encourage all of those players.

Here’s what happens in a situation like this, at least historically, and I think it’s beginning to happen now. Everybody, quite reasonably, hunkers down. That’s a rational decision: I know we’re in trouble, I know the system is crumbling, I’m going to put my money under the mattress, so to speak, and wait this out. So, that means people stop spending, and they stop borrowing and can’t borrow, and bankers, likewise, stop lending. The government is the only player with the power to step in and reverse that dynamic. That is what the federal government should be doing forcefully right now...

What Paulson is doing is—the bankers got stuck with all these rotten assets, which they created and sold to each other and to the world; now let’s take those off their hands, and they’ll be OK again. I’m not alone in saying that that’s a real crapshoot as to whether that works, first of all, because those banks, as I said, are going to get smaller, and they’re collapsed, and they may or may not start lending again. I would guess not, not until they see a vibrant economy again.

But it’s also—and this is where the public stepped up—it’s profoundly illegitimate as an act of democracy to take the money from taxpayers and say to the villains in this story, “Here, here. Can we help you out of your troubles?” No rules, no guarantees that these villains will correct their behavior, no really serious effort to write into this legislation a sense of where the system goes from here that’s honest.

[Charles Mackay]

Re: No Time for Utopian Anti-Interventionism

Senator Chris Dodd wins Chumpzilla award for buyout

Filed under: Uncategorized — chumpzilla @ 5:46 am

Are you wondering why members of both parties are so ready to insist that there must be a bailout evne though their constituents are more oftne than not shouting “NO!” ?
The answer is easy: follow the money. It appears that Senator Dodd (and the two major party presidential candidates) are very much dependant on the moneys that have flowed into their pockets from the financial organizations that they are bailing out.
For example, review Senator Dodd’s financing sources:
Chris Dodd: Top 5 Contributors, 2003-2008
Citigroup Inc - $314,694
SAC Capital Partners - $282,000
United Technologies - $263,400
Royal Bank of Scotland - $229,950
American International Group - $224,678
Chris Dodd: Top 5 Industry Contributions, 2003-2008
Securities & Investment - $4,267,896
Lawyers/Law Firms - $1,990,713
Insurance - $1,439,672
Real Estate - $1,262,691
Commercial Banks - $861,944

[Chris Coles]

Re: No Time for Utopian Anti-Interventionism

Democracy works when there are enough individuals, (a prerogative to many), prepared to work their entire lives to EMPLOY the citizens that surround them. To be able to employ, you must have access to capital. Without a free marketplace for the provision of the necessary capital injection down to the grass roots of any society, then who employs? Government? Warlords? Anyone but that free, hard working, individual.

[Rajiv]

Re: No Time for Utopian Anti-Interventionism

Also when putting the same letter on Op-ed news, Kucinich asks readers to comment on Paul Grignon's 47-minute Money as Debt animated documentary

[raja]

Re: No Time for Utopian Anti-Interventionism

We'll see quite hard times. But why rob retirees and savers to transfer their wealth to fools who never saved and companies who were foolish and based their business models on neverending cheap credit? (GM, Ford, Circuit City, Best Buy, any hot tub store, etc) How does continuing that trend solve anything? It just postpones the crash and then makes the crash that much worse as now our currency is worth less and those previously able to weather a storm on savings no longer can.

Without the bailout, the stock market crashes and the retirees and savers lose all or most of their money.

With the bailout, big inflation or hyperinflation happens, and the retirees and the savers lose all or most their money. Oh . . . and the stock market probably crashes anyway.

The only difference in my mind is that with a bailout, the rich folks get to unload their bad debts at tax-payers expense, so they've got more money to spend on building their fortified compounds and/or offshore villas.

I say, if there's going to be pain anyway, let's have the rich folks join in the fun.

The only bailout that I would consider acceptable is that one includes punishing those who have profited from making the bad bets that impoverish the savers and retirees.

I don't know how that would work . . . . maybe:

1) Heavy fines for endangering the savings of retirees' and savers' money. Make the money-men refund their profits in cases where their clients lost money.

2) Immediately ban these "financial wizards" from working in the financial or banking industry, and prevent them from doing so in the future.

3) Or . . . . we could just deliver these "masters of the universe" up for public execution, like the Chinese do to those who damage society. :eek:

[D-Mack]

Re: No Time for Utopian Anti-Interventionism

We will have very soon experienced leadership when Obama becomes president, I'm talking about Obama's banking committee and Obama's pool of financial and market experts

I think his advisers are more from the Trilateral side (Brzezinski, Volcker)


The guys who wrote about the end of democracy 30 years ago

In recent years, acute observers on all three continents have seen a bleak future for democratic government. Before leaving office, Willy Brandt was reported to believe that "Western Europe has only 20 or 30 more years of democracy left in it; after that it will slide, engineless and rudderless, under the surrounding sea of dictatorship, and whether the dictation comes from a politburo or a junta will not make that much difference." If Britain continues to be unable to resolve the seemingly unresolvable problems of inflation-cum-prospective depression, observed one senior British official, "parliamentary democracy would ultimately be replaced by a dictatorship." "Japanese democracy will collapse," warned Takeo Miki in his first days in office, unless major reforms can be carried out and "the people's confidence in politics" be restored.1 The image which recurs in these and other statements is one of the disintegration of civil order, the breakdown of social discipline, the debility of leaders, and the alienation of citizens. Even what have been thought to be the most civic of industrialized societies have been held to be prey to these disabilities, as observers speak of the Vietnamization of America and the Italianization of Britain.

This pessimism about the future of democracy has coincided with a parallel pessimism about the future of economic conditions. Economists have rediscovered the fifty-year Kondratieff cycle, according to which 1971 (like 1921) should have marked the beginning of a sustained economic downturn from which the industrialized capitalist world would not emerge until close to the end of the century. The implication is that just as the political developments of the 1920s and 1930s furnished the ironic -- and tragic -- aftermath to a war fought to make the world safe for democracy, so also the 1970s and 1980s might furnish a similarly ironic political aftermath to twenty years of sustained economic development designed in part to make the world prosperous enough for democracy.

Social thought in Western Europe and North America tends to go through Pollyanna and Cassandra phases. The prevalence of pessimism today does not mean that this pessimism necessarily is well founded. That such pessimism has not been well founded in the past also does not mean that it is necessarily ill founded at present. A principal purpose of this report is to identify and to analyze the challenges confronting democratic government in today's world, to ascertain the bases for optimism or pessimism about the future of democracy, and to suggest whatever innovations may seem appropriate to make democracy more viable in the future.
http://www.trilateral.org/projwork/tfrsums/tfr08.htm

[Chris Coles]

Re: No Time for Utopian Anti-Interventionism

Well, if it accounts for something, In my job I've been in telecoms infrastructure installations in places that are not in common maps, where you need to travel 4 hours on dirt roads in mountain ranges just to get there. So far, I've done my best to do my part on improving services in rural Mexico.

My opinion has always been that we need first to develop a reliable road and communications infrastructure to ease people their inclusion on the market with their products. Along with this, an update of the education system, so even in the deepest places on the countryside there are the tools needed to give a reliable education to everybody. Third, a nationwide restructure of public health system, to reach the furthest places of the country.

Just complying with these three points: Communications infraestructure, Improved Education and a Reliable Nationwide Health System, we will have the base needed to build a strong and productive economy. Well, it's always worth dreaming, but it gets better when you are part of it all.

You are missing the most essential element in a successful economy Capital. None of what you list has any true effect long term without a fourth ingredient. Access to capital. In the US, the problem has, in the recent past, been solved by credit cards. Many of the most successful companies today were started that way. Apple and Google are two excellent examples. But their success was in turn predicated by the originators having sufficient income in the first place to ensure they had the credit available.

If you have insufficient income the only way forward is through access to capital. A loan does not answer the problem as start ups do not have income. That is the precise reason for capitalism becoming the successful system.

And, perversely, that is precisely why the present problems have surfaced. We are not running a capitalist system at the moment.

Credit is not any form of replacement for capital. Working capital yes, when success demands the period between sale and income is covered. But to try and say you only need communications, education and health care is the great illusion. You must have a free market for capital. That is the missing element and no other mechanism will serve to replace it.

Re: No Time for Utopian Anti-Interventionism

"affordable furniture to go". LOL.

I have lived 27 years as an adult, with about 20 of those at an income level (often far) below the median, without ever once borrowing money to buy furniture, electronics, clothing, household items, luxury items, or anything besides a home mortgage , two relatively small car payments (less than 80% LTV), one auto lease (subvented, was cheaper than paying cash), and one lease of business equipment worth less than $2500. I have never been late a single day on any loan despite all these loans being taken out when I made below average income, and had credit not been available I could have purchased less expensive items with savings.

My parents borrowed money exactly once (other than a mortgage under even more strict lending standards), to buy christmas presents when I was a young child, and I am told that loan was paid off within a few months.

I have run a small business without extending credit (beyond waiting 30 days to get paid, but that doesn't require a bank's involvement). I have worked for a couple other small/med businesses, neither of whom needed to extend credit to sell their product/services.

I shopped at Walmart, Sears, JC Penney, etc all my life without ever feeling the need to open a charge account to do so.

So tell me exactly why it's impossible to have an economy that doesn't rely on the entire population consuming before they save for every ridiculously frivolous item? I didn't own a piece of new furniture until I was probably 30 years old and you can furnish a home with about $2,000 from hand me downs, yard sales, and used mattress sellers. Less if you are single. My furniture was the kind you assemble yourself or second hand.

Maybe "Affordable Furniture to go" needs "to go" if they can't make it with customers who have actually saved for furniture.

This whole mentality that we consume now, pay later, is what is behind the entire mess. From our government to businesses to consumers. They're all doing it and this simply has to end. Does anyone really think the idea of $700 cellphones for children is viable when the people buying them can't even afford to retire? The reason we have such silly things is that we got the idea we could buy without saving first. It's the EASY CREDIT that put us in this mess. Enabling it doesn't seem to be the solution.

Go to any strip mall in a reasonably upscale part of town. Read the signs of the STUPID businesses. Stuff nobody needs paid for with money nobody has. Are we supposed to let these clowns hold us hostage?

"but how can I extend credit to my customers to buy my papier mache' art if credit freezes up!"

[Supercilious]

Re: No Time for Utopian Anti-Interventionism

The risk of our government devolving into a dictatorship, considerable as it may be, is not my primary reason for wanting to see the King plan implemented versus non-intervention.

The King Plan doesn't do anything else than kicking the can further down the road. As long as there is no real and complete overhaul of the markets rule, regulatory conditions and a strict control of leverage/risk loopholes we are just throwing good money after bad.

We lack the experienced leadership needed to steward the economy through the kind of crisis an unmanaged debt deflation will create. For that reason I believe that road leads to disaster.

We will have very soon experienced leadership when Obama becomes president, I'm talking about Obama's banking committee and Obama's pool of financial and market experts

EJ I really don't think that an economic crisis represents a serious factor favoring dictatorship/fascism in America. By the contrary a short economic crisis would make the prospect of corporate fascism/dictatorship less likely than a prolonged period of uncertainty that can expose masses through scare tactics manipulation.

Fascism/dictatorship can take over America without any economic crisis, the MSM can create climate of permanent fear and false solutions for channeling popular hope can do it much better an easier than a crisis.

Now on a completely unrelated topic, let's not forget to vote. It is a patriotic duty and we have to put our best hopes in the result of the elections. Here is a wonderful reminder that we need to vote:







(In case you believe I'm biased and you are wondering about my political affinities I will declare in public that I'm a Marxist ... although not a mainstream one, but a ...Groucho Marxist)

Re: No Time for Utopian Anti-Interventionism

I will take a hit on this, but I was trying to illustrate that exact point.

(no the ends, don't justify the means)

Just calling a spade "a spade" when I see one. You are both correct, I was a spade in this case too.

Is that Karl Marx as your pic? If so, are you sure you're in the right forum?

Re: No Time for Utopian Anti-Interventionism

Eric, based on my read of Rothbard's 'Great Depression,' it is clear to me that Hoover was an interventionalist, big-time, over '30-'32, and that FDR merely amplified the radical interventions that Hoover took. Thus, there was no attempt at 'self correction' in the G.D.

I do not have the stats on the post WWI wind down, but, purportedly, that was a big, big slowdown, which was painful, but short. It was painful, but short, because of little/no government intervention.

I agree with your logic in steps 1-9. However, in step 10, do note that if there is no government intervention, non-performing debts will be written off, freeing debtors. Then, after non-performing debts are written off and bad lenders are eliminated, folks like me with savings will step into the void. But, I guarantee that I will not step in when the rules are rigged and changing, which is what we see today and would have with The Bailout.

Let the banks fail, let the debtors declare bankruptcy, let soup lines flower and multiply, let attitudes about debt change (back to 'debt = bad'), then let the system regrow, properly.

I think you make an excellent point. What is lent but savings? Currently, with real returns on deposits in the negative range, what incentive is there for investors to put their money in banks? Or to save, period?

Would not rising interest rates cause money to flow into banks?

Wasn't the whole scam of low interest rates to get people to spend and borrow rather than economize and save?

[jimmygu3]

Re: No Time for Utopian Anti-Interventionism

On a side note, Larry Craig took a wide stance for Idaho and voted yes. I'd forgotten that clown was still in the Senate.

I got a good laugh out of that, sf2!

[phirang]

Re: No Time for Utopian Anti-Interventionism

Since we're Los Angeles ex-pats, tonight we were switching back and forth between the Dodgers/Cubs game and "The Bill", which passed the Senate 74-25. The pork, or what CNN is calling "sweeteners", was staggering. I tried to count as they listed the add-ins and it sounds like $150-300 billion dollars in additional tax incentives and tax breaks.

There was one "sweetener" in the bill that allows for mostly Western states to receive money from the Federal government based on the amount of land owned within the state by the Federal government and therefore one assumes, off limits for building. Harry Reid could hardly contain himself as he giggled his way through an explanation of how the Federal government controlled 40% of Nevada. A simple cha-ching would have sufficed.

On a side note, Larry Craig took a wide stance for Idaho and voted yes. I'd forgotten that clown was still in the Senate. On to the House vote tomorrow or Friday.

The business lobbies, i.e. the people who actually pay for campaigns unlike the irate retards calling on c-span, have been entreating for this intervention to happen.

The house of reps, I think, will realize who butters their bread. The insipid demagogues in the public media likewise don't finance campaigns: FIRE does.

Re: No Time for Utopian Anti-Interventionism

I will paraphrase Lloyd Bentsen's famous comment (was it directed to Dan Quayle?) "You're no Libertarian", EJ.

This is so untrue that it is staggering and hard to argue with the rest of your essay. It is a Big Lie, not a little lie, and I am surprised that you can even say this.

The US did nothing but intervene. Let's see, spending staggering amounts of money on make-work programs, numerous "bailouts" of industry and control over industry, seizing gold, closing the banks, setting up bogus "deposit insurance" schemes, etc. etc. etc.

And Argentina, and Mexico...they did similar things, no? I mean, the whole reason for this crisis was moral hazard and money printing in the first place.

Bottom line, your solution is to continue the same thing, but do it with more "regulation." It is doomed not only to fail, but to lead the country and the world into a second Depression.

The *only* solution is to simply let assets plunge in value, take our medicine, and in a year or two things will be fine. Argentina worked out quite well because they had no choice. Domestic industries rose to replace imports. And a depression pulled asset values down until everything was a bargain.

Then things started to shape up.

That is *exactly* what we need right now.

Oh really? I think your "solution" is guaranteed to do that.

Irving Fisher is the same person who proclaimed famously that stock prices were at a "permanently high plateau" or some such quote, no? Just before the Crash of 1929. I am sure he was brilliant, but that doesn't make him right.

What we need is asset prices to fall.That is what is happening. Then a lot of banks go out of business. House prices fall. Everything falls. And credit becomes hard to get. Then people start saving, not hoarding. It's called saving and investing.

The FIRE economy is history. People buy up old factories and start making things to sell domestically. There is a depression but it lasts a year or two.

The "bailout" way will assure that the depression will happen, but it will last and last and last. Because government malinvestment will replace public/private malinvestment. Big public works and bailouts will be financed by scared investors so that money will not go into productive uses. We will still be stalled out in the FIRE economy, but nothing will be left in terms of capital surplus to invest in producers and consumers economy.

I agree with this post. I was undecided on the bailout issue but with more and more research I am leaning against it, especially as I see it as a neverending black hole of federal money and currency debasement.

While I know little of it I am surprised that EJ claimed the govn't did "nothing" during the depression, when their interference is cited by many as a cause (various wage controls, etc) of its duration and depth. Didn't govn't interference cause the crash in the first place?

I have a lot of questions that experts we rely on like EJ are strangely vague on lately. We get broad terms like "meltdown" but so far I have read nothing saying what unemployment will be, how far GDP will fall, etc. I suspect that this is so because they just don't know exactly what will happen. And one thing I've noticed about economists and financial pundits. You don't hear them say "I just don't know" very often! Is there intellectual hubris, or ego at work here?

Economies are very complex, and certainly more so today than in 1929. I would have a lot more faith in EJ's pro-bailout conclusion if he were to give more specifics on what will happen after the bailout and how it will solve the problem, rather than just put off judgement day.

Meanwhile, I have questions galore. I'm open to changing my mind. But it will take more "meat" than I've seen so far from pro-bailout people.

I note that nobody (other than perhaps Ron Paul) has suggested massive cuts in govn't spending to pay for the bailout costs. That tells me a LOT about the mindset of its proponents. Because if we don't cut spending and future promises (medicare, social security etc) then what's the point? We're cooked anyway. We're just passing it off to our children.

Perhaps the braver action would be to absorb the depression now while we can still recover. What happens in 25 years when we start even further in debt and with a worthless currency?

CDS, auto loans, credit cards, won't they all need bailouts also? What "assets" can the government recover from unsecured loans like on credit cards? Will they hire 10,000 lawyers to track down millions of $5,000 balances? CDS are so huge I can't even comprehend the problem. Will it swamp the boat even if we recover from the mortgage debacle?

Meanwhile, I am hearing more and more reports of credit not being as tight as reported, or rather being tight FOR GOOD REASON! That reason being that people and businesses being denied loans CANNOT PAY IT BACK reliably. I am hearing numerous anecdotal reports of credit for good risks being adequate. Wasn't this the whole problem? Lending to marginal credit risks as business as usual?

I'm also curious about why interest rates are considered "too high" on short term business loans if the market is setting them? How free market is that attitude? If it costs more to borrow, I guess they'll have to cut costs elsewhere, gain efficiencies, raise prices, or fail. That's the price we pay for a society based on debt. We'll have to take our lumps. Isn't trying to force continuation of low interest rates using govn't power much of what got us into this mess in the first place?

Did we really think we were that prosperous? Going from 1400ft modest homes to 2500 ft much more opulent homes in a generation? A generation that saw real wages stagnant? How is perpetuating a debt based economy going to "solve" the problem?

And if money is so tight how come I can still get a below 6.5% no-cost refi? Shouldn't those rates be rising if the suppy/demand equation for money is changing? I just borrowed $10,000 at 0% for 9 months 3 days ago on a credit card. That money will sit in a CD and make me a little spread. If they have such little money to lend why aren't they lending it at 15% rather than 0%? Maybe they'd rather lend it to me than to those who won't pay it back? And why do a teaser rate to me if they think they won't be able to continue lending me the money when the rate jumps later?

Foreigners are sitting on Trillions of US dollars. How come they would not lend us money to continue operating businesses if these are good credit risks? My wife's company lends every day now to good businesses. They are booming and have plenty of cash to lend (via a SWF). But I can give you one GREAT reason they would refuse to lend to us. That would be if our currency dropped in value so fast they lost real value! And what could cause that quicker than printing money to buy marginal bank assets?

As for the oft-cited businesses lacking ability to borrow to make payroll. Can someone explain why, in an era where you can invest at 2% after taxes and have to pay 10% on short term loans, businesses wouldn't just retain more earnings in reserve so they wouldn't have to go to the bank every time they need to buy some paperclips? Isn't this just poor business practice? I have a very small business and I can buy major equipment without loans. Why can't they make payroll?

I think it may be time for the overly convoluted FIRE economy to have a stake driven through it.

We'll see quite hard times. But why rob retirees and savers to transfer their wealth to fools who never saved and companies who were foolish and based their business models on neverending cheap credit? (GM, Ford, Circuit City, Best Buy, any hot tub store, etc) How does continuing that trend solve anything? It just postpones the crash and then makes the crash that much worse as now our currency is worth less and those previously able to weather a storm on savings no longer can.

It sounds a lot like we're wanting a "do over" , with the money for it stolen from savers and good investors. Kind of like starting a game of monopoly and doling out equal amounts of cash to all.

Might at some point the $1 Trillion (for starters) be better spent as a safety net for the unemployed for a couple of years till we recover? (not that I'm suggesting we do this) A quicker recovery might help us pay it back faster.

And if home prices are allowed to continue to fall, wouldn't that make housing more 'affordable", which was what was touted as the whole reason behind the lowered underwriting standards in the first place?

Can we not sell our cars to foreigners instead of borrowing money to buy them domestically? If there is indeed excess capacity in the world, should we really prop them up for decades more?

I have a lot of questions. But if only one gets answered, that would be..."how is a bailout not crony capitalism, EJ?"

PS. Any disclosures to make on how your firm's businesses would be impacted by a financial meltdown?

My disclosure. My bet is on the bailout deal going through, gold falling and oil rising somewhat in the short term, then back to the long term trends specified by the itulip thesis.

I'd love to be convinced that the bailout will be great and allow me to live normally for many more years.