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'Bubbles' Greenspan: wrong, wrong, wrong ... but unrepentant

by Jerome a Paris Mon Mar 17th, 2008 at 06:23:34 AM EST

Alan "Bubbles" Greespan has one of the most disgusting articles I have read on the financial crisis in today's Financial Times: We will never have a perfect model of risk, where he brazenly claims that the now obvious crisis could not have been predicted - indeed that such crises can never be predicted, and thus that not only his policies (the very ones that led us to this unfolding disaster) were correct, but that more of the same is needed now.

It's time to move beyond the old adage "if you keep doing the same thing and expecting different results, you're either insane or an economist" to note the hard, painful truth: they're not expecting different results, they're getting exactly the results they wanted: massive wealth and power increases at the top, at the expense of everybody else.

His article is the most explicit ever call for that age old principle: privatise the profits, socialise the losses. Why is that man still listened to? Oh yes: because the only public that matters are those on the privatised end of that sentence.

Update: full list of earlier Bubbles Greenspan stories


After describing the bubble in US real estate, and how it is crashing (after spending years denying that there could be a bubble), Greenspan notes:

Those of us who look to the self-interest of lending institutions to protect shareholder equity have to be in a state of shocked disbelief.

Shocked disbelief? From the man who encouraged borrowers to switch to ARMs (adjustable rate mortgages) in 2006, at the very time fixed rate mortagages were at record low interest rates? Who praised the extraordinary inventiveness and depth of the financial markets, which allowed to spread risk around to those that "most wanted or were able to bear it"? Who bragged about the increased productivity numbers made possible by the inflated revenue numbers of financial institutions, themselves propped up by the oceans of liquidity made available to them by one Alan Greenspan? And, most importantly, never lost an opportunity to come to the rescue of financial institutions or markets in trouble, so much so that the "Greenspan put" (ie the notion that the Fed would bail out banks in trouble, so why bother limit one's risk-taking) became part of Wall Street folklore?

I hope that one of the casualties will not be reliance on counterparty surveillance, and more generally financial self-regulation, as the fundamental balance mechanism for global finance.

On the day where the Fed provides an open-ended guarantee to JPMorgan to cover liabilities arising from its purchase of Bear Stearns, this is quite a grand claim to be making... Even if Bear Stearns's shareholders appear to be wiped out, its creditors in the financial world - ie other banks, asset managers and the like, must be quite relieved today...

Necessary as the bailout may be, to avoid a wider collapse, it is also a quite stark, uncontestable proof that self-regulation is useless when things turn sour, and that only the Fed and public money can save the day amidst market panic. Which should bring to the fore the question about how much that costs and how the financial sector can be allowed to enjoy massive gains in earlier periods if they don't have to bear the corresponding losses.

As Greenspan notes, the cause of the crisis is that bank models were imperfect, being unable to incorporate the irrationality of man; and that, in fact, such irrationality is inevitable, and will always lead to booms and busts, which will always be unexpected and unpredictable.

While this is indeed a correct description of how markets tend to behave, his conclusion beggars belief:

Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition.

ie, given that crises will always happen, and are a fact of life, we should do absolutely nothing (like, horror of horrors, regulation), to try to prevent them or limit their impact...

In other words: government should always bail out the financial system because it is prone to crashes, but should absolutely not try to touch or limit its profits while things go well.

This is as blatant and explicit as you can get: keep the profits private, but make the losses public. Let the happy few get rich, and make the dumb masses pay - it's for their own good.

This is not incompetence - this is unrepentant, brazen praise of looting, and a call for more.

Display:
Strong words, but deserved criticism for Greenspan.

The battle to ensure that deregulation carries it's proper share of the blame for the current crisis is incredibly important.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Mar 17th, 2008 at 06:50:27 AM EST
Here's a draft:


Dear Sir,

It's oddly fitting that Alan Greenspan should argue in favor of continued self-regulation of the financial sector ("We will never have a perfect model of risk", 17 March) on the very day that it demonstrates its absolute failure as the only solution to avoid complete market panic and failure is public intervention, in the form of Fed guarantees over Bear Stearns liabilities.

After denying for years that there was any asset bubble, Alan Greenspan now describes it in excruciating detail, and concludes that it was inevitable, because it is the very nature of financial markets to be occasionally irrational, and to engage in booms and busts. While such a (correct) assessment would seem to scream for much stricter regulation on how the financial world can be allowed to play with other people's money, to limit such cycles, his insistence that, instead, nothing should be done to limit this is an extraordinarily explicit call to privatise profits (during the boom) and socialise losses (in the aftermath) and, as such, should be treated with all the respect that political extremists deserve, ie none.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Mar 17th, 2008 at 06:55:53 AM EST
I find myself so fuming that I find it hard to provide a level-headed opinion. But it seems to capture what must be said quite concisely, except that I have a problem with that sentence:

"it demonstrates its absolute failure as the only solution to avoid complete market panic and failure is public intervention, in the form of Fed guarantees over Bear Stearns liabilities."

Do you mean failure leads to public intervention? Should we insert a comma, or is it a typo?

Anyway, I find myself in an uneasy situation these days: I am a consultant, and the very person who bought my services for 4 months seems to like to talk quite a lot (not a problem), but also reckons that Greenspan "has always been brilliant", and that he's being extremely unfairly criticised now from things he can't help because he's no longer in charge...

I am unable to lie, but I find that I very quickly exhaust my limited repertoire of "really?", "interesting", or "mmm".

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon Mar 17th, 2008 at 07:08:50 AM EST
[ Parent ]
I mean that self-regulation is failing to solve the current crisis and thus that public intervention is needed after all.

Happy to get clearer, improved wording suggestions!

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Mar 17th, 2008 at 08:12:08 AM EST
[ Parent ]
OK, I thought that's what you meant.

But there was the impression that public intervention=failure, which of course is the case in libertarianworld. Here in realworld, it may not be so. So, what about, "failure that leads to public intervention after all".

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon Mar 17th, 2008 at 08:17:22 AM EST
[ Parent ]
I wish you could add a P.S. that includes links to all your predictions that came true and say "you can't say something 'could not have been predicted' that WAS predicted."  

It's similar to the situation one finds oneself in when asking "since a person like ME could assess Bush's war claims and analyze his statements and positions and the other available evidence to conclude that he was A LIAR, why couldn't those people in the Congress figure that out, too?"  "Who could have known he would lie to us?" they ask, and millions of us answer "Us, you d***wads!"

So now they say "No-one could have predicted this," and we answer "Well, actually, just for starters, there's Jerome in Paris," so I hope those words turn into tomatoes and go flying back at you, Greenspan.

Karen in Austin

'tis strange I should be old and neither wise nor valiant. From "The Maid's Tragedy" by Beaumont & Fletcher

by Wife of Bath (kareninaustin at g mail dot com) on Mon Mar 17th, 2008 at 11:25:41 AM EST
[ Parent ]
How about:

" . . . on the very day that self-regulation not only demonstrates its helplessness in the face of mounting market panic but also the need for public intervention, in the form of . . . "

I hope this doesn't come too late to be helpful.

by keikekaze on Mon Mar 17th, 2008 at 10:35:48 PM EST
[ Parent ]
The clearest and shortest formulation is probably;

" . . . on the very day that self-regulation demonstrates its helplessness in the face of mounting market panic, and therefore the need for public intervention, in the form of . . . "

by keikekaze on Mon Mar 17th, 2008 at 10:43:36 PM EST
[ Parent ]
Jerome a Paris:
on the very day that it demonstrates its absolute failure as the only solution to avoid complete market panic and failure is public intervention, in the form of Fed guarantees over Bear Stearns liabilities.
How about
on the very day that self-regulation demonstrates its absolute failure, and the only solution to avoid complete market panic and collapse is seen to be public intervention, in the form of Fed guarantees over Bear Stearns liabilities.


It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 08:23:36 AM EST
[ Parent ]
public intervention, in the form

remove the comma:

public intervention in the form

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris

by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 08:28:00 AM EST
[ Parent ]
Yes, very nice. Much better than mine.

I was mentally inserting the comma in the wrong place, right after market panic, which sort of changed the meaning.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon Mar 17th, 2008 at 08:29:57 AM EST
[ Parent ]
How about,

Sir,

We have three words for Mr Greenspan: What. The. Fuck?

Sincerely,

Everybody



Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 17th, 2008 at 07:27:06 AM EST
[ Parent ]
LOL LOL LOL

You should send it.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris

by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 07:52:35 AM EST
[ Parent ]
Heh, I'm not sure the Very Serious Financial Times would appreciate it.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 17th, 2008 at 07:54:46 AM EST
[ Parent ]
Send it anyway! It's the perfect answer to Greenspan's incoherent witterings.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 17th, 2008 at 08:03:39 AM EST
[ Parent ]
Maybe with one of those "I can has cheezburger" cat pictures, too?  We could make a whole op-ed out of it.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 17th, 2008 at 08:40:05 AM EST
[ Parent ]
[Photo of bear]

I can has $2/share and extra fishy plz?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 17th, 2008 at 09:28:07 AM EST
[ Parent ]
Humorous Pictures
see more crazy cat pics

You're clearly a dangerous pinko commie pragmatist.
by Vagulus on Mon Mar 17th, 2008 at 01:34:30 PM EST
[ Parent ]
Plus, we don't want to confuse him.  He's not aging well.  His mind is going fuzzy, and he's starting to look like Andrea Mitchell.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 17th, 2008 at 08:41:55 AM EST
[ Parent ]
Alright, I sent it, so I expect we'll see it tomorrow morning if they don't just put it straight up on the front page.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 17th, 2008 at 08:46:55 AM EST
[ Parent ]
The repeal of Glass-Steagall, initiated in 1980 and completed in 1999 has given us  the savings and loans crisis and the subprime crisis, both with a lag of about 8 years. Regulation works. It worked for 50 years. But, as John K. Galbraith said in the foreword of the 1975 edition of his 1954 classic The Great Crash 1929,
In the wake of the 1929 crash, and with a view to preventing another runaway boom and the associated abuse, the Congress passed some tolerably astringent legislation including the Securities Exchange Act of 1934. It was not, at the time, especially necessary. Markets and financial adventure were then and for a long while after restrained not by the S.E.C. but by the memory of what happened to so many in 1929.

By the sixties this memory had dimmed. Almost everything described in this book had reappeared, sometimes in only a slightly different guise. Instead of the investment trusts there were now the mutual funds. Matching Blue Ridge and Shenandoah in general scope and financial peril were the International Investment Trust and the Fund of Funds. Matching and possibly surpassing the vaulting imagination of Harrison Williams and Waddill Catchings, of Central States Electric and Goldman, Sachs was that of Edward Cowett and Bernard Cornfield, the miracle men of I.O.S. The admiration for skill in deployment of corporate capital that was once lavished on Samuel Insull and Howard Hopson settled now on the men who were parlaying smaller firms into big conglomerates. There were glamour stocks in both periods; in both periods glamour was a substitute for substance. Scholars and politicians lent their names and blessings to the new promotions as had their counterparts forty years before. In the sixties as in the twenties men intended by nature for mentally undemanding toil became rich for a while. It was only that the market was going up. Some things in 1970 were worse. Wall Street houses were markedly more incompetent in their management than in the twenties and expanded much more recklessly. The consequences when the collapse came were far more troublesome than in 1929.

...

Yet the lesson is evident. The story of the boom and crash of 1929 is worth telling for its own sake. Great drama joined in those months with luminous insanity. But there is a more sobre purpose. As a protection against financial illusion or insanity, memory is far better than law. When the memory of the 1929 disaster failed, law and regulation no longer sufficed. For protecting people from the cupidity or others and their own, history is highly utilitarian. It sustains memory and memory serves the same purpose as the S.E.C. and, on the record, is far more effective.

It's been another 40 years...

As for Greenspan's

We will never be able to anticipate all discontinuities in financial markets. Discontinuities are, of necessity, a surprise. Anticipated events are arbitraged away. But if, as I strongly suspect, periods of euphoria are very difficult to suppress as they build, they will not collapse until the speculative fever breaks on its own. Paradoxically, to the extent risk management succeeds in identifying such episodes, it can prolong and enlarge the period of euphoria. But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response.
all I have to say is that just because something is unpredictable doesn't mean it is unexpected.

Actually, maybe his specific claims about risk modelling merit a separate deconstruction diary.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris

by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 07:51:22 AM EST
[ Parent ]
This is precisely why it is not just the GOP, but the entire ruling class in the US, Democrat, Republican, that will have to go.

Bernanke's actions last night show that these fuckers will not give up without a fight, and that they fully intend to hold on the the stones of flesh they have stolen over the past 2+ decades. It's going to take a lot more than simple policy discussions nibbling around the Anglo-American neo-liberal consensus, which is about all the Democrats are capable of, to provide the solutions for what is about the fuck the entire American middle class.

The only silver lining? That very same class has been actively participating in the fucking of the working class and poor in this country for decades now, so in a way, this is a delicious come-uppance.

by redstar on Mon Mar 17th, 2008 at 10:20:09 AM EST
[ Parent ]
about the fuck

to

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris

by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 10:22:51 AM EST
[ Parent ]
I like that new quote.

Of course, having to fight that battle is nothing new. I've had a diary on Georges Marchais bouncing around in my head for the past couple of weeks (one of the famous people I've met in my life) on that very subject...

by redstar on Mon Mar 17th, 2008 at 11:00:16 AM EST
[ Parent ]
with Mig's input and several sentences cut into shorter ones:


Dear Sir,

It's oddly fitting that Alan Greenspan should argue in favor of continued self-regulation of the financial sector ("We will never have a perfect model of risk", 17 March) on the very day that self-regulation demonstrates its absolute failure and the only solution to avoid complete market panic and collapse is seen to be public intervention, in the form of massive Fed guarantees over Bear Stearns liabilities.

After denying for years that there was any asset bubble, Alan Greenspan now describes it in excruciating detail, and concludes that it was inevitable, because it is the very nature of financial markets to be occasionally irrational, and to engage in booms and busts. Such a (correct) assessment would seem to be a call for much stricter regulation of how the financial world can be allowed to play with other people's money to limit such cycles. Instead, his insistence that nothing of the kind should be done is an extraordinarily explicit call to privatise financial profits (during the boom) and socialise losses (in the aftermath). As such, it should be treated with all the respect that political extremists deserve, ie none.

Send any comments quickly as I intend to send this out soon.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Mar 17th, 2008 at 11:20:46 AM EST
[ Parent ]
"As such, it should be treated with all the respect that political extremists deserve, ie none."

replace that with

"As such, it should be treated with all the respect that political extremis_M_ deserve, ie none."

Or I dunno.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Mar 17th, 2008 at 11:31:18 AM EST
[ Parent ]
amended as proposed and sent.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Mar 17th, 2008 at 11:52:40 AM EST
[ Parent ]
addd something along the lines of "why should we even begin to take advice from a man who admits he cannot see the inevitable".

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Mar 17th, 2008 at 11:36:00 AM EST
[ Parent ]
Right on Jerome!

But if you should need a little analysis that is a a great deal more accurate (and funny) you should read the post in Exile (http://www.exile.ru/) by my new favorite blogger: Vlad Kalashnikov.  He is, I would guess, a 28ish Russian who watched the financial collapse in 1998.  He is VERY angry.  His 3.15.08 post was about the Bear Stearns collapse.

http://www.exile.ru/blog/detail.php?BLOG_ID=17818&AUTHOR_ID=


"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Mon Mar 17th, 2008 at 07:06:39 AM EST
Geeze--I mean that Vlad is much more interesting etc. that Greenspan.

Jerome is still MUCH more accurate than Greenspan OR Vlad.

Man.  I should not be writing so early in the day.

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Mon Mar 17th, 2008 at 07:39:51 AM EST
[ Parent ]
Mr Kalashnikov is probably another nom de plume of Mark Ames.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Mar 17th, 2008 at 08:24:47 AM EST
[ Parent ]
Isn't there some law or ther in the US preventing criminals from profiting by writing books about their crimes?

FT.com: We will never have a perfect model of risk

The writer is former chairman of the US Federal Reserve and author of `The Age of Turbulence: Adventures in a New World'


It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 07:57:06 AM EST
I realise most of you have read this, but for those who don't update Krugman's blog five times a day:


Greenspan lectures us again

I once said of Alan Greenspan:
He's like a man who suggests leaving the barn door ajar, and then - after the horse is gone - delivers a lecture on the importance of keeping your animals properly locked up.

He's still doing it.

He begins:
"The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

Home price stabilisation will restore much-needed clarity to the marketplace because losses will be realised rather than prospective. The major source of contagion will be removed. Financial institutions will then recapitalise or go out of business. Trust in the solvency of remaining counterparties will be gradually restored and issuance of loans and securities will slowly return to normal."

What Keynes said:

"In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."

Oh, and the man who failed to see the housing bubble and refused to do anything about subprime -- and has yet to admit to making any mistakes -- ends by reaffirming his laissez-faire faith:

"It is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition."

Grrr.



Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Mon Mar 17th, 2008 at 08:27:15 AM EST
Greenspan: our most reliable and effective safeguards against cumulative economic failure [are] market flexibility and open competition

Image credit: xkcd

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris

by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 08:32:32 AM EST
[ Parent ]
I love that one

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Mon Mar 17th, 2008 at 08:52:23 AM EST
[ Parent ]
http://www.dailykos.com/storyonly/2008/3/17/82813/0681/645/478364

Thanks for your support.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Mar 17th, 2008 at 08:35:14 AM EST
except...


Sterling was the only leading currency not to rise against the dollar as investors feared problems in the UK's own financial sector. The pound edged 0.1 per cent lower to $2.0159.

Worse than the dollar...
Worse than Wall Street...

I think I'll stick to "Anglo Disease" as a name.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Mar 17th, 2008 at 08:56:41 AM EST
Yep.  I reckon it's time to put some CCTV cameras up in the LSE.

No real reason why, but you know....

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 17th, 2008 at 09:10:57 AM EST
[ Parent ]
Nobody could've predicted it.

Except about a half dozen of us dirty fucking hippies on this site, among others.

Note taken that most of us aforementioned dirty fucking hippies actually wear suits during the day and have our hair cut shorter than what little Greenspan has left.

Their corrupt to the bone. Virtually the entire ruling class in the US. More on this in an upcoming rant.

by redstar on Mon Mar 17th, 2008 at 10:15:25 AM EST
Just because it was unpredictable doesn't mean it was unexpected. But if something is not unexpected its predictable consequences cannot be said to be unintended.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 10:24:06 AM EST
[ Parent ]
It would've helped if we'd had a press corps concerned with something other than...oh, fuck it, there's too much to write down.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 17th, 2008 at 10:35:48 AM EST
[ Parent ]
"We will never have a perfect model of risk" as Greenspan says, but he does appear to have the perfect model of risk management:  I.e privatise the profits in good times, and socialise the losses in bad - as is most precisely demonstrated by the current Fed risk guarantees to Morgan Stanley for the takeover of Bear Stearns.

The FED is effectively underwriting the profligacy of the rich with the Dollars of the poor - the taxpayers who didn't benefit from the "tax cuts for the rich" mantra of Fed policy since Reagan, and most pronounced under Greenspan.  

The one thing that IS entirely predictable is that periods of "irrational exuberance" will occur if the major players know that the benefits are all private, and the risks will be borne by the public.

Way to go Greenspan, by dismantling the regulatory safeguards for the public you have succeeded in transferring the costs of speculation to those who had to pay inflated prices for their houses in the first place.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Mar 17th, 2008 at 10:58:59 AM EST
The one thing that IS entirely predictable is that periods of "irrational exuberance" will occur if the major players know that the benefits are all private, and the risks will be borne by the public.

When the wealthy are opposing health insurance or pension benefits for peasants, they call this "moral hazard" -- i.e. a potential for recklessness borne of knowing that your losses are insured.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Tue Mar 18th, 2008 at 12:30:03 AM EST
[ Parent ]
but not to worry DeAnander, the Democrats are on the job in America, doing what they do best, standing up to the vested interests engaging in financial rape:

WASHINGTON (Reuters) - The chairman of the U.S. congressional Joint Economic Committee on Monday endorsed the actions of the Federal Reserve to broker JPMorgan Chase's purchase of Bear Stearns to fend off what he said was "the closest thing to a bank panic since the Great Depression."

"The Fed's move was smart, timely and threads the needle just the right way. There is no moral hazard argument here against this action," Sen. Charles Schumer, a New York Democrat, said in a statement. "This was a totally necessary move to prevent these serious problems from spreading, and to avert a possible meltdown of the financial system."

Moral hazard is the concept that investors might take greater risks on the belief that government policy will protect them from suffering losses.

Schumer said he spoke Monday morning to Federal Reserve Chairman Ben Bernanke and JPMorgan Chase Chairman and Chief Executive Jamie Dimon and urged them to come up with a solution that would allow the parts of Bear that are redundant with JPMorgan to be sold to a financial institution without those redundancy issues, "so as to mitigate job losses in New York."

Schumer also sits on the Senate Banking Committee, which has jurisdiction over issues involving the financial services sector. He said regulation of investment banks is something that needs to be considered.

"Our financial markets have evolved so that we now have three types of entities: We have banks and they are pretty well regulated. We have investment banks, which were not regulated very much; and now we have hedge funds," the lawmaker said in a separate interview on CNBC.

The U.S. Securities and Exchange Commission monitors five of the major U.S. investment banks, including Bear Stearns. The agency's supervisory program allows it to respond quickly to any financial and operational weakness in firms.

"Investment banks are getting to the point where there are such inter-relationships with regular banks and they are so large that obviously they are getting into a too-big-to-fail situation and that probably means there ought to be a greater degree of regulation, and that's something that down the road, that Congress will look at," Schumer said.

Later on a call with reporters, Schumer said it was hard to believe that major complicated credit instruments that affect the health of the financial system are opaque and unregulated.

It's heartening to see that at the very least, one of a handful of leading opposition voices on finance and tax policy, Charles Schumer, is on the job and protecting the interests of his constituents.

On Wall Street.  

by redstar on Tue Mar 18th, 2008 at 08:50:06 AM EST
[ Parent ]
posting it there.

Great diary. Depressing reaction over there.

The good news - my house in on the market officially now. Man am I sore from all the painting, re-wiring and staging I have had to do...

Word to the wise out there in the US - if you are thinking of buying a home, now is the time. A year from now, perhaps earlier, those interest rates you see today? It'll be decades before you see them again. If you think you can get financing (tougher today, but not impossible if you've good credit and income) and you know you're going to be staying put in your area for a minimum of seven years, do it NOW.

Because if you think that home you want to buy will be worth 30% less a year from now than it does now, all you have to do is run that mortgage payment on the 30% discounted house with a 12% interest rate to see you still will be paying significantly more.

And those interest rates will be going there. There are limits to how much a central bank can print money. Even the US fed.

by redstar on Mon Mar 17th, 2008 at 12:20:25 PM EST
The two go hand-in-hand.  As the rates rise, it'll push the prices down more.  We're going to be looking at 50% drops in my area.

Fortunately, I have no intention of staying here any longer than I have to, and the only areas I'd like to buy in here are beyond the means of all but the highest-ranking government employees (with two incomes).  Living in the DC area has certainly given me an appreciation for the purchasing power of the other cities I've lived in and spent time in.  Christ, my apartment in Tallahassee was twice as nice (and better built), twice the size, and went for half the rent of what I've got now.  Buying a house there would cost me about one-third of what it would cost here.  Ditto ATL, except that the houses would cost about half what they cost here.  Even South Florida looks dirt-cheap now.

Honestly, I'd rather rent than fork over $300k for some dumpy condo in a God-awful neighborhood.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 17th, 2008 at 12:38:11 PM EST
[ Parent ]
Indeed they do go hand in hand.

People don't get this enough. A home owned is like a long bond owned. The price is simply an expression of the yield, with the yield being notated, primarily, by the 30-year fixed rates.

A lot of people are going to be thinking a lot differently of their financial situation two years from now.

And if you are not going to be able to sit tight for the next 7 years at least, and possible more, there's no reason to buy.

But if you must buy, please consider buying my home. It really is a nice home.

by redstar on Mon Mar 17th, 2008 at 12:44:24 PM EST
[ Parent ]
if i may ask?

There were quite a few comments critical of Clinton's participation in the deregulatory process that led us here.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Mar 17th, 2008 at 12:47:17 PM EST
[ Parent ]
I guess you're a glass one-quarter full person, and I'm a glass three-quarters empty person.

Those who made the comments were often roundly criticized, the thread didn't hesitate to start in on another round of political correctness fever based on a few throwaway (and well deserved) insults of Greenspan and his stenographer wife, and I couldn't help but note the comment thread on bonddad's quite mistaken and retrograde ditty on the same subject.

Not to mention, go look up what Schumer has to say about this - leading Democrats haven't been silent, they've been supportive of Bernanke's complicity in grand larceny. And note the absence of any running commentary on the part of front pagers there, not that any of them would be credible.

I am depressed, and angry too.

Wish me luck on the sale of my house before the sit hits the fans. And...I think we need a new series - $2.00 Euro.

by redstar on Mon Mar 17th, 2008 at 12:54:06 PM EST
[ Parent ]
redstar:
And...I think we need a new series - $2.00 Euro.

Series?  That would be a one-off, I think....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Mar 17th, 2008 at 01:50:20 PM EST
[ Parent ]
Naw, it's going to take more than a couple of weeks. Maybe six months?

As soon as the President McCain is sworn in, Helicopter Ben will be given a golden parachute (personally I think he deserves a golden shower...) into a plum private sector job where he can go back to be with his family more and where he will get his own back scratched after scratching those of half of Wall Street the past year or two.

Perhaps there will be a quick interim period with a chairman who lasts less than a year, like there was between Burns and Volcker; perhaps the Federal Reserve will actually be completely re-organized as it will have been the third US Central Bank to go under. Perhaps Paul Volcker himself will come back to do the same thing hed did almost thirty years ago, which is what the situation will demand.

And if he does, then the dollar will come back. But Americans, in particular those who are not wealthy, aren't going to like what things look like in this case.

by redstar on Mon Mar 17th, 2008 at 06:24:10 PM EST
[ Parent ]
would not surprise me at all - it is indeed likely to be the best thing to do at some point in the foreseeable future.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Mar 18th, 2008 at 05:56:18 AM EST
[ Parent ]
That'd be hilarious! What a huge indictment of Greenspan. And Volcker is just 9 years older than McCain. ;)

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Mar 18th, 2008 at 08:41:04 AM EST
[ Parent ]
Those were normally an excuse to attack Hillary for Obama's benefit.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 01:46:53 PM EST
[ Parent ]
This site needs a "digg" button for stories, so that they can be submitted automatically. This would bring shitloads of traffic.

A 'centrist' is someone who's neither on the left, nor on the left.
by nicta (nico@altiva․fr) on Mon Mar 17th, 2008 at 01:29:55 PM EST
Last time we got dugg the server crashed.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 01:48:20 PM EST
[ Parent ]
When the stock market bubble was popping, and the markets were going crazy, he stood firm and wouldn't lower interest rates until several months later. Then he went to congress and backed Bush's tax cuts and told them that we were in danger of having too large a surpluss. Then he lowered interst rates month after month and kept them so low for so long a time that the housing bubble, which would of occured anyway after the 90's, become much larger than necessary. Then he approved of this ingenious financial innovation called "what in the fuck are u doing lending money to people who shouldn't be borrowing that much money in the first place". everything he has done since 2000 has been wrong or too little or too late.

He should of lowered interest rates sooner than he did in 2000 and risen them more from 2004 on. never backed those tax cuts and given stern warning to the financial markets on their reckless behavior. He is a failure whose policies will lead to the next great depression.

"Looking for my Lo and Behold" The Band

by the misunderestimated on Mon Mar 17th, 2008 at 02:59:04 PM EST
[ Parent ]
I have a few servers of my own. I can help setting up caching and stuff. What's your hosting?

A 'centrist' is someone who's neither on the left, nor on the left.
by nicta (nico@altiva․fr) on Mon Mar 17th, 2008 at 04:01:45 PM EST
[ Parent ]
You should e-mail Colman about the servers, but the issue right now is getting the actual domain transferred from Booman to Colman.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Migeru (migeru at eurotrib dot com) on Mon Mar 17th, 2008 at 04:03:23 PM EST
[ Parent ]
very cool idea, nicta...

"We can all be prosperous but we can't all be rich." Ian Welsh
by melo (melometa4(at)gmail.com) on Mon Mar 17th, 2008 at 03:46:19 PM EST
[ Parent ]
The investigative journalist strikes again, if anyone is watching.

Since the Bush regime came to power, a new species of loan became the norm, the `sub-prime' mortgage and its variants including loans with teeny "introductory" interest rates. From out of nowhere, a company called `Countrywide' became America's top mortgage lender, accounting for one in five home loans, a large chunk of these `sub-prime.'

[What] kind of American is `sub-prime.' Guess. No peeking. Here's a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren't stupid - they had no choice. They were `steered' as it's called in the mortgage sharking business.

[When] the Bush regime took over, Countrywide and its banking brethren were told to party hearty - it was OK now to steer'm, fake'm, charge'm and take'm. [But] there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.

Instead of regulating the banks that had run amok, Bush's regulators went on the warpath against Spitzer and states attempting to stop predatory practices. Making an unprecedented use of the legal power of "federal pre-emption," Bush-bots ordered the states to NOT enforce their consumer protection laws.

Indeed, the feds actually filed a lawsuit to block Spitzer's investigation of ugly racial mortgage steering...

[When] the housing bubble burst and the paint flaked off, investors were left with the poop and the bankers were left with bonuses...

[Bernanke] opened the vault and dumped $200 billion on the poor little suffering bankers. They got the public treasure - and got to keep the Grinning's house. There was no `quid' of a foreclosure moratorium for the `pro quo' of public bailout. Not one family was saved - but not one banker was left behind.

And that very same day the bail-out was decided - what a coinkydink! - the man called, `The Sheriff of Wall Street' was cuffed. Spitzer was silenced. [Headlines] in the financial press - one was "Wall Street Declares War on Spitzer" - made clear to Bush's enforcers at Justice who their number one target should be. And it wasn't Bin Laden.

It was the night of February 13 when Spitzer made the bone-headed choice to order take-out in his Washington Hotel room. He had just finished signing these words for the Washington Post about predatory loans:

"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye."

Bush, Spitzer said right in the headline, was the "Predator Lenders' Partner in Crime." The President, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet.

Spitzer wrote, "When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably."

But now, the Administration can rest assured that this love story - of Bush and his bankers - will not be told by history at all - now that the Sheriff of Wall Street has fallen on his own gun.

Not all crimes lead to federal bust or even public exposure. It's up to something called "prosecutorial discretion."

Funny thing, this `discretion.' For example, Senator David Vitter, Republican of Louisiana, paid Washington DC prostitutes to put him in diapers (ewww!), yet the Senator was not exposed by the US prosecutors busting the pimp-ring that pampered him.

Naming and shaming and ruining Spitzer - rarely done in these cases - was made at the `discretion' of Bush's Justice Department.

by das monde on Tue Mar 18th, 2008 at 01:44:57 AM EST


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