62 thoughts on “Stupidity”

  1. Ken,

    Watch and learn….

    http://www.pbs.org/wgbh/pages/frontline/warning/themes/derivatives.html

    The portion of the tape where Alan Greenspan (Ayn Rand’s econ-man) admits in a Senate hearing his economic philosophy was wrong is worth it by itself. Yes, he admits allowing markets to self-regulate, the core of Libertarian economic beliefs, was a mistake and a key cause of the crash, basically the equivalent of Lenin coming back to admit that communism was a mistake.

    Again, the 20th Century is over, time to forget those outdated simplistic economic philosophies and start viewing economics from the perspective of modern evolutionary systems theory.

  2. Ken,

    BTW, as a side note. You do know the CRA was passed in 1977? So explain how a law created over 30 years ago created the crash..

  3. (Ayn Rand’s econ-man)

    Greenspan had long left the philosophy of sound money behind. You cannot blame libertarians for the financial crisis. The responsibility lies with people like Greenspan and Friedman who thought Keynesianism could be fixed by leaving its implementation to the banks. That has now pretty much been shown to be wrong. Greenspan now realises he tried to ride the tiger.

  4. The portion of the tape where Alan Greenspan (Ayn Rand’s econ-man) admits in a Senate hearing his economic philosophy was wrong is worth it by itself. Yes, he admits allowing markets to self-regulate, the core of Libertarian economic beliefs, was a mistake and a key cause of the crash, basically the equivalent of Lenin coming back to admit that communism was a mistake.

    You may not have noticed, but Greenspan hasn’t been libertarian for some time. There are three other things to note here. First, the role of the federal government in backing the credit of the worst two offenders, Fannie Mae and Freddie Mac, and in bailing out (via highly advantageous takeovers of other failed companies) the biggest derivatives traders (the current five, JP Morgan, Goldman Sachs, Bank of America, Morgan Stanley and Citigroup, all got big pieces of the action in the TARP bailouts). And third and most important, easy credit over the critical time period in question.

    We also have to consider the role of faux regulation in causing the bubble. Organizations like the SEC or the FDIC tend to create the illusion of security (which wasn’t an illusion, I might add for the businesses that could get a piece of TARP or ARRA funds). That leads to the usual moral hazard problems (I can invest in this 50 to 1 leverage deal because Big Gov will keep really bad things from happening).

    Finally, it’s worth noting here that market crashes are a key part of self-regulation (in fact, they’re most of the regulating part). We haven’t gone through a full, self-regulated business cycle (cutting out when things got tough). It’s not ok to merely speak of self-regulated markets when things are going well. You also have to use them when things aren’t going well in order to make claims about their effectiveness.

  5. The older I get the more I get the impression that one of the reasons regulatory agencies exist is to shield various cartels against real, effective regulation by market forces.

  6. So explain how a law created over 30 years ago created the crash..

    Easily, in the last decade thugs began to march on banks that were operating fine and began to use the CRA to force them to make bad loans. Ignoring a bad law is almost as good as not passing it. Too bad they didn’t continue to ignore it.

    BTW, those bad loans are still being held as toxic derivatives because they used the tarp money for everything but getting them off the books.

  7. Ken,

    Sorry, but there is ZERO evidence to support your beliefs about the CRA causing the housing meltdown.

    http://www.bis.org/publ/work259.pdf?noframes=1

    As this report shows the major source of subprimes was in upscale suburban areas, not the areas covered by CRA regulations. And the vast majority of the subprime loans were made by institutions that were not covered by CRA. The subprime lending was driven by the mortgage derivatives, which required a constant stream of loans, and constantly increasing home prices to work. As with all pyramid schemes collapse was inevitable once the inflow of funds decreased.

    Really the idea CRA caused the meltdown is really nothing more an urban myth, spread by the same folks who brought us deregulation of the financial institutions to avoid taking responsibility for their actions.

  8. Karl Hollowell,

    [[[You may not have noticed, but Greenspan hasn’t been libertarian for some time.]]]

    That is alright. I suspect if Ayn Rand was alive she would not be considered one as well, which would suit her well since she didn’t care much for libertarians.

    http://www.aynrand.org/site/PageServer?pagename=education_campus_libertarians

    [[[Q: What do you think of the Libertarian movement? [FHF: “The Moratorium on Brains,” 1971]

    AR: All kinds of people today call themselves “libertarians,” especially something calling itself the New Right, which consists of hippies, except that they’re anarchists instead of collectivists. But of course, anarchists are collectivists. Capitalism is the one system that requires absolute objective law, yet they want to combine capitalism and anarchism. That is worse than anything the New Left has proposed. It’s a mockery of philosophy and ideology. They sling slogans and try to ride on two bandwagons. They want to be hippies, but don’t want to preach collectivism, because those jobs are already taken. But anarchism is a logical outgrowth of the anti-intellectual side of collectivism. I could deal with a Marxist with a greater chance of reaching some kind of understanding, and with much greater respect. The anarchist is the scum of the intellectual world of the left, which has given them up. So the right picks up another leftist discard. That’s the Libertarian movement. ]]]

    Her views get even better further on 🙂 I love how she would rather vote for the Marx Brothers then libertarians because they were less funny…

  9. Perhaps when the He supply falls enough that the government has to run the price up or else is entirely out of it, it will be priced out of the range of children’s balloons and have a cost per pound more in line with the costs of extracting and holding it and the infrastructure required to do so. If there were a business case for doing so now, it would be done. Apparently there is none.

    The humorous part of it all is that He is the second most common element in the universe. Once we get off planet it’s worth about us much as salt water in the middle of the Pacific.

  10. Dale Amon,

    [[[The humorous part of it all is that He is the second most common element in the universe. Once we get off planet it’s worth about us much as salt water in the middle of the Pacific.]]]

    Yep, yet to the Tibetans, far from the ocean, it was so valuable they used it as currency.

    http://www.foodreference.com/html/artsalt.html

  11. Thomas Matula said,

    “this report shows the major source of subprimes was in upscale suburban areas, not the areas covered by CRA regulations.”

    That’s good Thomas but your only looking at one slice of the pie if you all you do is focus on the loan originators. Where the problems really seemed to have occurred was in the relaxation of the underwriting standards as they applied to the mortgage backed securities. Gov’t sponsored enterprises like Fannie Mae, Freddie Mac, and Ginnie Mae significantly advanced the development of the secondary mortgage market by creating the mechanisms for securitizing pools of mortgages and reselling them to investors (Subprime primer). These lax underwriting standards trickled out to the originators who continually increased the number of low document or no document loans. After all, what was to stop them if these high risk loans, even by subprime standards, continued to be underwritten by the investment banks. Of course, the senior enterprises that created the MBS process are also the ones that stacked the deck so that they got paid first from the trusts; go figure.

  12. Josh Reiter,

    [[[That’s good Thomas but your only looking at one slice of the pie if you all you do is focus on the loan originators. Where the problems really seemed to have occurred was in the relaxation of the underwriting standards as they applied to the mortgage backed securities.]]]

    Yes, a part of an overall focus on deregulation in favor of market self-regulation. While at the same time the profits being made on derivatives provided a demand for mortgage backed securities which leads back to the Frontline program I linked to above.

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