Expert Родной язык: English Сообщений: 1807 На форумах с: February 1, 2008 Местонахождение: United States
RE: Understanding the Financial Crisis
My view: it indeed was government that caused this bubble, because the more I read about it, the more I realize that it was GREENSPAN who caused the bubble, or I should say, let it get out of control. And pardon me, but Greenspan was, as the Federal Reserve Chairman, a government official, he was not in the private sector. So government was very much the source of the bubble. The government regulates and sets interest rates, and they set the main rates far too low from 2001-2007. Of course, people all over the world reacted to the ability to make more money with "greed", but what allowed that greed to be there and do such damage ?
I don't want to exonerate Wall Street, the mortgage industry, etc., because they were co-responsible. But the main issue here is that interest rates were too low for too long, and government went along with it because it was in their interest to do so.
For instance, I heard a radio program on NPR by two very smart economists who worked directly below let's say the level of the president/Federal Reserve. They both said that they warned the government and the Fed that a bubble was going to burst, but were told that no one wanted to hear it. Both the Clinton administration and then the Bush administration allowed the bubble to expand and then either did not have the courage to burst it, or they just used it politically. Who is going to vote you out, when their 401k is skyrocketing and their house rises by 10 % in value every year ??
[Отредактировано John Bunch, January 23, 2009 9:17 PM]
Родной язык: Polish На форумах с: February 18, 2003 Местонахождение: Poland
RE: Understanding the Financial Crisis
Originally written by John Bunch on January 24, 2009 3:10 AM
but what allowed that greed to be there and do such damage ?
Individuals' personal irresponsibility.
As much as I am aware of macroprocesses, I always hold individuals, not the government, accountable for their deeds. Jérôme Kerviel may be a scapegoat (Post #167636) but for me it is ultimately he and not SG who bears responsibility for his acts. The fallacy of the government being responsible for the fact that people served totalitarian regimes, for example, ("most people belonged to the party for material gains" says a recent post) is just that: a fallacy.
Expert Родной язык: English Сообщений: 1807 На форумах с: February 1, 2008 Местонахождение: United States
RE: Understanding the Financial Crisis
Meanwhile, as reported this week, Obama's own government forecasters now state that the very earliest any stimulous package could have an affect on the economy would be in the year 2012 (and by that time, we might be in a boom !). The notion that the stimulous will help the economy this year is sheer fantasy.
The GOP has suggested immediate tax cuts for corporations and individuals, and a tax holiday for business, which would have an effect, um,... tomorrow.
Expert Родной язык: English Сообщений: 1807 На форумах с: February 1, 2008 Местонахождение: United States
RE: Understanding the Financial Crisis
I hate to rebut my own post, but I found this today, on the Weekly Standard (a conservative site). It basically rebuts what I just posted above, and in the interests of fairness, I post it here:
More to It Than Meets the Eye
The hidden coherence of Obama's recovery plan.
by Irwin M. Stelzer
02/02/2009, Volume 014, Issue 19
It grieves me to say so, but President Obama's conservative critics just don't get it. The new president has put forward a plan for economic recovery that is more coherent than they are willing to admit. Start with the stimulus package of some $825 billion. A lot of money, more even than George W. Bush's $700 billion Troubled Asset Relief Program, but not much more as money is counted these days, especially as Obama's will be spent over two or three years. Critics complain that stimulus spending will add to the swollen federal debt. True: President Bush did leave his successor a $1.2 trillion annual deficit. To which Obama will add about $400 billion per year. Query: What empirical evidence is there that deficits of $1.6 trillion are more harmful during a period of economic recession than deficits of $1.2 trillion?
True, too, such deficits might in the long run make foreigners worry about holding onto dollars and Treasury IOUs, which would trigger a bout of sales of Treasury bills and notes, and drive interest rates up to recovery-squashing levels. But so far, so good, as the man who jumped from the Empire State Building shouted at the 50th floor. The dollar has not sold off for two simple reasons. First, where is a seeker-after-safety in this troubled world likely to find a safer haven than the U.S. currency? Second, China and other holders of trillions in our dollars and dollar-denominated assets are not eager to start dumping their holdings on the market, a move that would drive down the value of their remaining dollar assets.
Conservatives have also jumped on the report by the Congressional Budget Office that about half of the planned $355 billion in infrastructure spending will not occur until after the 2011 fiscal year starts on October 1, 2010. True. But if--and this is a big if--the projects to be funded have a net social value, that is, are likely to yield net returns to society for decades to come, they should be built whether part of a stimulus package or not. The objection should not be to the construction of the projects, but to the assumption that they cannot be built by the private sector, given proper incentives. Toll roads, schools financed with vouchers, health care facilities selected by patients and paid for with health care vouchers--all are possible, but all are off the Obama radar screen.
Democrats are, in the end, Democrats after all, and unlikely to be swayed by such as Harvard economics professor Robert Barro, who pointed out in last week's Wall Street Journal that it might be better to "emphasize instead reductions in marginal income tax rates." But the need for the projects themselves is in no way diminished if they get built next year, or the year after that, so long as they "pass muster from the perspective of cost-benefit analysis," to use Barro's--and Larry Summers's--test. Whether the Harvard crowd will be able to persuade Nancy Pelosi, Barney Frank, Charlie Rangel and other key Democrats that they have it right is another matter.
In fact, there is something to be said for the postponement of the expenditures. The Great Depression was characterized by a modest recovery, followed by a relapse when monetary and fiscal policy were tightened, a so-called "W" pattern. The postponement of some of the stimulus spending into the out years, coming at a time when the economy is healing but still vulnerable to a relapse, might, just might, turn that "W" into a "V" and provide the juice to keep the upswing moving along.
That leaves open the question of whether we are living in a fool's paradise, like the chap at the 50th floor. Here is where the hidden coherence of the Obama plan shows itself, in a two-part fiscal and monetary policy strategy.
When the time comes to unwind the stimulus, and finally slow the Fed's keep-the-presses rolling monetary policy, Obama is counting on two developments. The first is a grand bargain to bring the potentially budget-busting entitlements programs under control. The president plans to convene a "fiscal responsibility" panel before he presents his first budget to the Congress, and then move on to an attack on the unsustainable projected costs of Medicare, which is a far bigger problem than getting the Social Security system on a firm footing.
The outlines of a health care deal seem obvious. The cost of Medicare can be cut by a means-tested system of copayments, to prevent the current overuse of the system by patients for whom a visit to the doctor or some optional procedure has no cost. Friends living among their retired colleagues in Florida tell me that folks in their community often schedule an away-day to include a visit to some doctor, perhaps en route to a movie. That health care, when it's a free good to the user, is over-consumed should come as no surprise.
The copayments will probably be used to fund health care benefits of some sort for lower-income workers now without adequate insurance. Never mind what you think of such a plan, or any of the others that will emerge from the fertile mind of health care czar Tom Daschle. The point is that if Obama succeeds in reducing the level of spending now built into the entitlements system, he will have the cake he has eaten--deficit-increasing stimulus spending--followed by deficit-reducing entitlement reform. A return to the fiscal probity long since abandoned by a Republican administration.
Meanwhile, back at the Fed, either Ben Bernanke or Larry Summers, if by then the latter has been moved over into the chairman's chair (you'll know when sighs of relief erupt from White House staffers, and groans from the Fed boardroom), will be implementing the exit strategy Bernanke laid out in his speech at the London School of Economics, not exactly a bastion of conservative economic thought. "Put out the fire first and then think about the fire code," he said. The steps he has taken to use the Fed's balance sheet to take on troubled assets, bail out banks and insurers--these put out the fire that would have consumed the financial system in America, and most probably in the world. When the fire is out, and the economy chugging along, the excess liquidity can be siphoned off by selling Treasury bonds in return for cash, which will by that route be withdrawn from circulation. At that time, with a recovery underway, the banks will presumably want to pay back the loans they have accepted under rather onerous terms. Also, money that has been lent to banks or used to prop up the commercial paper market on which so many businesses rely has been made available under short-term contracts. Allow them to expire, the extra cash disappears, inflation is slain. And if the timing is exquisitely right, the cash will be withdrawn gradually, in pace with the unfolding recovery.
Sounds like a wonderful exit strategy, from a central banker in whom we have reason, given his performance during this financial crisis, to have confidence. But withhold the cheers until taking a look at Robert Samuelson's The Great Inflation, which describes how difficult it is for vote-seeking politicians to rein in inflation, and for central bankers to take away the punch bowl in sufficient time to prevent the party from becoming raucous, to borrow from William McChesney Martin, who served as chairman of the Fed under five presidents, from 1951 to 1970.
There you have it. Spend now, cut taxes now, and run deficits now. Build stuff that has a positive social value. Maintain faith in the currency by brokering a grand bargain to bring entitlement spending and therefore post-recession deficits under control. At the right time, call in all that extra cash that is sloshing around, thereby preventing inflation. And all will be well in this best of all possible worlds.
That, at least, is the theory of the Obama brain trust. But if hyper-spending by government freezes out at as much or more private-sector investment; if consumers, seeing tax increases in their future, rein in spending even more; if the government cannot impose its cost-benefit test on politically directed infrastructure spending--then Obama will not have kept his head when conservatives about him lost theirs.
Obama might have it wrong, just as many of his critics say Franklin Roosevelt had it wrong. But nitpicking around the edges of this recovery program won't be enough either to derail or to lay the basis for a "we told you so" campaign in 2010 or 2012. That will take a coherent counter-proposal..
Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of -economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).
Expert Родной язык: English Сообщений: 1807 На форумах с: February 1, 2008 Местонахождение: United States
RE: Understanding the Financial Crisis
Just a couple of brief points:
- Financial crises are nothing new, they have been around as long as there have been financial markets
- Human nature is more or less irrational, and people will learn from this crisis, but that will not prevent the next bubble and it will burst (the next one probably will relate to all this government debt we are taking on, which will jack up interest rates)
- The overreaction is also dangerous
Expert Родной язык: English Сообщений: 1807 На форумах с: February 1, 2008 Местонахождение: United States
RE: Understanding the Financial Crisis
Jacek, I was listening today to George Friedman on NPR. Friedman is the CEO of Statfor, the "private CIA", in Austin, Texas. He has a new book out called "The Next 100 Years". In it he predicts what will happen in the world up to 2099. One big prediction is that the U.S. will dominate the 21st century even more than today (maybe dominate is the wrong word, but the U.S. will be the big winner, according to Friedman). He also predicts that the big winner in Europe will be Poland. Reasoning: like in the 1950s for Germany and South Korea, for Poland, due to its strategic position as a bulwark for NATO, will see a flood of U.S. defense aid, and like South Korea and Germany, this will boost Poland to big power status. (Friedman's other predictions are that the U.S. has already won the war against Islamic terror and that Russia will be the big power that will confront the U.S. China, which Friedman called "an extension of the U.S. economy", is still a very poor country and will "disintegrate", according to Friedman.
[Отредактировано John Bunch, January 26, 2009 5:18 PM]
Expert Родной язык: English Сообщений: 1807 На форумах с: February 1, 2008 Местонахождение: United States
RE: Understanding the Financial Crisis
Well, no one believed in 1940 that South Korea could be turned into a world power, or at least a powerhouse economically. Friedman's point is that Poland will receive a flood of U.S. aid, which will indeed help it build all kinds of infrastructure, as in Germany in the Marshall Plan in 1947-1955. South Korea jumped overnight from being poor, to being a powerhouse, and so did Germany from 1947 to 1955.
If you want, watch Friedman's fascinating interview on yourtube:
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