Comments on: Thoughts on Wall Street

By: FrequentPoster

FrequentPoster — Thu, 18 Sep 2008 04:37:39 +0000

Megan McArdle is an economic illiterate, as is anyone who takes her seriously enough to even think of aligning with anything she says.

By: DLS

DLS — Thu, 18 Sep 2008 01:03:34 +0000

McArdle is partially correct, but misses the key element. The idea is that the mandarins can manage (and at times “fine-tune”), not “tame,” the economy. At the time of note, the terms “revive” or “jump-start” would be better. And of course, during the 1930s, nothing FDR did ended the Depression. We later went to war (when the Depression truly began to cease, not before), many young people were sent overseas under conditions of privation and deprivation in addition to danger, and when they returned, they had a different view psychologically as to their intentions for their lives and for economically relevant acts. That, more than the forced production and activity of the war itself, was when the Great Depression truly ended.

You can look at the Japanese deflation experience after 1990 as well. People simply wanted to reduce their expenses and save more. (That is particularly relevent for Americans to consider at this time.) All the government spending and make-work projects it engaged in changed nothing. It took a change of attitude in Japan (which is even today not starkly but subtly different than up to 1990) to change the economy.

Food for thought (for those who choose to partake)

By: DLS

DLS — Thu, 18 Sep 2008 00:48:18 +0000

Reintroducing Glass-Stegall before the big banks merge completely with investment banks *** and investment and financial service firms *** as well as with insurance companies (and as I've speculated openly, even Health Maintenance Organizations) woudl be okay. But this is in large part a phenomenon of “easy money” attitude similar to ballooning credit and monetary supply (“cheap money”) that liberals have long sought. (the real opiate of the ignorant masses, and buying their votes, too)

What's interesting right now is that we have a Communist-style takeover of AIG by the federal government (80 per cent ownership) and if the shares in AIG go down, the shareholders (not limited to Greenberg, a victim of scumbag Spitzer) have the complete right to compensation and restitution payments from Washington, and if Washington refuses (deliberately violating the Constitution as well as deliberately choosing to harm the shareholders by such refusal), multiple billions in punitive damages (a rare thing, a lawsuit _with_ complete merit).

By: mikkel

mikkel — Thu, 18 Sep 2008 00:09:03 +0000

I tend to be an optimist, but I don't think there is anything we can do now that will work and any attempt will just lead to monetary collapse. I can write a ton about why but don't want to junk up the thread as there are tons of explanations all over the web.

To summarize though it all comes down to the amount of debt in the world. There is now about 50% more debt relative to GDP than there was before the Great Depression and the problem is that no matter how much liquidity the central banks add it's impossible to service that debt. Ultimately I think the root cause of the problem is identified by the Austrian branch of economics, which believes that much of economic expansion was not supported by productivity gains, but increased debt load. This has been going on since the 70s but exploded in the 80s-today.

The problem was exacerbated by a lack of regulations. The two schools of thought are that massive liquidity is OK if there are tough regulations and that regulations are worthless because they will always be wrong or have loopholes, so focus on having limited liquidity instead. We've been seeing the worst case which is massive liquidity and no regulations...

The best analogy I've heard is that liquidity is a river and regulations are levees. The more liquidity there is the faster the river and the better the regulations have to be to stop it from overflowing. I think a pragmatic answer is that we can have moderate injected liquidity and moderate regulations and be OK -- but the problem of course is that political concerns makes it so we've short circuited recessions by adding more and more liquidity. The last 10 years has been a raging torrent of liquidity and all the levees where destroyed..

By: elrod

elrod — Wed, 17 Sep 2008 23:23:05 +0000

I don't think anybody – including Kuttner – is arguing that we revive the EXACT laws of the Roosevelt era to manage Wall Street today. The market is vastly different now than back in the 1930s. The issue boils down to priority: should the government work assiduously to develop a new regulatory framework that handles modern financial transactions? Or should Washington politicians lay off Wall Street and let investors handle their money without regulatory meddling?