Socialists All!
Today George W. Bush and Henry Paulson announced the partial nationalization of the banking industry. Bush insists that this is not an assault on the free market system. And the New York Times notes that this is not unprecedented. The government has nationalized various sectors of the economy before, most notably the collapsing railroad industry in the 1970s. The last time the financial services industry faced nationalization was the 1930s with the Reconstruction Finance Corporation.
Still, it’s hard to avoid noticing the leftward turn in American economic life. Those more committed to socialist principles, including Britain’s Labour PM Gordon Brown, who called for a new Bretton Woods-style financial structure for a changing world, have celebrated this moment and even compared themselves to Churchill and FDR in World War II. Unlike ideological free marketeers, Brown sees this as an inevitable and even positive step for the economy. The times they are a-changing.
In the US, the most prominent advocates for this nationalization strategy have been liberal economists like Robert Reich and Paul Krugman. That these two men have proven so prescient in this crisis says much about the direction of global financial policy.
And then there’s the market itself. Yesterday the Dow jumped over 11% or 936 points. The reason? Governments around the world pledged to nationalize the financial services industry, thus injecting capital into the banking system while taking an ownership stake. Yes, even Wall Street likes socialism now.
It’s curious to witness the muted reaction from the Republicans and the McCain camp over the Dow’s sudden rise yesterday. Surely they understand that the movement toward socialization of the financial services industry – even if the Dow responds favorably – is not something to excite them. Yes, even a recovery of the financial crisis – on left-liberal terms – benefits Obama in this election.
Share This
Related Posts
-
Kay And Mike Beat Analyst Expectations Predicting Change In Leading Economic Indicators
Posted on May 17, 2013
-
Notes From A Hate-Thy-Neighbor Political Culture
Posted on May 15, 2013
-
The Walt Disney Company pulls out of Bangladesh: Will that make workers safer?
Posted on May 3, 2013
-
Guns, Drugs and Money Laundering: What Does Obama Want from Mexico? (El Universal, Mexico)
Posted on May 2, 2013
Of course, much of the problems were caused by government regulations. Politicians work from the POV that every problems requires a response and the government must make the response.
Of course people are going to love the government being involved until inflation begins to increase and we end up something like th e1970's where bank deposits paid 5% when inflation is 10%. Then people will want the government to fix the problems created by the last government regulations.
I guess the legacy of the Clinton Administration has been totally forgotten when the U.S. went six years with no new regulatory schemes and the economy grew.
The problem in the future is that the government will change the rules every year and starting something new will be very hard.
Lefties shouldn't overreact or get overly ambitious, beyond unrealistic. There may be a rise of the Left, as I said earlier this year — lefty talk radio is not a 100% flop any longer and seems to coincide with the Thumbs Down on the GOP expressed in the 2006 elections. But no, Krugman and Reich were not prescient (I have a book which, on the other hand, was, as was an earlier book by the same author). What we're seeing is pathetic “compassionate conservatism” that is hypocritical, while at the same time being unacceptably insufficient to lefties. In the case of the bailout of the banks, there's also cronyism involved. Cynicism, too, given who in the USA will be buying new federal debt instruments and benefiting therefrom.
Socialism, yes, as well as friendly (smiley-faced) fascism. Excuse me, government-business “partnerships.” The Bush people have gone beyond anything Ralph Nader could ever have actually achieved. What's next, ownership in Detroit's auto makers? Airlines? Oil companies? Then what? “Social responsibility” nonsense?
Thanks, Dubya, you who introduced the Medicare drug entitlement ($$$) and now the bank bailout and Washington as large institutional stockholder ($$$ $$$ $$$). In an instant you're farther along than any Dem could dream up with a “privatized” equity-based Social Security scheme.
Super D, nobody's going to pay attention now, because too many feeble-minded are not going to make the careful, intelligent observations and analyses but just assume no regulation is no good, and any regulation must be better than none, no matter how bad such regulation happens to be. That's just the mood of the Herd now. Much has been forgotten, or never learned in the first place by many.
I think when things get sour, one should make lemonade from lemons..
So, the GOP has trumped up fears about socialism. I say Obama takes the thread of socialism and exposes what it really is. If Team-Obama explained in careful detail that roads and infrastructure elements like sewage disposal and police and the military are in fact products of socialist public policies, then he would un-demonize socialism. Then when he does that, go on to explain that socialized medicine is about all he cares to do. He needs to reassure people that capitalism will thrive in a society where some socialism not only is already present under the very ground these purposefully befuddled voters stand on, but also that our healthcare system is so broken (give harrowing examples) that we need a socialized universal healthcare TO GET CAPITALISM BACK ON ITS FEET.
If Obama successfully explains the elements of socialism (not forced oppression) that already exist to everyone's enjoyment and benefit, then the sale of universal health care AS PROMOTING A HEALTHIER FREE MARKET will be easy.
Add sugar, stir, recline in lounge chair, enjoy!
Also consider the medical analogy, Super D. There's an ailment. Someone tries a form of medicine for it. It causes bad side effects? Reconsider the medicine? Oh, no. Add another medicine for the side effects. It produces new, additional side effects. Lesson learned yet? Oh, no. Add _another_ medicine to counter the latest new side effects. And so on, and so on. That's the reality of regulation and that of interventionism described in another, creative way. But many won't learn the obvious lesson and spare the medicine (and the side effects, _AHEM_, which so often never justify the desired effects of the medicine, even when they happen, which is never guaranteed and which don't always happen, _AHEM_).
The “lesson” the Herd has learned is that we “must” regulate, regulate, regulate (and morality be damned, bail out everyone and everything, or at least PC objects of bailouts).
“I think when things get sour, one should make lemonade from lemons..”
Unfortunately, that's not what is happening. The best thing would be even for interventionists to agree to let what's destined to fail, fail, then when all the failure is complete or nearly so, _then_ intervene, rather than rush, be stupid, and engage in peacemeal fashion that will only be more error-ridden than standing back, _then_ moving when things have settled or are somewhat stable (disastrous, could be, but at least done with the most and the worst of it before intervening).
Sadly, too many children (and greedy Wall Street execs and cronies of those in charge in Washington) want Action Now.
Moving quickly and forcefully to forestall a deflationary spiral or merely a big economic slump is laudable in theory, but in practice, hurrying is error-ridden.
You guys have to be kidding me. Unregulated and unaccountable business practices led to this mess. Just like it does EVERY time businesses get to run as free as they want. Entire sectors of the financial market made disastrous decisions in favor of short term gains and threw caution to the wind on an unprecedented scale.
I'm not just talking banks letting people take out loans and not even bothering to check whether they could pay. We are talking the people who make new bond markets based on bad paper, the Moody's and S&Ps who rated them far above their actual safety rating, and the institutions that literally muzzled their own auditors who were trying to say these losses need to be accounted for. Our economy now stands on the brink because these guys wanted to cash in and leave someone else holding the bag. In this case the US gov't and the American people. RICO should be applied in my opinion.
And my god did I read someone still blaming Clinton? Gimme a break.
DLS: …because too many feeble-minded are not going to make the careful, intelligent observations and analyses but just assume no regulation is no good, and any regulation must be better than none, no matter how bad such regulation happens to be.
I actually agree with this — at least in the sense that I don't believe just any regulation is better than none. However, I do believe that the no regulation option is only viable in markets which contain no externalities — e.g., the lemonade stand industry, lol! But the financial market obviously impacts many others, so no regulation in that case makes no sense at all. As for the most effective timing, well… that's above my pay grade. That being said, though, the argument that it's better to allow the entire dike to disintegate before sticking one's finger in it, or fixing a crack in a wing before it falls off at 30,000 ft, is not a compelling one.
Clinton did release the Fannie Mae and Freddie Mac hounds, seeking to expand homeownership among the poor and lower middle class (leading to the housing bubble & subprime collapse.) Also, the Glass-Steagall Act was repealed under his watch, which was the last regulatory shackle keeping banks from speculating with their left hand and having their FDIC-insured depository right hand feeding such reckless speculation unawares.
There is plenty of blame to go around on both sides of the aisle, including for the much vaunted Pres. Clinton. Republicans may love deregulation, but Democrats have their love of government-backed social equality and wealth redistribution and will ride whatever strange vehicles are at hand to get there.
Thanks, Rico — you understood.
“Unregulated and unaccountable business practices led to this mess.”
That doesn't mean any or every regulation is better than none at all.
I've deviated from “purist” libertarianism before when it makes sense because, as I've said, leaving flirtation with anarchy aside, more generally, libertarianism is the English-heritage and American way, but in leaving people free largely to police themselves, it is also obviously an “honor system” and in the real world there are cheaters (crooks in the S&L and mortgage-industry world, in this case, even though the bubble was broader than that and so many lenders wanted something for nothing, and believed home prices would rise forever, and notably, took out equity loans on these homes as extensions of their credit-card abuse, the accounting or reckoning for which we have yet to see but may eventually).
The Democrats have much to be blamed for in addition to Republicans. The bubble was bigger than that, though, and we all know so many of the “poor victim homeowners” are victims of their own greed and wanting, as one book puts it not only in its title but throughout the book in a number of different, creative ways, money for nothing. (As the book notes, one reason there was not a big slump when the stock bubble crashed was that so much of the activity and euphoria and greed and stupidity continued by transferring to real estate. Mortgage debt is painfully now the object of concern, but we have yet to see additional personal debt, i.e., credit-card debt, face widespread default or impairment of repayment. The banks are worried about this. One or more books you can find currently printed at book stores worry about this. So far there's no federal bailout being planned for this, and why should there be?)
Thanks, also, Rico, about the point I also made — let all the anticipated failures happen before intervening rather than rushing piecemeal (even if it _is_ before an election).
I disagree with your analogies, but what can I say? The book I've been rereading takes your side, Rico, as well as understanding the issue about failures. It's better not to have deflation in the first place, which is why rushing as well as pushing hard to try to forestall it is recommended rather than trying to react to it later, which as we have seen with Japan isn't the easily solved problem the textbooks would have us believe. The book I've been rereading doesn't use your analogies but may as well.
“Our economy now stands on the brink because these guys wanted to cash in and leave someone else holding the bag.”
Actually, this is most true about the “greater-fool” participants in the stock and real estate bubbles. If not growth forever, then long enough to sell at a big profit.
DLS Please put up a link to your, like from Amazon with reviews. The G6 + W are pushing this latest round of “socialism” because W's HUD never looked into this mess, the housing “surge” propped up his decent economics and helped fund our shopping after 9-11.
“Clinton did release the Fannie Mae and Freddie Mac hounds, seeking to expand homeownership among the poor and lower middle class (leading to the housing bubble & subprime collapse.)”
Yea like what, 10 years ago? At the time I'm sure it made sense. But come 2004/2005 when banks are giving loans away to anyone who fills out a form maybe its time to reign things in a bit. Change economic strategy with regard to changing circumstances. We are well past the time where the Bush administration could have made these changes if you feel they had such a large impact or had any forsight that they would.
Regardless, the vast bulk of the blame runs with those who run the industry itself. Apparently companies like Enron, AIG, MCI Worldcomm, can just lie about their finances. By law we have people in place to accurately report the state of these publicly held companies. Auditors, accounting firms. This entire decade it has been the same story. Companies bypass their own internal auditors and report falsely about the state of their company, or now, the industry in general. Suddenly there is this huge implosion that rocks the economy in general and everyone acts like there was no way to see this coming. There is, we just don't hold them accountable. Regulation is needed, period, end sentence.
Rudi, were you asking about the book I was re-reading? (I've owned it and read it before but am reading it again, because it has recommended things like taking on bad debts of financial firms, which I don't like to see, but hey, the guy knows more about the subject than I do, which is why I got his book.)
I am not going to defend Bush's administration's Wall-Street-crony bailout nor his earlier bailout of the airlines, opportunistic steel protectionism, et cetera.
Here is the book as well as his earlier book. It is “Money for Nothing,” by Roger Bootle (in the UK — author earlier of “The Death of Inflation” and numerous articles in various publications). His book includes numerous creative uses of the phrase, “money for nothing,” in numerous ways. Both his later book (“Money for Nothing”) and his earlier book (“The Death of Inflation”) are contrarian and are both premature, as we aren't yet truly in a post-bubble environment, but much of what he has said in both books has come true. Both books discuss deflation, which is the subject of few books (Schilling's books are probably the best known; I also have a book by Selgin on the subject). What I haven't mentioned at all about “Money for Nothing” because the subject really hasn't been a topic lately on this Web site is that the book a) discusses the _real_ information or post-industrial economy; b) makes a broad, strong case in favor of free trade and against protectionism. Both books provide very entertaining, informative reading.
Money for Nothing
http://www.amazon.co.uk/Money-Nothing-Financial…
The Death of Inflation
http://www.amazon.co.uk/Death-Inflation-Survivi…
Google Books can take you on a visit of “Money for Nothing,” too.
http://www.google.com/books?id=EUp2jo-3KQkC&dq=…
As I've said before:
The Community Reinvestment Act and other political interference in the economy is bad, but cannot be called the “cause” of the current bad-mortgage-debt (and bad related-derivatives) problems. This Act was passed in the 1970s and the two times we had problems (both with a Bush in the White House, incidentally) they involved financial institutions that were deregulated, once in the late 1980s and into the 1990s, and now in the late 2000s. The problems this time are associated with the housing bubble (and a transference of the mentality from the earlier stock bubble; deregulation in the 1990s was originally done during the stock bubble in the view that “it's different this time” than in the 1920s). The problems _both_ times have been directly associated with deregulation and shady behavior. While borrowers this time are largely to blame, the lenders are not blameless, and in fact are the subject currently of FBI investigations.
“Regardless, the vast bulk of the blame runs with those who run the industry itself. “
It's not true with the bubble, given what so many borrowers have done. However, the lenders are not blameless. (Many mortgage companies, not the bigger, stuffy and also-to-blame Big Banks, Incorporated, but the mortgage companies, were even shameless, you can add.)
But another issue that you have to face here is a bitter irony, or even a form of a paradox: The most highly qualified and most competent people to regulate any industry, those who understand it the best, are those who are in the industry, in particular those leading it. That's true for all industry. It's bitter insofar as there is obvious conflict of interest and resentment at a “government-industry revolving door” and cronyism crying out to happen. But that's the reality, sad or sickening as it is.
DLS, there are several points where you are mistaken there. First off, the borrowers, and by this I assume you mean the people that took really risky loans to get houses, were only a part of the problem. For starters, I don't think people who do not specialize in finance should be held to the same standards as those that work in the industry. It is up to those who front homeloans to make sure that they are following responsible lending practices.
It is quite clear that somewhere in 2005 the majority of the banking industry in this regard threw responsible lending practices to the side of the road. Literally you could lie on your loan app and not be called on it. It got that bad, if you have any friends in the business, ask them and they will back me up. Amateurs should not be making these calls, and thats what they essentially opened up the market to. Its rediculous that they now would like to pin the blame on people who took them up on offers for loans they wouldn't have anyways when they really had nothing to lose by taking them. The banks opened themselves up to huge amounts of risk because they wanted the high yield loans that resulted, and leveraged themselves to the hilt to ring the most out of them. They should have known better.
But thats not even the real problem. After all this bad paper was generated, other institutions decided to make special bonds, backed by hundreds of billions of dollars of these loans on the premise that they couldn't all go bad(when they certainly could of the real estate market tanked), and so even more money goes down the tubes. Essentially, to further cash in on this ticking time bomb they doubled down and opened it up to the rest of the industry. For some reason which I am still not sure, Moody's et al decided to rate these bonds AAA instead of the junk they were. This smacks of collusion. Needless to say, these high yield bonds were popular enough to get snapped up by major funds that should have known better.
Next phase of the problem, the cover up. Once these loans started to tank, the companies that held them and the bonds backed by them needed to not show a loss or the whole thing collapses. As noted in many articles, auditors were kept from board meetings so that the bad news was never made public. Again, taking a lead from previous financial success stories like Enron, they ignored reality until they could no longer do so. It was systemic and all over the industry. The only real action that could be taken at the end was to make sure when the music stopped you weren't the one without a chair. And now that the gov't is willing to step in with $700 billion we know who that is. Well played Wall Street, well played.
Oh, and another thing, the people who are “The most highly qualified and most competent people to regulate any industry, those who understand it the best, are those who are in the industry, in particular those leading it.' do in fact work in that field. That's what major accounting firms like Arthur Andersen(remember them?) are out there for. Its not just some gov't agency thats supposed to regulate these businesses, they are supposed to give honest accounts to their own shareholders of the state of the company. They are simply not doing so. These corporate officers are not reporting anything if it makes their stock prices go down. Eventually, reality catches up though and the shit hits the fan. How many times do we have to go thru this before people catch on?
Back in the “good old days” (which is to say, early in the '00s) I bought a couple of properties on speculation — a condo in Lake Havasu City, NV and a four-plex in Riverside, CA. I never went for the ARM shenanigans, and put 20% down on each. In retrospect, though, if I had I could have made considerably more money on them than I did, because (again in retrospect) I had the sense to get out when I did. I'm not complaining, I'm just saying. But what I really wanted to talk about is the level of harassment I experienced after I got into the real estate market. I literally had people lined up at my door, and on call waiting on my phone, trying to sell me on all sorts of schemes. It was pretty heady stuff, and far from all of them were offered by institutions not generally considered to be fly-by-night. Figuratively, I could have bought a bridge in Alaska, no money down, just based on the cumulative paper assets I had accumulated, and supposedly from a respectable lender. Heck, that's the kind of thing that brought down even such august speculators as Donald Trump. If someone like him can get sucked in, what chance does your basic idiot have?
I don't mean to defend extreme idiots, but at present even folks that “did the right thing”, at least on paper — e.g., folks who bought their house with a 20% down payment and fixed mortgage — are taking a bath in some places. Quite a few places, actually. Had I kept the properties I used to own, chances are pretty good I'd be bankrupt by now. I couldn't rent them for enough to cover expenses now and I couldn't unload them for the price they're currently worth. And the more people like that that go down the worse it gets. Obviously. Had the feds not done anything to put their fingers in the dike credit would be totally frozen at this point. No one could borrow anything for anything. It would present an unprecedented liquidity problem that only the most fortunate and/or the most clairvoyant could survive.
One could argue about what regulations should have or could have been put in (or kept in) place. One could also argue about what level poor regulations contributed to the problem. But it seems very hard to argue that an unfettered free market would have been in any way better. In short, it's not a question between no regulations and regulations, but between good regulations and bad.
“DLS, there are several points where you are mistaken there.”
This wouldn't be the first time. In 1998 I thought the bank problems then were going to trigger a slump and pop the stock bubble. Didn't happen.
“the borrowers, and by this I assume you mean the people that took really risky loans to get houses, were only a part of the problem”
Admittedly so, but my point was that they are at fault, too, and they often are ignored or wrongly cast as victims and those who “should” [sic] be the immediate objects of a bailout. That's just moral-hazard vote-buying nonsense. (Bailing out the industry is moral hazard without vote-buying, but more like cronyism given Paulson's history.)
I'm not denying there were bad lenders as well (they thought they'd pass the risk to others with the derivatives, among other things).
“other institutions decided to make special bonds, backed by hundreds of billions of dollars of these loans on the premise that they couldn't all go bad”
Yes, the derivatives and other instruments.
“the cover up”
Oh, and I'll even give the lefties on talk radio the benefit of the doubt when they say “They [Bush administration, industry, GOP] hoped it wouldn't happen until after the election.”
“That's what major accounting firms like Arthur Andersen(remember them?) are out there for.”
As with Enron.
* * *
“In short, it's not a question between no regulations and regulations, but between good regulations and bad.”
Or between enough (assuming good, not bad) and too much, which also is bad.
Traffic rules and control devices…
“taking a bath in some places. Quite a few places, actually”
That's due to the bubble — the actual _values_ didn't rise, but _prices_ rose greatly.
Now they're being corrected. Not yet fully corrected, but heading that way. Probably prices will go somewhat too low eventually — to me that hasn't happened yet — then recover eventually. The desireable locations (with natural amenities) will continue to be that way even if the homes there currently aren't so much _desired_.