10/18/08
It has been a long time since I’ve enjoyed the Wall Street Journal’s editorial page. What once was the nation’s clearest and most articulate advocate of the principals of free men and free markets has metamorphosized into a jejune purveyor of meretricious and shameless closed-eyed cheerleading for the Bush administration and the GOP, even as both have thoroughly betrayed the principals that the Journal has long advocated and continues to insist it fervently holds.
This morning’s (i.e., 10/18-10/19’s) editorial page of the Journal, however, was perhaps the best I have read in the last ten years and, for once, I was delighted that my Saturday was not thoroughly consumed with our kids’ soccer games so that I could spend some time with my erstwhile friend from Wall Street.
A few of this morning’s articles, “Most Pundits Are Wrong About the Bubble” by Professor Charles W. Calomiris of Columbia and an editorial entitled “Another ‘Deregulation’ Myth,” by the Journal’s once redoubtable, but now largely insipid, editorial staff attempt to make the case for deregulation of the financial markets. They do so clumsily, by, for example, arguing that the implementation of Basel II standards for financial institutions argues that regulation was responsible for our financial mess while ignoring, based on facts cited in these articles themselves, that Basel II was, in fact, an instance of aggressive deregulation. Mr. Calomiris makes the same logical error while also proposing for a minimum subordinated debt requirement for financial institutions in an article that ostensibly advocating deregulation and arguing that unregulated activities of banks (subprime lending, securitization, and dealing in swaps) that got the banks into trouble indeed advance the point that regulation is what has gotten the markets into trouble. These are clumsy arguments in favor of a case that is currently hard to make (and may always be hard to make, sad to say) and, in fact, end up contradicting themselves, but at least these two articles provide plenty of information that is worth reading and take the Journal’s traditional side of an especially salient philosophical debate. They also expose how illogical the Journal has become in its pursuit of one of the few ideas it has yet to throw under the bus.
Peggy Noonan’s article, “Palin’s Failin’” is perhaps the greatest that the estimable Ms. Noonan has ever produced, not so much for her observations, best encapsulated by “…there is little sign that (Palin) has the tools, the equipment, the knowledge or the philosophical grounding one hopes for, and expects, in a holder of high office,” but rather for long time conservative Noonan’s observation that “If (self-styled conservatives) stood for conservative principles and the full expression of views—instead of attempting to silence those who opposed mere party—their movement, and the party, would be in a better, and healthier, position.” Then, fully expecting the kind of treatment Christopher Buckley received from those who purport to be acolytes of his father, Ms. Noonan ends her article with “…come and get me, copper.” It’s too late for this erstwhile conservative Republican; while I hate to use words like “never,” it’s going to be very difficult for me to vote for any Republican for any office after what George Bush has taught us about the GOP’s real motivation, and I don’t even call myself “conservative” any more after what Mr. Bush and his cheerleaders have done to our movement and, more importantly, to our county. But those of you who still call the GOP, and/or the conservative movement, home would do well to listen to Ms. Noonan and to respect her courage. But most GOPers won’t; they’ll simply accuse her of being a “liberal,” a “statist,” an “elitist,” and, who knows, perhaps a “terrorist sympathizer.” The Journal can be counted on to, perhaps indirectly but certainly snidely, join in such criticism.
The best article in today’s Journal, however, was an encapsulation of an interview of Anna Schwartz, who was the co-winner of Milton Friedman’s Nobel Prize for “A Monetary History of the United States,” and who, at 92, still works for the National Bureau of Economic Research, as she has since 1941 and who remains as sharp, and as unruffled, as ever. In this article, she argues four square against the Journal’s stance on the government interventions we have seen over the last several months in its doomed efforts to “rescue” the financial markets. She argues persuasively against the bailouts, against treating irresponsible lenders with more deference than irresponsible stockholders, and that “Everything works much better when wrong decisions are punished and good decisions make you rich.” Would that the Journal had not abandoned such wisdom the moment George W. Bush became president!
At any rate, try to get your hands on the 10/18-10/19 Wall Street Journal and read the aforementioned articles. Not only are they entertaining and informative, but they are brutal testimony to how far from the principles of free men and free markets the Journal has come.
Saturday, October 18, 2008
Tuesday, October 14, 2008
“I’M THINKING THESE PROBLEMS MIGHT GO AWAY IF YOU MAYBE ASKED PAULY TO BE YOUR PARTNER…”
10/14/08
There are several notable (amazing, really) points about the Bush Administration’s plan to take equity (preferred stock, to be specific) stakes in most of the country’s major financial institutions.
For the most part, we are talking about healthy (well, relatively healthy) financial institutions here. These are not institutions that are teetering on the precipice of financial disaster. Free Market Hank Paulson was concerned that the plan might not be sufficiently attractive to induce institutions to participate, and so carefully designed the plan to minimize chances of spooking common stock holders, and managements, of the affected firms. Note the strong element of choice on the part of the participants. Or maybe not: as the Wall Street Journal reported this morning (page A1): “Some of the big banks were unhappy about the government (sic) taking equity stakes, but acquiesced under pressure from Treasury Secretary Hank Paulson in a meeting Monday.” So the government is forcing, in some cases, healthy financial institutions to let the government take a stake in them.
Keep this plan in mind the next time you hear someone tell you he or she if voting for McCain because Obama is a socialist or because he is in favor of big government. Note that it is a Republican administration that is doing more to socialize our economy, and certainly our financial system, than any administration in history, including that of FDR. Enthusiasm for big government, and now even elements of outright socialism, is one of the few truly bipartisan traits remaining in Washington.
We also read in today’s Wall Street Journal (page A3) that European governments “are facing a new challenge: how to pay for it all.” “It all,” in this case, is the bailout of their banking systems. First, perhaps our friends (Ever notice how the Europeans are “friends” when we need their help but something else entirely when they are, say, counseling us against self-destructive foreign policy adventures? But I digress.) across the Atlantic should have thought about the cost before they rushed headlong into a new crusade, this one apparently designed to make capital more comfy in the Old World and thus to take financial business away from New York. Second, who else, do you suppose, will be “facing a new challenge: how to pay for it all”?
Hmm…thinking before acting, considering the consequences of one’s actions before engaging in such actions. These appear to be yet more quaint old notions that have been dispensed with in our brave new “Yes, indeed, our best years are ahead of us” world.
There are several notable (amazing, really) points about the Bush Administration’s plan to take equity (preferred stock, to be specific) stakes in most of the country’s major financial institutions.
For the most part, we are talking about healthy (well, relatively healthy) financial institutions here. These are not institutions that are teetering on the precipice of financial disaster. Free Market Hank Paulson was concerned that the plan might not be sufficiently attractive to induce institutions to participate, and so carefully designed the plan to minimize chances of spooking common stock holders, and managements, of the affected firms. Note the strong element of choice on the part of the participants. Or maybe not: as the Wall Street Journal reported this morning (page A1): “Some of the big banks were unhappy about the government (sic) taking equity stakes, but acquiesced under pressure from Treasury Secretary Hank Paulson in a meeting Monday.” So the government is forcing, in some cases, healthy financial institutions to let the government take a stake in them.
Keep this plan in mind the next time you hear someone tell you he or she if voting for McCain because Obama is a socialist or because he is in favor of big government. Note that it is a Republican administration that is doing more to socialize our economy, and certainly our financial system, than any administration in history, including that of FDR. Enthusiasm for big government, and now even elements of outright socialism, is one of the few truly bipartisan traits remaining in Washington.
We also read in today’s Wall Street Journal (page A3) that European governments “are facing a new challenge: how to pay for it all.” “It all,” in this case, is the bailout of their banking systems. First, perhaps our friends (Ever notice how the Europeans are “friends” when we need their help but something else entirely when they are, say, counseling us against self-destructive foreign policy adventures? But I digress.) across the Atlantic should have thought about the cost before they rushed headlong into a new crusade, this one apparently designed to make capital more comfy in the Old World and thus to take financial business away from New York. Second, who else, do you suppose, will be “facing a new challenge: how to pay for it all”?
Hmm…thinking before acting, considering the consequences of one’s actions before engaging in such actions. These appear to be yet more quaint old notions that have been dispensed with in our brave new “Yes, indeed, our best years are ahead of us” world.
Wednesday, October 8, 2008
ON BIG DEBT AND SMALL GOVERNMENT
10/8/08
The markets being what they are of late, I have time only for a few random thoughts on recent financial and political developments:
--Hank Paulson said again today that declining home prices are at the root of our economic and financial problems. Mr. Paulson’s view on this topic is very much in line with the consensus thinking, which is very wrong. Declining home prices, as I have said many times before, might be down the trunk of this problem, but they are not at its root. The root of this problem lies in too much spending and too much debt, primarily at the household level, but also at the governmental and corporate levels. Homes and home equity loans were merely the vehicles that consumers used to facilitate their excessive borrowing and spending. Since this is the case, even ending the downward spiral in home prices will not solve our current problems. We will not be out of the woods until the current “spend, spend, spend, borrow, borrow, borrow” ethos is wrung out of our society. That will take a long time.
--Wait until the credit card problem rears the full manifestation of its ugly head. The MBS market has been decimated, as we all know. The ABS market is next. Yes, we’ve seen slowness and plenty of outright defaults on unsecured lines of credit, but there is plenty more to come. Again, our economic problems are far, far from over.
--At the “debate” last night, John McCain (Did you know he was a POW in Vietnam?) “outlined” a vague plan for the federal government to buy up mortgages and renegotiate with the debtors in order to arrest the decline in housing prices. Such a plan would make the federal government the nation’s largest home lender and mortgagee. (Mr. McCain, never much of an original thinker, apparently shares the common wisdom that it is home prices that are at the root of our financial and economic difficulties.) Later in the same debate, Mr. McCain (Did you know he was a POW in Vietnam?) castigated Barack Obama as being a politician who is forever looking to the government for solutions, always telling people what government can do for them, while he, John McCain (Did you know he was a POW in Vietnam?) is in favor of limited government, small government. Is Mr. McCain (Did you know he was a POW in Vietnam?) so befuddled that he lacks any sense of irony? Does he have any idea what he is saying when he claims to be in favor of less government, or is that just another of the verbalized bumper stickers that passes for thought in his (and most) campaigns? Is “limited government” even a principle of the GOP, or merely a convenient cudgel with which to beat up those at the lower rungs of the economic ladder who look to the government for help?
The markets being what they are of late, I have time only for a few random thoughts on recent financial and political developments:
--Hank Paulson said again today that declining home prices are at the root of our economic and financial problems. Mr. Paulson’s view on this topic is very much in line with the consensus thinking, which is very wrong. Declining home prices, as I have said many times before, might be down the trunk of this problem, but they are not at its root. The root of this problem lies in too much spending and too much debt, primarily at the household level, but also at the governmental and corporate levels. Homes and home equity loans were merely the vehicles that consumers used to facilitate their excessive borrowing and spending. Since this is the case, even ending the downward spiral in home prices will not solve our current problems. We will not be out of the woods until the current “spend, spend, spend, borrow, borrow, borrow” ethos is wrung out of our society. That will take a long time.
--Wait until the credit card problem rears the full manifestation of its ugly head. The MBS market has been decimated, as we all know. The ABS market is next. Yes, we’ve seen slowness and plenty of outright defaults on unsecured lines of credit, but there is plenty more to come. Again, our economic problems are far, far from over.
--At the “debate” last night, John McCain (Did you know he was a POW in Vietnam?) “outlined” a vague plan for the federal government to buy up mortgages and renegotiate with the debtors in order to arrest the decline in housing prices. Such a plan would make the federal government the nation’s largest home lender and mortgagee. (Mr. McCain, never much of an original thinker, apparently shares the common wisdom that it is home prices that are at the root of our financial and economic difficulties.) Later in the same debate, Mr. McCain (Did you know he was a POW in Vietnam?) castigated Barack Obama as being a politician who is forever looking to the government for solutions, always telling people what government can do for them, while he, John McCain (Did you know he was a POW in Vietnam?) is in favor of limited government, small government. Is Mr. McCain (Did you know he was a POW in Vietnam?) so befuddled that he lacks any sense of irony? Does he have any idea what he is saying when he claims to be in favor of less government, or is that just another of the verbalized bumper stickers that passes for thought in his (and most) campaigns? Is “limited government” even a principle of the GOP, or merely a convenient cudgel with which to beat up those at the lower rungs of the economic ladder who look to the government for help?
Saturday, October 4, 2008
WHOSE SIDE ARE YOU ON?
10/4/08
A few thoughts in the wake of the “freezing up” of our financial system and the subsequent bailout that, we are now (Surprise!) hearing will not be enough:
--Over the last few decades, as large portions of our manufacturing base have moved overseas and a growing piece of our service industries has followed suit in pursuit of the dream of globalization (and cheap labor), the experts told us not to worry: America’s big advantage was high tech (despite the growing proportion of foreign students in our grad and undergrad engineering programs) and our “strong, vibrant, dynamic financial system.” “Strong, vibrant, dynamic financial system?” A few bankruptcies and assorted insolvencies and illiquidities and all of the sudden our dynamo of a financial system is, if one believes Free Market Hank and the Cry Babies, imploding and no longer able to distinguish a good credit from a bad credit. This is the powerhouse of a financial system that will sustain the U.S. economy in the 21st century? Saints preserve us! It’s worse than even I thought.
--We were assured by Free Market Hank and the Cry Babies that the assets that the TARP (I still like TARF more for the word with which it rhymes, but I digress.) will be buying are fine assets that, over time, will increase in value returning most, if not all, of Hank’s $700 billion slush fund. If these are such great assets, why does the public purse have to come into play? Players in our “strong, vibrant, financial system” should be able to snuff out value and bid appropriately, perhaps at lower prices than the TARP (in order to enhance, or at least make more probable, returns), but nonetheless at some prices. One can draw one or both of two conclusions: The government is paying prices far above market (or even intrinsic value, for that matter) and thus heavily subsidizing Wall Street with your money and has little hope of seeing much of its money back or perhaps our “strong, vibrant, dynamic financial system” is not all that strong, vibrant, or dynamic and needs to man up.
--Warren Buffett stated on CNBC that he would like 1% of the profits that will be realized by TARP. Since Mr. Buffett has about $44 billion, he could easily take 1% (or more) of the $700 billion TARP action if he would like to. So perhaps he ought to step up. But I suspect Mr. Buffett is far too smart to do so and seriously regrets his statement about wanting 1% of the TARP action. He is far more comfortable on the other side of the trade, with positions in Goldman, GE, and Wachovia.
--Please read an op-ed piece on page A15 of today’s (i.e., Saturday, 10/4’s) Wall Street Journal: “Nothing’s the Matter With Kansas.” Despite the shrieks emanating from the Bushmen, the lily-livered in Congress, and a Wall Street contingent terrified at the prospect of having to, say, sell the west coast fleet of Ferraris, business is getting done. Good loans are being made. And little government intervention is necessary to accomplish this.
A few thoughts in the wake of the “freezing up” of our financial system and the subsequent bailout that, we are now (Surprise!) hearing will not be enough:
--Over the last few decades, as large portions of our manufacturing base have moved overseas and a growing piece of our service industries has followed suit in pursuit of the dream of globalization (and cheap labor), the experts told us not to worry: America’s big advantage was high tech (despite the growing proportion of foreign students in our grad and undergrad engineering programs) and our “strong, vibrant, dynamic financial system.” “Strong, vibrant, dynamic financial system?” A few bankruptcies and assorted insolvencies and illiquidities and all of the sudden our dynamo of a financial system is, if one believes Free Market Hank and the Cry Babies, imploding and no longer able to distinguish a good credit from a bad credit. This is the powerhouse of a financial system that will sustain the U.S. economy in the 21st century? Saints preserve us! It’s worse than even I thought.
--We were assured by Free Market Hank and the Cry Babies that the assets that the TARP (I still like TARF more for the word with which it rhymes, but I digress.) will be buying are fine assets that, over time, will increase in value returning most, if not all, of Hank’s $700 billion slush fund. If these are such great assets, why does the public purse have to come into play? Players in our “strong, vibrant, financial system” should be able to snuff out value and bid appropriately, perhaps at lower prices than the TARP (in order to enhance, or at least make more probable, returns), but nonetheless at some prices. One can draw one or both of two conclusions: The government is paying prices far above market (or even intrinsic value, for that matter) and thus heavily subsidizing Wall Street with your money and has little hope of seeing much of its money back or perhaps our “strong, vibrant, dynamic financial system” is not all that strong, vibrant, or dynamic and needs to man up.
--Warren Buffett stated on CNBC that he would like 1% of the profits that will be realized by TARP. Since Mr. Buffett has about $44 billion, he could easily take 1% (or more) of the $700 billion TARP action if he would like to. So perhaps he ought to step up. But I suspect Mr. Buffett is far too smart to do so and seriously regrets his statement about wanting 1% of the TARP action. He is far more comfortable on the other side of the trade, with positions in Goldman, GE, and Wachovia.
--Please read an op-ed piece on page A15 of today’s (i.e., Saturday, 10/4’s) Wall Street Journal: “Nothing’s the Matter With Kansas.” Despite the shrieks emanating from the Bushmen, the lily-livered in Congress, and a Wall Street contingent terrified at the prospect of having to, say, sell the west coast fleet of Ferraris, business is getting done. Good loans are being made. And little government intervention is necessary to accomplish this.
Friday, October 3, 2008
WHO LET THE DOGS OUT?
10/3/08
I sent the following e-mail to an old, good, and frighteningly smart friend who passed along to me one of those e-mails blaming the Democrats for the current housing crisis. While the Democrats certainly bear some of the blame, there is plenty to go around, and not all of it should be directed at Washington or New York:
10/3/08
Yes, the Dems used Fannie and Freddie as a piggy bank and an errand boy for decades and thus helped inflate the housing bubble. But the Bush administration did its part to push us to the precipice, pushing and pulling all manner of fiscal and regulatory levers to "encourage home ownership," including sweetening tax treatment of home ownership and, as recently as early this year, lowering capital requirements for Fannie and Freddie so that they could make more mortgage money available.
And how about Greenspan inflating the bubble with easy money for years and years lest we have to (egads!) suffer a recession? And who appointed Greenspan? Reagan. Who kept reappointing Greenspan? Clinton and the two Georges. They're all the same. Democrats, Republicans...the only choice is the direction in which you want the government to grow, and often there is no difference in that matter, either, as in this abominable, pork-laden bailout package. You're already hearing the Wall Street guys yelling "Fire" again, looking for more. And, like lap dogs looking for doggie treats, both Dems and Republicans will sit up and beg before their masters, i.e., anyone capable of writing a campaign check.
And lest you think I never say anything good about politicians, thank God for that handful of stout-hearted Republicans and Democrats who stood against this bloated, ghastly socialization of our financial system.
Neither party created this crisis (The American public would do well to take a good, long look in the mirror when seeking scapegoats; as I've said before (quoting Steve Goodman), you only fall for lies and stories when you really want to.), but both parties abetted this financial firestorm and will continue to abet it, admittedly often (but far from always) with the best of intentions.
One more thing...Though it's hard for me to say much good about most Democrats, the last great (even good) Fed chairman, Paul Volcker, was appointed by a Democrat (Jimmy Carter). And, though it’s hard for me to say much good about most Republicans, Ronald Reagan had the good sense to reappoint the towering (in more ways than one) Mr. Volcker.
(As you can see, I’m trying to adopt a more positive attitude by saying good things about people, even about politicians, when such laudation is merited.)
I sent the following e-mail to an old, good, and frighteningly smart friend who passed along to me one of those e-mails blaming the Democrats for the current housing crisis. While the Democrats certainly bear some of the blame, there is plenty to go around, and not all of it should be directed at Washington or New York:
10/3/08
Yes, the Dems used Fannie and Freddie as a piggy bank and an errand boy for decades and thus helped inflate the housing bubble. But the Bush administration did its part to push us to the precipice, pushing and pulling all manner of fiscal and regulatory levers to "encourage home ownership," including sweetening tax treatment of home ownership and, as recently as early this year, lowering capital requirements for Fannie and Freddie so that they could make more mortgage money available.
And how about Greenspan inflating the bubble with easy money for years and years lest we have to (egads!) suffer a recession? And who appointed Greenspan? Reagan. Who kept reappointing Greenspan? Clinton and the two Georges. They're all the same. Democrats, Republicans...the only choice is the direction in which you want the government to grow, and often there is no difference in that matter, either, as in this abominable, pork-laden bailout package. You're already hearing the Wall Street guys yelling "Fire" again, looking for more. And, like lap dogs looking for doggie treats, both Dems and Republicans will sit up and beg before their masters, i.e., anyone capable of writing a campaign check.
And lest you think I never say anything good about politicians, thank God for that handful of stout-hearted Republicans and Democrats who stood against this bloated, ghastly socialization of our financial system.
Neither party created this crisis (The American public would do well to take a good, long look in the mirror when seeking scapegoats; as I've said before (quoting Steve Goodman), you only fall for lies and stories when you really want to.), but both parties abetted this financial firestorm and will continue to abet it, admittedly often (but far from always) with the best of intentions.
One more thing...Though it's hard for me to say much good about most Democrats, the last great (even good) Fed chairman, Paul Volcker, was appointed by a Democrat (Jimmy Carter). And, though it’s hard for me to say much good about most Republicans, Ronald Reagan had the good sense to reappoint the towering (in more ways than one) Mr. Volcker.
(As you can see, I’m trying to adopt a more positive attitude by saying good things about people, even about politicians, when such laudation is merited.)
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