Re: Financial institution fallout
On Dec 9, 2008, at 1:40 PM, John Williams wrote: > On Tue, Dec 9, 2008 at 10:14 AM, Dave Land <[EMAIL PROTECTED]> wrote: > >> Folks: unless you want more like this -- and see above, it's all >> there >> is -- don't feed the troll. > > The problem with feeding the troll is that once you start, it is hard > to stop. Much like our government bailing out the financial trolls, > and now the auto trolls. True: well-fed trolls are thus empowered to produce their noxious products, which damage the economic, online and biological environments in which they operate, eventually triggering regulatory responses from said environment. An immune response is natural and necessary for the good of the host, but as we see with virulent infections in biological organisms, such response is often quite debilitating, leading to significant pain and loss of function. I'm glad to see that you're in alignment with the need to keep the host healthy. Dave ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: Financial institution fallout
On Tue, Dec 9, 2008 at 10:14 AM, Dave Land <[EMAIL PROTECTED]> wrote: > Folks: unless you want more like this -- and see above, it's all there > is -- don't feed the troll. The problem with feeding the troll is that once you start, it is hard to stop. Much like our government bailing out the financial trolls, and now the auto trolls. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Arnold Kling testimony on financial crisis
http://econlog.econlib.org/archives/2008/12/my_planned_oral.html by Arnold Kling Chairman Waxman, Ranking Member Davis, and Distinguished Members of the Committee: It is a privilege to be asked to testify in this forum today regarding the collapse of Fannie Mae and Freddie Mac and the ongoing financial crisis. My name is Arnold Kling. My training is in economics, and in the late 1980's and early 1990's I worked at Freddie Mac, where I was present at the creation of several quantitative risk management tools that paved the way for innovations in mortgage finance. Speaking as a former financial engineer, I have many regrets about the role played by modern financial methods in this crisis. Rather than speak defensively about financial innovation, I want to offer constructive suggestions for public policy going forward. I emphatically disagree with the extreme partisan narratives for this crisis. To blame the Community Reinvestment Act for what happened is wrong, To blame financial deregulation for what happened is wrong. The narrative I present in my written testimony describes a combination of government failure and market failure. I want to focus on how both industry executives and regulators were fooled about the risks in the system. In particular, perverse incentives in bank capital requirements encouraged unsound lending practices and promoted excessive securitization. When a bank originates a low-risk mortgage, why would the bank pay Freddie Mac a fee to guarantee that mortgage against default? Freddie Mac has no intrinsic comparative advantage in bearing the credit risk. However, in practice, the bank was able to reduce its capital requirements by exchanging its loans for securities. For bearing the exact same credit risk, Freddie Mac was allowed by its regulator to hold less capital than the bank. By requiring Freddie Mac and Fannie Mae to hold less capital than banks, our regulatory system encouraged Freddie Mac and Fannie Mae to grow at the expense of traditional depository institutions. That turned out to be dangerous. The perverse regulatory incentives were even more striking with high-risk loans. If a bank originates a high-risk loan, you would think that there is no way to avoid high capital requirements. But it turns out that when a high-risk loan has been laundered by Wall Street, it can come back into the banking system in the form of a AAA-rated security tranche. This means that from the standpoint of capital requirements, bank regulators close their eyes and pretend that the risk has disappeared.. My reading of the history of the secondary mortgage market suggests the following lessons. 1. Capital requirements matter. Details that are easily overlooked by regulators can turn out to cause major distortions. 2. Securitization is not necessary for mortgage lending. On a level regulatory playing field, traditional mortgage lending by depository institutions probably would prevail over securitized lending. Rather than try to revive Freddie Mac and Fannie Mae, I would recommend that Congress encourage a mortgage lending system based on 30-year mortgages originated and held by old-fashioned banks and savings and loans. This would require instructing the regulators of Freddie Mac, Fannie Mae, banks, and savings and loans to all use the same capital standard for mortgages, one that is based on a stress test methodology. 3. Subsidized mortgage credit is an inefficient tool for promoting home ownership. Unless what you want is home buyers who are buried in debt and speculating on house price appreciation, I recommend that Congress not try to create cheap mortgages and instead use other means to encourage home ownership. 4. Recent financial innovations, particularly credit default swaps, have changed our financial system in ways that current policymakers fail to recognize. Bailouts and rescues are counterproductive in today's financial crisis. Within the financial sector, de-leveraging needs to slow down and the process of shutting down failed institutions needs to speed up. Relative to these necessities, handouts from the taxpayers are a hindrance, not a help. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: Financial institution fallout
On Dec 9, 2008, at 9:55 AM, John Williams wrote: > On Tue, Dec 9, 2008 at 7:26 AM, Dan M <[EMAIL PROTECTED]> > wrote: Well, I was hoping to set the ground rules for discussion. >>> >>> You do like trying to impose your rules on others, don't you. >> >> Actually, they aren't my rules. > > Don't like to take responsibility for your actions, huh? Folks: unless you want more like this -- and see above, it's all there is -- don't feed the troll. Dave ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Politicians against freedom of the press
http://media.nbcchicago.com/documents/rrb+-jh+FINAL+complaint+cover+and+aff.pdf "Defendants ROD BLAGOJEVICH and JOHN HARRIS, together with others, offered to, and threatened to withhold from, the Tribune Company substantial state financial assistance in connection with Wrigley Field, which assistance ROD BLAGOJEVICH believed to be worth at least $100 million to the Tribune Company, for the private purpose of inducing the controlling shareholder of the Tribune Company to fire members of the editorial board of the Chicago Tribune, a newspaper owned by the Tribune Company, who were responsible for editorials critical of ROD BLAGOJEVICH." ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Politicians, business as usual
http://media.nbcchicago.com/documents/rrb+-jh+FINAL+complaint+cover+and+aff.pdf Some quotes: With respect to the Senate seat, Deputy Governor A suggested putting together a list of things that ROD BLAGOJEVICH would accept in exchange for the Senate seat. ROD BLAGOJEVICH responded that the list "can't be in writing." Thereafter, ROD BLAGOJEVICH discussed whether he could obtain an ambassadorship in exchange for the Senate seat. 92. On November 4, 2008, ROD BLAGOJEVICH spoke with JOHN HARRIS regarding the potential vacant Senate seat. ROD BLAGOJEVICH stated that the "trick . . . is how do you conduct indirectly . . . a negotiation" for the Senate seat. Thereafter, ROD BLAGOJEVICH analogized his situation to that of a sports agent shopping a potential free agent to various teams, stating "how much are you offering, [President-elect]? What are you offering, [Senate Candidate 2]? . . . Can always go to. . . [Senate Candidate 3]." Later ROD BLAGOJEVICH stated that he will make a decision on the Senate seat "in good faith . . . but it is not coming for free. . . .It's got to be good stuff for the people of Illinois and good for me." ROD BLAGOJEVICH states "[President-elect], you want it? Fine. But, its got to be good or I could always take [the Senate seat]." ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: Financial institution fallout
On Tue, Dec 9, 2008 at 9:36 AM, Dan M <[EMAIL PROTECTED]> wrote: > > >> Hah! Money is no longer on the gold standard and is completely and >> totally a social contract dependent on the whims of societies and >> markets and the fiat of governments. > > Libertarians pretend that all would be well when money under the > mattress is the best investment. And egotists and sophists pretend they live in fantasy land. I did not suggest a gold standard. Only that I can buy gold with my money. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: The [WINDOWS-1252?]Libertarians’ Lament
On Tue, Dec 9, 2008 at 2:23 AM, Alberto Monteiro <[EMAIL PROTECTED]> wrote: > > Doug Pensinger quoted: >> >> (libertarians) Their heroic view of capitalism makes it difficult >> for them to accept that markets can be irrational, misunderstand >> risk and misallocate [WINDOWS-1252?]resources—or that financial >> systems without vigorous government oversight constitute a recipe >> for disaster. >> > I think this is not fair. Nobody (except some loony types) think > that markets are rational all the time. I certainly don't agree with the viewpoint mentioned in the article. I don't know what other "libertarians" believe, but I certainly don't base MY views on abstract theory. I look at markets and see organized forums for people to interact and trade. Since markets are actually a lot of people trading, there will be all sorts of irrationality in markets -- in my experience, most people are irrational at least as frequently as they are rational. The only people I've ever heard talk about markets being rational are ivory tower economists. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: Financial institution fallout
On Tue, Dec 9, 2008 at 7:26 AM, Dan M <[EMAIL PROTECTED]> wrote: >> > Well, I was hoping to set the ground rules for discussion. >> >> You do like trying to impose your rules on others, don't you. > > Actually, they aren't my rules. Don't like to take responsibility for your actions, huh? ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: Financial institution fallout
> Hah! Money is no longer on the gold standard and is completely and > totally a social contract dependent on the whims of societies and > markets and the fiat of governments. Yup. And, if you looked at gold, it has bounced up and down, like all the other commodities. In 2008 dollars here are some sample values, which indicate the volatility 1977 368 1981 1600 2001 342 early July, 2008 970 now 780 Can you imagine the deflationary/inflationary rollercoaster we'd be on if we were on the gold standard. And, if you look at all the gold in the world, in 2001 the amount of money in the US alone (M2) was about 5 trillion. With a total world supply of 142,000 metric tons, that translated into slightly less than 900 billion worth of money in 2001..in the whole world. Assuming that the US has 25% of the money as well as 25% of the GDP, we'd be talking about reducing the amount of money more than 20-fold from what it was. And, I know you recall that 2001 was near the middle of a low inflation span of almost 20 years. So, clearly the gold standard would have required tremendous deflation, which historically has been tied to depressions (e.g. Freeman's arguments). Even the most stringent Kensyian would cringe at the effects of that type of deflation. Libertarians pretend that all would be well when money under the mattress is the best investment. Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: Financial institution fallout
> > Well, I was hoping to set the ground rules for discussion. > > You do like trying to impose your rules on others, don't you. Actually, they aren't my rules. The rules I was proposing were the general rules of experimental inquiry that I have learned. I have also observed that folks who follow them are far more successful, in fields where success itself is empirically measured, than folks who don't. For example, my buddies who have created hundreds of billions of wealth followed these rules. But, since the dialog was to be between you and me, I put out a couple of proposals, expecting that any set of rules would be _our_ rules for debate. See, I've learned that to accomplish anything with other people there has to be at least some commonality. Indeed, you have, in your commentary and insults, repeatedly responded as though clear allusions to communal, and even collegial acts were personal claims. The words "we" and "I" are two separate words, with clearly distinct meaning in the English language. An inability or refusal to see the difference guarantees poor communication. > > First, his statement about the relatively poor rebound from the > depression > > under FDR is falsified by historical data. 33-37 was the best rebound > since > > yearly records were kept. (1880). > > Would you care to quote the statement you are refuting? "The subnormal recovery to 1935, the subnormal prosperity to 1937 and the slump after that are easily accounted for by the difficulties incident to the adaptation to a new fiscal policy, new labor legislation and a general change in the attitude of government to private enterprise all of which can." Looking again, I see he is quoting another's false statement to make his point, my apologies for missing the nuances. > > Professionals almost always publish in professional > > journals edited by other professionals. Crackpots usually self publish. > > Keeping in mind that we are talking about economics, it seems you > consider yourself a crackpot for publishing your analyses yourself on > an email list. This isn't where I publish. :-) Witten's lunch table discussions with his friend Ken on the Middle East does not qualify as publishing either (just in case you want to call string theory crackpot). :-) You can mock academic standards. But, it is a fact that folks who use techniques similar to those used in your arguments here in any endeavor in which there is empirically measurable success or failure (e.g. engineering or science) have failed overwhelmingly, while folks who use the techniques I suppose have had their share of successes. Even I have had a modest success or two. :-) Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: The [WINDOWS-1252?]Libertarians Lament
Doug Pensinger quoted: > > (libertarians) Their heroic view of capitalism makes it difficult > for them to accept that markets can be irrational, misunderstand > risk and misallocate [WINDOWS-1252?]resourcesor that financial > systems without vigorous government oversight constitute a recipe > for disaster. > I think this is not fair. Nobody (except some loony types) think that markets are rational all the time. Alberto Monteiro ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: Financial institution fallout
Max Battcher wrote: > > (I think the > analogy between economics and electricity is particularly useful and > perhaps under-explored. I'd love to see more economists use circuit > diagrams...) > Probably because electricity is too deterministic, and economics is too random. OTOH, economy has drained too much brainpower from physics. Alberto Monteiro ___ http://www.mccmedia.com/mailman/listinfo/brin-l
