Fannie and Freddie

by John Quiggin on September 8, 2008

Measured by the dollar amount involved, the nationalisation of the mortgage guarantors Fannie Mae and Freddie Mac, announced today by the Bush Administration, is the largest in history. No less than $5 trillion of assets and obligations have been taken over by the US government in one hit.

Of course, that debt had long been regarded as having an implicit government guarantee and the companies involved were quangos (in the original sense of quasi-NGOs) rather than genuine private firms. Fannie was a government agency privatised in the 1960s, and Freddie was created to provide competiion for Fannie. So even though the US government will now guarantee virtually all new mortgages, this is more an admission of existing reality than a big step towards socialism.

The significance of the event is not in the marginal change in the status of Fannie and Freddie from quasi-private to quasi-public, but in the abandonment of the pretence that the normal operations of financial markets are capable of cleaning up the mess they have created, even with the liberal helpings of public money that have already been dished out.

While the quasi-governmental status of Fannie and Freddie was always problematic, this wasn’t the main reason for their problems. Rather, they were pushed to accept increasingly bad loans made by the private sector. And when their difficulties became acute, the most satisfactory solution, under normal conditions, would have been to formalise the government guarantee of their existing obligations, then put them into run-off mode, writing no new business.

It’s the impossibility of doing that, thanks to the near-total breakdown of the markets for securitised mortgage obligations (other than those coming with a government guarantee) that has necessitated the acceptance of open-ended liabiliities by the government.

The fact that the credit crisis has reached this point marks the failure of the central claim of the neoliberal program, namely that private capital markets, free from intrusive government regulation, can enable individuals and households to handle the risks they face more flexibly and efficiently than a social-democratic welfare state.

In the boom that created this crisis, every part of the financial system (retail banks and mortgage businesses, major investment banks, the financial engineers who designed new securitisation assets, investment funds, ratings agencies and bond insurers) had a major role to play. All have failed miserably, even though most will get to keep the rich rewards they received when things were going well. The financial sector triumphalism that dominated the 1990s looks pretty silly in retrospect.

{ 68 comments }

1

wolfgang 09.08.08 at 8:02 pm

If “the companies involved were quangos .. rather than genuine private firms” how does their collapse indicate “that the normal operations of financial markets are capable of cleaning up the mess they have created” ?
I would think the politicians who created those strange entities and supported them and encouraged them to expand their portfolios (mostly Democrats I might add) are mostly to blame for this mess.

2

John Quiggin 09.08.08 at 8:07 pm

Your question is answered in the two paras immediately following the sentence you cite.

3

swampcracker 09.08.08 at 8:24 pm

wolfie, the above referenced link contains this paragraph:

With the advantage of hindsight, it is evident that the transfer of risk from government and business to households has been one of the most significant outcomes of the neoliberal era, referred to by Jacob Hacker as The Great Risk Shift.

A particularly striking feature of this transfer has been the extent to which business and political leaders have been insulated from it.

Next time, read before you comment.

4

daddysteve 09.08.08 at 8:47 pm

“Privatized profit and socialized risk” is the phrase of the day. The term “investment” implies risk, does it not? I’m sure that bail-outs will decrease excessive risk taking in the future, right?

5

wolfgang 09.08.08 at 8:50 pm

>> Your question is answered
No it is not.

When you write “they were pushed to accept increasingly bad loans made by the private sector.” – who pushed them?

6

wolfgang 09.08.08 at 8:51 pm

> the above referenced link contains this paragraph
so what?

> Next time, read before you comment.
next time think before you comment

7

Mike 09.08.08 at 9:08 pm

All have failed miserably, even though most will get to keep the rich rewards they received when things were going well,

On the contrary, then, I’d say they succeeded admirably in their actual intent, particularly insofar as the burden has now been successfully shifted to the taxpayer.

8

Dan 09.08.08 at 9:23 pm

The fact that the credit crisis has reached this point marks the failure of the central claim of the neoliberal program, namely that private capital markets, free from intrusive government regulation, can enable individuals and households to handle the risks they face more flexibly and efficiently than a social-democratic welfare state.

Maybe if private capital markets were actually free from intrusive government regulation, you’d have a point.

9

dsquared 09.08.08 at 9:51 pm

When you write “they were pushed to accept increasingly bad loans made by the private sector.” – who pushed them?

their shareholders, who wanted to make the higher returns associated with these loans, hth.

10

abb1 09.08.08 at 10:08 pm

Maybe if private capital markets were actually free from intrusive government regulation, you’d have a point.

If private capital markets were free from government regulation we all would’ve been dead already. I think one could say that it’s a failure of the neoliberal pro-capital policies.

11

Righteous Bubba 09.08.08 at 10:11 pm

Are markets Scotsmen?

12

John Quiggin 09.08.08 at 10:32 pm

“When you write “they were pushed to accept increasingly bad loans made by the private sector.” – who pushed them?”

Initially by shareholders as DD says, but later by regulators under pressure to maintain access to mortgages and (they hoped) keep the (then) subprime crisis from spreading to areas like Alt-A.

13

Slocum 09.08.08 at 10:44 pm

The point that wolfgang makes is that Fannie and Freddie could never have become what they were, and as gargantuan as they were, had they been truly private entities rather than ‘quangos’. In the simplest terms, investors were willing to put so many eggs in those baskets and not check to see if the baskets were safe and not worry much about their eggs only because of the implicit government guarantee. Moral hazard 101.

Similarly, Freddie and Fannie would never have behaved as they had (for good and ill) if they been private entities rather than quasi-public entities with the mission of making mortgages affordable to marginal borrowers.

That’s not to say that no disasters could have resulted if the mortgage market had been the domain of purely private entities — but the failure of Fannie and Freddie is hardly a clean, clear demonstration of the failure of (neo-liberal) private capital markets.

14

John Quiggin 09.08.08 at 11:23 pm

To repeat myself, the failure of Fannie and Freddie is only part of the much bigger part of explicit (Bear Stearns) and implicit (Treasury handouts for all) bailouts for the whole sector. The reasons these firms got into trouble are only a marginal part of the story.

What’s important is the fact that the crisis has reached the point where Fannie and Freddie can’t be shut down and will in fact have to grow (until the safely distant date of 2010) under public ownership.

15

gandhi 09.09.08 at 12:25 am

The supreme irony? The Chinese socialist government is now fretting about how much exposure they have to the US capitalist meltdown.

In mid-2007 China owned around $376 billion of debt issued by U.S. government agencies, principally Fannie and Freddie. Do they now walk away, or follow Uncle Sam down the hole? As one Chinese analyst frets:

“For China, whether or not you buy the new treasuries, there will be losses: if you buy them, you’re getting deeper in the hole; if you don’t buy, your existing holdings will lose value.”

Or as Vice-Premier Wang Qishan put it:

“If we don’t buy U.S. treasuries and ABS, what else we can buy? China just has no way to avoid the risks. Whatever we do, we have to bear the losses.”

http://www.guardian.co.uk/business/feedarticle/7781955

The old dictionary definitions of “Left” and “Right” just don’t seem to be holding up too well for discussion purposes in this Brave New World.

Maybe it’s time to dump the whole silly idea that this corporate stock glorified gambling financial model is a firm base for economic development?

16

Markup 09.09.08 at 1:24 am

“…if you own something, you have a vital stake in the future of our country. The more ownership there is in America, the more vitality there is in America, and the more people have a vital stake in the future of this country.”

-President George W. Bush, June 17, 2004

Perhaps some maverick will be able to put in place some sort of rent control for the bulk of us “owners” and allow us to subscribe to Government in a similar manner to getting cell phone. Roaming and rollover minutes of course will carry an additional premium surcharge.

17

Maynard Handley 09.09.08 at 1:35 am

“Maybe if private capital markets were actually free from intrusive government regulation, you’d have a point.”

This is true. I hear that finance in Congo, Somalia and Afghanistan are absolutely booming, with the world beating a door to these libertarian shangri-la’s. Apparently the ability to enforce contracts privately rather than having to bother with all that state interference really is what people want.

18

Delicious Pundit 09.09.08 at 1:58 am

Maybe if private capital markets were actually free from intrusive government regulation, you’d have a point.

Oh, like this.

19

P O'Neill 09.09.08 at 2:54 am

Apparently Sarah Palin is now an expert on the FMs. At least her byline appears along with that old dude in a Wall Street Journal op-ed on the topic. A 100 shares in either institution to the person who can find a non-platitude in the piece.

20

Dan 09.09.08 at 2:55 am

Oh, like this.

Did you even read the article you linked? I mean, it’s not even a little hard to come up with a reasonable interpretation of events in which intrusive government regulation played a major role. From the link:

The Coinage Act of 1873 changed the United States policy with respect to silver. Before the Act, the United States had backed its currency with both gold and silver, and it minted both types of coins. The Act moved the United States to the gold standard, which meant it would no longer buy silver or mint silver coins.

The Act had the immediate effect of depressing silver prices. That hurt Western mining interests, who labeled the Act “The Crime of ’73.” But it also reduced the money supply, which hurt farmers and anyone else who carried heavy debt loads. The resulting outcry raised serious questions about how long the new policy would last. This perception of instability in United States monetary policy caused investors to shy away from long-term obligations, particularly long-term bonds. The problem was compounded by the railroad boom, which was in its later stages at the time.

21

Maynard Handley 09.09.08 at 3:15 am

Dan, this strikes me as rather desperate.
In 1873, banks could still issue their own notes, could they not? So what we have here is nothing but a decision by one financial player to change the way it behaved. What, ultimately, has changed here?
– the US is no longer buying silver (but other people are)
– the money supply (from the US govt) is in some sense reduced; but why, according to libertarian theory, should this matter? Other institutions, as I understand the way things worked then, were both capable of printing their own notes, and of taking in silver in return for notes.

I’m prepared to accept that I could be wrong, but I’d need an explanation as to where I’m mistaken.

22

Canadian 09.09.08 at 3:16 am

According to Krugman, in 1968 the Democrats privatized Fannie and created Freddie to take the debt obligations of these agencies off the government books. The government continued to implicitly guarantee their bonds resulting in these private companies having lower borrow cost than other firms. So these firms grew larger than any other private firm. Conservative critics of Fannie and Freddie argued that these firms will result in reckless lending, their failure and a bailout because they would be too large to fail. Now John argues that the failure of these private firms shows how capitalism failed?

23

John Quiggin 09.09.08 at 3:19 am

#22 Umm, no. RTFP

24

Ahistoricality 09.09.08 at 3:25 am

You realize, of course, that you can’t actually win that argument about government involvement: the truly free economy can’t actually exist when governments exist, so the goalposts will keep moving.

25

Delicious Pundit 09.09.08 at 3:32 am

Did you even read the article you linked?

Apparently not. I was thinking of this one.

I guess I’m just a little skeptical of blaming “excessive government regulation” when it also seems like there was plenty of speculation.

26

Roy Belmont 09.09.08 at 5:18 am

“…every part of the financial system …had a major role to play. All have failed miserably, even though most will get to keep the rich rewards they received when things were going well.”

I understand for analysis’ sake these systems need to be viewed as entities as much as processes, but keeping the rich rewards is strictly a human thing. Real money in real pockets.

People made those decisions, and people reaped those rewards, but we’re not allowed to accuse anyone of anything other than some corporate abstractions with logos and mailing addresses.
Who were those people?
Where are they now?
Why is it legal and basically socially acceptable for them to cripple an entire nation’s economy?
Why aren’t there any human names attached to this?

27

John Quiggin 09.09.08 at 5:41 am

Indeed, Roy, the problem is rather that there are so many meeting the obvious criteria (total failure and payout in excess of, say, $1m) that the space isn’t there to list them.

28

Hidari 09.09.08 at 7:04 am

To Slocum and Wolfgang
given that you have managed to persuade yourselves that the problem here is the ‘quangos’ semi-public status what precisely would you have done if you were the President of the United States? Your answer, I suppose would have to be either ‘nothing’ or ‘privatize them’ (I don’t know precisely what this would mean in the context of Fannie and Freddie, but let’ assume it’s doable). What do you think would be the consequences of these actions (or non-actions)? Both for the world economy and the American economy?

29

abb1 09.09.08 at 7:45 am

Why aren’t there any human names attached to this?

Because these are institutions and doctrines, not individual human beings. Put a hundred rats in a cage and they will eat each other.

30

Lex 09.09.08 at 7:48 am

“…if you were the President of the United States?”

Judging from their posts, abolished themselves, of course…

31

bi -- IJI 09.09.08 at 8:33 am

The fact that the credit crisis has reached this point marks the failure of the central claim of the neoliberal program

Oh, no, no, no. The neoliberals will either find a way to link the failure to some act of Big Government™; or failing that, they’ll just claim that the failed state of affairs represents the Best of All Possible Worlds™, in the sense that any other arrangement will yield a result that’s even worse anyway.

It makes no sense to try to falsify neoliberal doctrine — because, when you get right down to it, neoliberal doctrine is unfalsifiable.

 – bi, International Journal of Inactivism

32

David Wright 09.09.08 at 9:09 am

I am so happy to see JQ post on this topic, because there is a honest question I’ve been itching to ask a social democrat ever since Sunday!

Obviously, there are number of very good arguments to be made as to why, given where were at, this nationalization was unavoidable. Political pressure from China seems to be a popular reason, but given how many leveraged financial institutions hold some agency debt as tier 1 capital, the imminent danger that a failure would shut down not just the mortgage sector, but indeed the entire financial sector, seems reason enough without invoking the Chinese.

But stepping back from the necessesities of the moment and looking at what kind of a system we want to move toward in the future, what flabbergasts me is that a lot of mainstram American Democrats seem to think that what we really want is to socialize mortgage default risk across the entire citizenry. Brad DeLong is saying that “the business of guaranteeing and packaging conforming mortgages is properly a public function”. Barney Frank is saying that the Democrats have no intention of winding down FNM and FRE, but instead want to use it to continue to push up home prices, push down interest rates, and give mortgages to more people.

I don’t understand this. I can see the ethical logic behind wanting to socialize health care risk across the entire citizenry, even if I personally think that the associated downsides outweigh the upsides. But I just don’t see why anyone would think that we even ideally ought to socialize mortgage default risk across the entire citizenry. JQ is a thoughtful social democrat; I’m hoping he can explain the ethical logic to me.

33

Lex 09.09.08 at 9:35 am

Practically, there ought to be no ‘risk’ in mortgages – prudently administered, the likelihood of default is extremely low, and the value of the property sufficient to cover the debt. It would be a fine thing for access to such mortgages to be assured by public control. The problem comes when imprudent administration negates those factors. The abolition of the imprudent kind of mortgage would be a good thing, for everyone except the poor fools currently foisted with houses they can’t afford. Politicians accountable to electorates, many of whom are such poor fools, find themselves compelled to square a circle on this.

34

virgil xenophon 09.09.08 at 9:58 am

So far overlooked in this discussion is the role private investment companies played in bundling mortgages (CMOs) for resale without (a) realizing the risks if the mortgages inside went sour and (b) treating them like municipal bonds. FASB rules held that institutions could hold bonds to maturity at book value for their own accounts without “marking to the market,” even though there is an actual traded market.

CMOs were treated the same way, so defaults, as long as they wern’t massive, didn’t matter much. And, unlike muni bonds, there WAS NO
active “market” where these instruments could be traded. Then Fineagel’s Corollary (and at the worst possible time)to Murphy’s law (whatever can go wrong , will) came into effect. Just at the time that interest rates rose, and sub-prime borrowers began to default, the FASB changed the rules to force institutions to mark CMOs to the market on their balance sheets–just as default rates were rising.
This increase in default rates made some of these institutions wonder just how much these instruments were worth. But when they tried to sell them there were no takers because , again, (a) nobody knew what they were worth, and (b) there was no actively traded market–formal or informal. Soooo—they panicked, and, with the advise of their lawyers and CPAs who had ENRON and Federal prosecutors on their mind, began marking down these assets some 80-90%, practicing, in effect, defensive medicine with one eye on the regulators. This was clearly insane, as 96% of all mortgages are paid on time, but the panic was on and confidence is everything. bi-IJI is right also in saying that the takeover as a result of this needless (but understandable) panic will be characterized as the “least worst” option available.

35

A. Y. Mous 09.09.08 at 10:03 am

Everybody seems to be complaining. I, for one, am unable to accept that in this whole FMFM fiasco, there were no institutional (banks, govts., NGOs or even the quasis) winners. Even marginal. Those thousands of people who made millions of dollars when they got “to keep the rich rewards they received when things were going well”, have to park their money in some institution, in some country for some period of time.

Who, How Much & Where?

36

glenn 09.09.08 at 10:21 am

One major worry is that the government now seems to be crossing a major line by trying to nudge (or manage) asset prices, in this case houses. There is alot more to it, and while the whole idea of and fannie and freddie is f*cked up, they did what they had to do, so sad that they had to do it though. But ever since the depression (the past one, not the soon to be one), the US has concluded that home ownership is public policy and home prices be affordable. But where does it stop, once this line has been crossed? Would the gov’t buy long-dated bonds to force down rates? Would is buy equities in the case of a crash…?

37

Slocum 09.09.08 at 10:24 am

To Slocum and Wolfgang
given that you have managed to persuade yourselves that the problem here is the ‘quangos’ semi-public status what precisely would you have done if you were the President of the United States?

At this point, I think there was little choice — they couldn’t be allowed to fail. The government guarantee had to be honored even if it was only implicit. Wiping out the shareholders while guaranteeing the debt seems the right move. But going forward, I certainly wouldn’t favor reconstituting them in their previous form once the crisis is over. Nor keeping them as massive government-owned holders of mortgages. But exactly how they should be shrunk or phased out or divided up and sold off–I don’t yet have an opinion. And no, I don’t think the mortgage market should be unregulated.

38

glenn 09.09.08 at 11:10 am

There’s no reason for them! What problem do they solve that the capital markets cannot? Is there another country with similar entities? I don’t think so…

39

wolfgang 09.09.08 at 11:29 am

> what precisely would you have done if you were the President of the United States

Several years ago it might have still been possible to i) break up the two monsters into smaller entities, ii) raise capital requirements and iii) slowly but surely remove the implicit government guarantee.
Consequently, this would require to give up on blurring the line between those who can afford to own a home and those who cannot.
In other words it would be unpopular and thus it was not done.

By the way, I agree with John that recent events represent only a
“marginal change in the status of Fannie and Freddie from quasi-private to quasi-public”. The ‘social democratic’ experiment approach continues…

40

John Quiggin 09.09.08 at 11:39 am

#30 As an outsider I find the US debate on this a bit hard to follow. There’s obviously a public interest in ensuring that the mortgage market functions reasonably smoothly, but this hasn’t required an explicit govt or quasi-govt agency in other countries. On the other hand, maybe the general US preference for debtor-friendly institutions, like limiting creditors recourse to repossession of the secured asset, creates a need for something like Fannie (haven’t worked this through).

As I’ve said before, debtor friendly institutions are a political/social substitute for progressive taxation and income redistribution. I think the limits of this approach are becoming apparent.

41

Steve LaBonne 09.09.08 at 1:00 pm

Neoliberals apparently are just like Communists. You can never say their bullshit has failed because it’s never “really” been tried.

Good for generating debating points, perhaps, but a comprehensively sucky approach to making public policy.

42

Lex 09.09.08 at 1:30 pm

@38: interesting point. Strikes me as a very ‘pre-modern’ approach, one starts to think of the cancellation of debts in ancient Rome, or the Judeo-Christian concept of ‘jubilee’. Something carnivalesque about it…

43

Markup 09.09.08 at 1:55 pm

Interesting how certain political terms are being used, somehow negating certain realities in place for more than just the recent few years. Perhaps we should try a truly “free” market, since we’ve never had one it’s not been proven to be “failed bullshit.” Seems all presidents and Congress’ have pushed away from that noble zenith for some reason or other and that [any] fault is always placed on the backs other[s]. The singular constant is that the Money cares barely over a wit so long as their accumulated status is at least relatively kept level or better and that [increasingly] they are better able to share their risk with the rest of us.

44

Daniel 09.09.08 at 2:16 pm

>why aren’t there human names attached to this.

Here are some names to start: Franklin Raines, James Cayne, Warren Spector, Stan O’Neil….

Without exaggeration, there are 1000’s more who are culpable for this mess, but it would be a good start to go after these 4 and seize every dollar they have accumulated from their fraud/malfeasance.

Where is John Edwards when you really need him.

45

Daniel 09.09.08 at 3:01 pm

Some more names. Those responsible and their enablers should be called to account.
http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.htmlTop Recipients of Fannie Mae and Freddie Mac

Campaign Contributions, 1989-2008
Name Party/State Total

1. Dodd, Christopher J D-CT $133,900

2. Kerry, John D-MA $111,000

3. Obama, Barack D-IL $105,849

4. Clinton, Hillary D-NY $75,550

5. Kanjorski, Paul E D-PA $65,500

6. Bennett, Robert F R-UT $61,499

7. Johnson, Tim D-SD $61,000

8. Conrad, Kent D-ND $58,991

9. Davis, Tom R-VA $55,499

46

Steve LaBonne 09.09.08 at 4:14 pm

That list, Daniel, exemplifies the reason why I have a deep fear that things will have to get very much worse in this country before they begin to get better. Both parties are up to their necks in the muck. It would take something approximating a bloodless revolution to really push US politics in an even modestly more honest and competent direction.

47

Maurice Meilleur 09.09.08 at 4:18 pm

Daniel @43: Careful; a piece on this subject ran in the LAT this morning, and it was pretty clear that the author didn’t care to make a distinction in the headline between the money the companies themselves gave and the money people who work for them gave. The link you provided isn’t working, but maybe opensecrets.org isn’t making that distinction either?

48

Maurice Meilleur 09.09.08 at 4:20 pm

49

Markup 09.09.08 at 4:20 pm

Several people have drawn a distinction between the Red/Blue – Rural/Urban divide as being the amount of acreage needed to turn a dollar. This may help us understand some of the machinations involved in desires [or lack of] in various forms of zoning/regulation.

Once again we see the effect(s) of money in steering policy. Both parties have their hands in the cookie jars, and until long range planning can exceed 2-4 year time horizons and we live with the flaws of corporate personage we will continue downward [though with clever marketing it will look positively upward].

“Those Who Forget History Are …”

50

Colin Danby 09.09.08 at 4:37 pm

Re #30, you can surely argue that U.S. public policy over the last generation, including the tax code, has encouraged an excessive level of home ownership with all kinds of further consequences for resource allocation, environment, and the overweighting of millions of people’s portfolios in real estate. And sure, once you start down that road coalitions of bankers and builders will push for more and enlist politicians.

Are there any comparative/historical studies of gov’t mortgage guarantors in different countries? There must be instructive variation. There’s a public policy argument for guaranteeing conforming mortgages if private firms won’t make appropriate loans, so as to help worthy citizens settle down. And there are all the obvious objections to be raised to that line of reasoning.

On capital mkts, I wish people wouldn’t overgeneralize John’s point. One of the fascinating/terrifying aspects of the crisis of the last year is the way mkts in certain assets simply stopped trading. No volume, no price. If you relied on smoothly-functioning mkts and the price information generated thereby, you were in trouble. (Consider also how screwed up Libor has gotten, and the informational implications of that.) Liquidity matters, and when some actors start having trouble, everyone starts protecting themselves even if it means not buying assets they would normally acquire eagerly. It’s all in Bagehot.

51

a 09.09.08 at 7:53 pm

“If you relied on smoothly-functioning mkts and the price information generated thereby, you were in trouble. (Consider also how screwed up Libor has gotten, and the informational implications of that.) “

Libor isn’t a market, it’s a poll. If it *were* a market, we wouldn’t have had the problems that we have had. But given that any bank could just pick up a number x out of the hat and say that x was where it was offering funds, without any demonstration of a market price that justified x, there was obviously room for a disconnect between Libor and the actual market.

52

Colin Danby 09.09.08 at 8:18 pm

Obviously, “a”, but well-informed participants in lots of mkts chose to use Libor as a reference rate, and it’s embedded in the existing credit structure.

As long as we’re spelling out the bleeding obvious, you might note that Libor is derived from reports about rates at which participant banks claim they can *borrow* funds, not offer to lend them. *That* was the reason it went out of whack.

http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=225&a=1413&artpage=3

http://www.marketwatch.com/news/story/journal-new-study-shows-libor/story.aspx?guid={FD634189-80F2-4909-8A6F-B7F9476FC40D}

53

Colin Danby 09.09.08 at 8:20 pm

last url is bollixed but google “Report: Libor may have been affected by low-balling dollar calculation” and it’ll come up; hopefully the full wsj series is available somewhere

54

a 09.09.08 at 8:27 pm

So Colin, you understand it’s not a market. Good! So what’s you point using Libor as an example for a reliance on “smoothly-functioning mkts and the price information generated thereby”?

Bye.

55

abb1 09.09.08 at 9:03 pm

Simplified theoretical model of an ideal market with high elasticity works well on a computer. Also: killing monsters and having multiple lives.

56

Colin Danby 09.09.08 at 9:17 pm

the relevant term was “also,” not “e.g.”

57

shtove 09.09.08 at 11:41 pm

> what precisely would you have done if you were the President of the United States

Lifted the federal government’s prohibition on the prosecution of mortgage lenders for fraud over the last few years. Not that difficult.

58

gandhi 09.09.08 at 11:59 pm

>why aren’t there human names attached to this.

I recommend another look at “The Bubble Man“.

59

Colin Danby 09.10.08 at 12:01 am

60

geo 09.10.08 at 3:22 am

61

floopmeister 09.10.08 at 4:35 am

glenn 09.09.08 at 11:10 am
There’s no reason for them! What problem do they solve that the capital markets cannot?

Well they can protect big investors from their own mistakes by socialising the risks, obviously.

That’s one great advantage over a free market.

The Scandinavian banking meltdown is instructive – they let the banks go down, and damn the investors. Instead, they protected the tax payers.

Funny how the democratic socialist countries let the market correction happen, while the country that trumpets it’s free market credentials ad nauseum makes, at the bitter end, the biggest market intervention in history.

62

newshutz 09.10.08 at 3:50 pm

This is how the left advances

1. Create a moral hazard to “help people”.
2. Blame the market for the inevitable problems.
3. Use that to justify more of step one.

63

Markup 09.10.08 at 8:59 pm

Remind me again what the advances are from the trickle down free market right, as many of their recent “innovations” seem to have made my memory as fuzzy as Pres. … whatzizname who kept complaining about the bear market in the woods.

In the [less than] last year control over investment has shifted even more in to the hands of the few, the proud, the … very folks those doing keep saying are the last one who should be doing it. What do you call it when Government gets a larger direct control of investment?

64

J Thomas 09.10.08 at 11:39 pm

This is how the left advances

1. Create a moral hazard to “help people”.
2. Blame the market for the inevitable problems.
3. Use that to justify more of step one.

The Republican left has been in control for roughly 20 out of the last 30 years, not counting times they mostly controlled Congress but not the presidency. Too bad they didn’t do anything to reduce your moral hazard.

65

floopmeister 09.11.08 at 12:01 am

This is how the left advances…

Yep, with our Birkenstocks in lockstep and our unwashed tresses flying.

Honestly, you’re just like a doctrinaire Marxist – “Marxism hasn’t failed because it’s never been tried properly yet!”

66

scared sh*%less 09.11.08 at 4:39 am

Here’s a comment from a simpleton on these matters: Western European countries (not in every case, but in a good number of cases) and Canada embrace a form of capitalism that demonstrably works. Why can’t we humbly ask them how to run an economy?

The problems such forms have seem (to me at least) derived from the fact that they’re plugged into the same global free market as that of the U.S. And since the latter is much more de-regulated and un-policed than the former, they have to compete with dirty crooks like us, and are thereby forced to lower their standards.

Since I’m pretty uninformed, I would appreciate some of you to point out where I’m wrong.

Thanks

67

derek 09.11.08 at 10:02 am

You can’t ask us because our successful economies have the intolerable feature of having a smaller percentage of all the wealth in the hands of the wealthiest 0.1%. And the wealthiest 0.1% of your country will not allow that to happen there.

68

J Thomas 09.11.08 at 7:00 pm

Why can’t we humbly ask them how to run an economy?

If foreigners had asked us how to run an economy in the 1950’s or 1960’s we would have told them things like ‘Invest in R&D’ and ‘Do free trade’. We would not have told them ‘Find oil inside your borders and pump it as fast as you can’.

They probably don’t know why what they’re doing is working at the moment than we did.

Comments on this entry are closed.