4 ms·

Government policy triggered the financial meltdown and will almost certainly extend it.

20 points by robg 18y ago

thomasmallen 18y ago
Superbly written, and a sobering read. As a proponent of small government, the ideas themselves are echoes, but I appreciate the wealth of evidence provided. The big governments of the past sixteen (or, arguably, eighty) years have provided quite a bit of ammunition for political conservatives, and this spiraling crisis to me resembles an endgame for big government. Its bloat and poor decisions will result in bankruptcy and a timely education for those who've forgotten that the US government is inherently inefficient. This inefficiency is by design, for fear of a hulking administration was the primary motive in drafting such a constitution. Or, this will become a runaway train, and the government will grow like a cancer til its collapse. Let's hope not.
davidw 18y ago
Could we keep reason.com, mises.org, Krugman, Stiglitz, all titles with Obama, and all that on other sites? Please?
- bayareaguy 18y ago
  NickB's http://www.newmogul.com http://www.newmogul.com is a better place for this kind of thing.
jderick 18y ago
I don't see how you can be a libertarian these days while addressing the current financial crisis without presenting some kind of rebuttal to the commonly held view that it was the do nothing (aka libertarian) government that was responsible for prolonging the Great Depression. Also, the lack of regulation coming into the current crisis allowed banks to take on much more risk then they should have. Overall, it is not clear what solution this article is proposing.
- kingkongrevenge 18y ago
  I guess it's hard for those literate on the subject of the depression to realize anybody out there still fails to understand it was a direct product of Hoover and FDR's economic interventionism. Hoover's strong policy reaction to the crash and then the New Deal caused the Depression. It ended after the war because the government was forced to roll back much of the New Deal in order to win the war. Countries that did not much intervene after the initial financial crash recovered in the space of a few years. The decade long depression was more of an American phenomenon caused by FDR.
- davidw 18y ago
  > what solution this article is proposing. If it's on reason.com, you don't even have to look at the article. The answer will always be "less government, more free market". They're boringly and religiously predictable, just like some people on the left always call for "the government" to step in and (magically?) fix everything. I think neither one is particularly intellectually stimulating and the ensuing debates have been acted out a million times on the internet.
  - pg 18y ago
    Are they mistaken in this case?
    - davidw 18y ago
      Anyone who says they know exactly what went wrong with the current crisis and exactly how it should have been done is full of it, IMO. I think it will be years before all the facts have been digested enough to get a good idea of what really happened. The best thing I've seen so far is this: http://www.marginalrevolution.com/marginalrevolution/2008/10/my-views-on-the.html http://www.marginalrevolution.com/marginalrevolution/2008/10... One inconvenient discussion the article leaves out is anything related to this: "8. The critical deregulatory mistake was allowing excess leverage. Many deregulations get blamed but in fact contributed little to the problem." They mention it with fannie and freddy, but don't mention it at all with regards to the big investment banks, which got an ok from the SEC to increase their leverage. I don't doubt that bad regulations played a role in the problems, but attributing all the problems to the government strikes me as being simplistic, and an argument based more on faith than facts. Which was my original point about reason.com.
quoderat 18y ago
Wow, that's a terrible article, short on facts and long on ideology. The vast majority of the subprime mortgages doled out were never sold to Fannie or Freddie -- they were bought up eagerly by investment banks who had lax leverage requirements. Many of these mortgages were originated by in-house origination units, so, yep, they knew what they were doing. Blaming government regulation and lending to low-income borrowers for the financial crisis is like blaming the janitor at JPL for the Challenger exploding. Talk about clueless...willfully clueless.
krschultz 18y ago
I love this part: You can't lend money if you don't have it. And beginning in 2001, the Federal Reserve made sure lots of people had it. In January 2001, when President Bush took office, the federal funds rate, the key benchmark for all interest rates in this country, was 6.5 percent. Then, in response to the meltdown in the technology sector, the Fed began cutting the rate. By August 2001, it was at 3.75 percent. And after the terrorist attacks of September 11, the Fed opened the spigot. By the summer of 2002, the federal funds rate was 1 percent. No mention of the reason for the low rates i.e. to spur economic growth. The administration wanted to PROVE that tax cuts cause enough economic growth to grow government revenue. The way to do that if the tax cuts aren't really working is to keep lowering the interest rate. Now that the whole house of cards has fallen down, it is very silly to be saying that less government would be the solution. I would say that in June of this year I was a hardcore libertarian, and I have been pretty much since I had become politically aware, but after digging through the events and the economics of the crisis, my mind has changed. When it comes to financial markets, they are going to swing. But government's role should be to force publicly traded companies to have transparent books, and the financial industries where anything but transparent in the last few years. A stronger SEC would have helped in that regard.
- newsycaccount 18y ago
  When a company engages in systemic risk, it discounts that risk by the amount of the system the company doesn't occupy (e.g. if Goldman does something that will create a 10% chance of a $100 billion dollar loss, spread evenly across the financial industry as a whole, and if Goldman only makes up 5% of the industry, Goldman will only take into consideration a 10% chance at a $5 billion loss. The other $95 billion isn't their problem and their shareholders could sue members of the board if the board allowed the company to take it into account).

20 points by robg 18y ago

Superbly written, and a sobering read. As a proponent of small government, the ideas themselves are echoes, but I appreciate the wealth of evidence provided. The big governments of the past sixteen (or, arguably, eighty) years have provided quite a bit of ammunition for political conservatives, and this spiraling crisis to me resembles an endgame for big government. Its bloat and poor decisions will result in bankruptcy and a timely education for those who've forgotten that the US government is inherently inefficient. This inefficiency is by design, for fear of a hulking administration was the primary motive in drafting such a constitution. Or, this will become a runaway train, and the government will grow like a cancer til its collapse. Let's hope not.

davidw 18y ago

Could we keep reason.com, mises.org, Krugman, Stiglitz, all titles with Obama, and all that on other sites? Please?

bayareaguy 18y ago
NickB's http://www.newmogul.com http://www.newmogul.com is a better place for this kind of thing.

jderick 18y ago

I don't see how you can be a libertarian these days while addressing the current financial crisis without presenting some kind of rebuttal to the commonly held view that it was the do nothing (aka libertarian) government that was responsible for prolonging the Great Depression. Also, the lack of regulation coming into the current crisis allowed banks to take on much more risk then they should have. Overall, it is not clear what solution this article is proposing.

kingkongrevenge 18y ago
I guess it's hard for those literate on the subject of the depression to realize anybody out there still fails to understand it was a direct product of Hoover and FDR's economic interventionism. Hoover's strong policy reaction to the crash and then the New Deal caused the Depression. It ended after the war because the government was forced to roll back much of the New Deal in order to win the war. Countries that did not much intervene after the initial financial crash recovered in the space of a few years. The decade long depression was more of an American phenomenon caused by FDR.
davidw 18y ago
> what solution this article is proposing. If it's on reason.com, you don't even have to look at the article. The answer will always be "less government, more free market". They're boringly and religiously predictable, just like some people on the left always call for "the government" to step in and (magically?) fix everything. I think neither one is particularly intellectually stimulating and the ensuing debates have been acted out a million times on the internet.
- pg 18y ago
  Are they mistaken in this case?
  - davidw 18y ago
    Anyone who says they know exactly what went wrong with the current crisis and exactly how it should have been done is full of it, IMO. I think it will be years before all the facts have been digested enough to get a good idea of what really happened. The best thing I've seen so far is this: http://www.marginalrevolution.com/marginalrevolution/2008/10/my-views-on-the.html http://www.marginalrevolution.com/marginalrevolution/2008/10... One inconvenient discussion the article leaves out is anything related to this: "8. The critical deregulatory mistake was allowing excess leverage. Many deregulations get blamed but in fact contributed little to the problem." They mention it with fannie and freddy, but don't mention it at all with regards to the big investment banks, which got an ok from the SEC to increase their leverage. I don't doubt that bad regulations played a role in the problems, but attributing all the problems to the government strikes me as being simplistic, and an argument based more on faith than facts. Which was my original point about reason.com.

quoderat 18y ago

Wow, that's a terrible article, short on facts and long on ideology. The vast majority of the subprime mortgages doled out were never sold to Fannie or Freddie -- they were bought up eagerly by investment banks who had lax leverage requirements. Many of these mortgages were originated by in-house origination units, so, yep, they knew what they were doing. Blaming government regulation and lending to low-income borrowers for the financial crisis is like blaming the janitor at JPL for the Challenger exploding. Talk about clueless...willfully clueless.

krschultz 18y ago

I love this part: You can't lend money if you don't have it. And beginning in 2001, the Federal Reserve made sure lots of people had it. In January 2001, when President Bush took office, the federal funds rate, the key benchmark for all interest rates in this country, was 6.5 percent. Then, in response to the meltdown in the technology sector, the Fed began cutting the rate. By August 2001, it was at 3.75 percent. And after the terrorist attacks of September 11, the Fed opened the spigot. By the summer of 2002, the federal funds rate was 1 percent. No mention of the reason for the low rates i.e. to spur economic growth. The administration wanted to PROVE that tax cuts cause enough economic growth to grow government revenue. The way to do that if the tax cuts aren't really working is to keep lowering the interest rate. Now that the whole house of cards has fallen down, it is very silly to be saying that less government would be the solution. I would say that in June of this year I was a hardcore libertarian, and I have been pretty much since I had become politically aware, but after digging through the events and the economics of the crisis, my mind has changed. When it comes to financial markets, they are going to swing. But government's role should be to force publicly traded companies to have transparent books, and the financial industries where anything but transparent in the last few years. A stronger SEC would have helped in that regard.

newsycaccount 18y ago
When a company engages in systemic risk, it discounts that risk by the amount of the system the company doesn't occupy (e.g. if Goldman does something that will create a 10% chance of a $100 billion dollar loss, spread evenly across the financial industry as a whole, and if Goldman only makes up 5% of the industry, Goldman will only take into consideration a 10% chance at a $5 billion loss. The other $95 billion isn't their problem and their shareholders could sue members of the board if the board allowed the company to take it into account).