Libertarian Democrat Point Of View: An Eccentricity: Avent

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Wednesday, June 3, 2009

Ben Bernanke presented testimony this morning in which he seconded some of Wolf’s points

From The Bellows:

"What’s Bernanke Getting At?

Posted by ryan on June 3rd, 2009 filed in Economics

As you know, I’ve been following the ongoing debate over the extent to which markets are nervous about American government debt levels, which may or may not betoken inflation to come and/or a crowding out of private investment and/or a dollar run. Martin Wolf has a relatively new column up which, in my view, levels the arguments of those like Niall Ferguson and John Taylor, who see disaster at the doorstep. As Wolf says, there is very little in interest rates to indicate a fear of runaway inflation or a crowding out of private investment.

Ben Bernanke presented testimony this morning in which he seconded some of Wolf’s points — most notably, he suggested that slack in the system would persist for some time, making near-term inflation extremely unlikely. But he also attributed the recent rise in long-term Treasury to concern over deficits, at least in part. And, he had this to say:

Certainly, our economy and financial markets face extraordinary near-term challenges, and strong and timely actions to respond to those challenges are necessary and appropriate. Nevertheless, even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance. Prompt attention to questions of fiscal sustainability is particularly critical because of the coming budgetary and economic challenges associated with the retirement of the baby-boom generation and continued increases in medical costs. The recent projections from the Social Security and Medicare trustees show that, in the absence of programmatic changes, Social Security and Medicare outlays will together increase from about 8-1/2 percent of GDP today to 10 percent by 2020 and 12-1/2 percent by 2030. With the ratio of debt to GDP already elevated, we will not be able to continue borrowing indefinitely to meet these demands.

Addressing the country’s fiscal problems will require a willingness to make difficult choices. In the end, the fundamental decision that the Congress, the Administration, and the American people must confront is how large a share of the nation’s economic resources to devote to federal government programs, including entitlement programs. Crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run. In particular, over the longer term, achieving fiscal sustainability–defined, for example, as a situation in which the ratios of government debt and interest payments to GDP are stable or declining, and tax rates are not so high as to impede economic growth–requires that spending and budget deficits be well controlled.

I’m not quite sure how to interpret this. On the one hand, it seems clear that reduced debt levels would make his life easier, and politically speaking, it will be difficult (in my view) to pass additional deficit-funded measures in the short-term without identifying some clear new revenue stream to be tapped to eventually pay for the program. On the other hand, Bernanke sure does seem to be making his policy preferences known in ways I don’t much like. This testimony will be ammunition for the Fergusons out there, who have failed to find much support in bond markets. If it seems clear that current deficits aren’t excessively inflationary and aren’t crowding out private investment, and new stimulus — in the form of unemployment benefit extensions, say — is deemed necessary to prevent the economy from tipping once more into a rapid rate of decline, then I’d like the government to have a free hand to do what needs to be done. Instead, we’ll have a bunch of blue dogs out there waving the text above.

The bottom line is this — the issue of long-run budget sustainability is actually of crucial importance. It should be part of the ongoing policy conversation. It should not be the beginning and end of the conversation, given the broader problem of economic weakness. But that’s increasingly the way these discussions are playing out. Bernanke must have known that his take on deficits would be splashed across news sites everywhere, reinforcing a meme that’s been pushed by conservatives in recent weeks. He must have known that his advisement that debt levels could be a major problem in the future would be interpreted by the press as a belief that debt levels are a major problem right now.

For someone with his background, and his awareness of the history of the Great Depression, I find this to be a very confusing and unfortunate move."

Me:

Don the libertarian Democrat Says:
June 3rd, 2009 at 3:22 pm
In order for QE to work, people must believe that Inflation is coming. That’s more important than worrying about Hyperinflation or its trumpeters, at least at this point. What he’s doing and saying makes sense.

Don the libertarian Democrat Says:
June 3rd, 2009 at 3:30 pm
I should have said that we want people to believe that inflation is coming down the road a ways. The trumpeters are serving a useful purpose, by going on about runaway inflation down the road. Right now, we want low interest rates. The current spreads are the desired result that we’re looking for. That’s why QE is working.

Thursday, May 7, 2009

emerge from a sober and considered piece of legislation

From The Bellows:

Strawman Constructed; Point Missed

Posted by ryan on May 7th, 2009 filed in Finance

Simon Johnson and James Kwak are smart guys, but this is just ridiculous:

Back in February, America was mired in a public debate over the word “nationalization” and what it meant for our banking system, with contributions by Nobel Laureates Paul Krugman and Joseph Stiglitz, former and current Fed officials Alan Greenspan, Alan Blinder, and Thomas Hoenig, and administration figures Timothy Geithner, Larry Summers, and even Barack (”Sweden had like five banks“) Obama, among others. On a substantive level, the debate was over whether large and arguably insolvent banks should be allowed to fail and go into government conservatorship, as happens routinely with small insolvent banks. Opponents of this view who wanted to keep the banks afloat in their current form, including the current administration, beat off this challenge by calling it nationalization (more precisely, by demonizing government control of banks). Perversely, however, what we got instead was increasing co-dependency between the government and the large banks, as well as increasing influence of the government over the banks, and vice-versa. And according to the market, the banks should be quite happy with this outcome.

Emphasis mine. Thomas Hoenig has been making a similar point, and it’s just absurd. For the most part, those arguing against nationalization weren’t doing so on the basis that it was nationalization, full stop. They were doing so because they felt, quite reasonably, that nationalization was likely to be extremely complicated, risky, costly, logistically or legally impossible, or some other collection of reasons. I don’t see what good it does these guys to fail to engage the legitimate arguments being made by those on the other side.

What’s also interesting is that in the piece excerpted above is a point they make that has also been argued by Thomas Hoenig and others (Steve Waldman, for instance) — that the big problem with not nationalizing is that it brings the banking sector through the crisis without any significant reforms taking place. Now, I understand this outlook. Our largest banks dominate the system, and breaking up Bank of America and Citigroup would strike a huge blow for the cause of too-big-to-fail is too-big-to-exist and against moral hazard. But that actually leaves most of the difficult work undone. Other, solvent banks would swoop in and take the exposed market share, and the fear of god would eventually be forgot.

What we actually want to see are some fundamental changes to the regulatory system that will constrain behavior and leverage at all firms, along with new oversight capabilities and responsibilities. Certainly, I think that explicit nationalization authority for large and complex institutions should be a part of such regulatory reform, but I think that that authority should, along with the rest of the changes, emerge from a sober and considered piece of legislation. I don’t want my reform to come in the heat of battle.

There is obviously a risk that when conditions improve the impetus for reform will be lost. But I think there’s a pretty substantial window in which reform can take place. It’s more important to do regulatory reform right than to do it quickly. I don’t see a vague concern that in the next year anger at and worries about the banking system will evaporate as a good reason to undertake a tricky and risky nationalization now.

Me:

Don the libertarian Democrat Says:
May 7th, 2009 at 2:57 pm
Is there some reason that the following plan is a priori crap or pr?

http://www.treas.gov/press/releases/reports/032509%20legislation.pdf

This Act may be cited as the “Resolution Authority for Systemically Significant Financial Companies Act of 2009.”

As near as I can tell, this is what people are calling for.

Monday, May 4, 2009

But why does that mean that the financial sector should have grown commensurately?

From Reuters:

"Felix Salmon

a good kind of contagious

« Previous Post

May 4th, 2009

The inefficient financial sector

Friday, May 1, 2009

All right then! Back to blogging; the world’s not going to stop on my account.

From The Bellows:

"Moving On

Posted by ryan on April 30th, 2009 filed in About the Authors

Well, I didn’t think I’d be back here so soon.

Not for the first time in my life, and not for the last, my grand and best-laid plans failed to work out as I’d hoped. The demise of Portfolio is a major disappointment, but I’m working to keep it all in perspective. I’d give my side of the story if there were much of a story to tell, but there really isn’t. I knew there were risks going in; after I’d accepted the job but before I began, Conde Nast laid off a number of writers at Ars Technica, among them my friend Julian Sanchez, and I had a good, long thought about whether I was putting myself in a bad situation. In the end, I decided there was no way I could let such an opportunity pass me by, based on some fear that I might wind up laid off. It was the right decision, and I’d make it again.

I suspect that someone in the organization knew about the potential shutdown when they approved my hire, but I don’t think it was the editors at Portfolio who orchestrated the recruitment. I don’t have any bad feelings toward them, and I wish them good luck finding new jobs.

What next for me? I have had some interesting discussions this week, and I am optimistic that I’ll find myself in a good place fairly soon, but I’m not yet to decide anything just yet. The past few weeks have been a whirlwind, and I’m going to mull things over for a few more days to try and determine just what I want to accomplish with my next step. In the mean time, I’ll be posting a few things here so that I don’t get too rusty.

Many thanks to all the folks who offered support this week. The news was heartbreaking, and it made a difference to hear such great things from you all.

All right then! Back to blogging; the world’s not going to stop on my account."

Me:

Don the libertarian Democrat Says:
May 1st, 2009 at 4:20 pm
Glad you’re posting again. Just to warn you though, the world does stop on my account.

Wednesday, April 29, 2009

So let me be clear: for sixteen months now I have been a Swedish-model advocate who wants to guarantee bank bondholders

TO BE NOTED: Grasping Reality with Both Hands:

"Tim Geithner and the Swedish Model

James Surowiecki:

The Sweden Example: The Balance Sheet: Ryan Avent beats me to the punch by pointing out the most important part of today’s Times’ story on Tim Geithner, namely that in the summer of 2008, after the collapse of Bear Stearns but before the meltdown of Lehman Brothers, Geithner proposed having the government guarantee the debts of all U.S. banks. The plan was shot down as politically untenable, but, as Ryan points out, had it been put into effect, we would most likely not have seen Lehman go under or had to deal with the incredibly negative consequences of that failure. More important, perhaps, by reducing the threat of panicked runs on bank debt (since those debts would have been guaranteed), such a guarantee would also have made it easier for regulators and banks to deal in a transparent fashion with the toxic-asset problem. That’s why the very first step in Sweden’s much-admired solution to its banking crisis in the early nineteen-nineties, was, yes, a guarantee of all bank debt. As one of the regulators involved in that effort put it, the guarantee “was provided in order to restore confidence and to ease the immediate pressure on banks,” by ensuring “the stability of the payment system and to safeguard the supply of credit.”

Given all this, Ryan is perplexed that Yves Smith... dismisses Geithner’s proposal... her conviction that any plan to deal with the banking system has to require bank bondholders to take a major hit. In other words, for Smith, the Swedish solution is not the right one. Nationalizing the banks, and wiping out the shareholders, isn’t enough: you have to impose significant pain on the banks’ debtholders, too. Lots of nationalization advocates believe that a debt guarantee is a bad idea. But one of the things that’s made the debate over nationalization confusing is that many of these same people, while arguing that bank debtholders should take a hit, also say that what the U.S. should do is emulate Sweden.... [T]his doesn’t make any sense. At the heart of the Swedish solution was the guarantee of all bank debt, ensuring that bondholders would not take a hit. And the Swedes, at least, thought that guarantee was essential to making their plan work.... [N]ationalization supporters should be clear: if they want to cram down the debtholders, then they don’t want the U.S. to follow the Swedish model. You cannot “Go Swedish” and “wipe out bond holders” at the same time.

There are nationalization advocates who really do want the U.S. to emulate Sweden, including most notably Paul Krugman, who’s said, “Sweden guaranteed all [bank liabilities]. If forced to say, I would go the Swedish route; but of course we can’t do that unless we’re prepared to put all troubled banks in receivership.” But many supporters of nationalization are just invoking Sweden in order to prove that there’s a historical precedent for successful nationalization, while at the same time arguing that the U.S. should reject a crucial part...

So let me be clear: for sixteen months now I have been a Swedish-model advocate who wants to guarantee bank bondholders. I thought and think it is the best practical road out of this mess."

Monday, April 27, 2009

by ensuring “the stability of the payment system and to safeguard the supply of credit.”

TO BE NOTED: From The New Yorker:

"The Sweden Example

Ryan Avent beats me to the punch by pointing out the most important part of today’s Times’ story on Tim Geithner, namely that in the summer of 2008, after the collapse of Bear Stearns but before the meltdown of Lehman Brothers, Geithner proposed having the government guarantee the debts of all U.S. banks. The plan was shot down as politically untenable, but, as Ryan points out, had it been put into effect, we would most likely not have seen Lehman go under or had to deal with the incredibly negative consequences of that failure. More important, perhaps, by reducing the threat of panicked runs on bank debt (since those debts would have been guaranteed), such a guarantee would also have made it easier for regulators and banks to deal in a transparent fashion with the toxic-asset problem. That’s why the very first step in Sweden’s much-admired solution to its banking crisis in the early nineteen-nineties, was, yes, a guarantee of all bank debt. As one of the regulators involved in that effort put it, the guarantee “was provided in order to restore confidence and to ease the immediate pressure on banks,” by ensuring “the stability of the payment system and to safeguard the supply of credit.”

Given all this, Ryan is perplexed that Yves Smith, in her post today on the Times article, dismisses Geithner’s proposal as just another attempt to give Wall Street a handout. In part, this could be because Smith thinks that, in the absence of a systematic plan to deal with toxic assets (which we don’t know if Geithner had), guaranteeing all bank debt would have allowed banks to engage in more risky behavior, knowing that taxpayers would foot the bill. But I think what’s really driving Smith’s attack on Geithner’s proposal is her conviction that any plan to deal with the banking system has to require bank bondholders to take a major hit. In other words, for Smith, the Swedish solution is not the right one. Nationalizing the banks, and wiping out the shareholders, isn’t enough: you have to impose significant pain on the banks’ debtholders, too.

Lots of nationalization advocates believe that a debt guarantee is a bad idea. But one of the things that’s made the debate over nationalization confusing is that many of these same people, while arguing that bank debtholders should take a hit, also say that what the U.S. should do is emulate Sweden. Henry Blodget, for instance, has argued that that we should follow “a tried and true way of fixing banks: The Swedish Model,” and yet he also insists that we should stop bailing out bank bondholders. And Barry Ritholtz has written that when it comes to dealing with the banks we should “Go Swedish. Wipe out shareholders, bond holders, and all the bad debt and junk paper these firms hold.”

Needless to say, this doesn’t make any sense. At the heart of the Swedish solution was the guarantee of all bank debt, ensuring that bondholders would not take a hit. And the Swedes, at least, thought that guarantee was essential to making their plan work. In the U.S. context, maybe we should follow a different approach, but nationalization supporters should be clear: if they want to cram down the debtholders, then they don’t want the U.S. to follow the Swedish model. You cannot “Go Swedish” and “wipe out bond holders” at the same time.

There are nationalization advocates who really do want the U.S. to emulate Sweden, including most notably Paul Krugman, who’s said, “Sweden guaranteed all [bank liabilities]. If forced to say, I would go the Swedish route; but of course we can’t do that unless we’re prepared to put all troubled banks in receivership.” But many supporters of nationalization are just invoking Sweden in order to prove that there’s a historical precedent for successful nationalization, while at the same time arguing that the U.S. should reject a crucial part of what made that precedent work. So the news that Geithner wanted the U.S. to take a first step on the Swedish path is unlikely to change their view of him. If anything, it’ll just confirm their assumption that he’s not willing to do what’s necessary.

Posted by James Surowiecki"

And:

April 27, 2009

The Fetishization of Boldness

Justin Fox has a nice post laying out a range of possible explanations for the Obama Administration’s decision not to nationalize some of the country’s biggest banks. Sensibly, the very first explanation Fox offers (and one he says he’s finding more plausible) is that the Administration is following its current strategy for dealing with the banks (a mix of regulatory forbearance and government subsidy in the form of debt guarantees and capital injections) because it believes “it’s the proper course of action, because most banks will be able to earn their way out of their problems if given some time and forbearance by regulators.” Oddly, this simple explanation—that Barack Obama, Tim Geithner, and Ben Bernanke have adopted their strategy because they think it has the best chance of getting the economy back on track while taking the least systemic risk, rather than because they’re stupid, or corrupt, or “cognitively captured”—is one you rarely hear floated these days, even though it is, I think, almost certainly true.

At the same time, Fox echoes one of the most common, but least convincing, criticisms of the Administration’s approach in general, and of Tim Geithner in particular, namely that they’re handling the crisis in a “tentative way” and not being bold enough. This critique has become a commonplace—it’s at the heart of Gary Weiss’s piece on Geithner in the new issue of Portfolio, where Geithner is described as “tentative,” “lacking in boldness and imagination,” and lacking “fresh ideas.”

I don’t buy it. Geithner did flub his first big speech, when he gave markets only a tentative sketch of what the Administration’s bank plan would look like. But from a policy perspective, the Administration has not been tentative at all: in fact, it’s been unwavering in its insistence that, given current market and economic conditions, the risks and costs of nationalization outweigh the benefits. And its alternative strategy may be wrong, but that doesn't mean it’s ill-considered, or halfhearted.

It's true that the administration's approach may not be bold in the sense of being radical, but no one believes that boldness is, in itself, a good thing or that the more radical a solution is, the better it must be. (The Bush Administration’s decision to invade Iraq was certainly bold and radical. That didn’t make it any less of a mistake.) More important, the boldness issue is really a red herring. Obama’s critics’ problem with the Administration isn’t really that they think it should act more decisively: it’s that they think the Administration should act differently. In that context, the personal attacks on Geithner for being weak and hesitant (like the persistent references to him as “Timmy,” as if he were somehow a child) are really just rhetorical gambits designed to make the Administration’s strategy seem weak and hesitant as well. The myriad criticisms of Geithner’s style and connections and the Administration’s lack of imagination all really boil down to the same unvarying argument: the government should nationalize the banks. And as long as the Administration refrains from doing this, nothing it does on the banking front—either stylistically or in terms of policy—will satisfy its critics.

Keywords

Posted by James Surowiecki"

Guaranteeing all the bank debt was, of course, one of the key ingredients of the Swedish bank rescue so beloved by fans of nationalization

From Portfolio:

"Market Movers

by Ryan Avent

Main

Sinking Animal Spirits

Apr 27 2009 9:26AM EDT

The Times' Rorshach Geithner Story

The New York Times has provided a handy blogging point for today in the form of a long piece on the relationships Tim Geithner formed while head of the New York Fed. The story is based in part on the results of a Times FOIA request, for the contents of Geithner's daily calendar while at the bank, and bloggers have primarily approached the story as a search for potentially nefarious activities. As examples, we see Paul Kedrosky concluding that there's no real "smoking gun," and Yves Smith writing that the story is far too kind, as it mysteriously excises all the times Geithner was scheduled to dine on babies and puppies in the company of Satan and AIG executives.

For the life of me, I don't know why we're not spending at least a little more time on the opening anecdote:

Last June, with a financial hurricane gathering force, Treasury Secretary Henry M. Paulson Jr. convened the nation's economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis? he asked.
Timothy F. Geithner, who as president of the New York Federal Reserve Bank oversaw many of the nation's most powerful financial institutions, stunned the group with the audacity of his answer. He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele Davis, then an assistant Treasury secretary.
The proposal quickly died amid protests that it was politically untenable because it could put taxpayers on the hook for trillions of dollars.

Smith notes the line and proceeds to throw of a line constituting one of the most epic examples of point missing in recent memory:

The story fails to note this was almost assuredly the most bank friendly program possible.

To begin with, that's not even true. The most bank friendly program possible is handing the banks a lot of money with no strings attached. But how does Smith miss that this would not only have been a very smart and prescient move, but it might also have laid the groundwork for a much tougher bank policy? Guaranteeing all the bank debt was, of course, one of the key ingredients of the Swedish bank rescue so beloved by fans of nationalization. Smith just assumes Geithner is looking to help his Wall Street buddies, but he might just as easily have been reading directly from the Swedes' playbook.

Moreover, this move would have entirely changed the calculus in September. It would have made the government much more reluctant to let Lehman fail, which I believe we can agree would have been a good thing. Had they nonetheless decided that Lehman should be allowed to go down, in the knowledge that the government would have to make the debtholders whole, then we would have avoided most of the negative effects of the actual Lehman collapse. No money market fund would break the buck. No freeze in commercial paper markets would have resulted. And no emergency rush to TARP would have followed. Correspondingly, no intense fear of bank failures or nationalizations would have cast its shadow over all subsequent decisions.

This should be getting more attention, and it should also be causing Geithner-haters to rethink what they think they know about the man -- about his timidity, subservience, and allegiances. But it's already clear that it won't."

Me:

"Guaranteeing all the bank debt was, of course, one of the key ingredients of the Swedish bank rescue so beloved by fans of nationalization."

I'm sorry that you're out of work. For one thing, I agree with you on this, and have been posting a similar view. You are correct about the Swedish Plan, which I have been for since Sept. It included a complete govt guarantee. As well, only a complete govt guarantee, which we've had implicitly now for a good spell, can stop Debt-Deflation.

I can only assume that people attacking you aren't for a Swedish Type solution or aren't afraid of Debt-Deflation. Fine.

One other point: An explicit guarantee on Freddie/Fannie would have stopped the flight from Agencies, for example, by China, which added to the fear and aversion to risk. We also wouldn't have had Lehman, a dreadful decision.

By DonthelibertarianDemocrat Posted: Apr 27 2009 3:19pm ET

Saturday, April 25, 2009

He bore it remarkably well, speaking and occasionally smiling, and parrying questions from the gathered reporters.

From Portfolio:

Market Movers

by Ryan Avent

"Notes From a Press Conference Naif

I was in attendance at Tim Geithner's press conference yesterday, at which he spoke briefly about the G7 Ministers meeting and answered a few questions. I hope it isn't too damaging to my credibility as an economics writer to say it was the first time I saw the secretary in person. He deviated pretty significantly from the text we'd been given beforehand -- a friend said you could almost see him reading ahead of himself and editing out any potentially newsworthy word or phrase -- but it didn't much affect his delivery, which I found both choppy and deliberative, but quite confident.

I didn't expect him to make news, and in fact he didn't. A few of his statements particularly interested me. He repeatedly reiterated his understanding that a banking fix is crucial to recovery, and that time and again countries have suffered unnecessarily from acting too tentatively to fix their banks. He's clearly not ignorant of the arguments being made by his challengers in the economics and finance press, but he seems to think that Treasury's policy trajectory is sufficient. Along those lines, when asked whether he was at all concerned about Barney Frank's decision to go slow on a regulatory reform bill that would have included new powers for the government to take complex financial institutions into receivership, Geithner gave a resounding no. Whatever the Treasury's plans for the banking system in the wake of the stress tests, it would not seem to include the possibility of a "traditional" nationalization for a firm like Citigroup.

As a newcomer to such proceedings, it was very difficult for me not to stand up and demand of the secretary, "Look, just tell us what you actually think you'll have to do about Citi and Bank of America. Get real with us for a second. What's the plan! You must have something more than PPIP in the works." But I was able to restrain myself. I was momentarily struck a little woozy contemplating the weight of the responsibility on the secretary, however. The man is at the fulcrum of history, with the fates of hundreds of millions of lives hanging on his decisions. The pressure was almost visible; I could imagine it crumpling him up like a scrap piece of paper.

But it didn't. He bore it remarkably well, speaking and occasionally smiling, and parrying questions from the gathered reporters. After the show, the consensus among the press was pretty clear -- he's a real slick talker. Made me wonder for a minute if Geithner feels the weight of the job at all, or believes himself to be in control of it. I suppose that to function in the face of so daunting a task as his, you have to forget its magnitude and convince yourself you can manage it. Unjustifed overconfidence is the only way to do the job; to be constantly in tune with the scope of the disaster is to be paralyzed by fear. Forget humility. The humble never dare to take the reins."

Me:

I seem to be one of the few people defending Geithner. It's taking up so much of my time that I've been taking a pass on defending CDSs and CDOs for a spell.

The list of possible plans are all hybrid plans, including the US owning controlling interest. Because of that, all plans, including nationalization via controlling interest, are going to have the problems people keep worrying about: Conflict of Interest, Competing Incentives, etc. These problems are inherent in hybrids.

Now, I favor controlling interest, but I understand it's a mess. I simply feel it has the possibility of being better for the taxpayers. As for why Geithner keeps saying that we don't want to own banks, I'm with him. Seizure is one thing, but owning is another. For one thing, who are we going to sell these banks to going forward. What if only Wells Fargo, etc., want the banks we own? Will that be conflict of interest and collusion?

I'm for narrow/limited banking, and have favored seizure since September, but Geithner's doing a good job considering the problem he's been handed.

By the way, if we get controlling interest, I hope everyone understands that, just like Fannie/Freddie, the banks we control will be deemed government guaranteed, and investors will invest on that basis. Hello to the always fashionable implicit guarantees.

Got to go now. I still might set Felix Salmon straight about CDSs on his blog. We don't need him becoming the Acher of CDSs.

By DonthelibertarianDemocrat Posted: Apr 25 2009 12:25pm ET

Friday, April 24, 2009

I'd say there's at least a bit of truth in all six

TO BE NOTED: From the Curious Capitalist:

"What's keeping Tim Geithner from being bolder?

Posted by Justin Fox | Comments (3) | Permalink | Trackbacks (0) | Email This

I've been meaning to welcome Ryan Avent to his new gig at Portfolio.com (where he has replaced Felix Salmon). His musings over the past couple of days about why the Obama Administration is handling the banking crisis in such a tentative, unimpressive way provide a good opportunity. Here's one:

There is a popular idea that if only a charismatic figure had occupied the spot at Treasury, like Paul Volcker, then his confidence would have carried a better policy through Congress, but people forget that Paul Volcker didn't have to push his interest rate increases through a skeptical, angry, and often stupid legislature.

And another, referring to economist Simon Johnson's claim that a financial oligarchy has seized control of our government:

Johnson is right that the power of financial interests warped policy in recent decades, leading directly to this crisis. I just don't think it's correct to extend that argument to say that the Obama administration is primarily constrained by the will of the financial oligarchy.

I agree with Ryan on both these points, but they got me thinking about all the possible explanations for the Administration's go-slow approach (as opposed to seizing at least a few big banks and forcing everybody to take much bigger writedowns of bad assets than they have so far, which I think is what Johnson, Paul Krugman, and Joe Stiglitz all want). Here's what I came up with:

1. It's the proper course of action, because most banks will be able to earn their way out of their problems if given some time and forbearance by regulators. This is what people within the banking industry seem to think, and non-banker John Hempton has done a good job of articulating this view on his blog.

2. Seizure and writedowns might have been the proper course of action last year, but now that Treasury and the Federal Reserve have already put up trillions of dollars, backed by the very loans and securities that would have to be written down, it would be spectacularly costly to the government. It also might wipe out large swaths of the insurance industry, because insurers own lots of bank preferred shares and debt. So letting the banks slowly and fitfully earn their way out trouble is really the only alternative at this point. So sayeth David Goldman.

3. Treasury has just been getting all its ducks in a row to prepare to do eventually exactly what Johnson, Krugman, et. al. want it to do. This was a view I was pushing a few weeks back. I've gotten more skeptical since then.

4. Geithner and his pals in the White House would love to follow Johnson and Krugman's advice, but it would require hundreds of billions, maybe trillions of dollars more in up-front appropriations to keep the banking system solvent. And Congress is too "skeptical, angry, and often stupid" to approve anything like that.

5. Geithner and his pals in the White House would love to follow Johnson and Krugman's advice, but they are afraid the powerful banking industry will find ways to thwart them—through both lobbying and lending decisions.

6. Geithner and his pals in the White House are all willing tools of the financial oligarchy. Especially Larry Summers.

Am I missing anything? I'd say there's at least a bit of truth in all six. Nos. 1 and 4 are currently my favorites, but I reserve the right to change my mind.

Update: A well-informed reader adds explanation No. 7: That Geithner and his pals at the White House and in the bank regulatory agencies are afraid that if they overtly nationalize some banks, that would start a run to them from other banks that are wobbly."

Me:

donthelibertariandemocrat Says:
Friday, April 24, 2009 at 3:44 pm
In this crisis, there are two things that are happening that I don't understand:
1) There are a continuing litany of "Eureka!" moments in which a problem or issue that has already been addressed, possibly more than once, only under a slightly different guise, gets rediscovered. A virtual caravan of renascences.
2) Politics is assumed to be more infested with lying and deception than normally is the case, causing people to view people's behavior as almost by definition deceptive. Hence, if a person explains their behavior by saying 'x', 'x' is the one explanation that won't work.
On 1, we've had a brouhaha this week about the B of A and Merrill. This same issue, the government's forcing the B of A to take on Merrill, came up when Merrill's losses were announced earlier. The question arose as to whether the B of A was in trouble because of the merger, and whether or not the government should help save the B of A since the B of A helped save the system. In the UK, a similar issues arose concerning Lloyds merger with HBOS. If you think I'm joking, note this comment from Alphaville on March 9th:

"I think you are "misunderestimating" the value to Lloyds (as opposed to HBOS). Lloyds was a perfectly safe bank until the government pressed Blank and Blank pressed Daniels into merging with HBOS, and their institutional shareholders backed the deal. When a banker is asked by his regulator to merge with another failed bank, he doesn't get many chances to refuse, and Lloyds had already turned down NR. Lloyds would have been entitled to think that the government was not giving them a hospital pass. The ever excellent Alex summed this point up last Thursday:

http://alexmasterley.blogspot.com/2009/03/daniels-in-lions-den.html

If the government is now seen as being generous to Lloyds and their shareholders, that is because it is now putting up some of the capital that should have been contributed when the merger took place. Having pretty much destroyed Lloyds in the merger, the government needs to re-capitalise the bank and compensate the LLoyds shareholders."

Sound familiar. Just as Lloyds had turned down NR, the B of A had turned down Lehman.

In both countries, the reason is that the modus for dealing with large insolvent financial concerns or banks was to merge them with other large banks or concerns with help from the government. All you have to do is look at the record with Lehman, Bears, Merrill,WaMu, etc. Bernanke and Bair have admitted this by saying that there was no plan for seizing a large insolvent bank or financial concern. They've admitted it. Geithner has already said that not having these powers was a mistake.

That leaves receiving stock and running the company ourselves. What could go wrong with that? Well, for one thing, it is going to wipe out shareholders, whose banks merged with failing businesses at the behest of the government when there was no other plan. I wish the B of A would have merged with Lehman frankly. The point is clear: the mess we're in is a thicket of conflicting desires, intentions, incentives, promises, threats, etc.

So, I vote for 1 - 5, and would probably add others. I agree with Johnson on the severity of the problem, but it's simply going to take a long time to disentangle and resolve.

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Don's Hermeneutics: Like Rabbi Yishmael's Rules, Only Not

"Searle's Sagacity":

"If a person can't explain something simply, then they don't know what they're talking about. The only exception being Kant."

"Corollary to Searle's Sagacity":

"questions should be simple and comprehensible, and meant to elicit a simple explanation."

"Samuel Johnson's Dictum":

One thing about passing fifty years of age is that I now feel old enough to invoke what I call Samuel Johnson's Dictum. It is thus: If I invoke a view based on an author that I read in the past, and that view is not actually held by that author, I'm more than willing to claim the view as originating with me. The beauty of this Dictum is that it is self-referential. It is based upon my reading of Johnson and on Boswell, but I can't remember the actual references that led me to believe that Johnson believed something like this. In any case, I do.

"Burke's Principle":

Another of my motley list of nostrums is what I call Burke's Principle. Burke's Principle holds that there is a distinction between:
1) Political Theory: A theory of the perfect society, the good life, etc. Your general political philosophy.
2) Politics: The rather messy art of governing which involves dealing with what is possible on earth and compromising as the need arises.

"Burke's Rule":

"All government, indeed every human benefit and enjoyment, every virtue, and every prudent act, is founded on compromise and barter. "

"Burke's Paradox":

"Mere parsimony is not economy. Expense, and great expense, may be an essential part in true economy."

"Burke's Prescience":

"You can never plan the future by the past.

Letter to a Member of the National Assembly (1791)"

"Burke's Wisdom":

"A very great part of the mischiefs that vex the world arises from words.

Letter to Richard Burke"

"Bagehot's Principles":

1) If the Fed exists, it will be the Lender Of Last resort, and that has to be taken in to account in real world Political Economy. It should lend freely in a crisis to solvent banks.

2) The rules for LOLR( from here on down this includes any government guarantee ) intervention should be clear, public, and followed, otherwise Moral Hazard is ineffective. All guarantees must be explicit.

3) The terms must be onerous.

4) The LOLR should get something valuable in return.

Here are a few others:

5) The taxpayer's interests should come first.

6) Moral Hazard needs to be constantly applied by quickly liquidating problem banks in normal times.

7) Any entity receiving a guarantee will have to be supervised or regulated effectively, and violations should be quickly and severely punished.

8) There is no doubt that any entity receiving a LOLR guarantee will need to be more conservative in its practices in order to limit the liability of the taxpayer.

9) There should be a class of financial concerns that can act more freely, but they should not receive LOLR guarantees. They will be strictly supervised or regulated though, and are subject to laws against fraud, etc."

Sources which back up my view of Bagehot:

http://www.pittsburghlive.com/x/pittsburghtrib/opinion/columnists/guests/s_593875.html

"Who can forget the end of "Planet of the Apes" when Charlton Heston, kneeling before the half-buried remains of the Statue of Liberty, slams his fists into the sand and cries, "You maniacs! You blew it up! Ah, damn you ... damn you all to hell!"

Now imagine the same scene, but with a half-buried Morgan Stanley building standing in for Miss Liberty and a time-traveling Walter Bagehot playing the lead and you've got the perfect Hollywood dramatization of the real-life tragedy that, with luck, is having its denouement on Wall Street.

Bagehot? The great Victorian man of letters, best remembered today as the second and most celebrated editor of the British magazine The Economist, wasn't exactly a hunk. But he certainly could have delivered those futile last lines with real conviction, for he was among the first to recognize the vast destructive potential of that newfangled weapon of Victorian finance: the modern central bank.

Bagehot first alerted readers to this potential and offered his suggestions for containing it in an article that appeared in The Economist after the great panic and credit crisis of 1866. That panic witnessed the spectacular collapse of Overend, Gurney & Co., which had long been Great Britain's premier investment house.

Bagehot understood that, during such panics, the Bank of England alone commanded the confidence needed to serve other financial firms as a "lender of last resort." But as Bagehot put it later in his book "Lombard Street: A Description of the Money Market" (1873), the bank's "faltering way" -- its arbitrary and inconsistent use of its unique lending powers -- tended only to make things worse.

"The public," Bagehot wrote, "is never sure what policy will be adopted at the most important moment: it is not sure what amount of advance will be made. ... And until we have on this point a clear understanding with the Bank of England, both our ability to avoid crises and our terror at crises will always be greater than they would otherwise be."

The ultimate source of trouble, Bagehot believed, was the very existence of the Bank of England and the special privileges it enjoyed. But because nothing save a revolution seemed likely to do away with the "Old Lady of Threadneedle Street," as it was called, Bagehot's preferred, practical solution was for the bank expressly to commit itself to lending freely during crises, though on good collateral only, and at "penalty" rates.

The restrictive provisions were supposed to limit aid to otherwise solvent firms panic had rendered illiquid.

Bagehot's recommendation has since become a sort of master precept of central banking -- albeit one that's mainly honored in the breach by central bankers.

To be fair to today's central bankers, there's never been much agreement on how to apply Bagehot's rule in practice. Just what do "good collateral" and "penalty rates" mean in times like these?

While no one might precisely be able to define good collateral -- and one can debate whether the rate at which banks offer to lend unsecured funds to other banks, known as the London Interbank Offered Rate, or LIBOR rate, plus 8 percent constitutes a "penalty" rate -- who even pretends that recent central bank lending has been based on good collateral?

But rescuing insolvent firms is the least of it. The real damage comes from the Treasury's utter lack of any consistent last-resort lending rule. The recently enacted financial institutions bailout bill does little to clarify this.

That's just the sort of thing that troubled Bagehot almost a century and a half ago, when central banks were still in their swaddling clothes. Yet central bankers and governments still don't get it, despite the lip service they pay to this great thinker from our past."

http://www.theweeklystandard.com/Content/Public/Articles/000/000/015/921taekw.asp?pg=1

"The Unwisdom of Crowds
Financial panics still require what Walter Bagehot prescribed--that practical men violate their own principles.
by Christopher Caldwell
12/22/2008, Volume 014, Issue 14

Neither Barack Obama nor John McCain had much of value to say about the financial crisis as it raged through the headlines this fall. Rather than shred their campaign strategies, they played it safe, as most politicians would have. But in the name of justice we ought to recall that there was one candidate who did foresee our predicament with considerable accuracy when it still lay far in the future. Ron Paul, in almost every speech he made during the Republican primaries, spoke of bubbles, reckless credit growth, and the "unsustainability" of present policy. So why isn't there more demand for the common-sense solutions he put forward? Because common sense is not much use in a financial panic.

This was the great discovery of Walter Bagehot, the prolific 19th-century essayist and journalist, who was editor of the Economist from 1860 to 1877. (His name rhymes with gadget.) Ninety-nine percent of the time, common sense is a synonym for practicality. But in a serious banking crisis, doing the commonsensical thing--hunkering down and counting your pennies--has proved to be not practical at all. Bagehot's Lombard Street is an insider's look at the Bank of England, and at the principles on which political and financial leaders act when advanced economies come under pressure. Those principles are depressing in the extreme for anyone with an uncomplicated idea of how a democracy works. But they are effective. That is why, in the so-called Anglo-Saxon world, Bagehot's book still provides the bedrock of policy thinking during financial emergencies, including our present one.

Lombard Street was published in 1873, seven years after the sudden collapse of Overend, Gurney & Co., a bank that lost £11 million, spread panic among investors, sparked a run, and became "the model instance of all evil in business." The crisis made such a deep impression on British finance and government that the country did not have another bank run for 141 years--not until Northern Rock collapsed in the summer of 2007. (English investors must have longer memories than American ones. Most of our own noxious subprime mortgages were contracted, and the securities built on them concocted, after Enron became our own model instance of evil in 2001.) It was the Bank of England that took charge of averting panic, during the Overend, Gurney crisis and thereafter. It did so by injecting credit into the economy, by bailing people out. Bagehot approved of this. Many ordinary retailers could not pay their suppliers until they got the money for the things they sold. Without credit, they would be ruined, and the ruin would spread to those to whom they owed money. This was not a question of moral failing, it was just the way a modern economy worked.

But the modern economic system interacts with the modern political system--democracy--in a rather uncomfortable way. Indeed, at more than one juncture in Lombard Street, Bagehot framed the problem of booms and busts as part of the "increasingly democratic structure of English commerce." People in a democracy are most comfortable when their institutions do the same things that they would do as individuals. In a crisis, banks--like everyone else--reflexively hoard their money. But a central bank must do the opposite. It must lend freely.

This was the most basic affront to common sense that the Bank of England presented, but it was not the worst. The worst was that the bank could carry out its necessary duties as a lender of last resort only by breaking the law. The basis of the bank's operating procedure--and of its soundness--was the Bank Act of 1844. We would call it a regime of sound money. It included stringent caps on the ratio of notes issued to reserves held. These caps were hewed to when the economy was running smoothly. Yet at the time Bagehot was writing, a quarter century later, the law had already been suspended three times. Not just that. "No similar occasion has ever yet occurred," Bagehot wrote, "in which it has not been suspended." So the law on which the solvency of the British nation rested was ironclad, except when someone felt a need to break it.

Stranger still, never did the Bank of England acknowledge its duty as the lender of last resort. Some of its governors even denied that any such duty existed. Bagehot thought the bank should come clean about what it really was:

There should be a clear understanding between the Bank and the public that, since the Bank hold our ultimate banking reserve, they will recognise and act on the obligations which this implies--that they will replenish [the reserve] in time of foreign demand as fully, and lend it in times of internal panic as freely and readily, as plain principles of banking require.

But there was a reason for the central bankers' dissembling. If the bank ever acknowledged a duty to rescue banks by generous extensions of credit, it would create a form of moral hazard. Thomson Hankey, a Bank of England director whom Bagehot much admired (and to whom the financial writer James Grant devotes an admiring essay in his new book Mr. Market Miscalculates), called Bagehot's lender-of-last-resort views "the most mischievous doctrine ever broached in the monetary or banking world in this country."

In practice, Bagehot was right and Hankey was wrong. The bank was beyond question the lender of last resort. In principle, Hankey was right and Bagehot was wrong. Unless there was a real, credible threat that a bank would be allowed to fail, the guarantee of rescue would simply get priced into any financial bubble that developed, making things worse when the bubble popped. The situation required what we would now call "strategic ambiguity"--both Hankey's doctrine and Bagehot's practice, which contradicts it.

The situation today requires the same mix. Central banking is thus often a high-stakes game of chicken. And sometimes, when banks enter the game insufficiently scared, it will be played out to the end. It certainly was in September when the U.S. Treasury terrified the financial world by not coming to the rescue of Lehman Brothers. This was a catastrophe in terms of Bagehot's practice, but it will produce benefits in terms of Hankey's principle. It will discourage people from paying more than is reasonable for assets on the belief that they come equipped with an insurance policy (the promise of a central bank rescue) that has been underwritten by taxpayers. The Republicans who nearly derailed the Treasury's Troubled Assets Relief Program in September played a similar role.

A final problem is that there are limits to how accountable a central bank can be. Everyone is always hollering for clear rules and transparency. But a dirty secret of regulation is that it frequently influences conduct most effectively when it is capricious and opaque. Any regulatory system will reveal its vulnerabilities over long use. If it addresses economic problems in a predictable way, savvy investors will find a way to "game" that predictability. You can draw an analogy with antidepressant drugs. There is no permanent right match of medication for a depressive. Antidepressants work only until the mind (or is it the brain?) finds a way around them, at which point a new, unfamiliar drug must be substituted. In the same way, no matter how good the content of a regulatory regime, it must change periodically if big market players are to be kept from profiting off it.

As Bagehot outlined his system, he was conscious that the practical realities of banking required him to heap paradox upon paradox. There is a hint of both Andrew Jackson and Thomas Aquinas in the way he referred to central banking as an "unnatural" thing in its very conception. "The business of banking ought to be simple," he wrote. "If it is hard it is wrong." If it is hard, the banker is either delegating poorly or has entangled his institution in complex transactions where it has no business. According to Bagehot, "Adventure is the life of commerce, but caution, I had almost said timidity, is the life of banking."

Centralizing a society's cash reserves is complicated, reckless, and artificial:

A republic with many competitors of a size or sizes suitable to the business, is the constitution of every trade if left to itself, and of banking as much as any other. A monarchy in any trade is a sign of some anomalous advantage, and of some intervention from without. . . . The natural system of banking is that of many banks keeping their own cash reserve, with the penalty of failure before them if they neglect it.

In his ideas of company size, Bagehot harkened back to the 18th century rather than ahead to our own. To modern eyes, Bagehot is, as a factual matter, simply wrong. The natural tendency under free-market conditions is towards consolidation, and even monopoly. If you want small firms, you must protect them through government--whether this means Teddy Roosevelt-ian trust-busting, French-style subsidies to tobacconists, the EU's hounding of Microsoft, or the NIMBY anti-Wal-Mart campaigns aimed at preserving Mom-and-Pop stores. Bagehot sometimes contradicted himself on this point, noting also that "a large bank always tends to become larger, and a small one tends to become smaller," but his application of the word unnatural to a large central bank was frequent and must be taken as his settled view. It is curious that Bagehot, a contemporary of Marx, came to the opposite (and false) conclusion about how firms evolve.

Where Bagehot would agree with Marx is in his belief that there is something predictably destabilizing about modern economies. You don't need banks to have a precarious economy, or one liable to speculation--Bagehot noted that there were no banks, as we would understand them, in 1720, at the time of the South Sea Bubble and the Mississippi Scheme. But modern banking is precarious by design. "In exact proportion to the power of this system is its delicacy," he wrote. "I should hardly say too much if I said its danger." The power, delicacy, and danger all have the same source. In fact they are just different names for the same thing: leverage.

At the very opening of the book, Bagehot illustrates with exquisite simplicity how, at least in a boom economy, traders on margin can "harass and press upon, if they do not eradicate, the old capitalist." The old capitalist in question is the poor sap who believes all this stuff about neither-a-borrower-nor-a-lender-be and is foolish enough to be using his own cash:

If a merchant have £50,000 all his own, to gain 10 per cent on it he must make £5,000 a year, and must charge for his goods accordingly; but if another has only £10,000, and borrows £40,000 by discounts (no extreme instance in our modern trade), he has the same capital of £50,000 to use, and can sell much cheaper. If the rate at which he borrows be 5 per cent, he will have to pay £2,000 a year; and if, like the old trader, he make £5,000 a year, he will still, after paying his interest, obtain £3,000 a year, or 30 per cent, on his own £10,000. As most merchants are content with much less than 30 per cent, he will be able, if he wishes, to forego some of that profit, lower the price of the commodity, and drive the old-fashioned trader--the man who trades on his own capital--out of the market.

Later, Bagehot showed that this need for leverage is no different for those selling money than it is for those selling dry goods. The banker can no more choose not to lend than the merchant can choose not to borrow:

The bill-broker has, in one shape or other, to pay interest on every sixpence left with him, and that constant habit of giving interest has this grave consequence: the bill-broker cannot afford to keep much money unemployed. He has become a banker owing large sums which he may be called on to repay, but he cannot hold as much as an ordinary banker, or nearly as much, of such sums in cash, because the loss of interest would ruin him.

In finance, once you can have leverage, you must have leverage. Once you have some leverage, getting more of it than your competitors is a matter of survival. And when governments and central banks debate whether to loosen or tighten up money, they face a constant clamor from the financial world to permit more leverage still. That is why, even in democracies, the instruments of monetary policy tend to be kept far from the influence of voters, and even hidden from view. Otherwise, credit tends to spiral. Bubbles result.

Nothing could be more foolish than to assume that this process of spiraling speculation is unleashed by "greed," unless by greed you mean human nature. Credit spirals are a darker aspect of the world Adam Smith described in The Wealth of Nations and Bernard de Mandeville did in the Fable of the Bees. Just as society can be improved by the uncoordinated action of the selfishly motivated, an economy can collapse for reasons having nothing to do with anybody's cupidity.

We should be moral in the way we think about money, but a credit system tends to make a mess of moral accounting. Bagehot described London's financial district as "a sort of standing broker between quiet saving districts of the country and the active employing districts." Decent, puritanical Suffolk farmers want to put their money in a safe place; Lancashire entrepreneurs want money to put to work. Thanks to London bankers, both can follow their wishes and make a profit in the process. We have an idea that the Suffolk dairyman is the "moral" party here (he's saving) and the Lancashire speculator the "immoral" one (he's gambling). But, once a banking system intervenes, they are both gambling and they are both saving. In good times you are welcome to mouth the folkloric cliché that holds farmers to be better people than financiers. When depression looms, you had better realize that the rain falls on the just and the unjust.

Many Americans who have wound up underwater on their houses and maxed out on their credit cards are greedy, climbing, brand-intoxicated, materialistic shopaholics who thought the world owed them a living. But just as many of them are not. They are trapped, as surely as financial institutions are, in a system based on wild borrowing. Participation in this system is not exactly required, but it is not exactly optional, either. One's quality of life is determined not just by one's purchasing power but also by one's relative economic standing. Chagrin at seeing one's neighbors get richer faster may be a sign of bad character, but do not for a minute assume there is nothing to feel chagrin about! When it comes to the very goods people deem most essential--the proper mate; the schooling of one's children; the size, location, elegance, and comfort of one's house--relative standing is more important than absolute wealth.

Those who kept their money in savings banks in the 1990s lost out to those who did things we are supposed to disapprove of, like "spending money they didn't have," borrowing profligately to invest in stocks and even bonds, which appreciated at an average of 15 percent a year over the decade. Among rich people, how one entered the present decade had more to do with how one had done in the stock market than with how one had done in the labor market. Is that just? Of course it's not! It's easy to see now. But while the boom was going on there was all sorts of rationalizing about why it was okay that the social hierarchy should be reordered through stock and housing speculation. One line of argument was that people who did not have a ton of money in stocks, as well as those who rented rather than bought the houses they lived in, were foolish. This line of argument peaked at the turn of the decade, when Americans elected a president who had argued that the public was foolish for not launching its retirement savings onto the open seas of the stock market.

Bagehot saw that a speculative mania eventually sweeps up everyone in its path. "Every great crisis reveals the excessive speculations of many houses which no one before suspected," he wrote, "and which commonly indeed had not begun or had not carried very far those speculations, till they were tempted by the daily rise of price and the surrounding fever." Avaricious people get hurt, but it is in the nature of crashes that they are not the ones who get hurt most. A tragic figure present in almost every historic account of speculation and collapse in history is the person who believed, year after year, that the boom was an illusion, and held himself aloof until, at the very last minute, whether out of self-doubt or deference to the opinions of his fellow man, he entered the fray and was (having bought at the top, rather than the bottom, of the market) wiped out. What a wicked irony! His punishment is as much for his long and wise forbearance as for his momentary weakness.

So the "cultural contradictions of capitalism" run deeper than we thought. The classic idea, as laid out in their different ways by the economist Joseph Schumpeter and the sociologist Daniel Bell, is that capitalism rewards diligence; diligence produces wealth; wealth begets idleness; and idleness undermines capitalism. But when, as now, push comes to shove, we can ask whether there is really anything particularly capitalist about the virtues of diligence and self-restraint. The real capitalist virtues appear to be optimism and luck. From a central-banking perspective, the cultural contradictions are not results of capitalism but elements of it.

The problem with central banking is that it reacts to a system that has been mismanaged by rewarding the managers. That is why objections to central banking, although they can come from the right (Ron Paul, Jim Bunning) or the left (Barney Frank, William Greider), tend to be populist. Bagehot was no populist. He was comfortable with the idea that what some people think should be more important than what other people think:

Almost all directors who bring special information labor under a suspicion of interest; they can only have acquired that information in present business, and such business may very possibly be affected for good or evil by the policy of the Bank. But you must not on this account seal up the Bank hermetically against living information.

Although he would surely fault Treasury Secretary Hank Paulson for many things, the criticism most often heard at present--that Paulson is too close to former colleagues on Wall Street, where he worked for years as CEO of Goldman Sachs--would strike Bagehot as misplaced.

Because it is on Wall Street, alas, that "the state of credit" is to be determined:

The state of credit at any particular time is a matter of fact only to be ascertained like other matters of fact; it can only be known by trial and inquiry. And in the same way, nothing but experience can tell us what amount of "reserve" will create a diffused confidence.

To be blunt, credit is successfully reestablished when financial elites say, "When." Credit is close to a synonym for the mood of the ruling class. To say an economy is based on credit is to say it is based on animal mysteries. Glamour, prestige, élan, sprezzatura, cutting a figure . . . that is what the economy is made of. It is a rather terrifying thought. Viewed as Bagehot viewed it, from the perspective of a central bank in a crisis, an advanced economy looks an awful lot like a primitive economy."

http://blogs.iht.com/tribtalk/business/globalization/?p=680

"Loyal readers, please take a moment to check out Gretchen Morgenson’s column this week. She’s taken a close look at the buyout of Bear Stearns organized by the Federal Reserve, and she has come to an intriguing conclusion: that the Fed not only wanted to prevent financial havoc - it also wanted to deter speculators who were betting on big banks to fail.

Adherents of the Walter Bagehot school of central banking - and I have been among them at times - have cried foul at the sight of big bailouts and the granting of emergency credit at low interest rates. The Bagehot argument is that emergencies that arise from the risks that banks have chosen to take should not be treated with overwhelming sympathy. Emergency credit should be offered, yes, but at rates that will make banks think twice about using the safety net again. That’s not the case this time around (neither in the United States nor in Britain, and probably not in Europe either by the time the folks in Brussels are finished), so the central banks may be telling financial institutions that they can take silly risks without fear of disaster.

But if Morgenson is right, there is a long-term purpose here, too: to reduce the winnings of those who bet on failure, and thus to reduce the incentives to bring that failure to pass. And let’s face it, the speculators aren’t operating in a vacuum; their bets can start to snowball with market sentiment, as they did against Lehman Brothers last week. Still, the Bagehot argument (often called moral hazard) is also a powerful one - which one do you agree with?"

http://blogs.wsj.com/economics/2007/08/20/from-bagehot-to-bernanke/

"In his 1873 book “Lombard Street,” the closest thing to a user’s guide to central banking, Walter Bagehot criticized the Bank of England’s handling of earlier panics by responding “hesitatingly, reluctantly, and with misgiving.”

Federal Reserve Chairman Ben Bernanke, who has read his Bagehot and kept a copy in his Princeton office when he was a professor, responded to recent developments first by pumping money into the markets through the New York Fed’s open-market operations and then last week by easing the terms on loans to banks from the Fed’s discount window.

Bagehot (pictured at right) still makes for good reading at times like this.

“What is wanted and what is necessary to stop a panic is to diffuse the impression, that though money may be dear, still money is to be had. If people could be really convinced that they could have money if they wait a day or two, and that utter ruin is not coming, most likely they would cease to run in such a mad way for money. Either shut the Bank at once, and say it will not lend more than it commonly lends, or lend freely, boldly, and so that the public may feel you mean to go on lending. To lend a great deal, and yet not give the public confidence that you will lend sufficiently and effectually, is the worst of all policies; but it is the policy now pursued.”

Robert Feldman, Morgan Stanley’s chief economist for Japan, writes in a note today that it’s key to distinguish between internal discredit — private domestic lenders retreating — and external discredit, which Bagehot defined as a foreign drain on a bank’s money. (Bagehot’s solution to the problem of external discredit is to still lend freely but “at very high rates.”) That doesn’t apply in today’s floating rate system, Feldman says, and exchange rates don’t provide a good substitute, with the dollar’s drop against the yen suggesting we have external discredit while the strengthening against the euro saying we don’t.

Feldman writes: “My view is that the modern counterpart of ‘external discredit’ is moral hazard. The credit of the U.S. IS a problem, since no one knows how big the subprime and related housing market problems really are. Given how poorly banks know their clients, the ‘high rates’ part should come into play. There is no way to re-establish confidence unless those who have made loans to questionable borrowers pay a price for rash lending. Only then will markets regain confidence that risk is under control.

“The next stage of the credit problem — and whether it affects the real economy seriously — depend on eliminating the moral hazard,” Feldman says. “The faster the moral hazard in eliminated, the less impact on the real economy.”

Fed officials are acutely aware of the moral hazard, having resisted action for weeks to not be seen as bailing out risky investments. But they also don’t want a crisis to feed on itself. The Fed stressed its statement, in lowering the discount rate for banks, that it would accept “a broad range of collateral…including home mortgages and related assets.” The central bank sought to reassure a market that had been roiled by risky investments in subprime mortgages.

That’s how the Bank of England halted a panic in 1825, as Bagehot recounts: “A panic, in a word, is a species of neuralgia, and according to the rules of science you must not starve it. The holders of the cash reserve must be ready not only to keep it for their own liabilities, but to advance it most freely for the liabilities of others. They must lend to merchants, to minor bankers, to ‘this man and that man,’ whenever the security is good. In wild periods of alarm, one failure makes many, and the best way to prevent the derivative failures is to arrest the primary failure which causes them. The way in which the panic of 1825 was stopped by advancing money has been described in so broad and graphic a way that the passage has become classical. ‘We lent it,’ said Mr. Harman, on behalf of the Bank of England, ‘by every possible means and in modes we had never adopted before; we took in stock on security, we purchased Exchequer bills, we made advances on Exchequer bills, we not only discounted outright, but we made advances on the deposit of bills of exchange to an immense amount, in short, by every possible means consistent with the safety of the Bank, and we were not on some occasions over-nice. Seeing the dreadful state in which the public were, we rendered every assistance in our power.’ After a day or two of this treatment, the entire panic subsided, and the ‘City’ was quite calm.”

http://www.realclearmarkets.com/articles/2008/03/bagehot_central_banking_and_th.html

"Bagehot advocated in 1873 that a Lender of Last Resort in a crisis should lend at a penalty rate to solvent but illiquid banks that have adequate collateral. The doctrine has been criticised as having no place in our modern interbank market, but this is wrong. Bagehot’s prescription aims to eliminate the coordination problem of investors at the base of the crisis. It is still a useful guide for action when the interbank market stalls.1 It makes clear that discount-window lending to entities in need may be necessary in a crisis.

Bagehot's doctrine, however, is easy to state and hard to apply. It requires the central bank to distinguish between institutions that are insolvent and those that are merely illiquid. It also requires them to assess the collateral offered. Central banks, because of information limitations, are bound to make mistakes, losing face and money in the process. This doesn’t mean they should not try.
Poor collateral versus massive liquidity

The collateral should be valued under “normal circumstances”, that is, in a situation where the coordination failure of investors does not occur. This involves a judgment call in which the central bank values the illiquid assets. A central bank that only takes high quality collateral will be safe, but will have to inject much more liquidity and/or set lower interest rates to stabilise the market. This may fuel future speculative behavior. Some of this may have happened in the Greenspan era, in the aftermath of the crisis in Russia and LTCM, and after the crash of the technological bubble. The ECB and the Federal Reserve have accepted now partially illiquid collateral that the market would not. This seems appropriate and releases pressure to lower interest rates to solve the problem, something that should be done only if there are signs of deterioration in the real economy. The problem is that central banks are extending the lender of last resort facility outside the realm of traditional banks to entities, like Bear Stearns, that they do not supervise and, therefore, over which they do not have first hand information. How does the Fed know whether Bear Stearns or other similar institutions are solvent? It seems that the Fed is not following Bagehot’s doctrine here.

Finally, if banks and investors are bailed out now, why should they be careful next time? This is the moral hazard problem: help to the market that is optimal once the crisis starts has perverse effects in the incentives of market players at the investment stage. The issue is that only when the moral hazard problem is moderate does it pay to eliminate completely the coordination failure of investors with central bank help. When the moral hazard problem is severe, a certain degree of coordination failure of investors - that is, allowing some crises - is optimal to maintain discipline when investing and, amending Bagehot, some barely solvent institutions should not be helped."

http://www.house.gov/jec/imf/blueprnt.htm

"This goal is not new. In fact, it underlay Walter Bagehot's (1873) classic policy prescriptions for domestic central banking: to lend freely at a penalty rate on good collateral. Bagehot argued an elastic and immediate supply of liquidity was essential to an effectively structured lender of last resort, and that appropriate loss sharing rules in the form of collateral requirements and penalty interest rates would discourage abuse of the safety net."

http://online.wsj.com/public/article_print/SB120908336730343529.html

"By slashing interest rates too much in 2007-2008, the Fed has accentuated the foreign drain and thus made the alleviation of the domestic drain more difficult. Yet, despite this mistake, Bagehot would approve of other actions the Fed has taken to deal with the domestic drain by unblocking specific impacted domestic markets. These include (1) swapping Treasury bonds for less safe private bonds, (2) opening its discount window to shaky borrowers, and (3) maybe even rescuing Bear Sterns. He would also approve of the relaxation of capital constraints on Fannie Mae, Freddy Mac and so on, for mortgage lending. Yet these measures will be insufficient if the foreign drain continues.

To repeat Bagehot's Rule: "very large (domestic) loans at very high rates are the best remedy for the worst malady of the money market when a foreign drain is added to a domestic drain." The Fed, and the U.S. government more generally, have so far got it only half right."

http://findarticles.com/p/articles/mi_m2751/is_56/ai_55015114/pg_6

"More than a century ago, a British economic journalist, Walter Bagehot, set out the classical principles for a central bank acting as lender of last resort: lend freely in a crisis at a penalty rate against collateral. Adapted to international lending, Bagehot's rule is the proper rule for a restructured, more effective IMF."

http://maverecon.blogspot.com/2007/08/central-banks-in-time-of-crisis.html

"In a number of recent blog contributions, we have sketched the role of a modern central bank as ‘market maker of last resort’ (MMLR). This MMLR is the analogue, in a world where intermediation is increasingly through financial markets, to Bagehot’s lender of last resort (LOLR) in a world where most intermediation took place through banks (see e.g. Willem H. Buiter and Anne C. Sibert “The Central Bank as the Market Maker of last Resort: From lender of last resort to market maker of last resort"; Willem H. Buiter “Central banks as market makers of last resort, again”; Willem H. Buiter and Anne C. Sibert “A missed opportunity for the Fed”).

The market maker of last resort function can be fulfilled in two ways. First, the central bank can make outright purchases and sales of a wider range of securities than they currently do. Second, central banks can accept a wider range of securities as collateral in repos, and in collateralised loans and advances at the discount window than they currently do. Following Bagehot’s rule, the MMLR should buy these securities outright or accept them as collateral only on terms that would imply a stiff financial penalty to the owner. The central bank of course already applies a liquidity ‘haircut’ even to liquid instruments offered as collateral in repos or at the discount window. Because the MMLR would have to establish a buying price ‘in the dark’, that is, unaided by recent relevant market prices, and would inevitably take on much more credit risk than central banks have become accustomed to, the ‘haircuts’ should be severe – a financial version of ‘short back and sides’.

http://www.independent.org/pdf/tir/tir_07_3_wood.pdf

"Further crises in 1857 and 1866 prompted the debate between Bagehot and
Thomson Hankey, a director and former governor of the Bank of England. Notwithstanding
the Bank’s undoubted responsibility, as trustee of the nation’s reserve, to
support the financial markets, Bagehot wrote:
If we ask how the Bank of England has discharged this great responsibility,
we shall be struck by three things: first, . . . the Bank has never by any
corporate act or authorised utterance acknowledged the duty, and some of
its directors deny it; second, (what is even more remarkable), no resolution
of Parliament, no report of any Committee of Parliament (as far as I know),
no remembered speech of a responsible statesman, has assigned or enforced
that duty on the Bank; third (what is more remarkable still), the distinct
teaching of our highest authorities has often been that no public duty of
any kind is imposed on the Banking Department of the Bank; that, for
banking purposes, it is only a joint stock bank like any other bank; that its
managers should look only to the interest of the proprietors and their
dividend; that they are to manage as the London and Westminster Bank or
the Union Bank manages. (1873, 153–54)
Although the Bank usually in the end supplied the market, its “faltering way”
caused needless uncertainty and more severe panics than if it communicated clearly
that it could be counted on (Bagehot 1873, 64). According to Bagehot, the rules—
to lend freely at penalty rates on sound collateral—under which assistance would be
provided should be stated also.
The public is never sure what policy will be adopted at the most important
moment: it is not sure what amount of advance will be made. The best
palliative to a panic is a confidence in the adequate amount of the Bank
reserve, and in the efficient use of that reserve. And until we have on this
point a clear understanding with the Bank of England, both our liability to
crises and our terror at crises will always be greater than they would
otherwise be. (1873, 196–97)"

One which doesn't quite:

http://www.portfolio.com/views/blogs/market-movers/2008/05/13/bernanke-on-bagehot?rss=true

"Bernanke on Bagehot

I doubt a week has gone by since last summer during which I haven't seen some pundit or other trot out Walter Bagehot's dictum that in the event of a credit crunch, the central bank should lend freely at a penalty rate. More often than not, this is contrasted with the actions of the Federal Reserve, which seems to be lending freely at very low interest rates.

Ben Bernanke, in a speech today, addressed this criticism directly:

What are the terms at which the central bank should lend freely? Bagehot argues that "these loans should only be made at a very high rate of interest". Some modern commentators have rationalized Bagehot's dictum to lend at a high or "penalty" rate as a way to mitigate moral hazard--that is, to help maintain incentives for private-sector banks to provide for adequate liquidity in advance of any crisis. I will return to the issue of moral hazard later. But it is worth pointing out briefly that, in fact, the risk of moral hazard did not appear to be Bagehot's principal motivation for recommending a high rate; rather, he saw it as a tool to dissuade unnecessary borrowing and thus to help protect the Bank of England's own finite store of liquid assets. Today, potential limitations on the central bank's lending capacity are not nearly so pressing an issue as in Bagehot's time, when the central bank's ability to provide liquidity was far more tenuous.

I'm no expert on Walter Bagehot, and in fact I admit I've never read Lombard Street. But I'll trust in Bernanke as an economic historian on this one, unless and until someone else makes a persuasive case that Bagehot's penalty rate really was designed to punish the feckless rather than just to preserve the Bank of England's limited liquidity."

"So, we have, what I will call "Grant's Graham For Investing":

1) Decent Size

2) Current Assets Exceed Liabilities By Two Times

3) 10 Continuous Years Of Profit

4) 20 Continuous Years Of Dividends

5) 10 Years Of Earnings Growth Exceeding 33%

6) Price To Earnings Ratio Less Than 15

7 ) Price To Book Ratio Less Than 1.5"

"Cake As Gift Theory":

Now, I feel similarly about government incentives. When Fannie and Freddie tempted investors, this led to the housing bubble. I think that I'm going to call this the Cake As Gift Theory. I hand you a cake assuming that you have the good sense to eat it over time, and you gorge yourself and eat it at one sitting and get sick. Clearly I'm responsible for this by handing you the cake. Give you a gift or incentive, clearly I must assume that it will cause you to be irrational.

"Spigot Theory":

One other pet theory I have about finance, besides Bagehot's Principle, is the Spigot Theory. I might rename it. It applies to the low rate of interest or the sloshing pool of money explanations for the current crisis. Turn the tap too far, then you can't stop the tub from overflowing, even if you're a human agent standing right next to the tub. I call this a mechanistic explanation as opposed to an explanation based on human agency.

"The Pragmatic Milton Friedman Principle":

The Pragmatic Milton Friedman Principle. Friedman introduced a concept called the Negative Income Tax. He proposed it saying that it was a pragmatic compromise between the Welfare State and a basic libertarian position.

"Hardy's Harangue": To Me:

"There is no scorn more profound, or on the whole more justifiable, than that of the men who make for the men who explain. Exposition, criticism, appreciation, is work for second-rate minds. "

"Titchmarsh's Two Truths":

1)"Perhaps we could regard numbers as a sort of medium of exchange, like money. Most people are really interested in the goods and services which the world offers, and to them money is only a symbol for these. But it is not a meaningless symbol. A system of barter, in which we do without money and merely exchange goods, would be very inconvenient, and practically impossible in a complicated society. So a system in which we reduce all mathematics to statements such as "I have more fingers than you have noses" would be too cumbrous to contemplate seriously. Numbers are symbols, and very useful and interesting ones. To mathematicians who work with them every day they acquire a reality at least equal to that of anything else. "

2) "The question what numbers are has been much debated by philosophers, and they do not seem to have reached any agreement about it. There is nothing particularly surprising or distressing about this. It has been said that mathematicians are happy only when they agree, and philosophers only when they disagree. Philosophic doubts about the nature of number have never prevented mathematicians from getting on with their calculations, or from agreeing when they have got the right answer. So perhaps the situation is satisfactory to all parties. "

"Thoreau's Truth":About Government:
"I heartily accept the motto, "That government is best which governs least"; and I should like to see it acted up to more rapidly and systematically. Carried out, it finally amounts to this, which also I believe--"That government is best which governs not at all"; and when men are prepared for it, that will be the kind of government which they will have. Government is at best but an expedient; but most governments are usually, and all governments are sometimes, inexpedient."

"Will's Warning": Concerning The Use Of "Socialism":
Hyperbole is not harmless; careless language bewitches the speaker's intelligence. And falsely shouting "socialism!" in a crowded theater such as Washington causes an epidemic of yawning.

"Kling's Principle":About Regulated Banks And Unregulated Financial Entities
"The banks seem to find a way to take risks, and the unregulated folks seem to find a way to get guarantees."

"Janeway's Dictum": On Political Economy
"Political economy is not a science, it's a clinical art, like medicine."

"Cowen's Creed": On Policies

"YOU CAN’T TURN BAD TO GOOD The good New Deal policies, like constructing a basic social safety net, made sense on their own terms and would have been desirable in the boom years of the 1920s as well. The bad policies made things worse. Today, that means we should restrict extraordinary measures to the financial sector as much as possible and resist the temptation to “do something” for its own sake."

"Hendry's Heartfelt":

"I antagonise people,' says Hugh Hendry. 'It's part of my skill set."

"Diebel's Dare:

"You can’t be forced out further on the yield curve than a perpetual.”

"Peston's Promise": Good Until ...

"And, as I've been pointing out for some time, we are being asked to provide life support to a swathe of the real economy, from steel makers to car manufacturers.

The Government will succumb and will lend taxpayers' money to non-financial companies.

In a way, there's no choice, because we'll be hobbled for years as an economy if our few remaining manufacturers and exporters are wiped out."

"Trader's Narrative's Due Diligence":

"The process of investigation undertaken by an party to gather material information on actual or potential risks involved in a financial transaction or relationship."

The Quotes Above

W. Bagehot, R.W. Emerson, M. Proust, W.H. Auden, W. Bagehot, P.Levine

Read J.L. Austin "A Plea For Excuses" here:

http://www.ditext.com/austin/plea.html

Read " Reflections on the Revolution in France by Edmund Burke 1790" here:

http://www.constitution.org/eb/rev_fran.htm

P. Levine reading "They Feed They Lion"

http://www.ibiblio.org/ipa/poems/levine/they_feed_they_lion.php

Read H.D. Thoreau " On Civil Disobedience " here:

http://sunsite.berkeley.edu/Literature/Thoreau/CivilDisobedience.html

Read W. Bagehot " Lombard Street" here:

http://bagehot.classicauthors.net/LOMBARDSTREET/LOMBARDSTREET9.html

Read Irving Fisher's "The Debt-Deflation Theory Of Great Depressions" here:

http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

Read H.D. Thoreau "Walking" here:

http://www.ecotopia.org/ehof/thoreau/walking.html

About Rabbi Ishmael's Rules, see here:

http://en.wikipedia.org/wiki/Baraita_of_Rabbi_Ishmael

Read E.C. Titchmarsh on "Counting" here:

http://www-groups.dcs.st-and.ac.uk/~history/Extras/Titchmarsh_Counting.html

Read Granville Barker's "Voysey Ineritance" here:

http://books.google.com/books?hl=en&id=jFNFAAAAIAAJ&dq=the+voysey+inheritance&printsec=frontcover&source=web&ots=7TZP8W9Hlh&sig=yEoasq-eebAqE6H0iOnVaJhqFRs&sa=X&oi=book_result&resnum=4&ct=result#PPA6-IA3,M1

Read Henry James "The Sacred Fount" here:

http://www2.newpaltz.edu/~hathaway/sacredfount.html

Read "The Calculus Of Consent" here"

http://www.econlib.org/library/Buchanan/buchCv3Cover.html

Read "Did Reagan Rule In Vain? A Closer Look at True Expenditure Levels in the United States and Europe by Jacob Funk Kirkegaard " here:

http://petersoninstitute.org/publications/interstitial.cfm?ResearchID=1096

Read "The Postulates Of Political Economy" by Bagehot here:

http://books.google.com/books?id=ZrA-AAAAIAAJ&dq=bagehot+political+economy&printsec=frontcover&source=bl&ots=dN6OiMA8wi&sig=gV8nfKIxA1hYR9oAIxvQFdNZD0w&hl=en&ei=15uXSZf7CoKqsAPHz-mLAQ&sa=X&oi=book_result&resnum=2&ct=result#PPP1,M1

Read W.Buiter "Helicopter Money" here:

http://www.nber.org/~wbuiter/helijpe.pdf

Read Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002 Deflation: Making Sure "It" Doesn't Happen Here"

http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm#f8

Jackson's Rules Of The Road

I'm going to be a happy idiot
And struggle for the legal tender
Where the ads take aim and lay their claim
To the heart and the soul of the spender
And believe in whatever may lie
In those things that money can buy
Thought true love could have been a contender
Are you there?
Say a prayer for the pretender
Who started out so young and strong
Only to surrender

Gotta do what you can just to keep your love alive
Trying not to confuse it with what you do to survive

And in the end they traded their tired wings
For the resignation that living brings
And exchanged loves bright and fragile glow
For the glitter and the rouge
And in the moment they were swept before the deluge

Don't confront me with my failures
I had not forgotten them

But its a long way that I have come
Across the sand to find you here among these people in the sun
Where your children will be born
You'll watch them as they run
Oh its so far the other way my life has gone

I caught a ride into the city every chance I got
I wasn't sure there was a name for the life I sought
Now I'm a long way gone down the life I got
I don't know how I believed some of the things I thought

Rock me on the water
Sister will you soothe my fevered brow
Rock me on the water, maybe Ill remember
Maybe Ill remember how
Rock me on the water
The wind is with me now
So rock me on the water
Ill get down to the sea somehow

But you said "morocco" and you made me smile
And it hasn't been that easy for a long, long while
And looking back into your eyes I saw them really shine
Giving me a taste of something fine
Something fine

V. Frankl

"In camp too, a man might draw the attention of a comrade working next to him to a nice view of the setting sun shining through the tall trees of the Bavarian woods (as in the famous water color by Dürer), the same woods in which we had built an enormous, hidden munitions plant. One evening, when we were already resting on the floor of our hut, dead tired, soup bowls in hand, a fellow prisoner rushed in and asked us to run out to the assembly grounds and see the wonderful sunset. Standing outside we saw sinister clouds glowing in the west and the whole sky alive with clouds of ever-changing shapes and colors, from steel blue to blood red. The desolate grey mud huts provided a sharp contrast, while the puddles on the muddy ground reflected the glowing sky. Then, after minutes of moving silence, one prisoner said to another, 'How beautiful the world could be!'

Libertarian Democrat Point Of View: An Eccentricity

Wednesday, June 3, 2009

Ben Bernanke presented testimony this morning in which he seconded some of Wolf’s points

Thursday, May 7, 2009

emerge from a sober and considered piece of legislation

Monday, May 4, 2009

But why does that mean that the financial sector should have grown commensurately?

a good kind of contagious

The inefficient financial sector

Friday, May 1, 2009

All right then! Back to blogging; the world’s not going to stop on my account.

Wednesday, April 29, 2009

So let me be clear: for sixteen months now I have been a Swedish-model advocate who wants to guarantee bank bondholders

Monday, April 27, 2009

by ensuring “the stability of the payment system and to safeguard the supply of credit.”

The Fetishization of Boldness

Keywords

Guaranteeing all the bank debt was, of course, one of the key ingredients of the Swedish bank rescue so beloved by fans of nationalization

Saturday, April 25, 2009

He bore it remarkably well, speaking and occasionally smiling, and parrying questions from the gathered reporters.

Friday, April 24, 2009

I'd say there's at least a bit of truth in all six

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Wednesday, June 3, 2009

Thursday, May 7, 2009

Monday, May 4, 2009

a good kind of contagious

Friday, May 1, 2009

Wednesday, April 29, 2009

Monday, April 27, 2009

The Fetishization of Boldness

Keywords

Saturday, April 25, 2009

Friday, April 24, 2009

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Don's Hermeneutics: Like Rabbi Yishmael's Rules, Only Not

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From "The Snowfall" by D. Justice

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V. Frankl

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