Why Bailouts Attract Handout Seekers
“The biggest surprise was how quickly it went from ‘I don’t need this,’ to ‘How do I get in?
-Michele A. Davis, Treasury Department, head of public affairs
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A truisim of all bailouts: Enormous amounts of taxpayer cash attracts all manner of unsavory, undeserving characters. What was supposed to be a narrow and limited attempt to reduce the systemic risk of a financial collapse has become a taxpayer funded free-for-all.
Like hyenas trying to steal the kill from a lion, the mere scent of this enormous pile of loot starts attracts the scavengers. They cannot help themselves, for it is their essence, and who they are.
Just as the dreaded 17 year locust devours all before it, so Lobbyists too, are swarming the capital. Never before has a trillion dollars been authorized so quickly. Never before has so much money been spent with so little oversight, controls, or transparency.
Now, on top of the negligent manner in which this money has been thrown about, come the latest jackals drawn in by the scent of easy money.
American Express (AXP) — a credit card company which, last I checked had little or no exposure to mortgages — is now a bank, for the sole purpose of tapping some of that free money. The thinking seems to be, “Big pile-o-cash? Gots to gets me some of that!”
Next pig at the trough is the heinous derivatives hedge fund, formerly-known-as-AIG. They were taken over so quickly, with so little oversight and essentially no due diligence, that the price tag on this has already doubled. What no one at the NY Fed is likely to tell you anytime soon is that this price tag is very likely to double yet again.
Here’s a forecast: After the eventual investigation and audit at Maiden Lane, someone will go to jail. (You read it here first).
And now, along comes General Motors. They are unique corporate citizens, demonstrating a shocking incompetence in not one but two entirely separate industries. They have shown an unsurprising inability to manage a finance company (GMAC), and a remarkable incapacity to run an automobile company (GM). And, like AMEX, they smell blood in the water.
They have already managed to wrest $25 billion in taxpayer monies for hybrid technology research. Do you suspect those monies would have been more efficiently spent if it went to MIT and Stanford, and to the many small innovative firms that have pioneered work in this area? Or, is the best way to generate progress in this technology to give it to a bloated, debt ridden, poorly run, dinosaur?
Do you even have to answer that question?
Imagine if during WWII, instead of putting the Manhattan project in the hands of the scientists that had an expertise in nuclear physics and atomic technology, we instead trusted the project to GM. How might that have worked out? What language do you think we would speaking in the US today instead of English?
Systemic risk? Financial armegeddon? Economic crisis? Don’t bother me with that, its a tax-payer funded buffett — and we are in line at the trough.
Last month, I suggested the bailout plan might cost as much as 3 trillion dollars. At the presnt rate, this will scale up to 8-10 trillion dollars before long. We could even end up spending a full year’s GDP before its all said and done.
Unregulated, Free market capitalism, anyone?
Sources and select media excerpts below.
From today’s WSJ:
Banks in the U.S. and abroad are among the biggest winners in the federal government’s revamped $150 billion bailout of American International Group Inc.
Many banks that previously bought protection from the insurer on securities backed by now-troubled mortgage assets stand to recoup the bulk of their investments under a plan by AIG and the Federal Reserve Bank of New York to buy around $70 billion of those securities via a new company. These securities are collateralized debt obligations backed by subprime-mortgage bonds, commercial-mortgage loans and other assets.
NYT:
When the government said it would spend $700 billion to rescue the nation’s financial industry, it seemed to be an ocean of money. But after one of the biggest lobbying free-for-alls in memory, it suddenly looks like a dwindling pool.
Many new supplicants are lining up for an infusion of capital as billions of dollars are channeled to other beneficiaries like the American International Group, and possibly soon American Express.
Of the initial $350 billion that Congress freed up, out of the $700 billion in bailout money contained in the law that passed last month, the Treasury Department has committed all but $60 billion. The shrinking pie — and the growing uncertainty over who qualifies — has thrown Washington’s legal and lobbying establishment into a mad scramble.
WSJ:
U.S. government’s financial-system rescue plans are coming under pressure as a growing array of distressed companies signal the need for assistance.
On Monday, mortgage giant Fannie Mae said it is losing money so rapidly it may need a cash infusion from the Treasury Department by year’s end. The funds would come from a special $100 billion pool Treasury set aside back in September to aid the company. Fannie Mae had a loss of $29 billion for the third quarter.
In another sign of the stress on financial-services companies, American Express Co. won swift approval from the Federal Reserve to become a bank-holding company. The move paves the way for the credit-card giant to get a taxpayer-funded capital infusion from the Treasury.
Bloomberg:
Federal Reserve is seeking to become the lead regulator for clearing trades in the $33 trillion credit-default swap market, according to people with knowledge of the proposal.
The Fed, the U.S. Securities and Exchange Commission, the Treasury Department and the Commodity Futures Trading Commission are discussing a memorandum of understanding that lays out oversight of clearinghouses that would become the central counterparty to credit-default swap trades, said the people who asked not to be named because the discussions are private.
Sources:
Strains Mount on Bailout Plans
American Express Gets Quicker Access to U.S. Cash; Fannie Mae May Need More Help
DEBORAH SOLOMON, JAMES R. HAGERTY and MICHAEL CRITTENDEN
WSJ, NOVEMBER 11, 2008
http://online.wsj.com/article/SB122630276296413267.html
New AIG Rescue Is Bank Blessing
Buyers of Insurer’s Default Swaps Would Recover Most of Their Money
SERENA NG and LIAM PLEVEN
WSJ, NOVEMBER 12, 2008
http://online.wsj.com/article/SB122644992998319181.html
Lobbyists Swarm the Treasury for a Helping of the Bailout Pie
MARK LANDLER and DAVID D. KIRKPATRICK
NYT, November 11, 2008
http://www.nytimes.com/2008/11/12/business/economy/12lobbying.html
Bailout Critic: Plan Could Cost $3 Trillion
ALICE GOMSTYN
ABC NEWS Business Unit Oct. 13, 2008
http://abcnews.go.com/Business/Economy/story?id=6022145&page=1
Fed Said to Seek Oversight of Credit-Default Swap Clearinghouse
Matthew Leising
Bloomberg, November 12, 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=apgBhmu_U.Fo&
November 12th, 2008 at 8:02 am
Here’s a forecast: After the eventual investigation and audit at Maiden Lane, someone will go to jail.
Amen. My only beef is: why isn’t that person (gang) already in jail?
November 12th, 2008 at 8:38 am
“its a tax-payer funded buffett”
That’s a very funny typo. Love your blog, Barry!
November 12th, 2008 at 8:46 am
Like I wrote yesterday, Our Crooks Are Number One!
Instead of the basic human need to be free of excessive governmental regulation, we now will share the wealth as a matter of social equity. Instead of trickle down economics based on lowering taxes, we have trickle down economics based on corporate welfare on a scale of galactic proportions. It makes me feel great knowing our thieves and our incompetents are being subsidized using the correct underlying philosophy. Republicans are the fox guarding the hen house. Democrats represent the party that can’t say ‘No’ because it might offend someone.
Any day now, another bailout package will be concocted to assist those who claim commodity prices are too low because of demand destruction and must be propped up via credit made available to those who want to invest in long only index funds. This will provide essential commodity suppliers with appropriate prices.
I still don’t understand why Chapter 11 for GM will cause the end of the would. Reorganization is not the same as dissolution. Some of the company might be shut down. The rest would be sold off to people who know what they are doing. Until then, the company would run as usual under court supervision. People who were otherwise attracted to GM cars will still be attracted, probably even more so. The company will have a future, which is something it doesn’t appear to have now.
November 12th, 2008 at 9:11 am
“Never before has so much money been spent with so little oversight, controls, or transparency.” – not sure about that – what about the Iraq war, doesn’t that also qualify?
November 12th, 2008 at 9:29 am
“I [apply for bailouts] because that’s where the money is.”
-Willie Sutton
November 12th, 2008 at 9:29 am
Excellent point, Mind. How quickly we forget.
November 12th, 2008 at 9:36 am
I’ve wondered why Obama and his team are at arms length in all this. After all he will inherit this steaming pile. His strategy must be to keep at arms length so that he can identify it as a steaming pile on Jan 20th and have none of the aroma attach to him. I recall someone stating that the bailout would be rife with thise playing favorites. Now it looks like another scandal brewing with everyone bellying up to the bar at the Last Chance saloon.
November 12th, 2008 at 9:41 am
“Imagine if during WWII, instead of putting the Manhattan project in the hands of the scientists that had an expertise in nuclear physics and atomic technology, we instead trusted the project to GM. How might that have worked out?”
Maybe Truman would have had to vaporize Japanese infants the old fashioned way?
November 12th, 2008 at 9:45 am
Here is an article in our local paper. These are the guys who deliver heating oil in New England…
“Strapped with high-price contracts that are squeezing both themselves and their customers, New England fuel oil dealers are looking to the federal government for help.
The Vermont Fuel Dealers Association joined with its counterparts from other New England states in sending a joint letter to U.S. Treasury Secretary Henry Paulson seeking relief under the recently passed financial bailout law.
Crude oil prices soared to $147 a barrel this summer — a time of year when homeowners lock into prebuy programs at a set price. To guarantee that price, dealers in turn had to lock into futures’ contracts with wholesalers at a set price. Since then, crude oil prices and retail oil prices have plummeted.
The average price of home heating oil in Vermont has dropped from a high of $4.65 a gallon in July to $3.17 a gallon this month, according to the state Department of Public Service.”
November 12th, 2008 at 9:50 am
Of course Obama is being kept at arms length. This is the last great money grab of the Bush Administration. Everyone is lining their pockets while us fools sit around debating the merits of the various plans and ponder what happened to the economy. It is sickening, but also pure evil genius. The only part of the plan that is not working out is Bush’s hope to have a settlement on Mars for him and the other elites.
November 12th, 2008 at 9:52 am
I’ve been saying for a long time, on any forum I can find, that the basic problem in America isn’t ‘george bush’, or ‘corporations’, or ‘the war’, or ‘mismanagement’, the basic problem is a social problem: Americans have lost any interest in the benefit of the society over that of the individual. They have also lost the ability consequently to care for truth over lies (because to believe the individual is the only thing that matters is to believe a deep lie), and so we have a nation gone mad with lust and stupidity blindly lurching about for someone to blame when the latest insane mistake comes home to roost. “Game over Dude, Game over” — it the national cry. The scum has indeed been rising to the top for a long time now. The powerful positions are entirely occupied by duplicitous con-artists intent on stealing for their own percieved (not actual) short term interest.
Any society that does not value the welfare of society and all of it’s component parts will not long endure.
November 12th, 2008 at 9:56 am
Bary, your blog is getting too depressing to read.
November 12th, 2008 at 9:58 am
Ch 11 is the answer. A bailout won’t save jobs that need to be cut for long. This is a stockholder, bondholder and management bailout and its disgusting. Throw money at the worst operators in an industry with overcapacity. Brilliant.
November 12th, 2008 at 10:03 am
@Mike in Nola: LOL. Still laughing at your post. Not sure it was meant to be funny but I can’t help it. So true but yet in some ways you have to laugh at the absurdity of everything to keep from crying……
November 12th, 2008 at 10:05 am
Barry wrote: Here’s a forecast: After the eventual investigation and audit at Maiden Lane, someone will go to jail.
Gabriel said: Amen. My only beef is: why isn’t that person (gang) already in jail?
The answer, my friend, is that the criminality in this case will be found to stretch back a long way, probably far back before some of the present members of the aforementioned gang joined up. The insurance industry is rife with criminality. Once the paper trail is unwound, you know who it is going back to. Delayed gratification for Eliot Spitzer, for a change.
November 12th, 2008 at 10:07 am
I am so angry with this all. I can’t believe that the citizenry is not marching on Washington with shotguns and pitchforks. Why are they giving our money away? Who will protect me from failure in my small business? Have you tried to navigate the SBA for a small loan? Good luck! They are incompetent and condescending.
Do you know how many alternative drive train and systems entrepreneurs came to GM with great ideas that were put under NDA and never heard from again’? There was a video circulating from a meeting between an AC drive train start up company with a great, fully developed product pitched to GM R&D brass. Well, they were polite but non-committal to the start up, but the camera was still rolling after the meetings ended, and the following was exchanged between the GM brass, “….ya ya, what a bunch of Rubes!”.
We are going to give them money? http://bizcast.typepad.com/clients/2008/07/the-problem-of.html
November 12th, 2008 at 10:09 am
@leftback: To add to that that – like I said weeks ago, the criminality is so deep and basically systemic, which is likely why we haven’t seen any significant perp walks yet.
Me-thinks the powers-that-be are worried the whole thing will unravel entirely if the rotten onion is peeled to its core but here’s the thing: without several significant perp walks that make Enron look like a dime store heist, how in the world will confidence in our so-called markets return in a timely fashion, if ever?
November 12th, 2008 at 10:12 am
Geez, pretty dark in here today…
Just wait until Hanky P grabs the mic and sends the market down another 5% woo hoo…
Anyone wanna play that trade today?
November 12th, 2008 at 10:19 am
Dark in here and dark outside (in Minny, November is cloudiest month of year).
I’m sitting tight today. Still think we’re hitting DOW 7,000 and S&P 700) before we hit DOW 10,000 and S&P ~1,000 (might hit 1,000 but won’t go much north of it), but I just don’t know when.
November 12th, 2008 at 10:25 am
within the last two weeks or so there was a piece on NPR that featured a banker from a small-to-middle size bank (IIRC, in the midwest?). he was asked about the bailout and responded that his initial reaction was to say, “NO!” to the bailout. his bank was sound, they had no subprime mortgages, and had been running a shipshape business for years.
and then not only his associates in the industry, but also his business customers began asking: why are you turning down what will obviously be the easiest and most likely best credit that your business can and will get…for maybe the next ten years?
so he capitulated and asked for some bailout money.
this is also a truism of bailouts: the unintended consequences are sometimes as bad as the problems you are solving.
as a small business owner, i can’t fault the bank president. it IS good, cheap credit. he WOULD be a fool, from purely a business standpoint to pass it up.
and yet daily i cycle from anger to rage to fear to loathing to sadness and back at what will more than likely be the worst economic era of my lifetime.
November 12th, 2008 at 10:26 am
No one of any importance will go to jail. They are all too well connected to one another. So if one falls they could all fall. Although if Martha Stewart invested in any CDO’s she might be sweating some. Also the Banks are setting up the fall guy – Obama. Hope he is smart enough to stay out of the “blame tornado”.
November 12th, 2008 at 10:33 am
Maybe Truman would have had to vaporize Japanese infants the old fashioned way?
You do know that the US military is still handing out purple hearts minted for the invasion of the Japanese home islands, right? And that more Japanese died during the firebombing of Tokyo than in Hiroshima and Nagasaki combined, including deaths due to long-term effects of radiation? Regardless of what the Japanese have been teaching in their schools for 2 generations, they were no innocents, just ask any surviving American POW, I’m sure they’d have LOVED Guantanamo instead of where they were held..
I’m just looking forward to the downgrade of US treasuries, yet another “it couldn’t have been imagined” moment that will shock the inattentive…
November 12th, 2008 at 10:38 am
It’s insane. They have screwed things up so bad there is nothing they can do.
I’m appaled at the lack of transparency and the fact that there is none is a huge signal we taxpayers are going to go in to this bailout as a tight-ends and come out it as wide receivers.
I’m thinking this lack of transparency = :
We are getting ripped off.
We are reimbursing China investments made in the USA.
B&P have made a quid pro quo with the banks to prop up the stock market buying as it falls with our trillions.
P.S. I think Obama must be really puckering soon.
November 12th, 2008 at 10:54 am
Quote Mind, “what about the Iraq war, doesn’t that also qualify?”
Let us not downplay the importance of the President-Elect encouraging a “surge” in Afghanistan – obviously a student of history he understands how well military intervention worked in Afghanistan for the U.S.S.R. and wants a repeat of that glorius victory for our side this time.
Besides, I’m certain we can afford more war as Reagan proved deficits don’t matter – right?
November 12th, 2008 at 10:54 am
Systemic risk? Financial armegeddon? Economic crisis? Don’t bother me with that, its a tax-payer funded buffett — and we are in line at the trough.
Why did the Swedish banking system bailout in the early ’90s work and ours clearly isn’t – and won’t?
I heard this question bandied about a lot in the weeks leading up to the bailout bill in the context of “what we should do” … who should qualify, how should the money be made available, what sorts of punitive measures should be required, etc. Obviously, our abomination of a bailout program fails on almost every count.
Yet I’ve started wondering if one of the main reasons is something I never heard discussed – the cultural model.
Nordic cultures in general prize egalitarianism, collaboration, and shared sacrifice. Brazen, unabashed, pigs-to-the-trough looting of the type we see on display with this bailout fund didn’t happen in Sweden – not, I’d guess, because of the strictures and penalties written into the laws or the process, but because it would have been culturally unthinkable. In fact, I’d be surprised if the Swedish language even has a word for it.
American culture used to prize individuality, freedom, and rights and responsibilities. Somewhere along the way, we lost that last piece. Now, as Barry’s line above indicates, it morphed into simply being ‘I got mine, the hell with everyone else’.
A nation full of self-proclaimed alpha dogs, marking every piece of territory they can find. Why should anyone be least bit surprised to see what we’re seeing, now that our owner has dumped a trillion dollars of raw steak on the porch?
November 12th, 2008 at 10:55 am
You have to keep in mind, Barry, that all this carnage and waste is by design. To paraphrase Naomi Klein, the more money that the Bush Administration can waste, the closer they are to their ultimate goal — to destroy the social safety net of the New Deal, and to prevent any widening of that net under the Democratic administration. They WANT waste. They WANT to send the deficit soaring. Because then their answer for everything — Social Security, Health Care, Infrastructure, Regulation — will be “We Can’t Afford It.”
http://www.youtube.com/watch?v=jkpdVL1Vtv4
November 12th, 2008 at 10:58 am
By the way, if all this is getting too depressing, I wrote a song that may lighten your spirits…
Enjoy:
http://www.youtube.com/watch?v=0tFW4jGKnOM
November 12th, 2008 at 10:59 am
@Mook: I think you’re definitely onto something. The U.S. has lost its way culturally and sold its soul over the past 20-30 years. Our morally bankrupt so-called “leaders” set the tone (”get what you can, while you can at all costs”) and everyone followed.
November 12th, 2008 at 11:03 am
Agreed that if you scratch a capitalist, he will oink….
I think there are about 10 reasons why the mess is getting worse instead of better.
1 Mortgage mess is not any better for the majority of Americans, and this was probably the big initiator.
2 Bernanke and Paulson made it sound like the end of the world when begging congress to pass the bailout. People watching on tv thought they must know what they were talking about since they were the Masters of the Financial Universe
3 Unfortunately, the credit crunch didn’t spare any area of the globe. This in unison contraction is really a locomotive with a head of steam.
4 Japan, the second largest economy, is already drowning. They, I think, will suffer more than we do.
5 Commercial real estate, like houses, is overbuilt here too. Now it is adding a second leg to the real estate contraction.
6Deficit spending is an anathema. Our lack of a balanced budget amendment mean there is too much political pressure brought to bear to overspend without some process to block it.
7 Unfortunately, the Christmas season, often more than half of a retailer’s profit, has been forcast for months to be weak. This means anyone depending on Christmas sales has for months been reluctant to spend.
8 The consumer was already in a less than stellar position when this mess began.
9 The present administration has provided weak leadership. When is the last press conference with actual questions? They always seemed to be reactive, not proactive.
10 Other problems have contributed..two wars, devastating hurricanes, gas spikes, etc. all seemed to pile on at about the same time.
I think next year will be really interesting….
November 12th, 2008 at 11:10 am
The more Hanky P. talks, the less confident I get. I guarantee you he can’t wait to the get the heck out there in January. What a stumbling, bumbling moron. Remind you of anyone? Fits right in with this administration.
November 12th, 2008 at 11:12 am
for Dr. Kenneth Noisewater:
Rather than convincing me that the ends justify the means, you will only succeed in convincing me that you have the all too common human need to believe that the State and its killings (and lesser depredations) are good and not evil. Rather than identifying myself with the State, and then trying to convince myself that evil is good, or that there is no such thing as good or evil, I’ve decided to recognize my own capacity for evil and try to take responsibility for my own actions. Such puts me in opposition to just about everyone I know, but I’d really rather live free of the contradictions as best I can. Will I pursue this same course even at the cost of my own life or that of a loved one? I don’t know. I think about it often, and hope I never have to find out.
On a happier note… go Yen! (I’m short the Euro against it since yesterday and loving it!)
November 12th, 2008 at 11:16 am
Where is Paul O’niel when you need him?
November 12th, 2008 at 11:28 am
Listening to Unca’ Hank right now on Bloomberg, and he clearly couldn’t care less about anyone outside the financial services industry. The weasel keeps saying that he appreciates just how important the auto industry is to the nation’s economy, but he’s defending that $700B in TARP like a momma bear protecting her cubs. He clearly knows that the financial services industry and its profligate ways won’t be receiving any further strings-free hand-outs after the obscene way that the banks and financial services firms have used the funds made available already. He’s clearly signaling that he’s never gonna give up a cent to any firm not connected to the financial services sector.
Could it be that Unca’ Hank is trying to make sure that he has a safe harbor waiting after he leaves this cesspool called the Bush Administration?
November 12th, 2008 at 11:45 am
How could they possibly justify American Express? Did they even try to spin it? Or are they just more or less giving us the finger now?
November 12th, 2008 at 11:51 am
Why are you so anti-business? We need a PRO-business environment if we are ever going to get out of this mess and you’re not helping any with all this demonizing and finger pointing.
November 12th, 2008 at 11:58 am
Quote of the day:
Gerald O’Driscoll, a former vice president at the Federal Reserve Bank of Dallas:
“Nontransparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here,” he said.
November 12th, 2008 at 12:21 pm
GOP Congressman and free marketeer Paul Ryan on CNBC repeating the false meme of Fannie & Freddie being mostly responsible for this mess. To Liesman’s credit, he called him out on these falsities.
BR – looks like your (and others’) attempts at refuting this myth continues to fall upon deaf ears with some ideologues, particularly on the right. Until these folks stop lying to us and themselves about the causes of this mess (Wall Street greed & criminality and lack of oversight by the Feds), we are nowhere and will continue to be nowhere……..
November 12th, 2008 at 12:39 pm
Rather than convincing me that the ends justify the means, you will only succeed in convincing me that you have the all too common human need to believe that the State and its killings (and lesser depredations) are good and not evil.
The ends don’t necessarily justify the means, but they often do, just as correlation does not necessarily equal causation, but it often does. It takes a bit of wisdom and humility to see that, which is why doctrinaire libertarians or anarchists will never end up in power. Pacifism only works when dealing with moral enemies, or if you can successfully avoid or flee immoral enemies. Don’t think that’s true? Ask the Anabaptists.
ObBailout: Hard Times, But Big Wall Street Bonuses:
“According to a report from financial news agency Bloomberg, Goldman Sachs, for example, has set aside $6.8 billion for bonuses, and Morgan Stanley, $6.4 billion. “
November 12th, 2008 at 1:04 pm
Hank Paulson is the new Jerry Bremer.
During the summer i was wondering what would be Bush’s final FU to the country, i guess this is it.
November 12th, 2008 at 1:19 pm
Meanwhile, AIG continues to fund swank junkets / buffets for its executives.
Certainly, $350,000 in and of itself is a small piece of the pie, but I think it is evidence of an attitude that these people getting these bailouts are basically giving the taxpayers the finger. They are saying, “We are going to take this money and continue to bathe ourselves in riches, because we can. Because we are powerful. And because you are suckers.”
And they are right. Their core attitude hasn’t changed and it won’t change until real pain is brought to bear. The real pain can come in many forms, but I think jail time is one of the best. And I don’t mean kiddie kamp jail. I mean jail, jail. I want to see executives giving reach arounds to thug life upstate.
November 12th, 2008 at 1:27 pm
Dr. Kenneth Noisewater:
Guess that depends on what you mean by ‘works’. Suffice to say, I will never buy what you’re selling and probably vice versa. We could surely go on, but this isn’t really the right forum. Take care.
November 12th, 2008 at 1:30 pm
jmay—Loved your video.Made my day. Thanks.
November 12th, 2008 at 1:35 pm
Make no mistake. If nearly anyone could figure out a way to get a life-changing government subsidy just by holding a hand out, I’d have mine out also.
And the majority are in great shape mortgage wise. It is minority, isn’t it always, that is the cause of this meltdown in making mortgage payment. A sufficiently large minority granted, but less than 25% of mortgage holders.
November 12th, 2008 at 1:41 pm
This crowd might enjoy a glance at Akerlof & Romer’s 1993 Looting: The Economic Underworld of Bankruptcy for Profit to understand the awful incentives when the Feds get involved. Akerlof, of course, went on to Nobel fame based on further developing an understanding of “information asymmetry” and other flaws in economic transactions, but this is as plain-English as you’d like.
Since we haven’t changed the structure of our response to financial crises (they reviewed collapses in Chile, US S&L’s, Texas real estate and US junk bonds), the paper could almost be re-titled, How to Profit Handsomely by Driving Your Company into the Ground.
The outrage against “business” is that it’s awful business. Supposedly we have laws on the books, and an Administration that attempts to minimize moral hazard opportunities, but various firms and their senior management have found a riskless way of breaking social, and explicit contracts. It stinks.
November 12th, 2008 at 3:27 pm
This free-market hate mongering is getting quite tired Barry.
In a free market, the government would not be doling out billions of dollars to rescue faulty companies. In a free market, the companies that were mismanaged would eventually either go out of business, or be taken over by a competitor who would be able to manage it and flip a profit.
In a system with little relation to a free market, you get government props because the government decides it can best decide who should or shouldn’t go out of business.
AMEX, AIG, GM, and so forth wouldn’t be at the bailout trough in a free market because there wouldn’t be a bailout trough. They are only at the trough because the current economic structure is something akin to a socialistic plutocracy.
Everytime something goes wrong, you blame the free markets. Yet the free markets didn’t get us here – poor central monetary planning and a poor governmental structure allowed for artificially low interest rates, markets for toxic assets, and safety nets to catch the high-risk takers. Free markets, can however, get us out – we just want to do the approach that never works first.
Tell me, what exactly is free-market about these bailouts?
And unregulated? Maybe not as regulated as you want it to be – but unregulated? Please.
November 12th, 2008 at 4:23 pm
So sad, and yet, so true!
November 12th, 2008 at 7:31 pm
jmay – I was LOL too
passed the link on to my Obama blogers – hope you hit the big time with it – JibJab
November 13th, 2008 at 11:09 am
oh, god, I”m crying, then laughing, then crying again