I try to follow the advice “Never pick a fight with people who buy ink by the barrel full,” but every now and again, I simply cannot help myself.

Today is one such an instance.

Like all human beings, I am wrong on a regular basis (my wife can read you chapter and verse). However, I would like to think that I am more right than wrong, especially on the big picture issues. That is, IMO, because I try to eschew rigid ideology, focus on the actual data, put it into context, and work from that point. Start with data, then reach a conclusion. It is a pragmatic, mathematically based approach, and it has served me well throughout my career.

There are many others who do not seem to care much for the numbers. Their approach is to define a conclusion first, than seek out data or anecdotes that support that conclusion. This is the province of the economic ideologue. As you might suppose, these data-free ideologies are frequently wrong, occasionally spectacularly so.

I bring this up because this week’s Barron’s has a list of book recommendations from Gene Epstein. I suggest skipping the column, and not reading the books. This is based upon Epstein’s track record as an economic columnist. If his book recommendations are anywhere near as good as his economic commentary about the economy, then they will be utterly horrible.

As you might imagine, this is a collection of mostly ideological tomes (plus a pair of Updike novels), with little or no correlation to reality. Call it the clueless free marketers guide to the crisis.

I have not read all of the 6 books recommended, but started two of them:

I started reading Thomas Sowell’s The Housing Boom and Bust. Once I ran into the same tired old political talking points — CRA/Fannie Mae caused everything, government is the root of all evil — I put the book down and moved on to more reality based works. If you want to see the genesis of every false meme, every political talking point, then this is the book for you.

Sowell is actually intriguing, because he mixes in just enough reality to keep you wondering. The problem I found is the reality-based work is filler, there only to legitimize the political talking points.

Of all the people who have looked at and written about the crisis, Sowell is the one I would like to debate the most.

Thomas Woods’ Meltdown blames the Fed for much of what occurred, and on that point we are in agreement. We also concur that the bailouts were an absurd transfer of wealth from taxpayers to inept companies. However, Woods’ exonerates “deregulation” and “unfettered free markets” as playing a role in the crisis. He is int he Phil Gramm camp. As you would expect from a senior fellow at the Ludwig von Mises Institute, Austrian ideology is a front and center throughout much of the book.

Now, I mention the ideological bend of Epstein not as an ad hominem attack, but to contextualize his track record.

Of all the observers of the economic crisis of the past year, few have gotten it wronger than Barron’s Gene Epstein. This is directly due, in my opinion, to Epstein’s political ideology. He may or may not be a good economist, but we have no idea as to whether that is so, as his economic views are so dominated by his ideological rigidity and political perspective.

I would expect as much from Al Franken or Rush Limbaugh, but one hopes for more from the economics reporter from one of the nation’s pre-emiment weekly journals. One would be disappointed.

Let’s take just a brief look at his greatest hits:

GDP Prospects Flash Green (MARCH 5, 2007) The author forecast: “The economy should grow nicely this year and next.” Only not so much.

Why Recession Is Remote (OCTOBER 8, 2007) This was precisely at the peak of the last expansion — we now know Real Wholesale-Retail trade sales peaked in September 2007, and Real Income hit its cyclical high in October ‘07. (Employment was December 07, and Industrial Production was January 08). The recession was two months from beginning. 

Housing Isn’t Clobbering GDP (OCTOBER 22, 2007)  Good thing Housing didn’t impact the economy much . . .

Look for Joblessness to Hit 5.2% in Late ‘08 (DECEMBER 10, 2007)  Wildly too optimistic — the Unemployment Rate rate was 6.1% in September 2008, and as I noted at the same time “its likely to rise.” Its now over 9%.

Outside of Housing, Things Are Humming (NOVEMBER 5, 2007) The credit crisis was already 4 months old when this insightful column came out. Aside from GDP being negative, relying on a dirt cheap dollar raises the question of what happens when that dollar rises — like it has this past quarter.

Slowdown, Not Recession (FEBRUARY 4, 2008) The irony is  that NBER marked the
recession starting in December 2007 — 3 months prior.

Even Money on Recession (MARCH 10, 2008)  That’s a small change from the column the month before. 5 months into to a horrific recession, the call was a coin toss. Awful.

The Great American Savings Myth (MAY 28, 2007) Facts have proven this to be clueless nonsense. “Household net worth — assets minus debt — has never been higher.” As we warned at the time, asset prices can go down, while debt doesn’t — exactly what happened. One of the truly horrific, embarrassing, columns of all time.This is why ideology loses investor’s money. foolishness

Why GDP Will Keep Growing (SEPTEMBER 29, 2008)  Thanks to high Imported Oil prices, GDP looks better than it is (high imported Oil makes the deflator artificially raise GDP. But beyond that technical explanation, this is simply embarrassing nonsense. If you worked at any P&L driven buy side firm, writing stuff like this is how you get fired.

if this writer cannot identify the worst recession since the Great Depression in REAL TIME, just imagine what his book recommendations are like: Rigid, ideological, and for the most part, not worth your time.

I understand that this post will likely cost me a Barron’s review of Bailout Nation — but I am compelled to call them as I seem them, consequences be damned . . .

>

Source:
Worth Mulling: A Late-Summer Reading List
GENE EPSTEIN
Barron’s AUGUST 17, 2009

http://online.barrons.com/article/SB125029924040433721.html

Category: Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

94 Responses to “Barron’s Bad Book Recommendations”

  1. VennData says:

    It seems like every summer book reading list of Gene Epstein has a Thomas Sowell book on it.

    Not Dismal: Here’s our summer reading list
    http://online.barrons.com/article/SB929749121173605195.html

    Nine Good Reasons to Hit the Beach
    http://online.barrons.com/article/SB118377522237259874.html

    More Austrian economic “Markets work because markets work” nonsense.

  2. jpm says:

    I put the book down and moved on to more realty based works.

    Those without coffee might mistake what you really meant.
    The rest of us thank you for a great post.

    ~~~

    BR: Doh! Reality! I’ll fix above

  3. Greg0658 says:

    I’m wondering if across the board full transparency in product purchases* and “ideology strengthening” is productive? .. or more civil war fodder?

    * before your in / spent .. because the www age can do

  4. Greg0658 says:

    ps – sorta like my still beloved Presidents remark about USPS FedEx and UPS .. a truthful wiki page of what was done in years past that helped (or hurt) each climb the ladder of success (productiveness)(ie primarily bankruptcy / write off pensions)

  5. ben22 says:

    The issue of Barron’s two weeks ago was just plain awful. Nearly every article seemed like a CNBC show, and the worst being the article about why to buy stocks according to Jim Paulsen from Wells Capital Mgmt. I would think that it is good advice to stay away from books from someone that has been consistently bad regarding econ. predictions. Would anyone buy a book rec’d by Don Luskin for example.

    Speaking of the numbers, I was told by another portfolio manager yesterday that Only 5 times has the RSI on the NAS gone over 75, as it recently did, and that all 5 times it didn’t just go down, it dropped an average of 22%. The last time it was this high was 10/10/07.

    Anyone else have any thoughts about this?

  6. ben22 says:

    oh and BR, you are the man for doing this, who cares about a book review from them your book will sell with Barron’s or without them. I’m about half way through, plan on reading some more this weekend. What ever happened to getting those signature plates? I guess if we signed up but didn’t hear anything we weren’t early enough?

  7. porterhouse says:

    How can you claim with a straight face that we have had “unfettered free markets’?

    The US has never had a true free market economy. The 19th Century was much more free than the 20th century, but it was far from a free market utopia.

    The massive regulatory state that has dominate recent American history is in no way close to the “unfettered free markets” that you claim. Sorry Barry, you have lost credibility with the “unfettered free markets” claim.

    Woods is also using Austrian economic theory to make his case. You might want to brush up on Mises and Rothbard and read what they had to say about recessions and government interventions.

    ~~~

    BR: When the Berlin Wall fell, two Politburo members were having a drink.

    One said to the other “So much for our grand experiment in Communism!”
    The 2nd one said “What do you mean! We never truly had Communism in the USSR!”

    You “No Free Market” guys remind me of those two Russians.

    No, we did not have a textbook example of either Communism or Free Markets. However, in both instances, we came about as close as possible in the real world.

    If you want to stroke your goatee, smoke a clove cigarette, and argue abstract theory with the other NYU grad students, I suggest you go to Cafe Reggios on MacDougal St. Have an expresso.

    Tell them Adam Smith sent you . . .

  8. Pat G. says:

    If nothing else, you gotta admire Epstein’s batting average.

  9. Marcus Aurelius says:

    Greg0658 Says:

    ps – sorta like my still beloved Presidents remark about USPS FedEx and UPS …

    ______

    I was surprised by BO’s comment regarding the USPS. For the price they charge, when compared to FedEx and UPS, and even in light of whatever fedgov subsidies and legal benefits they receive, the USPS provides one of the highest levels of service around. $.44 to mail a letter anywhere in the US, and it will most likely get there in 2-3 days (door to door, no less).

  10. seneca says:

    Gene Epstein’s numerous bullish forecasts for the U.S. dollar in recent years have also proven risible. Epstein, as one would expect, parrots the ideological bias, blinders and one-track thinking of his employer. The columns of Barron’s Editorial Page Editor (and sole editorial page contributor) Thomas G. Donlan fall into the same rigid ideological mold.

  11. davver says:

    Why the hate on Austrians? I’ve found them to believe in anything but the Phil Gramm “mental recession”. Most saw the housing bubble when it happened and predicted the huge stock market crash. And while policy makers have been talking about the economy in the “if we just restore confidence everything will be fine” mode, Austrians talk about how the credit boom caused significant real damage to our capital structure and will take a long period of time and fundamental structural changes to repair.

    ~~~

    BR
    : I don’t hate the Austrians — I think that they have something very valid to offer. However, they often veer into unrealistic proposals (The Fed is not going to be disbanded this century).

    Like all religions, they tend towards extremism in their belief system.

  12. donna says:

    Sowell has been an idiot for many years. Surprised you even tried to read him!

  13. meellerbee_21 says:

    Mr. Ritholtz,

    With all due respect, your comment as to Sen. Franken is poorly taken. While I understand that there is a knee-jerk reaction to say “a pox on both their houses” and cite both a Demcorat (Franken) and a Republican (Limbaugh), what evidence do you have to support the proposition that Sen. Franken is an ideologue of the likes of Rush Limbaugh?

    Sen. Franken, by all accounts, is an absolute policy wonk who will consider the evidence for and against a proposal before coming to a conclusion. While his overall values may be overall progressive, he is a far cry from Mr. Limbaugh.

    Sincerely,

    Jeff

  14. I (apparently) stand corrected.

  15. franklin411 says:

    @Marcus
    Agreed. UPS has screwed up my package deliveries several times (misrouting usually, which takes several days to correct) and FedEx is plain gawdawful (once they sat on one of my packages for a week past the scheduled delivery date because most of the people in my neighborhood were on vacation and they didn’t want to spend the gasoline to deliver just one package). I have never had a lost or even severely delayed package through USPS, though, and I ship often. For value and service, you can’t beat the USPS.

  16. Mannwich says:

    If you’re in the elite class, there’s no longer an penalty for being brutally wrong about even big issues. They just move along and act like nothing happened (and certainly never admit they were wrong about anything), and oftentimes blame other extraneous factors/people for their horrendous calls. It’s our longest running tragicomedy in this country.

  17. Mannwich says:

    Hey – I agree with franklin411 again. The USPS has been very reliable for me over the years. I have NO complaints. Gov’t isn’t always the problem. That’s a false ideology.

  18. Mannwich says:

    On another note – met a commercial real estate broker here in the Twin Cities at dinner/drinks last night. He says it’s a bloodbath out there and going to get far worse based on what he’s seeing in CRE. For what it’s worth, he also thinks we’re headed for a big market pullback in the fall.

  19. VangelV says:

    I find myself agreeing with Epstein on the merit of the books that you seem to dislike. While I have not yet finished Sowell’s book yet, his analysis is much closer to explaining the housing boom than what you seem to believe. Whether you like it or not, it is a fact that without Fannie, Freddie, CRA housing goals, and meddling by Congress and the Cinton/Bush administration, the housing bubble would not be possible. While it would be possible for the Fed to create a bubble, the Fed would not have been able to concentrate the effect in the housing sector because it has no way to direct flows to the sector.

    Meltdown is the best book on the financial crisis so far by a very wide margin. The fact that you have a problem with Woods’ contention that there was no deregulatory problem tells us more about you as a commentator than the reality. If we look at the Federal Register we find that during the Bush administration the number of regulations expanded by several thousand pages. So did the number of regulatory employees and the regulatory budget. That is not a sign of ‘reckless’ deregulation but of an expansion of government. While you may have a preference for government action and more regulation that preference is misguided because it is a matter of faith. From what I have seen, there is no evidence that governments can run things better than markets. If you can provide such evidence please feel free to share it with your readers.

    And before you try to respond by blaming the Gramm-Leach-Bliley Act on what happened please note that Canada had similar legislation but its banks did not use the level of leverage that was found in the American banks. And please note that the European regulators failed to prevent their banks from using leverage that was more suitable for hedge funds and degenerate gamblers. No matter how you try to spin it, the US has way too much government, too many intrusive regulation, and unfunded liabilities that have made the country bankrupt. The only way out is for the Obama Administration to take the Argentine route and devalue the currency so that it can ‘repair’ household balance sheets. Sowell, Woods and Fridman are on the right side of this argument. You are on the wrong side. Try reading the books with an open mind. You might learn something before it is too late.

    ~~~

    BR: Please show me evidence of where Fannie Mae required no doc liar loans? Or encouraged piggy back loans? Can you reveal a single iota of evidence that Freddie Mac required loans be made to be regardless of credit scores, income, debt servicing ability, loan to value, or down payments? Why is is that all of the biggest bubble areas were outsider CRA regions? How come the bulk of bad loans were made by non-bank (not covered by the CRA) lenders?

    I find the idealogues completely ignore the data — as you did.

    My advice to you is to give all these folks all of your money to manage . . .

  20. Mannwich says:

    @Vangel IV: Correct me if I’m wrong, but Canada wasn’t unable to leverage up 40:1 like our wonderful banks on Wall Street? Good old Hanky Panky was able to get our leverage rules waived for his firm and others on Wall Street. To me, it was this leverage (along with low interest rates for too long and a daisy/gravy train that encouraged fraud on a grand scale because everyone was skimming some moola along the way), that were the main drivers of this mess.

    Bottom line is the SEC and the Fed and all of our regulatory agencies looked the other way (and even aided/abetted these crimes against the country) because of their free market ideology, but go ahead and cling to your theory that Fannie/Freddie/CRA were the biggest drivers of this fiasco. Gramlich even warned Greenspan personally about the mess that was brewing back in the early 2000′s, I believe, but go ahead, it’s fine to create your own reality in BananAmerica.

  21. Mannwich says:

    That’s “Canada wasn’t able”…….(under their system).

  22. call me ahab says:

    “Al Franken”

    that’s Senator Al Franken thank you-

    congress is a joke- so makes sense i guess-

    next up Ralphie May- that guy kills me

  23. Marcus Aurelius says:

    VangelV:

    Regardless of any other hairs being split in laying blame for the housing rip-off, there is not one law on the books — CRA or otherwise — that requires, suggests, recommends, compels, pressures, or otherwise influences a bank to make a loan to anyone who does not qualify.

    Also, please explain how it is that mortgage defaults are not concentrated in areas covered by the CRA.

  24. FranklinB says:

    Barry is such a hack and he is actually delusional enough to promote himself as being the smart guy in the room. Say Barry — how many stocks did you recommend to buy when the market was as 666????

    ~~~

    BR: Your bravado is only exceeded by your ignorance.

    I recommended covering shorts and going long, pretty much to the day before this rally began.

    See this
    When Barry Ritholtz Talks, People Listen
    March 11, 2009, 1:13 PM
    By STEPHEN J. DUBNER
    http://freakonomics.blogs.nytimes.com/2009/03/11/when-barry-ritholtz-talks-people-listen/

    And your public recommendations were . . . ?

  25. Blissex says:

    «If you worked at any P&L driven buy side firm, writing stuff like this is how you get fired.»

    Sure, but Gene Epstein seems to me a sell-side journalist; just as there are sell-side analysts, and sell-side economists (and sell-side scientists for the pharma companies, etc.). Far from getting fired, they usually enjoy excellent rewards. The sell-side is a generous sponsor — it has to be.

  26. Marcus Aurelius says:

    Oh, and there’s this statement:

    “From what I have seen, there is no evidence that governments can run things better than markets. If you can provide such evidence please feel free to share it with your readers.”
    _____________

    Maybe you should explain why the Fed Gov had to bail out the “heavily regulated” banks, and take over GM (and force the acquisition of Chrysler). Please explain why it is we pay more, without receiving better healthcare, than those countries (including all other industrialized nations) that have government-run healthcare systems. After that, maybe you can explain how the uber-overpaid Blackwater corporation could have charged us so much for their theft, incompetence, and criminality in Iraq when we already pay our very competent military a much lower rate for the same services.

    Apparently, “markets” can’t run shit.

  27. Fredex says:

    @VangelV

    Exactly right on Sowell. He’s a national treasure.

  28. call me ahab says:

    “Apparently, “markets” can’t run shit.’

    another myth busted-

    thanks for pointing it out Marcus

  29. Onlooker from Troy says:

    “It’s our longest running tragicomedy in this country.”

    And a primary indication of the complete lack of integrity and moral backbone that permeates our government and business community, with few exceptions. The great Oracle of Omaha is just the latest to disappoint in that regard, IMO.

    In that light I applaud Barry for speaking his piece while possibly hurting his own cause, even if just a little. It’s quite rare in this day and age.

  30. Andy T says:

    @ben

    “Speaking of the numbers, I was told by another portfolio manager yesterday that Only 5 times has the RSI on the NAS gone over 75, as it recently did, and that all 5 times it didn’t just go down, it dropped an average of 22%. The last time it was this high was 10/10/07.

    Anyone else have any thoughts about this?”

    ~~~~~~~~~~~~

    I think that portfolio manager should “recheck” his work. I show dozens of occasions of the Naz being over 75 on the Daily RSI and most of the time it led to higher highs. RSI as an absolute measurement and “predictor” of things is utterly useless. Pronounced RSI divergence is more relevant, and even that can lead you to the poorhouse without looking at other factors.

  31. VennData says:

    LOL a CRAer!

  32. jr says:

    Tom Woods is nowhere near Phil Gramm. Austrians are quite critical of Gramm and other establishment republicans, who give lip service to free markets and deregulation but champion the FED.

    Austrians are absolutely clear that deregulation within the existing sphere is ridiculous – we can’t have our government guaranteeing losses and encouraging speculation through monetary pumping *WHILE* deregulating them.

    When Austrians say **Deregulation** the most first thing you should think is = STOP CORPORATE WELFARE!! Stop the FED, FDIC and TREASURY from guaranteeing losses and and the silly economy based on the FED “making it rain” on the banking system. See Cantillon effects, the enormous inflationary wealth transfer to the banking system at everyone else’s expense.

    Failure must be a risk, business must be accountable and not receive a helping hand from those they help get elected.

    ~~~

    BR: Like I noted above, there are lots of things I agree with the Austrians about. You named a few above.

    They do tend to veer off into unrealistic abstract theory at times.

  33. dougc says:

    I am suprised that enterprises owned by R Murdock ( barrons – Fox) would employ any political hacks . After all
    ‘ we inform, you decide’. Cancelled my subscription when he bought them.

    ~~~

    BR: Epstein pre-dates Murdoch by many years.

  34. Onlooker from Troy says:

    OT

    And oldie but a goodie from The Onion:
    http://www.theonion.com/content/node/28441

    ahab will appreciate this especially, I’m sure. No matter what you think about TA, you’ve got to admit this is very funny parody.

  35. stuki says:

    I don’t know how far you got into Meltdown, but I suspect You severely misunderstood the book’s central thesis. It was not to exonerate the so called “free market participants” that were on display over the last couple of decades, but rather to point out that while the rhetoric was about freedom, reality was quite different. And it was this reality that caused the crisis. Not adherence to a “system” that was never in place in the first place, outside of childish Republican talking memos.

  36. Andy T says:

    BR: What’s wrong with the Austrian School of Economics and their perspective?

    Also, what’s wrong with suggesting that Fannie Mae, with US government backing, pushed way too much credit at artificially low rates? Why does such a thing even exist? Why couldn’t real private companies and markets decide the appropriate interest rates for a home mortgage? Perhaps the massive intrusion of government into the housing market was one big contributing factor to the boom and bust. Namely

    -tax credits on interest;
    -unequal tax treatment of capital gains on homes vs. other assets;
    -the creation and promotion of HUGE credit pushers named Fannie and Freddie;

    Those were some big factors that strongly encouraged people to buy homes, which in turn led to the boom, which of course led to all sorts of new growth industries: sprawling exurbias, themed shopping malls, strip malls, Chotchkies Restaurant chains, nail salons, tanning salons and a slew of auto mechanic shops to service all the vehicles making the long round trips between the McMansion and work.

    I know…I know…you will tell us it was all Easy Al’s fault with low interest rates and a lack of government regulation/oversight/enforcement on I-banks, credit rating agencies, derivative markets, etc, etc, etc….

    These are all factors of course, but I would suggest excessive government interference in markets helped plant many of the seeds that created and fostered the great housing bubble.

  37. jr says:

    People may not know that Ron Paul ran against Phil Gramm:

    ” In 1983, when Sen. John Tower (R-Texas) announced his retirement, Paul entered the Republican race as a serious underdog against Rep. Phil Gramm (R-Texas). The Republican establishment supported Gramm, as did most donors. “The capitalist system has been just about destroyed,” Paul said during the campaign. “The money is on its last legs, and the interventionism… that we’ve been involved (in) around the world is about to bring the world to the brink of a military confrontation.”Hughes, T. Lee, “Ron Paul, Against Welfare to Rich, is Shunned by PACs,” The Associated Press, Jan. 2, 1984(4)Hughes, T. Lee, “Ron Paul, Against Welfare to Rich, is Shunned by PACs,” The Associated Press, Jan. 2, 1984 He lost in a landslide to Gramm and left Congress in January 1985.”

    http://www.whorunsgov.com/Profiles/Ron_Paul

  38. call me ahab says:

    funny stuff onlooker-

    gotta keep an eye that blue line-

    mgiht jump right out of the box!

  39. jr says:

    Here are two articles from 1999 and 2003 ripping Phil Gramm from the Ludwig von Mises Insitute (LVMI), where Tom Woods is a Senior fellow. LvMI published “Meltdown”:

    1999: “Phil Gramm of Texas thinks in free-market terms, but two factors stand between his policies and a consistent defense of market theory: a) he’s a politician, and b) he’s not an adherent of the Austrian School. Hence, his call for the Fed to acquire more power to manage the economy.”
    https://mises.org/story/178

    2003 “Why Politicians Sell Out,” an article focusing on Gramm’s ‘conversion’:

    “Alas, instead of trying to figure out how to slay the government monster, Gramm had metamorphosed into trying to figure out how to feed it with tax dollars instead of printing press or debt dollars. Gramm’s conversion admittedly was not end-of-spectrum to other end-of-spectrum. But going from something that smacks of a healthy dose of libertarianism to the pedestrian objectives of country-club Republicans represents significant movement across the spectrum. ”
    http://mises.org/story/1346

    ~~~

    BR: Yes, the Austrians have gotten some things correct.

    My problem is their religion, not their God . . .

  40. Moss says:

    @stuki
    Not adherence to a “system” that was never in place in the first place, outside of childish Republican talking memos.

    Answer me this, when was a system, as explained by Austrians ever in place?

  41. JoWriter says:

    So right, jr! On all counts. To attribute the ‘meltdown’ to a free market ideology is to miss the pernicious effects regulation has on said markets. Not just moral hazard as you rightly note, but also complacency on the part of all players. “I’m protected – I can leverage up as much as I want.”

    @ Mannwich: “Bottom line is the SEC and the Fed and all of our regulatory agencies looked the other way (and even aided/abetted these crimes against the country) because of their free market ideology,”

    To clarify, “free market ideology” = crony capitalism in this context.

    Please, BR and others, try to understand what deregulation would really mean if we ever had it. Also that with deregulation must come the corollary: if you scr*w up, you collapse, fail, disappear, blow up…. You will not be rescued, bailed out, propped up…

    Please don’t attribute market bubbles and blowups to failure of the free market. It’s just not so. Every incidence of such activity is preceded by some government action. I was going to say “dumb government action,” but realized that was redundant.

    P.S. Thomas Sowell is a brilliant, intellectually productive genius – as well as a genuine mensch.

  42. ben22 says:

    @AT,

    Thanks for the response. I was not certain that was correct and I have never tracked RSI that closely to determine a trend with that. Like anything, if you are using one thing to determine the next market movement it’s probable that you’ll be wrong.

    thanks again.

  43. Thomas says:

    Do not take it personal but Bailout Nation is a subpar book. There are better and more serious books out there, so do not take it personal against Barrons not including a mediocre Bailout Nation on their list. I think it was your first book; hence, the thick one-sided Fleckenstein-like bias and mediocrity. You need to learn that there are other people out there who do not agree with your opinionated exaggerations. Next time you will examine other possible interpretations/explanations and write a better book (good enough for Barrons to recommend it).

    ~~~

    BR: Heh heh — kids like you make me laugh. I would not expect someone like you to appreciate a reality based, meticulously researched, persuasively argued book. In fact, I would be disappointed if you liked it.

    However, others do. Like the New York Times, Wall Street Journal, Bloomberg, Marketwatch, Forbes and Reuters and Freakonomics all disagree with you. The reviews have been outstanding across the political spectrum.

    The book has won a “First Amendment Award for Outstanding Journalism: Best Book” There are two other significant awards I know of coming in the Fall.

    Sorry I insulted whatever thesis you are so enamored with this week, but when you grow up, you may find the real world to be quite interesting.

  44. jmay says:

    Franken = Limbaugh FAIL

  45. Patrick Neid says:

    “He may or may not be a good economist, but we have no idea as to whether that is so, as his economic views are so dominated by his ideological rigidity and political perspective….”

    I lost my train of thought momentarily and I thought you were talking about a local hero, Paul Krugman.

    ~~~

    BR: Regular readers here know I frequently disagree with Prof Krugman.

    Paul Krugman is Wrong About Securitization
    http://www.ritholtz.com/blog/2009/03/krugman-is-wrong-about-securitization/

    How Much is Reagan Responsible for Bailout Nation ?
    http://www.ritholtz.com/blog/2009/06/how-much-is-reagan-responsible-for-bailout-nation/

    Krugman’s Crisis Responsibility: Reagan or Bush ?
    http://www.ritholtz.com/blog/2009/06/crisis-responsibility-reagan-vs-bush/

    Never the let the facts get in the way of your belief system.

  46. cyaker says:

    Dear Mr. Ritholtz

    I am troubled by your equating Franken with Limbaugh. First I agree with meellerbee_21 about Franken but more importantly your very criticism of Gene Epstein can be applied to your equating Franken with Limbaugh. Franken has written several books which if I am not mistaken include “data”. research and scholarly footnotes.

    To the commentators who knock Franken I point out that Franken despite his objection to the current war has a long history of involvement with the USO and has entertained the troops in Iraq (I’m not sure about Afghanistan) on several occasions. If nothing else his support of the troops separates him from Limbaugh. Furthermore for his actions he deserves our respect not derision.

  47. call me ahab says:

    this is an absolute must read from NC- and follows what I have been trying to tell everyone- walk away- don’t feel you need to follow through on these bogus contracts- after the TBTF banks got everything they wanted from the federal government- while the rest are given 125% loans and serfdom- don’t play by their rules-

    “Debtor’s Revolt?”

    http://www.nakedcapitalism.com/2009/08/guest-post-debtors-revolt.html

    get mad people

  48. postmodernprimate says:

    call me ahab Says:
    August 15th, 2009 at 2:28 pm

    “Apparently, “markets” can’t run shit.’ another myth busted-thanks for pointing it out Marcus

    The incessant mewling about government being “the problem” from most of the business community while it acts as a proxy on their behalf, defending even the narrowest of interests against majorities approaching Employees & Shareholders vs. Rest of Entire Populace makes me wish that Gov’t really would go pure Libertarian and tell businesses to pave their own f*in roads, then disconnect the phone and set the egg timer for sounds of sobbing from Masters of the Universe.

  49. RW says:

    @ Patrick Neid

    Krugman blinded by ideology? Possible. But try following TBP host’s edict that assertions should be supported by real data or facts; for example, cite some errors Krugman has made comparable to the errors Epstein or Sowell has made, errors in a declared area of expertise (economics in this case). Might get someone other than a fellow ideologue to agree.

  50. Daffyorbugs says:

    Ahab vs. Moby Sachs! An epic battle!

    Actually, I’m pissed because I stayed out of debt. The big banks should be liquidated. These guys ran their businesses into the ground. Other more fit entities should be allowed to pick up the pieces. Instead, we’re in the Twilight Zone.

  51. matt says:

    @Barry: ‘Woods’ exonerates “deregulation” and “unfettered free markets” as playing a role in the crisis.’

    Are you suggesting that free markets and deregulation played a role in the collapse? Neither free markets nor total deregulation have existed in either of our lifetimes, so I’m not sure how you want to pretend that either caused this mess.

    [BR: I'd love to stay and debate this with you, but I'm due back on Planet Earth shortly]

    Government intervention has increased debt in companies’ capital structures beyond what a free market would support by creating tax incentives for capitalizing a business with debt.

    Government intervention subsidized lending to a bubbly residential real-estate market in addition to the same tax subsidies to borrowers.

    We know that higher leverage leads to more volatility and higher probability of black swans.

    Implicit government guarantees (also not part of a free market) caused risk to be mispriced and capital to be misallocated

    The problem was not with free markets, as you claim. The problem was with regulated markets, where regulations were relaxed for the benefit of the broker/dealers [BR: We agree on this point]

    Your claim that you start with the data and reach a conclusion is pure prevarication, since you don’t have free-market data. You only have data from a (mis) regulated market. Your conclusion comes from yourself, not data.

    [BR: I deal with the available data, not some theoretical pie-in-the sky dream world]

  52. mcHAPPY says:

    To the Canadian comments earlier in the thread, speaking as a Canadian, while I must admit our banking system seems to be one of the better due to the lower levels of risk, there was still leverage and risks in the system. CIBC (one of the big 5) has had a string of losing quarters – most recently to the tune of $255 million while most of the others have returned to profitability but not near the hey-day. The Canadian government has purchased mortgages from the banks to the tune of $75 billion dollars. To put that in perspective for you folks – the population is about 32 million or so in Canada vs. a little over 300 million in the US. $75B x 10 = $750 billion equivalent. Also, please keep in mind there are 5 major banks in Canada, 2 smaller but still substantial banks (NA and LB), and a host of provincial credit unions and much smaller banks. We do not have a million banks as the US seems to have (as an aside, a million seems like such a small number these days, i.e. deflation for a short time, look out for inflation late 2010, early 2011).

    I’m starting to lose my point here but keep in mind everything is relative. My personal opinion is our banking system is the best of a bad lot.

  53. alfred e says:

    @matt: Extremely interesting comments. Will take time to digest.

    Me thinks you are on to something. But it’s a something I can’t recall anyone else verbalizing.

    Tell me more.

    ~~~

    @postmodernprimate: Your handle is too long.

    But your points are dead on. And fresh and new and correct.

    ~~~

    edit

    WOW! I am backtracking this thread and I’m really sorry I missed most of it.

    Some previously unspoken truths are coming out about how we really do not live in a free enterprise, capitalistic economy thanks to persistent government intevention.

    But then again, perhaps what’s missing is the notion that pure capitalistic societies are banana republics.

  54. CTB says:

    Please excuse my ignorance, but can someone from the free market camp tell me whether they are for or against government oversight of fraud, etc.? If so, is there a line where policing ends and regulation begins?

  55. thetanman says:

    Its pretty simple: because they are a majority, and the vote more often, homeowners get massively gooberlipped by both parties. Anyone that thinks this has anything to do with free markets is beyond help.

  56. Mannwich says:

    Those who are in love with unfettered “free markets” weren’t even alive when there were no child labor laws, no environmental laws, and when bank panics were worse than they are now. This romanticizing about “free markets” is absurd. We all know that this country (or no other one to my knowledge) has never really had such a thing anyway. In this country, the elite class worships “free markets” when they win but when they lose, they all of a sudden get change religion and believe in government intervention to save their bacon. Show me a real libertarian and I’ll either show you one that’s poor and always losing or one that’s become rich and has always had some gov’t help to get there, and isn’t a real libertarian by then. They merely manipulate the real & poor (and real poor) libertarians along the way into thinking they’re with them (wink, wink) in a faux populist potemkin fight. It has always been that way throughout time and will always be that way going forward, so this tedious discussion about what kind of ideal world we’d live in if only the “free markets” were allowed to run as they should is a complete waste of time and energy. It’s never happened and ain’t never gonna happen and would likely be an even bigger disaster if it did happen because human beings will always game the system and cheat to win in what would be a stark Hobbesian “free for all”.

  57. Jeremy Wa says:

    I enjoy your site and have learned much from it. However, with all due respect to you, Sowell would wipe the floor with you and your argument. [BR: Sowell's arguments are squishy, "government is the root of all evil" despite data showing otherwise.]

    You claim to be starting from an ideological free basis. That claim “…try to eschew rigid ideology, focus on the actual data…” is nonsense. Claiming to be eschewing ideology IS an ideology – a separate one.

    Focussing on actual data is also simply a plain silly claim. There are no ding-an-sich data. Since the late 17th century, everyone who has a passing understanding of Kant understands this. So-called data statements are bound up with and shot through and through with value relationships. The data and the assumptions are so intertwined that your claim is just nonsense. Every interpretation of the data (and all must be interpreted) is shot through with “point-of’-view”-ness. To claim otherwise is to support another ideology and badly.

    I hope you can arrange an open debate with Sowell. I would be delighted to see it.

    I enjoy your writings but, in this case, you wrap yourself in contradictions whose escape escapes you. You HAVE an ideology; you simply do not recognize it.

    Pity. You would be better for doing so.

    ~~~

    BR: I am ambidextrous, agnostic, and undecided. My major is undeclared.

    The reason we named our firm “Fusion” was that we take what we think are the best portions of all disciplines. When it comes to investing/trading markets, we look at fundamentals, technicals, quantitative, macro, cycles. If you can demonstrate mathematically that something has value, we will use it.

    When it comes tot he economy, we are, in part, Keynesians, Supply-Siders, Free-marketers, Austrians, Monetarists.

    I get to pull the best aspects of any discipline while ignoring its foibles, contradictions, and inherent problems. Many of the people I criticize are religious zealots, jihadists, true believers. You have FAITH in your chosen belief system.

    If I have an ideology, its mathematical pragmatism. And I will put its track record up against the parade of money losing idealogues you are so enamored of.

  58. alfred e says:

    @mannwich: Up kind of late? Agree totally. Kind of my point and those of all the earlier blogspots.

    But, IMHO, it’s a new perspective here. Should be an old one.

    But the other side is, you can’t say what needs to be said without being a Republican, and they’re a huge part of the problem.

    Libertarian?

    No, I think it’s the system and and the state of things.

    One of my all time favorite statements is from Adam Smith’s “The Wealth of Nations”. And it summarizes everything else in the entire book.

    “They could afford to be generous”.

    Pretty much eliminates most every millionaire in the US today.

  59. clawback says:

    Mannwich,

    Do you have an argument here, or just snarky soundbites? Sounds like you’re channelling Robert Gibbs. (Ick!) If you or BR or any of the other folks here want to critique Woods’ view on regulation, have at it.

  60. farmera1 says:

    “…unfettered “free markets” weren’t even alive when there were no child labor laws, no environmental laws…”

    True. The example I like is the how for centuries the
    “free markets” worked so well for the slave trade. Pure supply and demand baby.

  61. Bruce in Tn says:

    Or as Margaret Thatcher once said,” The problem with socialism is that you eventually run out of other people’s money.”

  62. jr says:

    =====

    For all the Fannie/Freddie defenders, Barry has consistently made a point about move up borrowers. Of course we wouldn’t expect Fanni/Freddie’s impact to be limited to their target markets.

    And of course there was lots of private loaning too. Fannie/Freddie were massively leveraged and backed by the US G – this is an enormous moral hazard. They sucked up mortgages on the secondary market and pumped more money into the banks to lend. How great, an ever willing buyer for mortgages and a place to get new monies to extent more mortgages.

    Fannie/Freddie were not the only reason, but they were an enormous intervention in the free market that pumped money into housing and artificially inflated the pool of loanable mortgage funds. yes, they really blew up to fill the void as the private money faded near he start of the crisis. But that does not mean they were not 1) an initial cause and 2) a big problem in our economy continuing to putter along.

    ~~~~~

    Good stuff: Fannie Q2 09

    “—We are experiencing increases in delinquency and default rates for our entire guaranty book of business, including on loans with fewer risk layers.— Risk layering is the combination of risk characteristics that could increase the likelihood of default, such as higher loan-to-value ratios, lower FICO credit scores, higher debt-to-income ratios and adjustable-rate mortgages. This general deterioration in our guaranty book of business is a result of the stress on a broader segment of borrowers due to the rise in unemployment and the decline in home prices. Certain states, higher risk loan categories and our 2006 and 2007 loan vintages continue to account for a disproportionate share of our foreclosures and chargeoffs.

    –Total nonperforming loans in our guaranty book of business were $171.0 billion on June 30, 2009, compared with $144.9 billion on March 31, 2009, and $119.2 billion on December 31, 2008.—- The carrying value of our foreclosed properties was $6.2 billion, compared with $6.4 billion on March 31, 2009, and $6.6 billion on December 31, 2008.”

    http://www.fanniemae.com/media/pdf/newsreleases/q22009_release.pdf;jsessionid=O21OHKMIOXFXJJ2FECISFGI

  63. johnbougearel says:

    @ Vangel,

    1) self-regulation in the financial industry is not possible in a centralist based economy where banks are dependent on the “too big to fail” myth to survive. Only in an economy where it is possible to fail can an industry be capable of self-regulation to some extent.

    It galls me and should you that these insolvent banks are now being provided upwards of $2 trillion of free capital from the Fed to earn their way out of this mess with taxpayer dollars for the god-knows-how-many-generations. Taxpayers are paying these banksters upwards of 3% to 4%. The govt is in the protection-racketeering business. This is blood money, to be sure. This ain’t “earning their way out of this mess.”

    2) It is a fallacy to hold up the Canadian banks as an better example. They were for the most part following US banks but with a sufficient lag which allowed them to avoid the fate of financial collapse and insolvency.

    3) Forget about so-called new regs under the Bush admin. Fact is, our enforcement agencies suffer most from regulatory capture. They have no teeth to enforce regulations, and if they thought it was their role to enforce regulations, they found the funding source for their agencies drying up. Our regulatory agencies are political animals that serve the banking industry interests far more than protecting the public interests.

  64. doug says:

    First of all, thanks to many for what is a very entertaining thread.
    Don’t worry BR, they buy ink, but you got bits, and bits are more germain than ink these days.Good job…
    And yes, please, have debate with Sowell.

  65. Mannwich says:

    @Clawback: I think my argument and point were quite clear. Go back and read it again. Perhaps you need a cup of coffee first?

  66. Mannwich says:

    @Clawback: And if you’ve read ANY of my posts in the last few months, I’ve been one of the most vocal in critiquing the president’s handling of the bailouts, so, no, I’m not a “true believer” in any politician or party, left, right or center. Don’t think I’ve even watched ONE Robert Gibbs press conference since O took the reins.

  67. Andy T says:

    ~~~~~~~~~~
    From BR:

    The reason we named our firm “Fusion” was that we take what we think are the best portions of all disciplines. When it comes to investing/trading markets, we look at fundamentals, technicals, quantitative, macro, cycles. If you can demonstrate mathematically that something has value, we will use it.

    When it comes tot he economy, we are, in part, Keynesians, Supply-Siders, Free-marketers, Austrians, Monetarists.

    I get to pull the best aspects of any discipline while ignoring its foibles, contradictions, and inherent problems. Many of the people I criticize are religious zealots, jihadists, true believers. You have FAITH in your chosen belief system.

    If I have an ideology, its mathematical pragmatism. And I will put its track record up against the parade of money losing idealogues you are so enamored of.
    ~~~~~~~~~~~~~~~~~~~~~

    You can “pull the best aspects of any discipline while ignoring its foibles, contradictions, and inherent problems.” Barry, it must be burdensome for you to be “that” good and humble all at the same time….

  68. Mannwich says:

    @AT: LOL. Ouch. That’s some first-class snark right there for a mellow Sunday morning.

  69. kcowan says:

    @JB
    The other structural aspect to Canadian Banking is that the dominance by 5 players relegates mortgage brokers to a secondary role in new lending. This prevented many of the egregious behaviours that fueled the subprime crisis in the US. They will get hit with the second wave when the real estate meltdown affects mainstream borrowers. But they have already rebuilt their capital bases from unsuspecting investors.

  70. Andy T says:

    @Mann. It all just becomes a bit too much sometimes. I really like the guy a lot and enjoy this blog and the people that frequent it, but that entire excerpt from BR reveals much…

    Everyone has an ideology and no single approach is perfect. He’s stating the obvious. He’s mixing up philosophical approaches to managing economies/governments and approaches to investing/trading. They are two different things. I’m an unabashed card-carrying Libertarian with an Austrian school bias. But my ideology HAS NOTHING TO DO WITH MY TRADING STYLE. The two are mutually exclusive.

    The fellow he’s knocking just seems like either a poor trader or a poor economist. Just because he’s a shit trader/economist doesn’t mean there’s something wrong with his ideology.

    FWIW, I believe BR is mostly a trend/momentum/technical trader, and that’s perfectly great. It’s extremely difficult to be a good trend/momentum/technical trader. But let’s be honest, it’s “those” traits that distinguish BR as good money manager, not all the other rhetoric about mixing and “fusing” ideologies and macro pictures with cycles, etc, etc….. You can’t sell books or manage money or have a popular blog by just saying:

    “Yeah, I follow the price trends until the trend channel breaks. Then I get out…” or “I just hang with a position till it ‘feels’ a bit crowded…” or “the Nasdaq seems to be outperforming the rest of indices therefore I want to be where the momentum is…” It’s necessary for higher profile people to have grand reasons for their approach, when, at the end of the day, the actual investment/trading decisions are much simpler.

    All that stated, BR is obviously bright and superb with his everyday criticisms and analysis of the days’ shenanigans. His style of writing is great at eliciting debate etc. But, those talents are very different from what might make him a decent money manager.

  71. letitride2 says:

    Barry,

    I expected you to have outgrown Barron’s years ago. Beyond Abelson was useless dribel & sclerosis
    set in there as well. Just because the editor wielded a sharp pen the rest proved tactically useless.
    Your book is a hit and you don’t need those who have been wrong for props.

  72. stuki says:

    BR, WTF?

    “When it comes tot he economy, we are, in part, Keynesians, Supply-Siders, Free-marketers, Austrians, Monetarists”.

    As in part quacks, charlatans, feel good kumbaya aficionados, serious about economics and plain confused?
    And we’re to take that as being superior to simply sticking to being serious?

    “If I have an ideology, its mathematical pragmatism. And I will put its track record up against the parade of money losing idealogues you are so enamored of.”

    I fully realize making money is your job. And that in order to do so in a world where quacks and charlatans rule both economic and political roosts, it pays to keep attuned to their misunderstandings and their real effects. When the federal government alone redistributes trillions in a single year, not attempting to discern and predict how those redistributions, however misguided, affect your clients’ portfolio, would be unforgivable. But at the same time, it does not from that follow that society as a whole benefits from being ran by quacks and charlatans instead of more serious people.

    As an aside, I can just picture poor Galileo dragged in front of some gold encrusted cardinal telling him he’d put the money making record of his own worldview up against that of Galileo’s any day.

  73. Mannwich says:

    Good points, AT. Although at times I’m highly critical of the true conservative/libertarian ideology, the idealistic side of me is also highly sympathetic to it and wishes it would work in the real world. However, I believe politics/politicans/human nature will always get in the way and distort things to the extent that it would be a disaster (and very violent in the end) for the collective if ever truly tried. Of course, the path we’re on now could well lead us to that same result. Time will tell.

  74. basquebob says:

    So Andy T, what’s the point of being unabashed card-carrying” anything after all you said about BR?

    I’d rather stick with “bright and superb” and dump all else.

  75. Andy T says:

    @basque. I’m not sure what you mean? I promote and support Libertarian ideals because I happen to think it’s the best way to run communities, states, and or countries. Those activities, though, as I alluded to earlier, are separate and distinct from investing and trading where I “attempt” to be as bright and superb as one Mr. Barry Ritholtz. Guess it’s possible to just trade/invest and not care about how the government is operated, but I’m the caring sort.

  76. [...] “Of all the observers of the economic crisis of the past year, few have gotten it wronger than Barron’s Gene Epstein.”  (Big Picture) [...]

  77. Andy T says:

    “Although at times I’m highly critical of the true conservative/libertarian ideology, the idealistic side of me is also highly sympathetic to it and wishes it would work in the real world.”

    Jeff, there are some that would argue that the libertarian ideals were the ideals of the Founding Fathers and a central part of the American ethos through the first 150 years or so. Something “changed” around the early part of the 20th century when Federal outlays became a larger and larger % of GDP. [Note that the Federal Reserve was created in 1907 and the Income Tax amendment was passed in 1913]

    We now have generations of people who simply don’t know what it’s like to NOT have big government support/intrusions in their lives. Many have lost their sense of self-reliance, responsibility and accountability. We have a large number of people in this nation that believe the world “owes them” something. I don’t know what all the answers are, but would submit that reducing the size of the Federal government by 50% would be a decent start. Tossing out 50% of the Code of Federal Regulations would have to be the necessary second step.

    Oh Well. I suppose people have been complaining about the size of government forever. That’s just the way of it….things swing to cyclical extremes, and right now we’re just heading for bigger and bigger government. It will end someday. Let’s just hope it doesn’t get too messy.

  78. Mannwich says:

    @AT: Times have changed though (and have changed a lot, much for the better). Our Founding Fathers also believed in slavery and that women were not afforded the same rights as men. You can argue that our republic doesn’t even make it without the benefit of free slave labor. Do we go back to that and other distortions that happen because human beings are far from virtuous? In a perfect world, I would say let’s lay it out there and we can all compete in a free market and to the winner goes the spoils, but I would argue that today human beings are even more creative/clever in finding ways to game the system to their benefit and to the great detriment of the collective. Times have changed since those days and were never as virtuous as we would like to believe now. Much of that is simply faux-romanticism of a time that was never as ideal as we would like think.

  79. Badger says:

    Woods represents everything bad about the publishing industry. He doesn’t think beyond Economics 101. (His doctorate is in history, not economics.) I’m not sure it is even fair to claim him an Austrian, because I don’t believe he could write an essay on the differences between classicalists and Austrians without it being a cliche-ridden mess. Although in fairness, I’m not sure most Austrians could differentiate themselves today either. As for Woods, all of his writing occurs in a bubble where he can be assured of popularity, but not debate where the shallowness of his knowledge of economics would become evident.

  80. basquebob says:

    Yeah something happened after a 150 years or so, I think it was called a civil war.

    This is a gem I found in the inter-tubes the other day (misspellings included):

    “I AM AN AMERICAN CONSERVATIVE SHITHEEL

    This morning I was awoken by my alarm clock powered by electricity generated by the public power monopoly regulated by the US Department of Energy. I then took a shower in the clean water provided by the municipal water utility. After that, I turned on the TV to one of the FCC regulated channels to see what the national weather service of the National Oceanographic and Atmospheric Administration determined the weather was going to be like using satellites designed, built, and launched by the National Aeronautics and Space Administration. I watched this while eating my breakfast of US Department of Agriculture inspected food and taking the drugs which have been determined as safe by the Food and Drug Administration.

    At the appropriate time as regulated by the US congress and kept accurate by the National Institute of Standards and tTechnology and the US Naval Observatory, I get into my National Highway Traffic Safety Administration approved automobile and set out to work on the roads build by the local, state, and federal departments of transportation, possibly stopping to purchase additional fuel of a quality level determined by the Environmental Protection Agency, using legal tender issed by the Federal Reserve Bank. On the way out the door I deposit any mail I have to be sent out via the US Postal Service and drop the kids off at the public school.

    After spending another day not being maimed or killed at work thanks to the workplace regulations imposed by the Department of Labor and the Occupational Safety and Health Administration, enjoying another two meals which again do not kill me because of the USDA, I drive my NHTSA car back home on the DOT roads, to ny house which has not burned down in my absence because of the state and local building codes and fire marshal’s inspection, and which has not been plundered of all it’s valuables thanks to the local police department.

    I then log on to the internet which was developed by the Defense Advanced Research Projects Administration and post on freerepublic.com and fox news forums about how SOCIALISM in medicine is BAD because the government can’t do anything right. ”

    Government really does suck.

  81. Moss says:

    @mannwich

    Good points. Don’t forget child. There were limited laws and therefore not much of a civil society. It was Darwinian to a large extent. They did not come to be known as the robber barons for noting.

    It makes no sense to try and go back in time. The facts are that we have a large Federal Government and other quasi government affiliates. What we must understand is what is happening within that context. The Conservative movement is primarily concerned with keeping intact the privileges that have been accrued to them via government or other means. They do this via the government. Liberals believe that no one should be accrued a privilege at the expense of others who have no privileges. Again this is done via the government. What has been lost however is that we must foster competition not privilege.

  82. Moss says:

    That should read… Don’t forget child labor.

  83. Andy T says:

    Jeff. We’re now meandering far down a path of interesting debate that usually ends in some sort of “agree to disagree” finale. I would submit the following:

    “There’s no new thing under the sun.” Times are ‘always’ changing and they’re ‘almost’ always changing for the better. The arc of humankind is that of general progress with some notable exceptions. For instance, the several centuries that followed the Roman Empire’s collapse were not particularly great.

    In regard to your assertions on the Founding Fathers: It would be an overly broad characterization on your part to say the Founding Fathers believed in slavery. It was actually a very contentious issue at that time. In the late 18th c./early 19th c. many Northern states passed Emancipation laws. It’s worth noting that slavery had existed since the beginning of recorded history: thousands and thousands of years. It took this new nation 87 years to end it, a relatively short time in the context of ‘recorded history.’ Lincoln mentioned in the Gettysburg address: “….our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.” So, perhaps the ideals of our Founding Fathers were on the minds of our leaders at important moments in our history?

    Now enough with this high minded philosophical bullshit….it’s Sunday night and Globex is open! Time to start making some more “fiat currency in the form of Federal Reserve Notes*” baby!

    * Also known as, but not the same as, U.S. Dollars.

  84. Kimble says:

    Once again Barry rails against economists. It must be .

    Among the snide retorts is the challenge for critical commenters to give the economists money to manage. As if that would prove anything. I wish money managers would quit trying to turn otherwise intelligent debate into a pissing contest. (The outcome of which would have more to do with the erattic direction of the wind when each contestant steps up to the line.)

    BR complains about the Austrian religion, evidenced by their more extreme ideas. He cries, “why dont they deal with the practicalities of the real world?”

    Thoughts from outside the box are by their very definition extreme, LDO. Its what intelligent people do. They think of things other people can’t, won’t or in any case don’t, and then ask, why not?

  85. Hence, why so much abstract theory, disconnected from the real world, eventually looks like mastabatory fodder.

  86. davver says:

    BR,

    “Pragmatism” has its flaws too. Its a collection of ideas and interests that don’t necessarily work together well. At least an ideological framework must reconcile its concepts within a logical framework (any good ideology anyway). Pragmatism, at least as I see it applied in modern political context, means the way of least resistance.

    As a simple example I’m sure most of the major bailouts in the last decade seemed like a pragmatic approaches to policy makers trying to avoid what they felt were unnecessary recessions, but in aggregate they simply stoked one big debt bubble and built up moral hazard. We can argue till the cows come home that they could have imposed new reforms after said bailouts (the pragmatist version of “if we only had true pragmatism”), but the political reality of the matter is that once the fire is put out there would be no demand for such action. Even the Great Recession seems to have failed t0 provide significant financial system reform, at least so far. In America pragmatism without guiding principles means a conglomeration of special interests shoving pushing their own agenda and Congress passing bills that make the most political interests happy without solving fundamental problems.

    Well, I guess you could say that’s a very pragmatic course of action for individual Congressmen’s well being.

  87. DiggidyDan says:

    The discussions herein are beginning to devolve into much drama, bitching, and infighting, much to the detriment of the previous forum of intellectual banter. Please return to a civil and enlightened debate, to keep us all more informed.

    The folly of man is immeasurable. Man, that which is the only being able to convince himself of his own supremacy and intellect. Might I profer to you all, that throughout history, mankind has been subject to a seductive proclivity toward hubris and self interested belief systems reflecting his own ideals. After all, the world revolves around man, according to history. (that much, a product of man and man alone).

    We are all mere actors in a world of cosmic hilarity; a maelstrom in which chaos and order compete at all times in a timeless struggle. Do not delude yourself into thinking the insignificant details and theories you espouse are the most important due to the inherent biases you have come to adopt via your own experiences. All details are important, yet must be taken in context of the whole.

    “Knowing others is intelligence; knowing yourself is true wisdom. Mastering others is strength; mastering yourself is true power. If you realize that you have enough, you are truly rich.”

  88. VangelV says:

    “Mannwich Says:
    August 15th, 2009 at 1:43 pm

    @Vangel IV: Correct me if I’m wrong, but Canada wasn’t unable to leverage up 40:1 like our wonderful banks on Wall Street? Good old Hanky Panky was able to get our leverage rules waived for his firm and others on Wall Street. To me, it was this leverage (along with low interest rates for too long and a daisy/gravy train that encouraged fraud on a grand scale because everyone was skimming some moola along the way), that were the main drivers of this mess.

    Bottom line is the SEC and the Fed and all of our regulatory agencies looked the other way (and even aided/abetted these crimes against the country) because of their free market ideology, but go ahead and cling to your theory that Fannie/Freddie/CRA were the biggest drivers of this fiasco. Gramlich even warned Greenspan personally about the mess that was brewing back in the early 2000’s, I believe, but go ahead, it’s fine to create your own reality in BananAmerica.”

    First, a great deal of the damage done to the Fannie and Freddie balance sheets began while Clinton was still in office. Second, Raines was a Clinton cabinet member. He cooked the books and had Fannie lend far more than was prudent even before Clinton was replaced by his idiot successor. Second, you seem to forget how the Democrats came to the defense of the GSEs and stated that there was nothing wrong while some Republicans were calling for greater regulation. And it was the Democrats who attacked the regulators for finding improper conduct at the GSEs. (http://www.youtube.com/watch?v=hN31-nKndg8)

    The bottom line is that the troubles at Fannie and Freddie and the bubble in housing were well documented and were discussed by a number of commentators, including the Austrian School economists that Barry seems to have trouble with because they prefer free markets to incompetent and intrusive regulators.

    Raines stated in front of Congress that Fannie and Freddie should only have 2% capital because he felt that the assets were riskless. This was said even though he knew that the books were being cooked and he knew that, HUD had required that more than 20% of GSE mortgage purchases be “special affordable” loans that went to borrowers that had incomes that were less than 60% of their area’s median. Those goals were put in place by the Clinton Administration and were adopted by Bush after he came to office.

    As for Canada, it had rules that destroyed the walls between the investment banking side of the business and the retail brokerage side, just as was done in the US. It regulators were certainly no smarter than those in Europe or the US so you cannot blame the excessive leverage taken by the GSEs and the American and European banks on a lack of regulations or on free market ideology. (The last time I looked the French, Germans and English governments and regulators were not exactly pro free markets.)

    You have to stop imagining that there is a difference between the corruption of the Republicans and that of the Democrats or that things would be better if different parties appointed the regulators. That is not the way human nature works and if you have a huge concentration of power that allows money to be transferred from one group to another, you will always have the corrupt rent seekers stepping in to take their cut. The solution is not a greater concentration of power but the removal of power to dictate terms to parties carrying on voluntary transactions. Let government stick to its legitimate functions and the problem of corruption will get much smaller.

  89. alfred e says:

    @BR: “MASTABATORY FODDER” ??? WTF?? How did that pass the filter? I thought there was a U in there somewhere, as in me, myself and I.

    I’m just trying to fill in for MEH who decided to take a vacation. Good for him.

    They are just trying to earn a living. As are we all. It’s just that they chose the ivory tower for whatever reasons. Or they did the graduate thingie to get a PhD in the hopes an IB like GS would give them a chance at megabucks. Ooops. Gigabucks.

    @ Mannwich: Like the thoughts.

    Were you there to see Tiger fold? There goes the sentiment index. He did the best he could but his putter betrayed him again. No one wins a golf tournament shooting bogie golf.

  90. VangelV says:

    “BR: Please show me evidence of where Fannie Mae required no doc liar loans? Or encouraged piggy back loans? Can you reveal a single iota of evidence that Freddie Mac required loans be made to be regardless of credit scores, income, debt servicing ability, loan to value, or down payments? Why is is that all of the biggest bubble areas were outsider CRA regions? How come the bulk of bad loans were made by non-bank (not covered by the CRA) lenders?

    I find the idealogues completely ignore the data — as you did.

    My advice to you is to give all these folks all of your money to manage . . .”

    I am surprised that your research did not show you the problems at Fannie and Freddie or that astute observers predicted their demise some time before the end. [BR: We very publicly announced we were short Fannie in November 2007]

    You might want to look at Doug Noland’s work on the subject because he saw it all coming and was documenting events as they were unfolding. You could look at Ron Paul’s comments on the GSE problems when Republicans but mostly Democrats were happy to defend the GSEs in order to get some campaign donations flowing their way. You could get on the Mises.org site and read the commentary about HUD, Fannie, Freddie and the folly of expanding balance sheets to insane levels.

    You could look at this (http://www.city-journal.org/html/10_1_the_trillion_dollar.html) commentary from 2000 and see that the author got it very right. Or this (http://online.wsj.com/article/SB122298982558700341.html) great piece by Russ Roberts, who I have a great deal of time for. He had a fairly good interview in which Arnold Kling covered the problems with Fannie and Freddie that you might want to take a look at. Arnold is another person that I have a great deal of respect for.

    And I have no need to give people my money to invest because I understand reality well enough to do a decent job myself. The way I see it, the US is bankrupt and has very few options going forward. If I were to make a guess, I would say that the US cannot meet all of its obligations and pay off its debts with a currency of the same purchasing power as when the borrowing took place. I would rather be out of USDs over the long term and have exposure to quality gold and energy producers that have reserves in safe areas in the world. I would certainly be looking to get rid of any US exposure and would look to safer jurisdictions. Sadly given the valuations, even places like Kosovo, Haiti, and Africa are looking better than the US. In my case I have far more invested in each of Canada, Turkey, Haiti, DRC, Kazakhstan, China, Argentina, Peru, Romania, Mongolia, Brazil, Chile, Australia, PNG, Ireland, Spain, Portugal, than I do in the US. Not long ago, the US would have been my second largest investment destination.

    What gets to me is why most of the analysts can’t see the trouble ahead and are so content to play short term bounces that they take on substantially more risk than is prudent. But that is not my concern because without the overconfident incompetents I would have a much tougher time to make a good living.

    ~~~

    BR: As noted, we were short Fannie Mae before its collapse.

    See:
    Fannie Mae Looks Like Hell
    http://www.ritholtz.com/blog/2007/11/fannie-mae-looks-like-hell/

    Fannie Mae: Ouch!
    http://www.ritholtz.com/blog/2007/11/fannie-mae-ouch/

    Fannie Mae is Fantastic !
    http://www.ritholtz.com/blog/2008/05/fannie-mae-is-fantastic/

  91. [...] Gene Epstein (Barron’s economist) was taken out back behind the woodshed this weekend.  (TBP) [...]

  92. [...] in the Hamptons are now full, snarks at quotes from President Herbert Hoover, and says that Gene Epstein of Barrons is as bad at choosing books as he is at economic forecasting–and that the worst book recommended is Sowell’s The Housing Boom and Bust, which [...]

  93. Andy T says:

    What some of us were discussing here was much larger and more than important than the silly CRA debates you’ve linked to. That’s a small and irrelevant topic. It’s more of a symptom of the larger problem: The U.S. Government subsidized and helped seed the most spectacular housing bubble of all time. There were plenty of actors and factors that helped blow it bigger and bigger, but the Federal policy incentivizing “home ownership” via favorable tax subsidies and the creation of behemoth credit pushing entities like Fannie and Freddie were certainly contributing factors.