The Free Market at Work?

Contrary to those who say that the financial crisis demonstrates a failure of capitalism, writes Matthew Parris in the Spectator (UK), the current mess demonstrates that the system is working. An excerpt:

The bubble that has just burst was based, worldwide, on financial services. Financial services are a product. It is true they are a product critical to the efficient functioning of the market (so is electricity, so is oil) but that just makes them an unusually important product. From time to time products fail in any market. They may fail through force majeure - droughts, floods, pestilence. They may fail due to inherent flaws - airships, Thalidomide, blue asbestos. Or they may fail through ignorance, trickery or the credulity of human beings - Madoff, the property bubble, the repackaging of sub-prime debt.

The present financial crash has been precipitated by product failure of the third kind. Trade in financial instruments too opaque for even those who traded in them to assess them properly, and bonus incentive schemes that acted against the interests of the companies offering them, fuelled a banking bubble that has now burst.

But ask: what pricked it? Did politicians rumble the trade? Did governments, or international forums or symposiums, provide the sharp instrument? Did academic research and expertise expose the dodgy product? Did statutory regulators apply the pin? No, the free market wised up and pricked this bubble. Politicians and finance ministers (if they had had the power) would have tried to keep it inflated. The market puffed itself up, and then, without intervention - despite intervention - the market let itself down. The speed with which this has happened has been awful, but however inconvenient for many or catastrophic for a few, correction is not a failure of the market, but a success.

Discuss.

Comments

[Lurker Jack]

"...correction is not a failure of the market, but a success."

Amen brother.

[J sub D]

Recessions happen.
They suck.
They end.

The government can only delay the start of one making it worse.

Recessions cull the unfit from the herd.

[Cool Cal]

I'm pretty sure this is what Peter Schiff has been saying for years.

And how does every buxom, doe-eyed, hairdo with a nervous system in the seat across respond to this acumen?

"Well, it just seems like there's a lot of people out there losing their jobs, and you're here using a lot of economic mumbo-jumbo."

And Campbell Brown wins. I weep for the future.

[MNG]

But Israel and Gaza bleh blah bloejajbbleagh!

[Tbone]

The speed with which this has happened has been awful, but however inconvenient catastrophic for many or catastrophic life-altering for a few, correction is not a failure of the market, but a success.

Where it not for my corrections above it would be a success. Given we've flushed nearly half the value of US equities in under a year, that is a collosal failure. The market by its own admission cannot endure this level of gyration without paralysis at best and cataclysmic failure at worst. Government intervention (Fannie and Freddie) enhanced the bubble, however a properly functioning market would have never let it get so big to begin with.

[Frank the Stank]

I don't think there is any discussion. Government distorted the economy- the market is showing how ignorant the planners were and currently are.

Even with all of the cheap (or even free) money; banks and car companies are still failing. The force of the market is truly amazing.

[Adam]

Of course, the problem with this kind of argument is that it suggests that free-market beliefs are unscientific in that they are unfalsifiable. If economic growth is the market working properly, and economic contraction is the market working properly, then what data could ever show that markets don't function well?

I'm as big a believer in the free-market as anyone here, I'm just trying to point out that anyone who doesn't share our worldview will say that we're arguing that all outcomes show that the market works.

[Tbone]

Or as Greenspan said years ago "irrational exuberance". Of course he then proceeded to forget he said it and mashed the throttle on the crazy train.

[Tacos mmm...]

I'm just amazed that Moynihan went a whole post without mentioning Israel.

[Paul]

Discuss.

Already discussed, and the concensus is that the government is doing everything in its power to cause the market to fail-- and continue to fail-- where it already succeeded.

Government intervention (Fannie and Freddie) enhanced the bubble, however a properly functioning market would have never let it get so big to begin with.

You both answered and debunked your own argument in one sentence. Remove "Government intervention" and you don't have an unrealistic bubble to begin with.

The market found and corrected the government intervention.

Market success. All. Over. The. Place.

[Tbone]

Paul,

I know, however there are those who still try to claim Fannie and Freddie were private.

I would argue that they were quasi-governmental and therefore merited exceptional market scrutiny since they should have been "secure". They of course were not scrutinized at all and were in fact the launch pad to double down on a bad bet. So I maintain Failure. of. a. huge. market. sector.

[Douglas Gray]

The fact that the market exposed (in the case of Madoff) what the SEC missed several times, speaks volumes for the markets superior ability to police itself better than the State.

[Orange Line Special]

You mean it was all just a dream - a wonderful, markets-based dream - and there was no fraud or the like involved? Well, that sets my mind at ease!

To the Libruhtarian Future!

[Paul]

Tbone,

Failure would have been if the toxic assets were never discovered or... try this on for size, have their values propped up despite their dubious worth.

Paulson's definition of market failure (whenever an asset loses money) doesn't resonate.

The damage to the markets caused by the bailouts may take years to recover-- if ever. And given the new interventions that we're now going to see, I'm truly in fear of this country's future. For the first time in my life.

[Paul]

and there was no fraud or the like involved? Well, that sets my mind at ease!

Tons of fraud involved.

Two groups were in charge of catching it:

1. The FEDS/SEC.
2. Millions of private individuals acting in their own self interest...a.k.a. The market.

Guess which one caught it?

[Robbie]

Adam, I see what you mean, while at the same time agreeing what what was said. When markets expand or contract on their own, they are working. When, through no outside intervention, goods are no longer priced according to supply and demand, then the market has failed. When it adjusts itself either up or down along with supply and demand, it is working correctly.

[J sub D]

Shut the fuck up, lonewacko.

[ed]

the markets superior ability to police itself

That's great, except when those "police" are on the take. A million-dollar salary selling dubious securities can make any bubble invisible.

[MaterialMonkee]

"But ask: what pricked it?"

maybe asked who inflated it?

The community reinvestment act?

I reckon who ever's wrote the article's been listen to to a lil bit of Mr Kooper

and tahts always a good thing!

What goes up must come down
spinning wheel got to go round
Talking about your troubles it's a crying sin
Ride a painted pony
Let the spinning wheel spin

You got no money, and you, you got no home
Spinning wheel all alone
Talking about your troubles and you, you never learn
Ride a painted pony
let the spinning wheel turn

[Kolohe]

I'm just amazed that Moynihan went a whole post without mentioning Israel.

Well the jews run the banking system so it's kinda implied.

[Graphite]

Well joe said we're not supposed to be having a recession right now so this can't be right.

[Adam]

Thanks Robbie. Of course, that begs the question of how you know that the market is pricing otherwise than according to supply and demand.

[MattXIV]

Adam,

Long term average growth rates are what would matter, not short term. Business "cycles" (I don't think it's cycles so much as drunk-walk variation) are going to be there; much like looking at global warming, what happened over the last year isn't as important for predicting the trend as the sum of what happened over the last 30.

Of course, it can't be proved conclusively that less intervention into the economy would provide better results over the long run, but it can't be provided conclusively that more would either, or that the current level is the optimum. Some things are simply not ammenable to empirical resolution - the high standards of science means that not all questions can resolved to the satisfaction of them. Anybody who has a comprehensive set of economic policy recommendations that they claim rise to the standards of science is simply full of crap.

[hemon]

I think the use of "pricked" is unclear here. Plenty of people of all sorts were suggesting problems -- academics like Roubini (I guess you could consider him a pseudo-academic?), for example. But nobody wants to believe economies will collapse until, well, they collapse. The bubble was pricked by facts on the ground.

[MNG]

I don't get this sort of thing. Look, people are faring very poorly because of this financial mess. Many people are losing jobs, many people are taking tremondous hits from the market. Are we supposed to go "yay!"?

[Jessica]

Brilliant.

[MNG]

I mean, going to the thousands of people who have lost their jobs over this and saying "hey bro, no sweat, it's just the market working its magic, stand back and watch how awesome the market is as it corrects itself" is supposed to go over how?

It makes some people start to think "hmm, is there anything the government can do to make sure that the market doesn't do this correcting, or maybe can we protect those kind of folks when it does do it?"

[MNG]

I think if the market came over some libertarians' houses and fucked their wives they would watch and go "wow, watch that market at work, isn't it wonderous?"

[Tim Cavanaugh]

From time to time products fail in any market. They may fail through force majeure - droughts, floods, pestilence. They may fail due to inherent flaws - airships, Thalidomide, blue asbestos. Or they may fail through ignorance, trickery or the credulity of human beings - Madoff, the property bubble, the repackaging of sub-prime debt.

In the context of a bursting financial-services bubble (which this passage starts out by addressing), it may be more pertinent to say that it doesn't matter whether the product fails or not. It's an overbuilding problem. There was a lot of financial services infrastructure and ingenuity chasing less demand than anybody realized. A lot of stuff was overvalued, and a lot of people were worse credit risks than advertised. So now the financial services market is being rationalized; I believe there are a lot of former Lehmann and Countrywide employees out of work these days, aren't there?

There's no need to blame Madoff or derivatives or any kind of product failure for the collapse. In fact, doing so already concedes too much to the Socialists on whose Road, I'm told, we're now traveling.

[J sub D]

I don't get this sort of thing. Look, people are faring very poorly because of this financial mess. Many people are losing jobs, many people are taking tremondous hits from the market. Are we supposed to go "yay!"?

People get wet in the rain. People die when tornadoes sweep down on their trailer park.

Recessions Tornodoes happen.
They suck.
They end.

[MNG]

But J sub D, when a tornado hits a trailer park we expect the government to come in and help everybody out.

Because while there may be no current way to stop them, we don't think they are, well, good things...

[Adam]

MattXIV, I agree with everything you said although I think it addresses a higher level of analysis than what I had in mind. You can use standard social science methodology to try and determine whether more or less state intervention leads to better outcomes. But what I was thinking of was more along the lines of how you would identify individual outcomes as being the product of a failure of the market. Or a success of intervention, for that matter. It seems rather unfalsifiable on both sides.

[Derrick]

Articles like this are preaching to the choir, and apparently failing to change the minds of anyone else. How are we gonna reach the masses? Ideas:

- turn reason.tv into a cable news channel, with coverage of "regular" news as well as opinion, politics, and economics.

- produce short films on libertarian thought, to be shown on the film circuit

- set up a "money bomb" to buy a reason mag subscription for every coffee shop in the U.S. if the mag just starts showing up, the vast majority of them will place it out for reading with the rest of them.

Any other ideas?

[Kolohe]

Hurricanes cause millions of dollars in property damage, as well as a few deaths in the American southeast every year.

Blizzards cause millions of dollars in lost economic activity as well as a few deaths in the American Midwest and Mountain West every year.

They are both also necessary to ensure each region gets enough annual percipitation to maintain fresh water supplies.

[MNG]

"Any other ideas?"

Rub a magic lamp. Order Genie to make libertarian ideas sound less uncaring.

[David E. Gallaher]

I recently concluded a 4 year test of Avodart to see if it might reduce prostate cancer. I'm pretty sure I was on the placebo.
The reason I bring it up is to say, "How could we have a true economic test of a free market without a free market?"
The world we are forced to actually function in slathers salmonella on the placebo.

[MNG]

Yes, yes Kolohe, but I would not want to be a member of a political movement that said in response to news of a hurricane killing folks and ruining a city's economy "man, you have to find Hurricanes to be an amazing thing of beauty, really wonderous things."

[SIV]

I don't get this sort of thing. Look, people are faring very poorly because of this financial mess. Many people are losing jobs, many people are taking tremondous hits from the market. Are we supposed to go "yay!"?

Yeahhhhh!
There were too many people in the wrong jobs.Houses and real estate cost way too much.Equities and commodities were way over-valued.All because of loose monetary policy by central banks creating an excess of money and credit flowing into all sorts of mal-investment.I'd be cheering the end of this if governments weren't in the process of trying to bring it all back.I'm cheering anyways, just not as loudly.

[MNG]

That's a neat way to look at it, we just have to get all those people that were in the wrong jobs in the right ones. Hey, unemployed people, don't fret, think of it as the first day of your magical voyage to find the RIGHT job.

[SIV]

MNG,

How did they end up in those jobs to begin with? they weren't all working in finance, insurance, real estate etc since high school.
Look at how the market is correcting "problems".
Illegal immigrants are way down.Many have gone home and fewer are arriving.

[J sub D]

But J sub D, when a tornado hits a trailer park we expect the government to come in and help everybody out.

No MNG, when a tornado hits a trailer park you expect the government to come in and help everybody out. I expect private charities to come in and charitarize privately. I also expect Maude and Filbert to stop living in a goddam trailer in Oklahoma after there last two have been levelled by twisters.

[J sub D]

Articles like this are preaching to the choir, and apparently failing to change the minds of anyone else. How are we gonna reach the masses? Ideas:

- turn reason.tv into a cable news channel, with coverage of "regular" news as well as opinion, politics, and economics.

- produce short films on libertarian thought, to be shown on the film circuit

- set up a "money bomb" to buy a reason mag subscription for every coffee shop in the U.S. if the mag just starts showing up, the vast majority of them will place it out for reading with the rest of them.

Any other ideas?

Slowly execute lonewacko on reason's new cable news channel.

[Kolohe]

Remember in Bruce Almighty where Jim Carrey wound up giving everyone everything they wanted? And all hell literally broke lose? A simplistic point in a silly movie, but an accurate one.

[Hazel Meade]

No, the free market wised up and pricked this bubble. Politicians and finance ministers (if they had had the power) would have tried to keep it inflated. The market puffed itself up, and then, without intervention - despite intervention - the market let itself down.

This is a key point that a lot of people who use human irrationality as a justification for government intervention need to hear. There's been a lot of talk from certain affectionados of behavioral economics about how bubbles can be caused by social group think and other sub-optimal behaviors of human beings. This is usually a prelude to arguing that the government should intervene to pop such bubbles.

The problem, as with all statist solutions, is that governments are made up of the very same human beings with the same basically sub-rational self-interested behavior pattern. Only with many fewer checks on such behaviors than markets provide.

Someone needs to start a sub-field called 'behavioral politics', to study how politicians and political systems behave under various incentives, to provable counter the idiotic notion that elections are enough to keep them honest.

[BakedPenguin]

Slowly execute lonewacko on reason's new cable news channel.

J sub, I thought you were against capital punishment. Besides, it would be more fun to put him in a show like Hole in the Wall, only the wall is concrete, and he gets no helmet. Aslo, the irony that he has to keep getting around a wall.

[ChrisH]

I'm going waay out on a limb, here. I would like to defend sub-prime mortgages.

It's become a kind of common knowledge that sub-prime mortgages were idiocy incarnate. On the contrary, there was real market innovation in loaning to new potential market segments that weren't served by the old practices.

First, there are a number of formerly under-served constituencies near and dear to my heart (and I would hope other liber-critters, as well): drug dealers, sex workers, gun runners, and tax cheats. Their 1040s didn't look good by the old standards, but they had the cash. Market innovations that expand home ownership in those groups are a win-win.

Second, if you streamline the process of foreclosing on bad debtors, and you're in an environment where housing prices are increasing (which didn't seem that silly an idea two, three, five years ago!), then it makes sense to offer a product at a higher price (i.e., the interest rate) to a riskier market segment. If you have to make 11 loans to keep 10, you just price accordingly.

Markets are supposed to find new customers at the right price, and sub-prime mortgages and their related techniques were more of that kind of innovation.

But... in any new kind of financial instrument, it's hard to anticipate what new risks will come with it. An example of the new risk: before, you could reduce risk by spreading the risk across geography. The problem is, if your new financial strategy brings in new buyers in EVERY market, then it all moves together, and your hedging fails...miserably.

And, just as the mortgage sellers could gamble on some of their risky borrowers failing, some of the borrowers could just make a big roll of the dice in home ownership. If they manage to stay ahead, big equity. If they can't keep up or the market turns, shrug and walk away. The downside, a blot on your credit record which you can work off, is worth the risk. Of course, people who made that gamble are now not walking away, they're stalling until Uncle Sam bails them out.

The bigger factor is that in this as in previous market innovations -- portfolio insurance, junk bonds, derivatives, web-based business -- the first innovators apply real technique to distinguish some special situation that can be profitable. Then a herd of copycats rush in and abandon the rules and just start throwing money around while reciting buzzwords, with none of the due diligence that the theory was based on. This is doomed to fail because the smarts that make the thing work in the first place are just ignored. Clearly, the rating agencies, for instance, were just cheering from the sidelines and not offering any analysis that my second-grader isn't capable of.

Finally, the BIGGEST factor, the one the puts the "fee" in catastrophe, is the government involvement. Cheap money, subsidized risk, "oversight" that catches nothing but gives a false sense of security, etc., etc. Government intervention pushes hard in exactly the wrong direction. It stops the signals that would help correct the problem and keeps the herd from being culled. It punishes success and rewards the fools.

So, I'm all for rounding up the usual crony capitalist suspects. Just don't blame creative financial products that could serve people well, if market discipline were allowed to work.

...well you said "discuss"...

[SIV]

First, there are a number of formerly under-served constituencies near and dear to my heart (and I would hope other liber-critters, as well): drug dealers, sex workers, gun runners, and tax cheats.

Those people are Alt-A, not sub-prime.

[Ming]

I've been a libertarian for many years, but I believe that government involvement now is needed to prevent the economy from continuing to free-fall. I believe in some government involvement; I'm not an anarchist. And it does seem that financial derivatives should have been more intelligently regulated by the government. I don't see anything wrong with wishing Obama well in using government to try to get the economy away from negative growth. Of course, we must get government spending under control, and reduce government meddling, but there's a time and a place for everything, and I really think we should focus on economic stimulation right now.

[J sub D]

Slowly execute lonewacko on reason's new cable news channel.

J sub, I thought you were against capital punishment.

I will turn my defense over to my esteemed counsel, Ralph Waldo Emerson.

A foolish consistency is the hobgoblin of little minds.

[Hazel Meade]

I'm as big a believer in the free-market as anyone here, I'm just trying to point out that anyone who doesn't share our worldview will say that we're arguing that all outcomes show that the market works.

I think the real question is not so much wehther it works (for whom? and over what time scale?), but whether it produces just outcomes.

IMO, the bailouts are massively unfair. The people getting bailed out are people who largely made irresponsible choices, people who bought homes they could not afford and bought and sold securities they didn't know much about. While those who were responsible - the responsible lenders and borrowers who lived within their means are getting robbed.

The main objection from the left is that the economic fallut tends to hit people indiscriminately. That is not entirely true, the fallout IS concentrated on the banks and borrowers who made bad choices. Though obviously people experience side-effects from any economic downturn.

However, I would argue that the negative side effects of an economic downturn are something that a responsible individual needs to be prepared to weather.

Like the tornado analogy, if you build your house on a flood plain, you shouldn't expect the government to help rebuild it. If you fail to save for a rainy day, or are unprepared for the event of a job loss, then it's your own fault for not being prepared.

We shouldn't expect jobs to last forever. The lifetime corporate employee model has been proven patently unsustainable. Witness all the GM pensioners who are about to get kicked out on their ass. No company lasts forever. No product is immune from obsolescence.

Even the cradle-to-grave state is itself an illusion - of a larger magnitude, but the same nature. Like General Motors, it is financial unsustainable and WILL eventually reach a crisis point that will result in anyone that bet their future on it being SOL. Probably within the next 20 years.

When that day comes, the only rational thing to do is to be responsible for yourself, and prepare to bail yourself out, cause nobody else is going to be able to.

[Flash Gordon]

Ming! What are you doing here?
Give my regards to Princess Aura.

[Kunal]

I don't get this sort of thing. Look, people are faring very poorly because of this financial mess. Many people are losing jobs, many people are taking tremondous hits from the market. Are we supposed to go "yay!"?

No one goes "yay!" when a terminally sick pet is put down. Doesn't mean it isn't the right thing to do.

[cuernimus]

I think a better analogy would be cutting down the apple orchard that you spent your childhood playing in because the trees stopped producing apples. It's rather heartbreaking, but by doing so you allow other trees to take their place so that your children can spend their childhood playing in that orchard.

[Marc]

Politicians and finance ministers (if they had had the power) would have tried to keep it inflated.

I admit that this had not occurred to me. It seems to me to be the most cutting point made in the article.

[Marc]

PS I just realized I've been assuming too much of someone, so I'm going to clarify something:

"STFU" means "shut the fuck up", LoneWacko.

[Kolohe]

Those people are Alt-A, not sub-prime.

Actually, I thought they were 'no-doc' which I believe is on an orthogonal spectrum to the prime/alt-A/subprime one.

[Tony]

Free people are free to choose to have a government that doesn't make itself impotent in the face of a natural catastrophe, such as massive market meltdowns.

Dear God is there anything that isn't evidence of the magical powers of your ideology?

[Paul]

Are we supposed to go "yay!"?

You have much to learn, young paduwan.

No, we aren't supposed to go 'yay'. Any more than you're supposed to say "Yay" when I lose $200.00 on that penny stock I thought was a really good buy back in '07.

The point is not the sadness from the outcomes the market produces, but the sadness that the damage the so-called fix will produce. The lost opportunities, and the lost value which results when government attempts to set prices and dictate value by fiat.

[Anonymous]

The fundamental point is that markets set bounds on human stupidity; no such limits apply to central planners.

[juis imprudent]

MNG sez It makes some people start to think "hmm, is there anything the government can do to make sure that the market doesn't do this correcting, or maybe can we protect those kind of folks when it does do it?"

Just think of all those poor buggy whip makers!

[juis imprudent]

MNG sez But J sub D, when a tornado hits a trailer park we expect the government to come in and help everybody out.

Why?!!? For the love of all that is holy - WHY???

Because you are too fucking stupid to figure out that living in a trailer in tornado country is NOT A GOOD IDEA?

[Nick]

"Because while there may be no current way to stop them, we don't think they are, well, good things..."

Frankly, I do think its a good thing the market has corrected the problem, and it would have happened sooner and with less of a thud if not for the government meddling in the economy.

It's a good thing that prices are falling. It's good for poor people, too, MNG. Those people you care so much about (I do too, that's why I'm a libertarian) who are always getting screwed were getting screwed by artificially inflated prices.

The government influenced housing bubble drove up the price of damned near everything including the cost of mortgages AND rental properties as well as property taxes. Farm subsidies drive up the price of food. Poor people suffer the most, and people who used to be middle class fall into the poor category because no one can afford anything anymore. The market in all its glory has fought back to bring low prices to us all.

And don't say it was all about rich greedy people. It was also about poor greedy people. It was about people who thought they deserved a McMansion when they couldn't afford it, just as much as it was about bankers buying and selling securities to get fat bonuses.

Now that prices are closer to being under control, now the government via the stimulus package is going to inflate everything again. It's too bad the next eventual thud will probably result in rioting, chaos, and a dissolution of our Republic.

Fortunately, the market will correct that as well. It's just gonna hurt worse. Some day, we might stop hurting ourselves by expecting government to solve our problems.

[juis imprudent]

Ming sez away from negative growth

Yo, Ming! You hear that whirring sound, coming from the ground, where Orwell is buried?

[KG]

I'm pretty sure that Freddie Mac and Fannie Mae were examples of the government acting as a market participant (something that I don't really have a problem with). The ultimate problem with respect to the housing bubble was this:

1. mortgage brokers, who are fiduciaries, ignored their fiduciary duties and screwed their clients (the borrowers)
2. lenders did little to no review of the loan files and really didn't know who could afford loans (and really didn't care)
3. there was lying, cheating, and stealing but a lot of people
4. securities were made up, whole cloth, that couldn't be accurately valued or were purposely overvalued were sold like pot at a Greatful Dead concert.

This was a failure of the market and of government (a combination of stupid regulations, outdated regulations, and failure to enforce things like anti-trust laws ("too big to fail" wtf?) and consumer protection laws). We'll get through it all, but we have to recognize it for what it is.

[Hazel Meade]

"Many people are losing jobs, many people are taking tremondous hits from the market. Are we supposed to go "yay!"?"

Yeahhhhh!
There were too many people in the wrong jobs.

Not a half bad point.
Recessions are one of those periods when there's a lot of churn, allowing the economy to reallocate resources to areas where they are most needed. Including jobs. If nobody ever got laid off, that couldn't happen.

In my ideal world, the employees would make an effort to forsee that kind of thing. Know when they are likely to get laid off, and start looking ahead of time. Actually a lot of people do. More and more people, because the old model of a lifetime job is becoming a thing of the past. Technology is too fluid to allow any business to survive unchallenged for 40 years.

[robc]

Are we supposed to go "yay!"?

If you shorted the housing or financial markets, then yes.

[robc]

But J sub D, when a tornado hits a trailer park we expect the government to come in and help everybody out.

No *we* dont.

[robc]

I'm just trying to point out that anyone who doesn't share our worldview will say that we're arguing that all outcomes show that the market works.

Actually, Im okay with that. I dont think market failure is possible. Markets dont succeed or fail, they exist or dont exist. Anywhere that two people can trade goods or services for a mutually agreed upon price, a market exists. Anywhere they cant, it doesnt. I dont see how "success" or "failure" can be acribed to that.

[eah]

The astounding arrogance of libertarians never ceases to amaze me. You've consistently failed year on year for the better part of a century to rise above level of radical fringe. You're widely considered kooks and cranks by most economics across the world. But still you cling to the idea that you are the only ones who really understand how it really is.

Pathetic!

Here's a clue: The marketplace of ideas has spoken decisively and deemed your views insipid and irrelevant. This country is going to move in the direction of social democracy and there isn't a one fucking thing you can do about it.

So piss and moan, bitch and complain, stomp your feet and shake your fist. Most of the rest of us are laughing at you.

[robc]

eah,

The majority is always wrong.

[eah]

robc,

Just like a libertarian hiding behind an unfalsifiable proposition.

[Big Green Monkey]

There is no way for the government to know what the price of real estate "should" be, let alone what the prices of anything "should" be. The way that prices are set is when a seller agrees to accept a price that a buyer is willing to pay. There is no other efficient or moral way to set the prices of goods and services.

What the stimulus bill is essentially designed to do is to set a "floor" on real estate prices. This will ultimate fail, as the market is showing that the price of real estate, in most areas of this country, was too high. Demand was artificially inflated, and when that was realized, prices started to fall, because supply exceeded demand.

Prices will continue to fall as long as that remains true, and no stimulus bill or any amount of government spending is going to change those facts. The prices will continue to fall until enough people with good credit records get home loans from banks who are able to lend since they aren't bogged down by poor judgments made in the past. This will have the double effect of stabilizing housing prices while at the same time driving the business models of good banks and destroying those of bad banks.

None of this can happen, though, while Herr Obama and His Central Planners continue to try to rig the system, preventing market forces from doing their good and moral work, and getting the economy back on to the road to recovery. The recovery will just be postponed and/or weakened by this stimulus bill and government actions like it.

Oh, the other thing that these government actions are designed to do is to reward politically important groups, but that's just a redundant statement, since what piece of modern legislation isn't meant to do that?

[robc]

eah,

Are you joe with a new name, he cant recognize a joke either.

[eah]

robc,

Nope. Long time reader. Going all the way back to my misguided libertarian youth.

I'm deeply frustrated watching what I've long considered a valuable and worthwhile publication become a chorus of shrill cunts.

[robc]

The only shrill cunt on this thread posted at 12:15.

[eah]

C'est la vie. I plan on enjoying watching y'all squeal over the next few years as we get to forcibly shove statism down your fuckin' throats.

I'll get the last laugh as your mouths are going to be too filled with bile to crack a smile.

[robc]

Modify INCIF now or wait for a repeat?

You make the call!

[robc]

You make the call!

Nevermind, already done.

[Mr. Chartreuse]

we get to forcibly shove statism down your fuckin' throats.

What's with the angry sex fantasies? Stop juicing bro.

[Les]

I think maybe a libertarian raped eah in "his misguided libertarian youth." He's especially upset because he enjoyed it.

That's just one theory.

[Robert Enders]

eah,
What do you mean by "most of the rest of us"? What portion of this group was part of the majority of voters who voted for Bush in 2004? The popularity of a particular cause or ideology does not reflect its actual suitability for determining economic policy.

[Detective Naga Sadow]

What this? A clue? Did eah really refer to "the marketplace of ideas"? Interesting. Very, very interesting. So his problem isn't with libertarianism but the deep, hidden feeling that libertarianism has shunned him. Apparently "libertarianism" did not accept him or his brilliance. This was manifested by him angrily jerking off while typing that amusing rant of his.

eah,

Feedback would be appreciated.

[cuernimus]

Nah, i think he's just a bad, barely-lucid troll. Saying that we are "considered kooks and cranks by most economics across the world" not only shows a deep misunderstanding of how to use that word in a sentence (much less its application in the real world), it is also wrong. Even if the entire economic world was made up of Keynesians, its continued existence is due entirely to the criticism leveled at it by free-marketeers.

His talking points do suggest, however, something someone with a poorly formed opinion would say to impress a liberal, before becoming the bottom in that relationship. eah, do you have to make excuses for the bruises on your body?

[Some Guy]

Politicians and finance ministers (if they had had the power) would have tried to keep it inflated.

What do you mean by "would have?" How about the truckloads of money they're throwing at housing to keep it unaffordable?

[R C Dean]

Of course, the problem with this kind of argument is that it suggests that free-market beliefs are unscientific in that they are unfalsifiable. If economic growth is the market working properly, and economic contraction is the market working properly, then what data could ever show that markets don't function well?

Unscientific/unfalsifiable is true of anything but the hard sciences, so this assertion is trivial.

What we do have is a couple of examples that are as close to laboratory comparisons of relatively free v. state-controlled economies that started from pretty much the same economic/cultural baseline, in West v. East Germany and South v. North Korea. The results of those two experiments are pretty compelling.

[kilroy]

I think it can be shown that the genesis of this "bubble", "recession", "crisis", "emergency", "pre-depression" is the direct result of the Community Reinvestment Act (CRA). Fundamentally the CRA set aside the housing markets ability to function in a sound manner. The government artificially made it (temporarily) profitable for banks and consumers to make bad decisions. If the banks had been allowed to determine, based on their own risk assessment, who to lend to and who to reject there would never have existed the artificial market in sub-prime/alt-a/nodoc loans or the derivatives thereof.

When the government forces participants in the market to make decisions that are not in that participant's best interest it's a governmental failure, not a market failure. Each of the houses that were purchased by someone who couldn't rightfully qualify for the purchase skews the balance of supply and demand. This had the effect of continually and artificially inflating prices in the housing market. The government continued over time to raise the requirements for banks to make unsound loans to well over 50%. When this eventually and inevitably pressed the banks up against the capital backing limits the government reduced those limits to accommodate continued bad lending.

This could only go on for so long. Now that it's ended no one on either side of this two party system wants to acknowledge that it was government regulation that caused this. Everything that you see the government doing (last year and this year) is designed to sustain an unsustainable situation. This is not a partisan issue. Both sides benefited from and exacerbated the problem.

As long as the majority of people are only willing to look at what's happening without looking at why it is happening no behaviour modification will occur. Eventually the market will take it's toll and get it's pound of flesh, it's just a question when.

[Hazel Meade]

eah,

If you think you are so irrelevant, why are you even here arguing?

Worried that your predictions might not come true? Scared that the marketplace of ideas hasn't made a final decision?

[Sean Healy]

kilroy,
Your argument would make more sense if there weren't also housing bubbles/crashes in the UK, Ireland, Spain, Portugal, Netherlands, the Baltic states, Hungary, etc. I'm pretty sure none of those places had the CRA.

[Sean]

I'm doing my part -- I took out $30,000 in savings (reducing the working capital for the bank) and paid off $30,000 in debt (removing an asset and an income stream for another bank.)

I guess you could call me another little prick... in the economic bubble.

[robc]

Sean,

You increased the working capital for the second bank however. While you cost them an income stream, the cash backing the rest of their loans increased.

[Big Green Monkey]

robc:

I thought what happened when you paid back a loan was that the loan money was "destroyed"? Bank A lends out $30K to Sean, and wants bank principal plus interest. Sean take that $30K and deposits it in Bank B. Eventually, Sean pays bank Bank A the $30K, removing his savings from Bank B, and gives it to Bank A, plus interest. Bank A doesn't magically have a new, additional $30K, do they? I thought that bank-created money was destroyed on repayment of the debt.

[robc]

They have 30k they didnt have the day before.

They had an asset worth 30k yesterday and today they have an asset worth 30k, but one is in the form of cash. Now they are free to loan it again.

[kilroy]

Sean Healy,

True. The CRA didn't cover foreign banks but a great number of them were heavily invested in US mortgage backed securities and their derivatives. In my opinion, the CRA helped inflate prices everywhere by manufacturing unsecured credit to people who hadn't shown credit worthiness.

When I refinanced my home in 2003 I had roughly 100k in equity. I had to actually be rude to the loan officer to get him to stop trying to make me open up an interest-only line of credit on that equity. Many people I'm sure used that 100k to buy that BMW or timeshare in Italy or whatever. I think that makes prices rise everywhere.

In a review of previous housing cycles in 19 countries, the IMF determined that the average "up cycle" in the past took 6 1/2 years; and that the average price increase in this period was 39.2 per cent. They determined that the average "down cycle" took four years, and that the average price decrease in this period was 20.2 per cent. The IMF also calculated that the "up cycle" that peaked last year had lasted for an extraordinary 15 years, and that the average price increase in this period was an equally extraordinary 116.6 per cent. Assuming that the emergent "down cycle" consumes proportionately as much value and time as past "down cycles," housing in Europe could take a 58-per-cent price hit within the next six years.

From: here.

It's a global economy and bad policies here effect policies and conditions elsewhere.

[Brandybuck]

I'm late to this story, MNG, but the attitude is easy to understand: The government created this mess and so the idea that the government can get us out with more of the same is ludicrous.

There is plenty the government could do to ease the pain of the unemployed and the foreclosed, without resorting to a multi-trillion dollar effort to prolong an ephemeral bubble.

[Nobody]

"I think if the market came over some libertarians' houses and fucked their wives they would watch and go "wow, watch that market at work, isn't it wonderous?"

Maybe. I suspect you prefer the Democrats method; Letting her perverted Uncle Sam come over and sodomize her. "Wow, watch that government at work, isn't it wonderous?" And after he's done says "ok sally-boy, now it's your turn!"