Monetary Policy

Let the Guilty Be Rewarded, So Long As the Innocent Don't Go Unpunished

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Let the mighty eagle soar!

If the bailout, the stimulus, and the brand-new infinite lifeline for the failed GSEs Fannie Mae and Freddie Mac strikes you as a variation on the old Dave Allen joke about the Viking who wants to rape all the men and kill all the women, you are not alone. This interview with Kevin Duffy and Bill Laggner makes clear that the market interventions (now entering their third year) are not just bad for the economy but remarkably unjust. Duffy and Laggner run the Bearing Asset Management hedge fund, so of course they feed on the blood of Christian children while creating global misery on several planets. Yet somehow they're more attuned to the actual victims of risk-socialization than anybody in the Obama Administration:

What would you have done differently as the credit bubble was bursting and the Fed and the Treasury were declaring that the world would come to an end without an $800 billion bailout package?

Duffy: Allow those who essentially bet wrongly to fail, instead of bailing out people with friends in high places.

What about the argument that a financial panic would have ensued and crushed the little guy?

Duffy: The little guy actually has been crushed. Nobody is asking where this money is coming from. And the money has to essentially flow into the political economy at the expense of the real economy. The little guy is always going to be the last one in the soup line. So he will get a bone tossed to him, like cash for clunkers. But if you are Goldman Sachs or if you have got essentially the red bat-phone to Washington, D.C., you are first in line.

Laggner: AIG made sure its creditors received 100 cents on the dollar. Essentially you have the socialization of risk, but the survivors are still highly leveraged. There is still a multi-trillion dollar shadow banking system that FASB [the Financial Accounting Standards Board] wants to address next year. The central planners have already spent $3.15 trillion on various bailouts, credit backstops, guarantees, etc., and given approximately $17.5 trillion of government commitments, etc., while allowing many of these institutions to remain in place, with the same people running them.

Another suggestion from Duffy and Laggner sounds, well, downright populist, and suggests how we could in fact have let big banks fail without opening up a series of planet-destroying anti-gravity anomalies:

What else could have been done?

Laggner: We could have isolated the money centers and put them in temporary receivership. Then, we could have created — with a mere $100 billion — a thousand community banks. If you believe in fractional reserve lending [in which banks lend multiples of their deposits], something we don't support, they could have created a trillion dollars in new credit that would have flowed to small and medium-sized businesses. Those are the parts of the economy that are choking. Because there has been no reform, it looks like we are going to be spending more money. We are going down this very treacherous path, where debt continues to skyrocket. Private-sector debt is being offset by the public sector. Meanwhile, the cost of funds for small and medium-sized businesses has gone up, while the cost of borrowing for the survivors is little to nothing, and they are speculating with that money, as opposed to letting it flow through into the real economy.

Complete interview.

Vaguely related: Rasmussen says a plurality of Americans now realize the stimulus is hurting the economy.

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NEXT: Merry Christmas, Mr. Greenwald!

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  1. If bailouts are so bad, why didn’t Obama and his gang just discontinue the practice?

    1. Because that would be admitting that He was wrong. It’s better to keep shoving your arm down the garbage disposal than to admit that you forgot to turn it off.

      1. Hey, that’s how we get what we want – we shove guys’ arms into garbage disposals until they give in. Old Chicago gangster trick. Works every time.

        1. Send a dead fish too.

      2. And don’t forget to mention while your arm is down there that you “created or saved” two or three fingers.

        1. That’s how I’m doing it, minus the lost fingers. Same principle, though.

        2. And don’t forget to mention while your arm is down there that you “created or saved” two or three fingers.

          I nominate this as the thread winner.

    2. Obama still doesn’t think bailouts are wrong, or at least don’t think they are wrong politically (i.e. that their poll numbers would go up if they ditched any further use of bailout money).

      I don’t know which is worst — continuing abysmal economic ignorance despite ample evidence of being wrong, or cynically screwing over the public over political calculations.

    3. You take that back! How dare you insult our President! He’s doing what’s best for us!

      1. Full of shit! Full of shit!

      2. Here’s a personal message for U Morris

        ||
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  2. Beacause by definition everything that Obama does must be good.

    1. Oog, you’re right. I forgot He is The Perfect Man.

      I hereby withdraw my racist comment above.

  3. without opening up a series of planet-destroying anti-gravity anomalies

    I say bring em on, I’m pretty much ready for The End at this point.

    1. Scanning… I believe I can reconfigure the deflector array to stop these anomalies, Captain.

  4. “We are going down this very treacherous path, where debt continues to skyrocket. Private-sector debt is being offset by the public sector.”

    *If* government didn’t waste money in frictional losses, and *if* government didn’t spend the money where it’s not necessary, swapping public for private would be neutral.
    Unfortunately, both of those cases obtain, so we’re not getting better yet in that regard.
    Increasing total debt at this point is, at best, *extremely* chancy; more likely bad.

  5. Allow those who essentially bet wrongly to fail, instead of bailing out people with friends in high places.

    Unthinkable!!

  6. I’m glad I’m dead.

    1. I, as well, Milton. Dreadfully painful to watch, isn’t it?

      1. I didn’t really tell them to do all that, did I? It’s all sort of a haze.

        1. Yes, yes, we know, John. That’s why you’re here.

          Now, back to the torture. It’s pineapple day… my favorite.

  7. I can’t decide if our remarkably resilient economy will absorb this idiocy and things will be fine in a few years, or if this is just the beginning of a horrible decline and fundamental change in said economy.

    I guess we’ll find out.

    1. I can’t decide if our remarkably resilient economy will absorb this idiocy

      The economy is people! It’s PEOPLE!

      1. Only Obama’s green economy is people. The yellow and red economies are soy and lentil.

        1. I hesitate to ask what’s in a brown economy… I guess we’ll find out soon enough, though.

          1. Racist!

    2. Episiarch|12.27.09 @ 10:25PM|#
      “I can’t decide if our remarkably resilient economy will absorb this idiocy and things will be fine in a few years, or…”
      I don’t think it’s either/or. Can’t credit it: “There’s a lot of ruin in a country.”
      The market operates even when it’s outlawed; that’s the way the Soviets hoarded all that swag. That’s the way you get beef in Cuba.
      The problem is that this sort of stuff delays general prosperity and the delays give statists one more claimed reason to ‘do something’, thereby slowing prosperity once more and blaming others.

    3. Wow, shit must be getting bad for you to say that. Seriously, you’ve been one of the most level-headed commenters here that I can recollect.

  8. We can’t really denied the fact that our economy have a different color or representation.Eventhough, whatever the color of the economy being existed let us still celebrate and feel the spirit of christmas season. Christmas is a joyous, festive occasion that so many look forward to. However, it’s also creates a lot of waste, from wrapping, boxes, packaging, and then you have the tree itself. You don’t have to add more to the local landfill because it’s a holiday ? any and all paper products are recyclable, so is cardboard, and trees can be donated to anyone that can use it for something, or turned into a dandy bonfire or firewood. Moreover, recycling is cheap if not free, no need to find the best personal loan rates, and it’s good for the planet ? so recycle your Christmas waste this year, and give a present to the Earth.

  9. I guess we’ll find out.

    Sort of?

    In real life, yes. But I think every numerical fact about the economy will become an unspeakable open secret, like that inflation-before-and-after-1913 graph only goldbug paleos and LaRouchies hold up. People who know what’s happened or remember that it used to be different will never say it unless they’re already considered crazy.

    Because it will sound crazy.

  10. Walmart has been trying to get a bank charter for years. Give it to them. This would be the best and only stress test needed.

  11. This is the end
    Beautiful friend
    This is the end
    My only friend, the end
    Of our elaborate plans, the end
    Of everything that stands, the end
    No safety or surprise, the end
    I’ll never look into your eyes…again
    Can you picture what will be
    So limitless and free
    Desperately in need…of some…stranger’s hand
    In a…desperate land
    Lost in a Roman…

  12. We could have isolated the money centers and put them in temporary receivership. Then, we could have created ? with a mere $100 billion ? a thousand community banks.

    What a bunch of bullshit…there are already 1000s of community banks and if the assholes in DC had let the big fucked up banks fail the 1000’s of community banks would have lapped up the assets of those failed banks at bottom basement prices and made a bundle. Instead we have the federal government propping up the fail banks and the prices of their fail over priced assets all on the dime of the American tax payer and yes also on the dime of those community banks.

    “Create a thousand community banks” what fucking bullshit!!! We don’t need more community banks or big banks or medium banks…we need the fucking failed banks to fucking fail!!!

    1. “we need the fucking failed banks to fucking fail”

      When I decide to run for congress, do I have your permission to use that quote in my literature?

    2. Not only that, but since the small banks would have acquired the assets of the large banks for 10 cents on the dollar, they could easily have renegotiated with all the debtors those assets represent for principal haircuts of 50% or more.

      Effectively giving out the “debt modifications” the taxpayer is now trying to pay for. And failing.

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    1. YE-YE-YE-YE-YE-YE-YE-YEAHHHHH!!!

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  16. Robc-

    How about, “Failure; spread it around.”

    1. All part of my wealth-redistribution plan. Be patient; I can’t wreck the entire United States economy in one-fourth of a term.

    2. That doesnt include the word “fuck” multiple times. Ive already promised to use the phrase “Fuck off slaver” in a debate. Figured I would stick to a theme.

      If I won, it might lead to c-span airing on a 5 second delay.

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