Category Archives: Credit Crisis

One Congressman Stands Up For Sanity

Credit Crisis, Economics, Energy Policy, Free Trade, Government Regulation, Government Waste

Ed Schafer, US Secretary of Agriculture, seems to think we need to bail out the ethanol industry:

Agriculture Secretary Ed Schafer’s statement on Oct. 17 that the U.S. Department of Agriculture could provide ethanol companies that got into trouble by speculating on corn with up to $25 million per company in refinancing has caused a firestorm of criticism among ethanol critics who say he is favoring one segment of agriculture and might waste taxpayer money.

…

According to a report on Agweb.com, Schafer said at the World Food Prize symposium in Des Moines, Iowa, “There’s going to have to be some credit applied to companies to buy some lower-priced corn to blend with their higher-priced corn. This is important public policy for the country because corn-based ethanol is a stepping stone to energy independence through cellulosic ethanol. We’re going to continue to support it as much as we can. We have the responsibility to make sure we cement in the infrastructure of rural America and ethanol production has increased the economic opportunities, the jobs and the building of rural America.”

One can’t claim that these companies are “too big to fail” or that their failure will endanger our entire economy. One can’t claim, with any sense of honesty, that the ethanol experiment has really done much positive for America. In reality, one can’t say a good word about this mess.

Which just proves, once again, that government is more than willing to engage in theft of tax dollars and redistribution to industry in order to satisfy the politically-correct goal of the day. And nobody will stand up to them… Scratch that– nearly nobody:

Ethanol plants may be the next beneficiary of a federal bailout and Mesa congressman Jeff Flake is among those opposed to that idea.

…

Flake, a fiscal conservative, panned the plan Wednesday saying federal promotion of ethanol production is the problem. “The federal government’s ethanol policies have driven up the price of corn,” said Flake. “But rather than reforming the policies that have caused a spike in corn prices, the federal government wants to bail out ethanol producers who speculated on the price of corn. Only the U.S. Department of Agriculture could dream up a policy like this.”

Flake said tax breaks and credits for ethanol producers should be repealed. “The high price of corn has had a ripple effect over our entire economy. Instead of trying to bail out every industry hurt by it, the federal government needs to take a serious look at reforming our ethanol policies,” said the East Valley Republican.

I’m never one to look to Congress to solve my problems; nor do I think that elections are likely to improve our collective lot. But it’s good to see someone who wishes to stand athwart the tide, and I can’t say I’d mind seeing a few more like him.

Brad Warbiany
https://thelibertypapers.org/

A Tale Of Two Bubbles

Credit Crisis, Economics, Monetary Issues

Today’s Wall Street Journal notes that the world’s financial problems go well beyond a credit crisis:

The original bubble was in housing prices and mortgage-related assets, which the Federal Reserve helped to create with its negative real interest rates from 2002 into 2005. This was Alan Greenspan’s tragic mistake, not that the former Fed chief will acknowledge it. Testifying before Congress yesterday, Mr. Greenspan pinned the crisis on mortgage securitizers, risk modelers and lending institutions, thus contributing to the Washington narrative that government had little to do with it. The Fed’s monetary policy apparently gets a pass. The media and Members of Congress will use Mr. Greenspan’s testimony to impugn the very free market principles that the former Ayn Rand protégé has spent his life promoting. It was a painful spectacle to watch.

As for the second bubble, this one began in August 2007 with the onset of the credit panic. This is Ben Bernanke’s creation. The Fed chose to confront the credit crunch as if it were mainly a problem of too little liquidity, not fear of insolvency. To that end it flooded the economy with money, while taking short-term interest rates down to 2% from 5.25% in seven months. The panic only got worse, and this September’s stampede finally led the Treasury and Fed to address the solvency problem by supplying public capital and numerous guarantees to the financial system.

But, in the process, the Federal Reserve had created a monetary/commodity price bubble that is clearly reflected in these two charts:

OilDollar

As the Journal points out, the consequence of this monetary bubble is that it has left us, and the rest of the world in a much weaker position to respond to the credit crisis that, even today, continues to rampage it’s way through the financial system. And yet, both major political parties, and both major-party candidates, continue to ignore reality, as the Journal points out:

As Congress plumbs the causes of our current mess, the main one is hiding in plain sight: Reckless monetary policy that did so much to create the credit mania and then compounded the felony with a commodity bubble and run on the dollar whose damage is now becoming apparent. The American people intuitively understand what’s been done to them, which is why they are so angry. If the next President ignores the monetary roots of our troubles, he is courting the same fate as George W. Bush.

Monetary policy isn’t fun, it isn’t sexy, it doesn’t make for cute soundbites or 30 second television commercials, but it’s important and it’s been ignored for far too long. Unless we start paying attention to it soon, the Bush years may start looking like the good old days.

Doug Mataconis
http://www.belowthebeltway.com

Don’t Forget to Study Before the Final!

Constitution, Credit Crisis, Democrats, Economics, Election '08, Federalism, Foreign Affairs, Free Trade, General, Government Regulation, Government Waste, Healthcare, Individual Rights, Keep and Bear Arms, Legal, Libertarians, Military, Monetary Issues, Non-Intervention, Politics, Privacy, Republicans, Separation Of Powers, Strategies For Advancing Liberty, The Bill Of Rights, The Nanny State, The Surveillance State, The Welfare State, Theory and Ideas

I just received my mail-in ballot a week or so ago. The ballot, with multiple choices with arrows to be filled out next to each choice, reminds me of taking standardized tests back in the day. Some tests were easier than others but I knew that if I did not study, one of two things could happen: (1) I could get lucky and answer enough of the questions correctly to pass or (2) I could possibly fail.

In a way, the general election is a final exam. Whether one “passes” the exam or not depends on whether s/he votes according to his or her principles. In order to increase your chances of voting according to your principles, you must study.

I am disgusted with the Republican and Democrat parties. When going over my ballot, my first instinct was to vote Libertarian in every race with a Libertarian candidate. I had studied all of the ballot measures and was satisfied that I could make intelligent choices there, but I hadn’t researched the candidates below the presidential level*. In the U.S. House race, I found three choices: the incumbent Diana DeGette (D), George Lilly (R), and Martin Buchanan (L). I knew that DeGette supported the bailout so she was never an option. Buchanan is a Libertarian and his positions he posted on his website are indeed Libertarian.

So why not just support the Libertarian you ask?

Regardless of how much I despise the Republican and Democrat parties, I make an effort to learn about the individual candidates and their positions before making a choice. Much to my delight and surprise, I found the Republican, George Lilly to be a “Ron Paul Republican.” I knew that there were such individuals running in this election but I never thought I would have had an opportunity to vote for one!

Now, I know that an endorsement from Ron Paul is not necessarily all it’s cracked up to be but take a look at Lilly’s positions posted on his website:

Please join me in RESTORING the Constitution, and together, let’s:

1. RESTORE the economy — free up business from onerous outdated regulations.

2. RESTORE proper use of the military (136 nations have U.S. military presence.)

3. RESTORE integrity to the treaty process to protect America’s interests first.

4. RESTORE individual privacy and say “no” to the Real I.D. Act.

5. RESTORE high quality medical care at affordable prices.

6. RESTORE checks & balances — the executive branch has gotten too powerful.

7. RESTORE integrity in the campaign financing process.

8. RESTORE integrity to the dollar — re-institute the gold standard. Watch this YouTube video!

9. RESTORE integrity to the tax system — rein in the I.R.S.

10. RESTORE and retain rights to unregulated health supplements & the Internet.

The following will be my top priorities in Congress:

1. Create a level playing field for Americans who receive the benefit of Workmen’s Compensation, mandatory health insurance, retirement benefits, taxes, OSHA, EPA etc. and calculate that into the cost of the products manufactured so that any foreign country not providing the same benefits to their employees would have to pay a tariff on their imported products to equal that amount.

2. Support a bill that calls for a single subject on all spending bills.

3. Oppose unconstitutional spending in the form of corporate subsidies.

4. Oppose unconstitutional spending in the area of education so that “No (every) Child Left Behind” is abolished.

5. Hold the Federal Reserve to account for their corruption of the dollar which has driven up the price of everything way beyond what any normal person can even consider affording!

While I have some concern about his #1 priority being a little on the protectionist side, I certainly applaud his willingness to stand up for the Constitution and against big government**. He’s not purely libertarian but in my estimation, he’s at least as libertarian as Ron Paul.

Having learned about George Lilly’s positions, most of which I agree with, I am very glad I had taken the time to make an informed choice. Now my choice was between the Ron Paul Republican and the Libertarian. Who should I choose?

Most things being equal, I decided to support Lilly. As a practical matter, the Republican Lilly would have a much better chance of unseating DeGette than the Libertarian Buchanan. I have not seen any polls regarding the District 1 race, but I suspect that in a district which seems to worship the ground Barack Obama walks on, DeGette will be difficult if not impossible to beat. If most of the libertarian vote goes to Buchanan, we’ll almost certainly re-elect a tax and spend Democrat to another term.

This is why I urge everyone to study each race before casting a vote***. Put emotions aside and “think the vote.” Though the electorate as a whole may fail the exam, we should each make the effort to pass individually.
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Stephen Littau
http://fpffressminds.blogspot.com/

The Death Of Free-Market Capitalism Is Greatly Exaggerated

Credit Crisis, Economics, Theory and Ideas

Some surprisingly cogent wisdom from the Editoral Page of The Washington Post:

IS THIS the end of American capitalism? As financial panic spread across the globe and governments scrambled to contain the damage, reality seemed to announce the doom of U.S.-style free markets and President Bush’s ideology. But this is wrong in two ways. The deregulation of U.S. financial markets did not reflect only the narrow ideology of a particular party or administration. And the problem with the U.S. economy, more than lack of regulation, has been government’s failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.

(…)

We’ll never know how this newly liberated financial sector might have performed on a playing field designed by Adam Smith. That’s because government interventions of all kinds, from the defense budget to farm supports, shaped the business environment. No subsidy would prove more fateful than the massive federal commitment to residential real estate — from the mortgage interest tax deduction to Fannie Mae and Freddie Mac to the Federal Reserve’s low interest rates under Mr. Greenspan. Unregulated derivatives known as credit-default swaps did accentuate the boom in mortgage-based investments, by allowing investors to transfer risk rather than setting aside cash reserves. But government helped make mortgages a purportedly sure thing in the first place. Home prices seemed to stand on a solid floor built by Washington.

And, much like the great Tulip Bubble that once gripped Amsterdam, the price of houses rose and rose, and the popular culture started to emulate the absurd idea that what goes up, must continue to go up. Sit back some time and watch a pre-2008 episode of HGTV’s My House Is Worth What ? or House Hunters and you’ll see what I mean. It was a market bubble just like any other we’ve seen in the past, and just like every other market bubble, it was created largely thanks to the benevolent intentions of government.

But, of course, this is the Washington Post, and while they correctly point out the fact that it was government intervention that created the distorted market that led to the problems we face today, the solution they suggest is more government intervention:

The new capitalist model that emerges from this crisis must operate according to more consistent principles. The Fed should set interest rates with the long-run value of the dollar in mind. Government must be more selective about manipulating markets; over the long term, business works best when it is subject to market discipline alone. In those cases — and there will and should be some — in which government intervenes on behalf of social goals, its support must be counterbalanced with taxpayer protections and regulation. Government-sponsored, upside-only capitalism is the kind that’s in crisis today, and we say: Good riddance.

That last sentence is absolutely correct, what’s mind-boggling is that the entire paragraph that precedes it contradicts the conclusion.

The Post is right that it was government interventions in the mortgage and housing market that created distortions and an artificial bubble that was destined to pop, but the Editors ruin that otherwise excellent point when they insist that the solution to distortion-creating government intervention is………more government intervention.

Wouldn’t that just create yet more distortions guys ?

I don’t expect an answer, but I do expect an apology from everyone who has blamed this crisis on free-market capitalism.

Cross-posted at Below The Beltway

Doug Mataconis
http://www.belowthebeltway.com

RIP Libertarianism, 1971-2008

Credit Crisis, Economics, Government Regulation, Libertarians, Media, Politics

According to Jacob Weisberg in Slate:

A source of mild entertainment amid the financial carnage has been watching libertarians scurrying to explain how the global financial crisis is the result of too much government intervention rather than too little. One line of argument casts as villain the Community Reinvestment Act, which prevents banks from “redlining” minority neighborhoods as not creditworthy. Another theory blames Fannie Mae and Freddie Mac for causing the trouble by subsidizing and securitizing mortgages with an implicit government guarantee. An alternative thesis is that past bailouts encouraged investors to behave recklessly in anticipation of a taxpayer rescue.

There are rebuttals to these claims and rejoinders to the rebuttals. But to summarize, the libertarian apologetics fall wildly short of providing any convincing explanation for what went wrong. The argument as a whole is reminiscent of wearying dorm-room debates that took place circa 1989 about whether the fall of the Soviet bloc demonstrated the failure of communism. Academic Marxists were never going to be convinced that anything that happened in the real world could invalidate their belief system. Utopians of the right, libertarians are just as convinced that their ideas have yet to be tried, and that they would work beautifully if we could only just have a do-over of human history. Like all true ideologues, they find a way to interpret mounting evidence of error as proof that they were right all along.

Well, I would suggest that he goes off the tracks as soon as he says that we “fall wildly short of providing any convincing explanation for what went wrong.” I hear a hell of a lot more cogent analysis of what went wrong and how than either Republicans or Democrats have offered.

In fact, the whole article is a strawman. Weisberg essentially says that the whole mess was caused by deregulation, and that deregulation equals libertarianism. Further, since the crisis was “caused” by deregulation, that invalidates the argument for deregulation and thus makes libertarianism intellectually bankrupt.

He does have one thing right, though. Libertarians will be painted with the same broad brush as the socialists, who– when faced with the collapse of socialist nations such as the USSR, Cuba, etc– claim that socialism would work if only it was really tried. The problem is that his conclusion is based on the premise that anyone believes libertarian has been attempted — a premise that he’s actually trying to generate rather than to reflect. Libertarians have never claimed that the society that we advocate has been remotely enacted in America, and the whole time we’ve been criticizing the hodgepodge of regulation and non-regulation by government as evidence that government is captured by special interests.

This, more than any other reason, was why I’ve removed my support from the FairTax. I love the FairTax proposal, but my cynicism of government has proven correct too many times to believe that Washington would allow a proposal to go through without modifying it into a monster. If I believed they’d enact the FairTax as proposed, I may support it. But since I do not, I don’t want my name behind the horrible tax scheme that would eventually be enacted under the moniker “Fair”Tax.

Sadly, though, some would claim that Weisberg– if not right about the issues– accurately captures public sentiment towards libertarianism. This mess will undoubtedly give deregulation or non-regulation a bad name, completely glossing over the fact that we libertarians have been complaining about the perverse incentives cause by this supposed deregulation all along. They’ll follow this up as electorates always do, by running away from liberty into the waiting arms of their nanny-state saviors.

Brad Warbiany
https://thelibertypapers.org/
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