Re-read the article. It says that you cannot discriminate against low-income neighborhoods when giving out loans. In all actuality the bank doesn't care where you are from, they just want to see income. This change essentially created a quota for banks to lend to certain areas. Well guess what? Lending to low-income people is a really dumb idea.
Let's see your numbers. The numbers I've seen indicate that the portfolios of institutions subject to those sorts of regulations did not underperform, and their portfolios contained significantly less sub-prime paper than those of "non-bank" entities that weren't regulated like that. Basically, unless there's some serious data behind it, I'm going to have to take Janet Yellen's word over yours.
. And having 95% of African-Americans vote for Obama is a long way from a color-blind society.
Kerry got 88% of the black vote. Obama turned out a lot of voters who haven't voted in past elections, so he got a higher percentage of most demographics than Kerry did. It doesn't take an appeal to widespread racism to explain that result. Republicans just don't get votes from that demographic. It's nothing new.
To an extent, it's true: the financial problems are due in part to the Community Reinvestment Act [wikipedia.org], which they claim was modified during the Clinton administration in such a way that it forced banks to make riskier loans.
You're correct in that they weren't forced to make the loans. You're incorrect in that the free market caused the problem. When Fannie and Freddie stepped in and said we'll buy bad loans, people made them and sold them. This interference caused this problem.
Despite the fact that FM and FM's portfolios did not underperform relative to the rest of the market and that during the worst parts of the sub-prime lending fiasco, they were losing market share to "non-bank entities" that were securitizing mortgages? Really? Are we still stuck blaming the canaries for the mine explosion?
The "Prebate" removes the tax burden from the poor and people who are smart and buy used goods and save their money can further reduce their own tax burden.
Doesn't that completely negate your rant about wealth redistribution? Taxing consumption punishes people for being successful just as much as taxing income does. So you're basically against any sort of redistribution of wealth or heavier taxes on more productive people, but you want low taxes on the poor and high taxes on people who buy lots of stuff. What?
So we have one candidate that says whatever is politically prudent, depending on what audience he is speaking to, and one candidate whom takes a leadership role and holding a consistent position which he believes is correct. You're right, this isn't even a contest.
Are you talking about the candidate who has softened his position on Iraq or the candidate who said that he'd vote against his own immigration bill. I'm having a tough job keeping track.
Very easy for him to do when he didn't actually have to have his vote on it recorded at the time, didn't have to deal with the potential consequences of that vote for the country or worry about what it would do for his reelection. He was just an armchair quarterback then, just like the rest of us.
That's why we call what our elected officials do (or should do) leading. What you just posted essentially boils down to, "Politician X would have done the sensible and morally correct thing, but he was concerned about being reelected." Obama was getting ready to start a run for the Senate, and he made his views known pretty publicly. It may not be The Ultimate Test, but I'd say it's better than being so concerned about keeping your job that you fail to do your job.
We don't know whether Obama would have passed that test. We do know that the other major players in the race either failed the dereliction of duty test, or they failed the stupidity test at at time when Obama at least indicated that he knew the right answer to the latter.
Yeah.. because..you know.. when the seeds for this were sown in 1977 the Congress was Democrat controlled and it was signed by a Democrat president. In 1995 President Clinton made regulatory changes (no need for the consent of the Republican Congress) that put the program on steroids, paving the way straight to our current crisis.
So, you're suggesting that a law that:
1) was passed 31 years ago
2) applies only to federally-insured banks and thrifts and not to the non-bank mortgage companies that made the majority of the sub-prime loans
3) George Bush weakened in 2004 with no apparent decrease in subprime activity
4) does not appear to lead to unprofitable lending
caused the sharp upward trend in unprofitable loans that did not coincide with either 1977 or 1995? Oh, and of course, the banks making these bad loans (knowing full well that they were bad--they were under duress, you know), decided to borrow huge sums of money to make huge numbers of them in order to massively leverage their losses (which they expected to be losses--you know, the CRA made them make those loans against their will). Well done indeed.
It was after this that FM/FM started taking on the risky loans to comply with the heightened standards.
I'm not going to claim that Fannie Mae and Freddie Mac enacted wise regulations during the run-up, but for God's sake, they lost significant market share to asset-backed securities issuers starting in about 1999. You're suggesting that organizations that don't originate mortgages and have been declining in significances (especially in the sub-prime market) are responsible for a huge up-tick in sub-prime mortgages? I salute you.
Notably absent from this discussion is the fact that the types of derivatives that made these securities as attractive as they were happened to become deregulated at just about the same time the asset backed securities market started to eat away at Fannie and Freddie's mortgage holdings.
Bottom line: Let's see your numbers. From what I can see, this is an example of a spectacular lack of oversight in a new and "innovative" market that got out of control. The economic theory bears it out well, the time line works, and the numbers seem to favor that explanation. There's no reason to appeal to things like the CRA or FM/FM to explain the sudden run-up in available credit to low-quality borrowers. I'm willing to hear a detailed explanation, if it makes economic sense and has some data behind it, though.
Bush tried to fix this in 2003, but the Democrats killed it.
Of course, I'm sure that Mr. Responsible governance and regulation tried everything he could to get a tighter grip around those guys, but it was 2003, and his party only controlled both houses of the legislature. Sure, he got whatever he wanted in those days, but woe to those who cross Barney Frank, especially when he's in a minority party that couldn't seem to do shit when it came to pushing its agenda.
Frankly, any argument that's being pushed by Kevin "Dow 36000" Hasset needs a little bit of hard data backing it up before I buy into it, especially when it appears to run counter to the facts and expert opinion. Basically, I'm thinking, Kevin Hasset vs Janet Yellen. Who gets the benefit of the doubt on data-driven matters of economic policy?
You don't get it. The "fuckers" in the financial industry did not have a choice. The democrat CRA caused their information gatherers to lie to them.
Have you actually looked at the data behind this? The CRA argument is just another weird just-so story that is bouncing around because the original, "It's all Fannie and Freddie's fault" meme didn't stick.
1) The original CRA was passed in 1977. I challenge you to point to the changes in the 1995 version that you say actually made the difference here. Actual numbers and percentages of loans that were covered under the CRA would be most helpful.
2) The institutions driving the vast majority of the dodgy lending were not subject to the CRA.
3) Because of new amazing unregulated financial instruments like credit default swaps, it was possible to create a huge new market of lenders wanting to loan to just about anybody because of the huge profits to be made. There is no need to appeal to government programs to find an inentive to make bad loans.
The story you're telling is far too simple. The mortgage backed securities market was unstable in large part because institutions were creating "insured" assets that weren't actually properly insured. This is why AIG was a crucial player. Its insurance (err... I'm sorry... "credit default swaps" which are not insurance even though they act just like insurance. Credit default swaps aren't regulated, so they're not insurance) of bundles of mortgages allowed "low risk" high-yield paper to permeate the entire banking system. Thanks to a lack of adult supervision, this paper is everywhere and backed by insurance-like contracts written by companies that are so overextended that they could never possibly pay off. The net result is trillions of dollars in debt whose value is now questionable because some of the mechanisms that cause it to be "low risk" are failing.
Thanks to the way these new instruments were working and the huge worldwide demand for them, investment banks needed absolutely no incentive to lend to borrowers with poor credit. There was enough financial incentive to do that with or without the Red Hand of Racist Communism or whatever the conservative pundits are trying to blame today. This was a really weird case of demand pull producing a huge market for debt without enough qualified borrowers to fill the demand.
The government should make sure that the credit markets should stay open, and they've got the perfect vehicles to do so through fannie and freddie. They could have done without AIG, but now that they've got it they can do it.
I don't think that you're fully appreciating the penetration of this problem. When people say "the credit markets are freezing" they don't just mean that it's hard to get mortgages. Every bank in existence borrows short term and lends long term, making its profits based on the difference in those yields over time. If the short term credit markets totally seize up, there's no telling which banks will die, even if they're otherwise in good shape. The ones in questionable shape would certainly be toast, but that's not the end of it.
If a company requires a government bailout to remain operational, then they should die, end of story. Consequences are a vital part of the free market, and the removal of those consequences has been fueling a lot of the corruption that we've seen recently.
It would be nice if we could allow that to happen, but the risk to the financial system is too great. That being said, I think that the Paulsen plan suffers from exactly the problem you're alluding to. It rewards bad actors without the consequences required for a properly functioning market. I think that it makes much more sense to do operations similar to the AIG bailout. Recapitalize them as necessary and largely wipe out the shareholders in the process. If the government has to recapitalize you, it should hurt. A lot. That kind of thing is not hard to build into a properly designed bailout, though.
Usually when somebody suggests this, the first thing I ask is how much economics have you studied that doesn't come from a web site promoting Austrian economics? I ask this because there are reasons that the Austrians haven't made any significant inroads into mainstream economic theory.
Here's the simple version: The Fed lowers interest rates to below their actual market value, causing investors to throw money at things that would not be profitable if the interest rates were kept at their true value.
OK so far.
When the rates go back up (as they are forced to do to avoid hyperinflation) those investments fail.
OK, so here's where the Austrians could benefit from going a bit further. Those malinvestments fail and the resources are reallocated. So why, then, does the rest of the economy go into recession? The bust in investment has to go somewhere, no?
A choice quote from Ron Paul, who predicted this years ago...
People write these things as if nobody but Austrians saw this coming. It's not as if economists from several schools of thought haven't been making noise about the risks of the housing bubble and the way credit was being expanded.
I realize that this thread is about the cause of the crisis, but I cannot overemphasize how important it is that we stop the government from passing this bailout. Call your congressmen.
This is where Austrian business cycle theory goes from being a basic observation of how the markets behave to a nonsensical prescription for inefficiency. So we've arrived in a situation where people want to hold onto more money than is available in the system because credit has dried up. For some reason, the Austrian prescription is to leave credit tight and let otherwise useful capital and workers lie fallow. This is the same sort of bad policy that kept things painful in the worst parts of the depression.
As far as I can tell, there's no rational explanation for this other than some sort of emotional need for businesses to do some sort of penance for the bad decisions of others.
Carly Fiorina isn't his only great adviser. He also has Kevin "Dow 36000" Hassett and Phil "Let's explicitly disallow regulation of credit default swaps" Gramm.
Of course, there's also Donald Luskin, who doesn't have any total calamities to his name, but he does appear to be mildly retarded. Aurthur Laffer is another notable. I'm not sure what he has been doing lately, but he appears to still believe in his namesake curve. Not a good sign.
For some reason, the poster appears to be conflating "monetary policy" and "monetarism" in his posts. They're different animals. Beyond that, I can't follow the distinction he's trying to make.
The questions that differentiate the modern schools of economic thought are far from settled. The current crisis should be very interesting (and scary as hell) as economists of various schools try to fit their models to new data.
So a new pair of cables of the same brand/model as used by the reviewer could have been bought...meets the idea that the cables are untouched.
Sure.
The writer (Mike Fremer) suggest the cables he uses everyday as an alternative. Did not suggest they use his personally owned cables, but the ones (as in the make/model) he uses.
This is really not clear from context. At all. The whole reason they're not using Pear cables was that Pear wasn't going to supply them for free and somebody would have to pony up cash to get them. This problem does not go away when changing brands unless somebody plans to supply cables they already have. "Pear won't supply the cables, and the cables are expensive, so I'll solve that problem by buing another pair of expensive cables with my own money," does not sound like the proposal that was rejected.
If I had to guess at exactly what the exchage consisted of, it was probably JREF suggesting that they use his cables for the "dry run" and then the two parties being unable to come to an agreement about the official test. JREF wouldn't want him using cables from an unknown source and the author probably wasn't about to risk more money on multi thousand dollar cables.
And if the reason Randi wants to "disprove" an idea it show it is BS, then a one time $7k cost would be earned back in free publicity.
JREF exists on donations. I'm just going to have to repeat the assertion that droping $5-10K every time somebody comes to them with a claim is a really quick way to run out of money. Working on the assumption that they're going to get it all back somehow is not especially wise financial management.
Plus, there is a good market for used cables out there...may even be able to get back most of the outlay on them. Or put them on ebay.
That might be a good thing for the guy who stands to win $1M in the process to think about rather than the non-profit organization that stands to lose $1M. This really seems like a matter of neither party wanting to put up thousands of dollars of their own money. The author would be out $7K if he didn't meet the challenge, and JREF would be out $7K in either case.
Sorry...the fact that Randi then lied post-canx of the challenge, suggests he has an agenda outside of purely seeking the truth.
Looking at the actual post by Randi that Fremer referenced, it's pretty clear that Randi never said that Fremer backed out. He said that Pear backed out and implied that Fremer was probably relieved. I don't see a lie here. Unnecessary bluster, perhaps. A lie? No. In fact, looking at the correspondence back from Fremer, it looks like if anything, Randi the more cordial party.
I still don't see any support for your assertion that Randi was trying to rig the proceedings.
Does anyone else see that there's something seriously wrong with a government rewarding your lifetime of paying taxes by applying what is effectively a flat tax to everything you owned when you died?
Think of it this way: It's a tax on the recipients of your estate, since they're the ones who actually bear the burden of it. My question is, why should they be allowed to receive a large chunk of income completely tax free just because Mom and Dad earned it on their behalf?
The lower and middle classes are badly hurt by this and the upper class and super rich just shrug it off. This only accelerates the concentration of wealth into the hands of a few.
If I'm not mistaken, the current exemption for the estate tax is $2M. I'm not sure exactly how this hits the lower or even the middle class.
but only one has done this in your sample, and there are other things to consider. He had a Republican congress. But then again GW Bush had a Republican congress for the most part.
Another question to ask: How many of the people in the Republican congress who supposedly kept Clinton's budget ship-shape were still in congress when Bush took office. Without looking at the numbers and just using historical reelection trends as a rule of thumb, I suspect the answer is most of them.
That was interesting. I wonder if the very profession of Economist presumes a liberal bias. After all, if your ideals about the market are that free trade is good, controls are bad, and that manipulating and putting controls on the market will be harmful, what's the point in becoming an economist in the first place?
Answer: Economists generally believe all of those things, but with some caveats that usually come from actually studying those principles in action. It's the difference between taking those statements on blind faith as absolute truths and actually looking at the edge cases and using data to decide on how exercising those principles is likely to play out. I really don't know of any economist who would suggest that free trade is generally good, that controls are generally bad, and that manipulating markets generally comes without negative effects.
I think that you may be confused about what economists actually do.
isn't one of the core tenets of Keynesianism that the government, via careful picking of winners and losers (i.e. investment) creates a "multiplier effect", known commonly as the "multiplier" ?
No, not so much.
And didn't Milton Friedman, former Keynesian-turned-libertarian (and a nobel prize winning economist, btw), pretty much bury Keynesianism in all but name?
No to that one as well.
To the extent that liberalism no longer seems like Keynes is probably a reflection of modern liberals being unashamed socialists and not even pretending to beleive in markets any more.
I'd be very interested in knowing exactly what exactly you think modern Keynesian economics is, because frankly, I don't recognize your versions of it as familiar.
The problem is that the university environment tends to be both ultra-specialized and insulated from the Real World, and relatively free from being impacted by whatever ideas it exports.
With the exception of the fact that the economists are the people who are actually collecting and analyzing the data from the "real world" and the fact that being right is good for your career and being wrong is bad for it, you're probably right. The question is, who has a better grasp on "real world" unemployment, for example: a person who is recently unemployed and has experienced "real world" unemployment, or an economist who gathers and analyzes local and nationwide unemployment figures and trends for a living?
And I've seen biologists and behavioralists come up with plenty of nutty ideas, and still get paid... I remember one of my chemistry professors (generally a great guy and very smart) was against using oil for fuel because he felt it was using up the only viable source for long-chain carbon molecules to be used in medicine.
I certainly hope we're not judging an academic field based on the weirdest assertions that one or two of its weirdest members rather than the results of broad academic consensus. If we're going to do that, I suspect that I could come up with some crack headed financial theories posited by one or two CEOs that will make anything coming out of an economics department look positively tame by comparison.
The concept is probably valid in theory, but as he would have applied it if he controlled the world, rather extreme!!
Adams says a lot of dumb things, but I think that his point about doctors is right. Your doctor may not be able to tell you what will kill you 50 years from now, but if every doctor on the block is saying that you should eat vegetables and exercise, you're probably better off believing them than your grandfather who asserts that his old age is due to red meat and cigarettes.
No need. Plenty of history (at least since Reagan) is available through Treasury and IRS records. *Every single time* taxes have been reduced, revenue to the Treasury has increased. If you can cite an example where it has not, please do.
Nonsense. What are the time horizons for the claim? The next year? Sometime in the next several years? I've seen Reagan, Bush II, and Kennedy shown as examples, and they all have different time horizons for the supposed Laffer bump, and none of them appear to show anything more than the growth roughly expected from an economy growing within a statistical dead heat of its historical norm. Typically, what I see in the data analysis is:
1) Taxes are cut.
2) Tax receipts drop the next fiscal year.
3) Tax receipts grow the following year at a rate roughly equivalent to the normal growth rate.
4) People say, "Wow! Tax cuts made the receipts from (3) higher than (2)!" Ignoring entirely the fact that holding taxes constant, receipts should go up every year at the average rate of economic growth.
I have never seen a good argument that actually shows a statisically significant increase in the growth rate, much less one that could reasonably be attributed directly to the tax cuts. Further, let's assume that there is some negligable increase in growth attributed to the cuts. How long does it take to ammortize the loss caused by the initial cut? The bottom line is that the arguments I've seen in favor of the Laffer hypothesis in the real world always begin with the hand-wavy "plenty of history..." without any actual use of the hard numbers, definition of what one would expect to see over what time horizon, or actual statistical analysis to decide whether they're just seeing Jesus in their tea leaves.
Mr. Frankel does a lot of hand-waving and makes a lot of claims, but doesn't cite any facts except a paper he wrote himself. He cites no hard data to back up his claims.
Why do I get the feeling that you didn't read the paper he "wrote himself" to see if there was any backing for the claims?
Being a Democrat and a former member of the Clinton Administrations' Council of Economic Advisors from 1997-1999 as well as currently being a professor at the Harvard Kennedy School of Government, hardly makes him an unbiased source.
No, I suppose it wouldn't. It would make him a very accomplished economist, but I suppose it's possible that he's simply holding these views and risking his academic reputation to make Bill Clinton look good. Of course, if you're going to discount economists who are Democrats, you apparently are going to ignore the majority of economists, so it shouldn't be surprising if your views come from a vocal minority rather than broad academic consensus.
The fact of the matter is that economists who believe that tax cuts actually pay for themselves are in the minority. You will rarely see this claim seriously advanced by any economists but those who are employed by think tanks who pay for results rather than research. I've never met one. Politicians love it because it plays well with the voters and allows them to have their cake and eat it too, but as Frankel points out, they often do so against the advice of their own economic advisers.
So I'll say it again: Where is the actual research with actual data and actual statistics that back up this claim?
Those university-employed economists don't depend on the market for their living; they'll get paid no matter what (barring major downsizing by their parent institution). They're free to back whatever crackpot theories or candidates they wish; it won't impact their income.
I have no idea why people paint this picture of economics departments and not others. In most fields, people who study things are considered likely to know what they're talking about. Nobody says something like, "Those biologists don't know shit about genetics. I breed dogs for a living, so my knowledge of genetics is subject to the real free market. Biologists can come up with whatever nutty ideas they want and still get paid!"
Why is it that every time federal taxes are reduced, actual revenue, that is the actual amount of money flowing into the federal coffers, increases? I know it's non-intuitive, but it's been repeatedly proven true.
Let's see the actual numbers over time and do some statistics then. I'll wait.
Why do people refuse to acknowledge the fact that reducing taxes actually increases revenues when it's been repeatedly proven to be true?
Because it's not. Jeff Frankel wrote some good commentary on this just recently.
Randi initially had been deriding Audiophiles of their claim they can hear differences in cables, etc. The Pear cables were singled out due to their extremely high cost. The Stereophile writer offered to do the experiment with different cables (which Randi then needed others to approve....is it his challenge or not?).
It's not clear from context, but it looks a lot to me like the rejection was because the writer wanted to use his cables and not a set that could be guaranteed to be untouched. With $1M and the reputation of the challenge at stake, I would have advisers and be paranoid about cheating as well. I'm still not seeing any evidence of him trying to "rig" anything.
Of course, Randi could have simply bought the Pear cables and pressed ahead any way....
If Randi's organization dropped $7K every time somebody tried to claim the prize, there would probably be no prize to claim after a few months. The real question is not why JREF didn't spend thousands of dollars on cables, but why Pear backed out if their cables are so much better.
see, that's the problem with mixing scientists and psychics. Scientists insist that stuff happen on demand, within defined parameters. Psychic abilities just don't seem to work like that.
If it really happens, it should be detectable one way or another. If a psychic can describe what happens, it should be possible to design a test that will validate it. Even if it doesn't happen reliably, that's what statistics and sampling are for. It's just a matter of having the will and the discipline to do it.
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Let's see your numbers. The numbers I've seen indicate that the portfolios of institutions subject to those sorts of regulations did not underperform, and their portfolios contained significantly less sub-prime paper than those of "non-bank" entities that weren't regulated like that. Basically, unless there's some serious data behind it, I'm going to have to take Janet Yellen's word over yours.
Kerry got 88% of the black vote. Obama turned out a lot of voters who haven't voted in past elections, so he got a higher percentage of most demographics than Kerry did. It doesn't take an appeal to widespread racism to explain that result. Republicans just don't get votes from that demographic. It's nothing new.
If that was the actual cause, you'd expect loans made under the CRA to have a high default rate, yes? What would happen to that argument if the data showed that CRA loans don't default at a higher rate than other loans?
Despite the fact that FM and FM's portfolios did not underperform relative to the rest of the market and that during the worst parts of the sub-prime lending fiasco, they were losing market share to "non-bank entities" that were securitizing mortgages? Really? Are we still stuck blaming the canaries for the mine explosion?
Doesn't that completely negate your rant about wealth redistribution? Taxing consumption punishes people for being successful just as much as taxing income does. So you're basically against any sort of redistribution of wealth or heavier taxes on more productive people, but you want low taxes on the poor and high taxes on people who buy lots of stuff. What?
Are you talking about the candidate who has softened his position on Iraq or the candidate who said that he'd vote against his own immigration bill. I'm having a tough job keeping track.
That's why we call what our elected officials do (or should do) leading. What you just posted essentially boils down to, "Politician X would have done the sensible and morally correct thing, but he was concerned about being reelected." Obama was getting ready to start a run for the Senate, and he made his views known pretty publicly. It may not be The Ultimate Test, but I'd say it's better than being so concerned about keeping your job that you fail to do your job.
We don't know whether Obama would have passed that test. We do know that the other major players in the race either failed the dereliction of duty test, or they failed the stupidity test at at time when Obama at least indicated that he knew the right answer to the latter.
So, you're suggesting that a law that:
1) was passed 31 years ago
2) applies only to federally-insured banks and thrifts and not to the non-bank mortgage companies that made the majority of the sub-prime loans
3) George Bush weakened in 2004 with no apparent decrease in subprime activity
4) does not appear to lead to unprofitable lending
caused the sharp upward trend in unprofitable loans that did not coincide with either 1977 or 1995? Oh, and of course, the banks making these bad loans (knowing full well that they were bad--they were under duress, you know), decided to borrow huge sums of money to make huge numbers of them in order to massively leverage their losses (which they expected to be losses--you know, the CRA made them make those loans against their will). Well done indeed.
I'm not going to claim that Fannie Mae and Freddie Mac enacted wise regulations during the run-up, but for God's sake, they lost significant market share to asset-backed securities issuers starting in about 1999. You're suggesting that organizations that don't originate mortgages and have been declining in significances (especially in the sub-prime market) are responsible for a huge up-tick in sub-prime mortgages? I salute you.
Notably absent from this discussion is the fact that the types of derivatives that made these securities as attractive as they were happened to become deregulated at just about the same time the asset backed securities market started to eat away at Fannie and Freddie's mortgage holdings.
Bottom line: Let's see your numbers. From what I can see, this is an example of a spectacular lack of oversight in a new and "innovative" market that got out of control. The economic theory bears it out well, the time line works, and the numbers seem to favor that explanation. There's no reason to appeal to things like the CRA or FM/FM to explain the sudden run-up in available credit to low-quality borrowers. I'm willing to hear a detailed explanation, if it makes economic sense and has some data behind it, though.
Of course, I'm sure that Mr. Responsible governance and regulation tried everything he could to get a tighter grip around those guys, but it was 2003, and his party only controlled both houses of the legislature. Sure, he got whatever he wanted in those days, but woe to those who cross Barney Frank, especially when he's in a minority party that couldn't seem to do shit when it came to pushing its agenda.
Frankly, any argument that's being pushed by Kevin "Dow 36000" Hasset needs a little bit of hard data backing it up before I buy into it, especially when it appears to run counter to the facts and expert opinion. Basically, I'm thinking, Kevin Hasset vs Janet Yellen. Who gets the benefit of the doubt on data-driven matters of economic policy?
Have you actually looked at the data behind this? The CRA argument is just another weird just-so story that is bouncing around because the original, "It's all Fannie and Freddie's fault" meme didn't stick.
1) The original CRA was passed in 1977. I challenge you to point to the changes in the 1995 version that you say actually made the difference here. Actual numbers and percentages of loans that were covered under the CRA would be most helpful.
2) The institutions driving the vast majority of the dodgy lending were not subject to the CRA.
3) Because of new amazing unregulated financial instruments like credit default swaps, it was possible to create a huge new market of lenders wanting to loan to just about anybody because of the huge profits to be made. There is no need to appeal to government programs to find an inentive to make bad loans.
The story you're telling is far too simple. The mortgage backed securities market was unstable in large part because institutions were creating "insured" assets that weren't actually properly insured. This is why AIG was a crucial player. Its insurance (err... I'm sorry... "credit default swaps" which are not insurance even though they act just like insurance. Credit default swaps aren't regulated, so they're not insurance) of bundles of mortgages allowed "low risk" high-yield paper to permeate the entire banking system. Thanks to a lack of adult supervision, this paper is everywhere and backed by insurance-like contracts written by companies that are so overextended that they could never possibly pay off. The net result is trillions of dollars in debt whose value is now questionable because some of the mechanisms that cause it to be "low risk" are failing.
Thanks to the way these new instruments were working and the huge worldwide demand for them, investment banks needed absolutely no incentive to lend to borrowers with poor credit. There was enough financial incentive to do that with or without the Red Hand of Racist Communism or whatever the conservative pundits are trying to blame today. This was a really weird case of demand pull producing a huge market for debt without enough qualified borrowers to fill the demand.
I don't think that you're fully appreciating the penetration of this problem. When people say "the credit markets are freezing" they don't just mean that it's hard to get mortgages. Every bank in existence borrows short term and lends long term, making its profits based on the difference in those yields over time. If the short term credit markets totally seize up, there's no telling which banks will die, even if they're otherwise in good shape. The ones in questionable shape would certainly be toast, but that's not the end of it.
It would be nice if we could allow that to happen, but the risk to the financial system is too great. That being said, I think that the Paulsen plan suffers from exactly the problem you're alluding to. It rewards bad actors without the consequences required for a properly functioning market. I think that it makes much more sense to do operations similar to the AIG bailout. Recapitalize them as necessary and largely wipe out the shareholders in the process. If the government has to recapitalize you, it should hurt. A lot. That kind of thing is not hard to build into a properly designed bailout, though.
Usually when somebody suggests this, the first thing I ask is how much economics have you studied that doesn't come from a web site promoting Austrian economics? I ask this because there are reasons that the Austrians haven't made any significant inroads into mainstream economic theory.
OK so far.
OK, so here's where the Austrians could benefit from going a bit further. Those malinvestments fail and the resources are reallocated. So why, then, does the rest of the economy go into recession? The bust in investment has to go somewhere, no?
People write these things as if nobody but Austrians saw this coming. It's not as if economists from several schools of thought haven't been making noise about the risks of the housing bubble and the way credit was being expanded.
This is where Austrian business cycle theory goes from being a basic observation of how the markets behave to a nonsensical prescription for inefficiency. So we've arrived in a situation where people want to hold onto more money than is available in the system because credit has dried up. For some reason, the Austrian prescription is to leave credit tight and let otherwise useful capital and workers lie fallow. This is the same sort of bad policy that kept things painful in the worst parts of the depression.
As far as I can tell, there's no rational explanation for this other than some sort of emotional need for businesses to do some sort of penance for the bad decisions of others.
Carly Fiorina isn't his only great adviser. He also has Kevin "Dow 36000" Hassett and Phil "Let's explicitly disallow regulation of credit default swaps" Gramm.
Of course, there's also Donald Luskin, who doesn't have any total calamities to his name, but he does appear to be mildly retarded. Aurthur Laffer is another notable. I'm not sure what he has been doing lately, but he appears to still believe in his namesake curve. Not a good sign.
For some reason, the poster appears to be conflating "monetary policy" and "monetarism" in his posts. They're different animals. Beyond that, I can't follow the distinction he's trying to make.
The questions that differentiate the modern schools of economic thought are far from settled. The current crisis should be very interesting (and scary as hell) as economists of various schools try to fit their models to new data.
Sure.
This is really not clear from context. At all. The whole reason they're not using Pear cables was that Pear wasn't going to supply them for free and somebody would have to pony up cash to get them. This problem does not go away when changing brands unless somebody plans to supply cables they already have. "Pear won't supply the cables, and the cables are expensive, so I'll solve that problem by buing another pair of expensive cables with my own money," does not sound like the proposal that was rejected.
If I had to guess at exactly what the exchage consisted of, it was probably JREF suggesting that they use his cables for the "dry run" and then the two parties being unable to come to an agreement about the official test. JREF wouldn't want him using cables from an unknown source and the author probably wasn't about to risk more money on multi thousand dollar cables.
JREF exists on donations. I'm just going to have to repeat the assertion that droping $5-10K every time somebody comes to them with a claim is a really quick way to run out of money. Working on the assumption that they're going to get it all back somehow is not especially wise financial management.
That might be a good thing for the guy who stands to win $1M in the process to think about rather than the non-profit organization that stands to lose $1M. This really seems like a matter of neither party wanting to put up thousands of dollars of their own money. The author would be out $7K if he didn't meet the challenge, and JREF would be out $7K in either case.
Looking at the actual post by Randi that Fremer referenced, it's pretty clear that Randi never said that Fremer backed out. He said that Pear backed out and implied that Fremer was probably relieved. I don't see a lie here. Unnecessary bluster, perhaps. A lie? No. In fact, looking at the correspondence back from Fremer, it looks like if anything, Randi the more cordial party.
I still don't see any support for your assertion that Randi was trying to rig the proceedings.
Think of it this way: It's a tax on the recipients of your estate, since they're the ones who actually bear the burden of it. My question is, why should they be allowed to receive a large chunk of income completely tax free just because Mom and Dad earned it on their behalf?
If I'm not mistaken, the current exemption for the estate tax is $2M. I'm not sure exactly how this hits the lower or even the middle class.
Another question to ask: How many of the people in the Republican congress who supposedly kept Clinton's budget ship-shape were still in congress when Bush took office. Without looking at the numbers and just using historical reelection trends as a rule of thumb, I suspect the answer is most of them.
Answer: Economists generally believe all of those things, but with some caveats that usually come from actually studying those principles in action. It's the difference between taking those statements on blind faith as absolute truths and actually looking at the edge cases and using data to decide on how exercising those principles is likely to play out. I really don't know of any economist who would suggest that free trade is generally good, that controls are generally bad, and that manipulating markets generally comes without negative effects.
I think that you may be confused about what economists actually do.
No, not so much.
No to that one as well.
I'd be very interested in knowing exactly what exactly you think modern Keynesian economics is, because frankly, I don't recognize your versions of it as familiar.
With the exception of the fact that the economists are the people who are actually collecting and analyzing the data from the "real world" and the fact that being right is good for your career and being wrong is bad for it, you're probably right. The question is, who has a better grasp on "real world" unemployment, for example: a person who is recently unemployed and has experienced "real world" unemployment, or an economist who gathers and analyzes local and nationwide unemployment figures and trends for a living?
I certainly hope we're not judging an academic field based on the weirdest assertions that one or two of its weirdest members rather than the results of broad academic consensus. If we're going to do that, I suspect that I could come up with some crack headed financial theories posited by one or two CEOs that will make anything coming out of an economics department look positively tame by comparison.
Adams says a lot of dumb things, but I think that his point about doctors is right. Your doctor may not be able to tell you what will kill you 50 years from now, but if every doctor on the block is saying that you should eat vegetables and exercise, you're probably better off believing them than your grandfather who asserts that his old age is due to red meat and cigarettes.
Nonsense. What are the time horizons for the claim? The next year? Sometime in the next several years? I've seen Reagan, Bush II, and Kennedy shown as examples, and they all have different time horizons for the supposed Laffer bump, and none of them appear to show anything more than the growth roughly expected from an economy growing within a statistical dead heat of its historical norm. Typically, what I see in the data analysis is:
1) Taxes are cut.
2) Tax receipts drop the next fiscal year.
3) Tax receipts grow the following year at a rate roughly equivalent to the normal growth rate.
4) People say, "Wow! Tax cuts made the receipts from (3) higher than (2)!" Ignoring entirely the fact that holding taxes constant, receipts should go up every year at the average rate of economic growth.
I have never seen a good argument that actually shows a statisically significant increase in the growth rate, much less one that could reasonably be attributed directly to the tax cuts. Further, let's assume that there is some negligable increase in growth attributed to the cuts. How long does it take to ammortize the loss caused by the initial cut? The bottom line is that the arguments I've seen in favor of the Laffer hypothesis in the real world always begin with the hand-wavy "plenty of history..." without any actual use of the hard numbers, definition of what one would expect to see over what time horizon, or actual statistical analysis to decide whether they're just seeing Jesus in their tea leaves.
Why do I get the feeling that you didn't read the paper he "wrote himself" to see if there was any backing for the claims?
No, I suppose it wouldn't. It would make him a very accomplished economist, but I suppose it's possible that he's simply holding these views and risking his academic reputation to make Bill Clinton look good. Of course, if you're going to discount economists who are Democrats, you apparently are going to ignore the majority of economists, so it shouldn't be surprising if your views come from a vocal minority rather than broad academic consensus.
The fact of the matter is that economists who believe that tax cuts actually pay for themselves are in the minority. You will rarely see this claim seriously advanced by any economists but those who are employed by think tanks who pay for results rather than research. I've never met one. Politicians love it because it plays well with the voters and allows them to have their cake and eat it too, but as Frankel points out, they often do so against the advice of their own economic advisers.
So I'll say it again: Where is the actual research with actual data and actual statistics that back up this claim?
I have no idea why people paint this picture of economics departments and not others. In most fields, people who study things are considered likely to know what they're talking about. Nobody says something like, "Those biologists don't know shit about genetics. I breed dogs for a living, so my knowledge of genetics is subject to the real free market. Biologists can come up with whatever nutty ideas they want and still get paid!"
Let's see the actual numbers over time and do some statistics then. I'll wait.
Because it's not. Jeff Frankel wrote some good commentary on this just recently.
It's not clear from context, but it looks a lot to me like the rejection was because the writer wanted to use his cables and not a set that could be guaranteed to be untouched. With $1M and the reputation of the challenge at stake, I would have advisers and be paranoid about cheating as well. I'm still not seeing any evidence of him trying to "rig" anything.
If Randi's organization dropped $7K every time somebody tried to claim the prize, there would probably be no prize to claim after a few months. The real question is not why JREF didn't spend thousands of dollars on cables, but why Pear backed out if their cables are so much better.
I'm really curious as to why you'd assert this.
If it really happens, it should be detectable one way or another. If a psychic can describe what happens, it should be possible to design a test that will validate it. Even if it doesn't happen reliably, that's what statistics and sampling are for. It's just a matter of having the will and the discipline to do it.