Author: Joe White

Reason: Is it Too Late for a Do-Over?:
“Three scholars associated with the Federal Reserve Bank of Minneapolis decided to do a little quick fact-checking of “widely held claims about the nature of the [financial] crisis and the associated spillovers to the rest of the economy,” and put their findings in a new working paper [PDF]. What’d they learn?

The financial press and policymakers have made the following four claims about the nature of the crisis.

1. Bank lending to nonfinancial corporations and individuals has declined sharply.

2. Interbank lending is essentially nonexistent.

3. Commercial paper issuance by nonfinancial corporations has declined sharply, and rates have risen to unprecedented levels.

4. Banks play a large role in channeling funds from savers to borrowers.

Here we examine these claims using data from the Federal Reserve Board. Our argument that all four claims are false is based on data up until October 8, 2008.

Whole thing, well worth a read (and probably a drink), here.”

The Government Is Contributing to the Panic – WSJ.com:

The solutions being implemented also send the message that resources devoted to risk management are wasted. All of these plans reward the financial institutions that acted like lemmings by chasing the mortgage-related debt bubble rather than rewarding the financial institutions that exercised restraint and risk avoidance and independent thought and action. This unfortunate “heads Wall Street Wins, tails America loses” economic policy is wholly inconsistent with the principles of personal and corporate responsibility that are essential to a functional free market.

Firms like Merrill Lynch that took decisive steps to deal with their problems now look like suckers, as do banks that watched their leverage ratios and paid diligently into a deposit insurance program that offers protection on a far smaller scale than their investment banking rivals are getting for nothing.

If the SEC had done half the job in ferreting out fraud and funny accounting that short-sellers have done, our capital markets would not be imploding. Now short-sellers, like other market participants, are threatened with new restrictions on their activities as Congress begins to hold hearings on the crisis in the capital markets and politicians and regulators turn their focus to the shibboleth of market manipulation.

Hard to Get Anything Done with Divided Government:

But perhaps we should rethink “gridlock”. I would argue that the Clinton “success” was due in large part to “gridlock” rather than in spite of it because Clinton wasn’t able to pass some of the more egregious public policies that would pervert incentives, distort information, and stifle innovation. Instead, under Bush II we have had a more united government (until the back end of his administration) and we got an escalation of the warfare and welfare state. The claim that these past 8 years are years of “inaction” let alone “laissez faire” is ludicrous — just look at the discretionary spending, the level of intervention, and the protection of special interests.

And this:

Just because we can do something, it doesn’t mean we should do it. The debate last week (and the subject of the segment on Sunday Morning) was all about whether or not Congress could in fact pass a piece of legislation. As the debate developed, the question of whether or not we should be doing what the legislation called for the government to do disappeared.