It’s Monday, and we have to give a big hat tip to NVMike for forwarding us a great article from the Economist. The article asks a question that I thought would be good to get the discussion going this morning:
The central bank is lending to private companies on an unprecedented scale and is thus making decisions it long sought to avoid about the allocation of credit. It is also acquiring new powers of oversight. Politicians could chafe at the Fed’s power: why, they might ask, should unelected officials choose who benefits from taxpayers’ money? And they might press the central bank to pursue political ends—such as propping up favoured borrowers—that interfere with monetary policy.
Any answers? Or for that matter, any other good questions, links, ideas comments this morning? This is an open thread, so speak what’s on your mind.
We’ll get Igor a nice, big bowl of spam for breakfast, and hopefully he’ll stay happily in the dungeon and leave comments alone.
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IMO this analysis is way too narrow:
Capitalism assumes “free” markets, whereas (e.g.) communism (or socialism, if you want) assumes that governments need to “steer” the markets. While we are taught and told that we live in a capitalist economic system, the most important market of all has been “steered” for a long time. I’m talking about the market for $ here, where the Fed is determining the price at the short end of the curve.
When they have lowered it too low (see Greenspan for that), they basically subsidize “new investment” which can be made (“on the cheap”) by taking away the purchasing power of existing $. When this misallocation process goes to far you get things like the real estate meltdown. To conclude: look at things within a socialised framework instead of the capitalist one that they are trying to sell to you. Everything will make sense.
I agree with #1
I think unelected officials had been choosing who benefits from taxpayers money long, long before the mortgage crisis.
twist -
Well, maybe five of America’s largest corporate credit unions can line up at the trough now, especially when someone is whispering “bank run” on Page One of today’s WSJ
(Tanta posted on this story here, including here usual valuable commentary)
“Mortgage-Market Trouble Reaches Big Credit Unions”, by Mark Maremont, Wall Street Journal, August 11, 2008.
Well as far as the socialism vs capitalism thing goes aren’t we forgetting another ISM? Fascism may be more akin to what we’re experiencing. When Gov favors promoting the interests of successful businessmen while destroying the working class this does not strike me as socialism in any sense of the word. Socialism for the well connected is Fascism in my book. I believe all this dicussion of socialism is a red herring.
bruce -
How did government destroy the working class?
Agy-
By not overseeing and properly regulating the mortgage lending/securitization/investment banks. By allowing CC companies to charge usuary fees. By reducing the FF interest rate to 1% and creating the fiasco we are now in. By bailing out the big boys with our tax dollars.
We will never be able to pay this back without hyperinflation. The burden will be on the middle (working) class. Reduced wages, fewer jobs, lost pensions, home devaluation, hopeless debt, out of sight cost of living. I think that pretty much sums up being destroyed.
It’s the end of the consumerism model. And don’t give me that crap about it being all J6P’s fault because they’re idiots. Some are, some are’nt. Most are just working stiffs trying to play by the rules the PTB set up. Wealth has been transfered at the expense of the working (middle) class.
Here are the 14 points of fascism with plenty of examples. http://oldamericancentury.org/14pts.htm
I think since America is so unique we would be looking at a hybrid version of it though.
“a great article from The Economist” is a contradiction in terms. This Hooverite rag is worthless Hayek-style progaganda. Shame on you.
In any event, don’t worry. The endgame is fast approaching for this type of intervention, for one very simple reason:
economic activity is declining.
Oh there will be a lot of consolidation/bankruptcy in the banking industry, but the Fed can do nothing about the hundreds of trillions in bets out there, the “solution” of which seems only to be to “unwind” them. Isn’t it pathetic?
But prepare to lose everything you have.
bruce -
“don’t give me that crap about it being all J6P’s fault because they are idiots”
Seriously, how else would you explain the housing bubble? The government conned the public into buying houses with low interest rates? I’m at a loss to believe the U.S. Government set the sales price on any more than a handful of houses during 2004-2006. If people had bought commodities, or emerging market equities, or Asian currencies in geenral, they would have at least doubled their money over that time frame. But no, they had to buy overpriced houses because they had never gone down in value and they could get 20:1 leverage, or more, on their equity.
We are all individuals. No government official showed up at my house or office and told me to run up $50K in credit card debt, or HELOCs, or buy a house that my income couldn’t support.
Further, it is revolting to me that either I or any other citizens who lived within their means should have to pay extra to bail out those who didn’t. I think if you could get the signers of the Constitution together they would congratulate the SELLERS of the houses on being enterprising and thoughtful individuals.
And why is it that everybody’s target is the government? Why don’t you go down and protest in front of Lennar or Beazer or KB or Pulte about how they charged $400,000 for a 2000 sf concrete slab with studs, drywall, tile and stucco? But they’re not to blame, and the dipsh*t buyer is not to blame, so it must be the government’s fault. I’d laugh if the argument wasn’t so pathetically un-American.
And with regard to the “consumerism model” (like it’s an academic theory), the people who are wanting to profit in this country, honestly, are banking on everybody’s stupidity (“Playstation 4!”). That doesn’t mean people have to be stupid and give them their money.