Archive for 14 November 2008
What Deregulation?
| Peter Klein |
We noted previously a major flaw in the “deregulation-caused-the-financial-crisis” meme spreading rapidly throughout the MSM: namely, there wasn’t any. If I can quote from the comment section of another blog, here’s Jerry O’Driscoll making the same point:
[T]here has been no deregulation of the financial markets since 1999 (Gramm-Bliley Leach). And that act did not repeal the Glass Steagall Act of 1933, . . . but amended it (Sections 20 and 32 of GS being repealed), and some other banking statutes. Mostly the act legitimized financial market developments already in place, and provided a new regulatory structure (so much for deregulation).
I recognize that policy lags are long and variable, but Sandy [Ikeda] cites events from 1992, 1997 and 1999 [as drivers of the crisis]. He can’t cite any later because there weren’t any. Affordable housing goals go back to the 1930s and, in contemporary form to 1968-70. Again, those are really long policy lags. . . .
Finanical services remains one of the most highly regulated indsutries, perhaps second only to health care. Non-existent deregulation can’t explain the current crisis.
The policy change that occurred in the relevant time frame was the easing of monetary policy by the Greenspan Fed. From a high of 6.5% in May 2000, the Fed Funds rate was cut down to 2% in Nov. 2001 and remained there or below for 3 years. For one full year, it was at 1%. The real rate was negative for approx. 3 years. Negative real interest rates are inevitably inflationary, often causing asset bubbles.
Group Blog of the NYU Austrian Economics Colloquium
| Peter Klein |
It’s ThinkMarkets, written by the members of the NYU Austrian colloquium (formerly currently known as the Colloquium on Market Institutions and Economic Processes). The group includes Mario Rizzo, Bill Butos, Gene Callahan, Young Back Choi, Sandy Ikeda, Roger Koppl, Chidem Kurdas, and Joe Salerno. The colloquium was established in the 1980s by Israel Kirzner, who is still an occasional participant.
Towards Beyond
| Lasse Lien |
We all know that there is an enormous amount of papers published under the title “Beyond . . . (insert whatever)” and “Towards . . . (insert whatever).” On the theory that using these words in the title almost ensures publication (I admit sampling on the dependent variable here), I have decided to take this to the limit in a series of four papers.
The first one will have the snappy title: “Towards Beyond.” The second: “Beyond Towards.” The third: “Towards Towards.” And finally, the most ambitious one: “Beyond Beyond.” I only have the titles so far, so I am interested in coauthors who can fill in the rest. But given these great titles I consider this a trivial task, and insist that I get to be first author.
A Silver Lining
| Peter Klein |
As I mentioned in a recent talk, one good thing to come out of the bailout disaster is the diminished reputation of St. Alan the Wise. It was fun watching the same Congressional clowns who months earlier praised the “Maestro” as the greatest Fed chair in history slap him down for failing to prevent the housing bubble. Of course, Greenspan, like these clowns, ignored the issue of credit expansion, expressing regret only that he had put “too much trust” in market forces. Ha!
Now Paulson, never too popular in the first place, is suffering a similar fate, as he abandons the Troubled Asset Relief Program — the rationale for the bailout itself — and praises Congress for giving him the broad authority to do, well, whatever the hell he wants. Oh, please, let Bernanke be next!
BTW, Bob Higgs continues to offer some of the best commentary on the disaster — the political, journalistic, and educational disaster, I mean, not the supposed economic disaster. I hope his term, “Bailout of Abominations,” catches on.
Update: The Economist puts it this way: “One of the most humbling features of the financial crisis is its ability to humiliate policymakers who, thinking that they have a bazooka in their closet, soon discover that it is a mere popgun.”
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