abskebabs

My aim was more geared to elucidate the methodological point I was making, indeed I don't think they either the TARP or the stimulus have done any good; in fact they have brought a lot of harm, burdening the rest of the economy with the failures of a smaller portion. It's kind of like solving the problem of a broken leg by breaking the other.

The housing bubble was an artificial boom generated by credit expansion, so it is inevitable that it would be followed by a bust and a process involving general price correction, and capital and labour reallocation. Whether the latent features accompanying the crisis would have been the same with or without CDOs is an interesting question perhaps. I think the fundamental features of the crisis would have been the same, though the way, and the places in which capital were misallocated may have changed in nature slightly.

I don't rule it out as being entirely impossible, in the same way I don't doubt that that it may be possible for the valuations of all individual actors on this planet to change such that tommorow they decide that they should commit suicide. I deem it highly unlikely however, since without central bank interest rate manipulation and moral hazard creation, since individuals would be highly disincentivised from undertaking such activities, and in fact would be selectively removed from the market via the price and profit-loss mechanism if this was unmanipulated and not perturbed from its proper operation politically, as has happened during this crisis.

Indeed, I find it quite interesting that you are quick to correctly object that correlation does not necessarily indicate causation, and this is an emprical fallacy, representative of a method that cannot be applied in a subject like Economics; precisely when it affects your own prejudices and a priori notions about what caused the crisis, and what its solutions are. The problem with empricism in Economics is that when it comes to explaining every phenomenon one can always argue "Sure, my theory was wrong at matching A with B, but that only shows one didn't take into account C!", or more suitable to the justification of the bailout: "Things got really bad as a result of government intervention, but they would have been even worse without it!" You can argue both ways about every empirical situation, which actually requires historical understanding along with economic analysis accordning to laws formulated et ceteris paribus to understand. Perhaps as another illustration you may find the following graph, used to justify with the bailout, although it does relate to Obama's stimulus as opposed to Paulson's; more useful:

Perhaps this should provide an impression of what effect the TARP has had:

Not necessarily, more that their widespread use with regard to housing debt was exacerbated and made a major problem due to the effects of major inflationary credit expansion on the part of the central bank, as well as its encouragement of moral hazard and risky excesses to be taken by banks in light of its bail out policy. In an unhampered market where market actors would have to account for their losses, and interest rates could not be artificially lowered to allow the funding of exhuberantly wasteful projects, they would not be an issue in the same way they have been with the present crisis.

You can create all the complicated rules and regulations you'd like to hamper the creation of contracts on a marketplace without ever realising or tackling the root issue. In 2001, a tech bust was experienced and reinflated. In 2008 a housing bust was experienced. You cannot predict which specific sector will undergo an artificial boom, but there are a few strong indications of if and where it may occur, given: 1)Interest rates were set consistently and extremely low during this period by Fed chairmen Alan Greenspan, producing credit expansion at a rate that has been unparalleled in modern history. 2)The credit expansion and inflation distorted economic calculation and lending rates were artificially lowered, allowing for an unsustainable expansion of the economy's capital structure; as submarginal and wasteful investment projects were engaged in and losses not felt due to the artificial price adjustments occuring as a result of interest rate manipulation. 3)The effect of moral hazard, given the effect of the "Greenspan put", and more recently the comprehensive bailouts. Investment banks have been and were given consistently the message that the government and central bank would bail them out no matter what happened. Naturally, if I am allowed to keep my profits without having to account for my losses this will encourage me to undertake more risky behaviour. Ironically you yourself have endorsed such practice. 4)Political pressure to coerce many mortgage companies to extend loans to people they were well aware had no abillity to pay back. Fannie and Freddie just represented the monolothic government agencies also charged to help bring this into reality. Given the above, and the unparalleled distortionary effects of the credit expansion and inflation (increase of money supply) produced as well as moral hazard encouraged in the past few years, it is unsuprising that one effect, although quite extreme was the creation and adoption of collateralised debt obligations given the consistent artificial increases continually occuring in the housing sector. Without dealing with the central bank, you are not touching the elephant in the room.

Sorry, I couldn't resist. If you'd actually responded rather than ignored and sweeped over the points I'd made in your previous thread, then I'd probably invest more time.

Coming from someone who unthinkingly accepts the conclusions of the central bankers who utillise the unrealistic assumptions he criticises, I don't think I could taste a richer portion of irony. Seriously I'm stuffed.

Now I know 2 kinds of melons that can help inflate my reproductive organ>.

I always thought the same was true in general of debates, especially of the kind held at University or School debating societies.

Indeed, that wasn't appropriate though I did enjoy it>, given what has been discussed so far followed by your blanket remark, I couldn't resist. Frankly, I think I'll take a break for now, I've discussed a hell of a lot in the politics section lately. I'll take the time to read and learn more and come back later.

Oh of course! I'm sorry, too many free market ideals and capitalism caused the crisis.. Damn those greedy bankers just got so greedy all of a sudden...

Indeed, even your mate Greenspan's beginning to see the light of say on this.

A collapse was inevitable given the actions taken under the perverse incentives generated by governmnets and central banks worldwide, but especially by the Federal Reserve. I don't believe the collapse of Lehman "ignited" anything, it was just bringing on the inevitable. It's like a drunk builder who only has 10 bricks thinking he has 15 and mis-allocating his capital to build a larger house. As he sobers up he realises he's wasting resources and making losses, having to cut back. Our policy makers are effectively saying, no we should just carry on getting the guy more drunk at least he'll think he's getting rich! All policymakers have done is destroyed further capital, prevented the bankruptcy of failed firms by passing on their debt to the taxpayer and turned a recession into a great depression. Also, I couldn't care less if you think I'm in "Austrian la la land", I think it far better than parroting the opinions of economists and analysts that couldn't predict their way out of a paper bag and have been wrong about almost everything.

lol:D. Yes, I won't deny it's prevented bankruptcies of firms that should have gone down anyway, but I'd hold your breadth about a real recovery. A bear market rally in stocks is not an economic recovery.

I'm sorry, the short answer to your first question, which I thought you would have perceived from reading my reply is yes, let a few of the most incompetent companies fail, regardless of their size or abillity to lobby politically. It would not have entailed a collapse of the financial sector, smaller more efficient companies that anticipated events better would have been able to bid up the capital and labour previously being wasted and gaine market share. It wouldn't have quite been Schumpeterian "creative destruction" at work because of the fact the collapse was ultimately brought about by the bad consequences of inflationary and credit expanding monetary policy. But it definitely would have been better, and resolved much more quickly than piggybacking the losses onto the rest of the economy and the ordinary taxpayer. Indeed, I think the US is only surviving at the moment because it is able to consume capital which the Chinese are becoming less and less stupid about lending to them. If you took the time to watch the short video I linked, you would not be confused about the meaning of moral hazard. It is the willingness of an actor to take excessive risk or make excessive use of resources because he believes the potential losses will be born by somebody else(e.g. the taxpayer, through taxes and inflation!). Despite it's name it does not have anything to do with a "moral philosophy." Neither is it a term exclusively used by the Austrians. And yes, my analysis does contradict that of those who instigated the crisis, and I don't know why you place so much faith in those who believe problems created by credit expansion and debt are cured by further credit expansion and debt. Indeed, to be honest, I see the US getting close to hyperinflation or at least stagflation within a year, once the money pumped actually circulates; something I'm sure Greenspan and Bernanke will deny.

I don't know why anyone would place continual faith in Bernanke's predictions now, since he's been continuously wrong about the mortgage crisis and almost everything for the past 2 years.

Lol, I heard a while back that was an activity the French Fire Service engaged in anyway. I doubt a private service that violated private property would survive for long or maintain enough of a reputation to survive on a free market.

For a critique of just one of those earlier mentioned fallacies, try this: http://mises.org/etexts/enterprisingedu.pdf

Interesting, you agree with me that cheap credit was a problem that generated the crisis, but you also think that perhaps(golly gosh!) a halt in supply and correction in interest rates somehow generates the crisis itself. I think a little eliucidation might be helpful here. The effect of distorting and lowering market interest rates by credit expansion as carried out by the Federal Reserve has a causal influence, in the sense it distorts economic calculation made by individuals as the price of credit enters into profit-loss calculations and produces mal-investment and expansion of the capital structure out of coordination with consumer demand. In our current business cycle this produced a lot of investment demand and speculation in housing, and the prices of housing in this sector subsequently rose during the boom. But the mis-allocation of capital was made during the boom, the bust only reveals the mistakes and is the correction period. The correction should be allowed to take place, and if undisturbed it can occur as quickly as possible. Ever heard of the "depression" of 1921? Indeed, the current regime is currently(even by it's own admission!), is looking to follow the policies of Roosevelt that turned the 1929 recession into a great depression(don't get me wrong, Hoover was almost as bad, indeed the Bush-Obama comparison is useful in this regard). Their policies have helped create a Great Depression, not prevented it! Collateralised debt instruments and derivatives did play a role in this crisis, but this was only due to the initial impetus provided by central bank credit policy( especially, but not only in the US). Without the original distortions provided by this policy, these instruments do serve a useful purpose in the market, and do not require "consumer regulation." Indeed, you clearly have not grasped what I meant by moral hazard. I think there is already deposit insurance afforded by the Federal government to all depositors, and given how high reserve ratios have been for the past year, even leading up to the crisis; I don't think the risks were high for consumers. Indeed, it is the "insurance" policies of the central bank and federal government that in part helped exacerbate the crisis as businesses made the decisions and took the risks they did knowing full well they'd be bailed out!(The Greenspan put) This is moral hazard at work! As for the attempts to create new regulation in the financial sector, already one of the most over-regulated, it will at "best" raise entry barriers and reduce competition in this sector while not dealing with the root problems that caused the crisis, and are continuing to exacerbate it, like the "quantitative easing"(=inflation+even more credit expansion) being pursued by the Fed. I have blamed Obama partially for this, as I've never accepted the myth that somehow, the Federal Reserve is a miraculously politically independent entity. For more on this, check out the following article I wrote back in August. Merged post follows: Consecutive posts mergedI think you might learn a lot from this:

The US system is not a private system, but resembles a heavily regulated hampered market economy, so I think that's a false comparison. I don't find it an amazing observation that bureacracies can do slightly better than such a system in various ways, the systems aren't really that different. For a good article on that specific subject, check this out.

Ah yes, monopolise the provision of a service, reduce its quality, efficiency, increase unnecessary costs and lambast your critics for denying "common good" while doing it! That's definitely socialism.

I agree with you there, apart from your generalisation of classical economists. Many, did not use such a concept, the phrase having been coined by John Stuart Mill, another empiricist who perceived Logic and Mathematics as "inductive subjects"(so we know 2+2=4 from repeated observation...). Also, the Austrians explicitly reject the use of homo-economicus, so clearly you're application of such a charge only reveals your seeming ignorance. Interestingly, the neoclassical mainstream of economics do use what you have labelled the homo-economicus concept, along with many other abstract assumptions to try and model mathematically and treat Economics as a natural science. I think the experience of the current crisis shows us how well that's going for them.

Depends what you mean by socialism. The term was originally defined as a halfway house towards full blown communism. Hence the USSR was really a socialist state, not a communist state, as that is a contradiction of terms as a communist society is supposed to be stateless somehow. The way the term is often used today is to characterise interventionist economic policy, while a market still exists(the condition is often characterised as a hampered market economy). However, as an economic analysis of interventions reveals, interventions lead to calls for more interventions; having produced distortions in the way the market operates by previous interventions, politicians shed crocodile tears and call for more to remediate other areas. Hence the results of the credit expansion and bailout policies intervening in the market carried out by the Federal Reserve for the past decade have now led to calls for further financial regulation and more powers to be delegated to the Federal Reserve. Because of this tendency it could be just to call proponents of the second term "socialists" as a policy of interventionism "leads to socialism", as gradually further interventions are added until I guess a market ceases to exist. Such is the theme, I believe of Hayek's book "The Road to Serfdom." Indeed, this method of producing socialism is precisely that which is the strategy espoused by the Fabian Socialists, the effective intellectual vanguard of the Labour Party. According to many standards, including by Mussolini's own definition, Facism may be a better characterisation for a largely hampered market economy than Socialism. If you are more specific about which use of the term you are referring to I can hopefully provide a simple answer to your question.