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Small government smoke screen

News Key Myths of Neoliberalism Recommended Links "Starving the beast" bait and switch Machiavellism Deception as an art form Mayberry Machiavellians Neoclassical Pseudo Theories and Crooked and Bought Economists as Fifth Column of Financial Oligarchy
Small government smoke screen Universal quantification  "Starving the beast" bait and switch Invisible Hand Hypothesys: The Theory of Self-regulation of the Markets Shareholder value scam Neoliberal rationality Neoliberalism as secular religion, "idolatry of money" Over-consumption of Luxury Goods as Market Failure
Financization of everything in sight Libertarian Philosophy Deification of market Globalization of Financial Flows Pope Francis on danger of neoliberalism Neoliberalism credibility trap Greenspan humor Etc

"I baptise you in the name of the Rand, the Fama and the Holy Friedman."

Republican concept of  “small government” is a fake and 100% pure hypocrisy as they don't count the military and police as the part of “the government”. If you do not account for the size of military and intelligence agencies all talk about "small government" is a pure (aka "British elite style") hypocrisy.  There are about 5 million of American which have a security clearance w (Security clearances held by millions of Americans ):

It’s hard to believe that conservatism in this country was once identified with an opposition to foreign entanglements and large military establishments. Now both Republican and democratic party both are extremely militaristic and jingoistic. The most recent candidate from Democratic Party -- Hillary Clinton was an unrepentant war hawk, which paradoxically was to the right of Donald Trump -- the candidate from the Republican Party and also far from dove. How you can talk about limiting the size of the government while increasing the size of Pentagon and 18 or so intelligence agencies is an interesting question to answer. The Reagan's agenda of “deregulation” and “privatization” was in essence the same kind of kleptocratic insider dealing that characterized Yeltsin’s Russia.

The hypocrisy that underlays the GOP's 'big government'-bashing has been noted before, but seldom so well explained, as by Dr. Julian E. Zelizer, a professor of history and public affairs at Princeton University's Woodrow Wilson School. Zelizer, author of forthcoming "Arsenal of Democracy: The Politics of National Security -- From World War II to the War on Terrorism" and other political science texts, puts it this way in his commentary "GOP's 'small government' talk is hollow" at CNN Politics.com:
After the past eight years in American politics, it is impossible to reconcile current promises by conservatives for small government with the historical record of President Bush's administration. Most experts on the left and right can find one issue upon which to agree: The federal government expanded significantly after 2001 when George W. Bush was in the White House.

The growth did not just take place with national security spending but with domestic programs as well. Even as the administration fought to reduce the cost of certain programs by preventing cost-of-living increases in benefits, in many other areas of policy -- such as Medicare prescription drug benefits, federal education standards and agricultural subsidies -- the federal government expanded by leaps and bounds. And then there are the costs of Afghanistan and Iraq.

The conservative Cato Institute reported in 2005 that total government spending increased by a third during Bush's first term -- "the largest overall increase in inflation-adjusted federal spending since Lyndon B. Johnson."

Zelizer's article also notes the expansion of executive power under Republican rule, hardly commensurate with their advocacy of smaller government.

Fifty years of American history have shown that even the party that traditionally advocates small government on the campaign trail opts for big government when it gets into power. The rhetoric of small government has helped Republicans attract some support in the past, but it is hard to take such rhetoric seriously given the historical record -- and it is a now a question whether this rhetoric is even appealing since many Americans want government to help them cope with the current crisis.

Government-bashing is an ever-present staple of GOP propaganda.

Friedman's argument against social democracy was that it would not do the job -- that you would lose a lot of economic efficiency and some political liberty and in return get no equalization of economic power because the government would redistribute income and wealth the wrong way, and the beneficiaries would be the strong political claimants to governmental largess who would not be those with strong claims to more opportunity.

By the time you have resorted to arguing that "human existence in the shadow of a nanny state doesn't conduce to 'Aristotelian happiness'... because it strips human beings of the deeper sorts of agency and responsibility that ought to be involved in a life well lived..." you have lost the argument completely. And I have not even raised the point that Aristotle thought that Aristotelian happiness was possible only if you yourself owned lots of slaves:

Aristotle: There is in some cases a marked distinction between the two classes, rendering it expedient and right for the one to be slaves and the others to be masters.... The master is not called a master because he has science, but because he is of a certain character.... [T]here may be a science for the master and science for the slave. The science of the slave would be such as the man of Syracuse taught who made money by instructing slaves in their ordinary duties.... But all such branches of knowledge are servile. There is likewise a science of the master... not anything great or wonderful; for the master need only know how to order that which the slave must know how to execute. Hence those who are in a position which places them above toil have stewars who attend to their households while they occupy themselves with philosophy or with politics...

Andrew Sullivan is vulnerable to this slide into apriorism too: "The intervention of a government is like that of a loud telephone ringing in the middle of an engrossing dinner conversation. It is inherently offensive. It commands our attention, when we would much rather be doing something else," (Conservative Soul ch.6). More faithful legators of Burke or Adam Smith would understand the false lure of easy utopias -- this is the "man of system" in his libertarian shape.

The "grounded in greed" counterargument you see in the comment above is every bit as aprioristic. When you get to that point we're just yelling slogans at each other.

There was time when Republicans were a welcomed change from Democratic overuse of government .  As DAVID LEONHARDT noted in NYT on Oct 6, 2009 (Bruce Bartlett’s Argument to Improve His Republican Party)

Successful economic ideas usually end up being taken too far.

Democrats dominated the middle part of the 20th century, thanks in part to their vigorous response to the Great Depression. They used the government to soften the effects of the Depression and to build the modern safety net. But they failed to see the limits of the government’s ability to manage the economy and helped usher in the stagflation of the 1970s.

Ronald Reagan then came to power promising to cut taxes and unleash the forces of the market. And the Democrats spent the next dozen years struggling to absorb the lessons of their failures.

More than a few people believe the Republican Party is in a similar place today.

But, like most poisons, libertarian doctrine is useful only in very small doses and during a limited period of time. The Christian theologian Reinhold Niebuhr in Moral Man & Immoral Society pointed out the blatant hypocrisy inherent in the fiction peddled by the Libertarian-Austrian-Neoliberal axis:

Thus, for instance, a laissez faire economic theory is maintained in an industrial era through the ignorant belief that the general welfare is best served by placing the least possible political restraints upon economic activity. The history of the past hundred years is a refutation of the theory; but it is still maintained, or is dying a too lingering death, particularly in nations as politically incompetent as our own. Its survival is due to the ignorance of those who suffer injustice from the application of this theory to modern industrial life but fail to attribute their difficulties to the social anarchy and political irresponsibility which the theory sanctions. Their ignorance permits the beneficiaries of the present anarchic industrial system to make dishonest use of the waning prestige of laissez faire economics….

When economic power desires to be left alone it uses the philosophy of laissez faire to discourage political restraint upon economic freedom. When it wants to make use of the police power of the state to subdue rebellions and discontent in the ranks of its helots, it justifies the use of political coercion and the resulting suppression of liberties by insisting that peace is more precious than freedom and that its only desire is social peace.

 


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[Jun 08, 2017] What is the Last Man (Nietzsche) - Apotheosis Magazine

Jun 08, 2017 | www.apotheosismagazine.com
The glorious German philosopher Friedrich Nietzsche in Thus Spoke Zaratustra brought up the concept of the Last Man. Trawling through the internet you will hear about the Last Man constantly, but no accurate definition or statement about what a Last Man actually is. So this article will discuss the character traits of the Last Man – let's just hope that the Last Man does not remind you of yourself.

The Last Man is primarily characterized as the type of individual that is fat, lazy and falls asleep watching TV after over indulging in junk food. This clearly denotes the type of man that is content with living a life whose primary and only purpose is to exist in a perpetual state of comfort, security and pleasure. This is a value system that does not idealize or extol higher values, challenging circumstances or hard work.

Zarathustra after descending the mountains is trying to deliver a sermon to a crowd of people that are hanging around the marketplace. Individuals that normally hang around a marketplace are typically known as commoners – especially in Nietzsche's time – and their primary concern is grotesque entertainment, gossip, manners and commerce.

After delivering his sermon about the Overman/Superman (or Ubersmensch) Nietzsche receives an apathetic and mocking response. One must imagine how extremely jarring this was for Zarathustra considering he has just descended from his sojourn in the mountains to proclaim this message. Rather comically, you can imagine Nietzsche's Zarathustra as the typical hobo you hear in the town centre raving about God or some other incoherent babble, whilst others walk past laughing, scared or neutral. Except this raving mystic is much more coherent than usual and is delivering some badass Nietzschean theory.

Nietzsche: " There they stand; there they laugh: they do not understand me; I am not the mouth for these ears They have something of which they are proud. What do they call it, that which makes them proud? Culture, they call it; it distinguishes them from the goatherds. They dislike, therefore, to hear of "contempt" of themselves. So I will appeal to their pride.
I will speak to them of the most contemptible thing: that, however, is the Last Man !"

Contempt here is being used in its typical notion, the feeling that something is worthless and should not be considered. Here, as suggested by the text, Nietzsche will appeal to their "pride" by talking to them about what he believes is the most contemptible thing – The Last Man . This Last Man is the embodiment of their culture. So, Nietzsche is clearly telling us that the Last Man is valueless and worthless.

What is the Last Man :

Nietzsche: "I tell you: one must still have chaos in oneself, to give birth to a dancing star. I tell you: you have still chaos in yourselves.
Alas! There comes the time when man will no longer give birth to any star. Alas! There comes the time of the most despicable man, who can no longer despise himself.
Lo! I show you the Last Man ."

The Last Man cannot despise himself. That is, he cannot feel or understand that his actions, values or decisions may under some or all circumstances be lacking in value. This is important. To not have the orientation that your actions may be lacking, be worthless or unsubstantial entails that you do not have any serious self-reflective capacity to evaluate your actions. The Last Man we can reasonably assume acts in a manner that is contemptible and embarrassing for a culture to promote. So the fact that the Last Man does not have the consciousness nor the insight to evaluate his actions as lacking value or real meaningful substance means that he is unable to change them in a positive manner and be something other than the Last Man . Only the Last Man can be the type of man that lacks insight to such degree that he finds it not only acceptable, content, but also agreeable to be the Last Man.

Nietzsche: "What is love? What is creation? What is longing? What is a star?" -- so asks the Last Man, and blinks. The earth has become small, and on it hops the Last Man, who makes everything small. His species is ineradicable as the flea; the Last Man lives longest."

The Last Man according to Nietzsche's rendering of him is the type of individual that does not care or even remotely try to answer the questions of his existence, those that profoundly affect and determine his life. The Last Man , by this characterization, is neither a romantic, a philosopher, a scientist or a poet.

And due to the unquestioning nature of this type of man, the world has been made small and manageable. According to this type of man, the striving, the ambition, the determination to battle against hardship and the desire to become more than we currently are is a deterrent to happiness.

Nietzsche: "The earth has become small, and on it hops the Last Man, who makes everything small. His species is ineradicable as the flea; the Last Man lives longest.

Yet despite all of this, the Last Man , due to his security, comfort and pleasure believes:

Nietzsche: ""We have discovered happiness" -- say the Last Men, and they blink."

Nietzsche goes on to discuss the herd-like collective behaviour and the smug mentality of this group that dogmatically and unquestionably believes the man of the present to better than the men of the past. If this is true, then the values and behaviors that instantiate the Last Man are, according to him, to be preferred over all other values. Once again, the Last Man is unwilling to question his values against any other lifestyle or generational values, due to their inability to evaluate values that should guide their or others' behaviour.

Nietzsche: "No shepherd, and one herd! Everyone wants the same; everyone is the same: he who feels differently goes voluntarily into the madhouse. Formerly all the world was insane," -- say the subtlest of them, and they blink.

Despite Zarathustra's attempt to shame the market crowd with a contemptible notion of their culture through the concept of the Last Man , the crowd continue to mock him by clamoring to become the Last Man . As we can see, they have truly misunderstood Nietzsche's message and this market crowd is the collective manifestation of the Last Man .

--

If you're interested in buying Thus Spoke Zarathustra please use the link below to support and improve Apotheosis Magazine

[Jul 18, 2015] Growth Fantasy of Tax Cuts and Small Government - Noah Smith

[Jul 18, 2015] Needed: More Government, More Government Debt, Less Worry

Brad DeLong (the full post is much, much longer):
Needed: More Government, More Government Debt, Less Worry: **Introduction**

Olivier Blanchard, when he parachuted me into this panel, asked me to "be provocative".

So let me provoke:...

It makes sense to distinguish the medium from the short term only if the North Atlantic economies will relatively soon enter a régime in which the economy is not at the zero lower bound on safe nominal interest rates. The medium term is at a horizon at which monetary policy can adequately handle all of the demand-stabilization role. ...

As I see it, there are three major medium-run questions that then remain...:

To me at least, the answer to the first question–what is the proper size of the 21st-century public sector?–appears very clear.

The optimal size of the 21st-century public sector will be significantly larger than the optimal size of the 20th-century public sector. Changes in technology and social organization are moving us away from a "Smithian" economy, one in which the presumption is that the free market or the Pigovian-adjusted market does well, to one that requires more economic activity to be regulated by differently-tuned social and economic arrangements (see DeLong and Froomkin (2000)). One such is the government. Thus there should be more public sector and less private sector in the 21st-century than there was in the 20th.

Similarly, the answer to the second question appears clear, to me at least.

The proper level of the 21st century public debt should be significantly higher than typical debt levels we have seen in the 20th century ... *unless interest rates in the 21st century reverse the pattern we have seen in the 20th century, and mount to levels greater than economic growth rates*.

This consideration is strengthened by observing that the North Atlantic economies have now moved into a régime in which the opposite has taken place. Real interest rates on government debt are not higher but even lower relative to growth rates than they have been in the past century. Financial market participants now appear to expect this now ultra-low interest-rate régime to continue indefinitely (see Summers (2014)).

The answer to the third question–what are the systemic risks caused by government debt?–is much more murky. ...

The question ... is:... How much more likely does higher debt make it that interest rates will spike in the absence of fundamental reasons? How much would they spike? What would government policy be in response to such a spike? And what would be the effect on the economy?

The answer thus hinges on:

* the risk of a large sudden upward shift in the willingness to hold government debt, even absent substantial fundamental news.

* the ability of governments to deal with such a risk that threatens to push economies far enough up the Laffer curve to turn a sustainable into an unsustainable debt.

I believe the risk in such a panicked flight from an otherwise sustainable debt is small. I hold, along with Rinehart and Rogoff (2013), that the government's legal tools to finance its debt via financial repression are very powerful, Thus I think this consideration has little weight. I believe that little adjustment to one's view of the proper level of 21st-century public debt of *reserve currency-issuing sovereigns with exorbitant privilege* is called for because of systemic risk considerations.

But my belief here is fragile. And my comprehension of the issues is inadequate.

Let me expand on these three answers...

Posted by Mark Thoma on Tuesday, July 14, 2015 at 09:00 AM in Economics, Fiscal Policy | Permalink Comments (23)

[Aug 05, 2013] Columbia Economist Dr. Jeffrey Sachs speaks candidly on monetary reform

Level of corruption of the system is just staggering...

From the event at the Philadelphia Fed on April 17th, 2013 (04/17/2013) conference segment "Fixing the Banking System for Good" .

Republicans The Fake Party of Small Government " Little Alex in Wonderland

17 July 09 | C4SS

People who vote Republican in the belief that the GOP is the party of small government need to get out of their codependent relationship.

Republicans claim to be the party of the head rather than the heart, the party that never lets wishful thinking trump the law of unintended consequences - unless, of course, proper reverence for the Flag or Fatherland is involved. And recognizing that actions have consequences, in the realm of foreign policy, is just a fancy way of saying "defeatism."

Come to think of it, there really seems to be a lot of messy Freudian stuff lurking beneath that Republican facade of stern common sense, doesn't there? Just consider how prominently accusations of being "soft" on this or that, or "getting tough" on something or other, or "showing them" or "teaching them a lesson", figure in their rhetoric. The Republicans: party of penis envy?

Republican claims to be the party of small government are equally nonsensical.

First of all, it's a rather odd conception of "small government" that doesn't count the military and police as part of "the government". It's hard to believe that conservatism in this country was once identified with an opposition to foreign entanglements and large military establishments, or that the perpetual warfare state was originally created by liberals. In fact, the legal precedents and constitutional arguments that the neocons appeal to in order to justify their wet dream National Security State all come from paragons of conservatism like Lincoln, Wilson and FDR.

Today, we're constantly reminded by self-described "conservatives" that loyal Americans rally around their "Commander-in-Chief" in wartime, and "politics stops at the water's edge." Sean Hannity got his knickers in a twist because some Democratic senator accused "our Commander-in-Chief" of lying–in (gasp) WARTIME! Not only does "politics stop at the water's edge" for Republicans, but apparently Acton's Law stops there as well. Seems to me that if patriotic Americans are required to suspend their normal distrust of government in wartime "for the duration," that's a mighty powerful incentive for the "Commander-in-Chief" to STAY at war as much as possible. As Dubya said some time or other, 'it's a lot easier when you're a dictator'.

(Ever notice, by the way, that the same people so outraged that Pelosi would accuse the "heroes" in the C.I.A. of lying were themselves making the same accusation back when it involved Valerie Plame and Doug Feith?)

It's also an odd conception of "small government" that tasks it with making sure no two people with the same kinds of pee-pee get married, that nobody sees Janet Jackson's tit or hears one of George Carlin's "seven words", and that everybody "Just Says No" to drugs (other than Ritalin and Gardasil).

But even stipulating that "small government" principles only refer to domestic economic and regulatory policies that don't involve drugs or genitalia, the Republicans' "free market" rhetoric is a bunch of buncombe. The Reaganite agenda of fake "deregulation" and "privatization" usually involves, in actual practice, the same kind of kleptocratic insider dealing that characterized Yeltsin's Russia. The GOP's "small government" economic policy, when you get right down to it, is even more corporatist than that of the Democrats–and you've got to go a ways to beat them.

What about the Republicans as the party of "strict constitutionalism" and "original understanding"? What that translates into in plain English, Jeffrey Toobin says, is "a view that the Court should almost always defer to the existing power relationships in society". Chief Justice Roberts, in every major case, "has sided with the prosecution over the defendant, the state over the condemned, the executive branch over the legislative, and the corporate defendant over the individual plaintiff". And come to think of it, I don't recall Madison and Jefferson advocating a set of Executive "national security" prerogatives as unbounded as those of Charles I.

(Did you notice, by the way, that these enemies of "judicial activism" were pressuring Sotomayor to discover a new fundamental right–the right to keep and bear arms–among those incorporated in the Fourteenth Amendment?)

You folks out there with "Democrats Care" bumper stickers shouldn't be enjoying this overmuch. Behind all the crap about "America's working families", the Democrats are really just the other corporatist party. Democrats need to get over their own codependent relationship. But that's another column.

C4SS Research Associate Kevin Carson is a contemporary mutualist author and individualist anarchist whose written work includes Studies in Mutualist Political Economy and Organization Theory: An Individualist Anarchist Perspective, both of which are freely available online. Carson has also written for a variety of internet-based journals and blogs, including Just Things, The Art of the Possible, the P2P Foundation and his own Mutualist Blog.

The Appeal to "Undecidability" as Last Gasp

Ross Douthat:

The Case For Small Government: I think the argument suffers from a problem that's common to both sides in the debates over the desirability of European-style social democracy - namely, the hope that what's ultimately a philosophical and moral controversy can have a tidy empirical resolution.... [T]he philosophical case for limited government - that human existence in the shadow of a nanny state doesn't conduce to "Aristotelian happiness"... because it strips human beings of the deeper sorts of agency and responsibility that ought to be involved in a life well lived - he's on firm (if obviously arguable) ground. But when he segues into the possibility that the emerging science of human nature will "prove" the limits of welfare-statism, and force liberals to give ground... there's an unwarranted hope that the right facts and figures can settle a debate that ultimately depends on the philosophical assumptions that you bring to it...

Matthew Yglesias calls bullshit:

Matthew Yglesias: Crippling Poverty is Not Service to Family: Left out of here is what the right always loves to leave out of discussions of economic policy choices: interest. If you're poor in the United States and you live in a neighborhood where poor people can afford to live, you will almost certainly be living in a neighborhood that's much more dangerous than the neighborhoods in which poor Dutch people live. You'll also find yourself living in a country that's much less friendly to the interests of people who can't afford a car than is the Netherlands.

Conversely, if a European executive meets an American executive and feels a twinge of jealousy, it's not for the American's greater level of "entrepreneurship" it's for the fact that the U.S. social model leaves top executives much richer than European executives....

[I]ncome level is fairly predictive of voting behavior and this is neither a coincidence nor the reflection of an abstract disagreement about the value of "voluntarism." It reflects the fact that politics is, among other things, a concrete contest over concrete economic interests.... I don't think, for example, that America's high child poverty rate reflects American preference for "service to one's family" over "ease of life"...

As Milton Friedman put it back in 1953:

The basic objectives, shared, I am sure, by most economics, are political freedom, economic efficiency, and substantial equality of economic power. These objectives are not, of course, entirely consistent.... I believe -- and at this stage agreement will be far less widespread -- that all three objectives can best be realized by relying, as far as possible, on a market mechanism within a "competitive order" to organize the utilization of economic resources...

" [T]he philosophical case for limited government - that human existence in the shadow of a nanny state doesn't conduce to "Aristotelian happiness"... because it strips human beings of the deeper sorts of agency and responsibility that ought to be involved in a life well lived "

He is having a bit of trouble staying oriented as between the philosophical and the empirical here. I claim that this is a piece of (bad) armchair psychologizing.

But his philosophical position is clear: each man for himself and the Devil take the hindmost. But he does say it in such a flowery way that it is almost possible to overlook what it comes to.

His (absurdly false) dichotomy between health-care access and health-care innovation is more concrete, but no less revolting.

"that Aristotelian happiness was possible only if you yourself owned lots of slaves"

I have no doubt in my mind that true libertarians/economic liberalists are entirely in favor of legalizing slavery...

"Hence those who are in a position which places them above toil have stewars who attend to their households while they occupy themselves with philosophy or with politics..."

or derivatives trading.

In any case, Pareto efficiency is no way to judge whether free market outcomes are good for society, to the extent that free market outcomes exist at all in the real world. Cheap shots on Aristotle are easy. A guy living 2400 years ago defended slavery!?! SHOCKING. Everything he says with respect to happiness (and everything else for that matter) must be way off base.

Less easy is responding to Douthat's point (Murray's point, actually) that part of what makes humans happy is a sense of personal responsibility and accomplishment and that to the extent that government starts to infringe on aspects of life that used to be an individual's responsibility - people will experience less of a sense of achievement - hence less happiness.

I hope that 100 years from now religion will be viewed as slavery is today. I further hope that people will not be so obtuse as to claim that everything religious people have said in the history of man should be discounted... because they were religious.

Hah, happiness is an empirical question that can be addressed with data. For example, http://www.nationmaster.com/graph/lif_hap_net-lifestyle-happiness-net

I suspect Iceland is no longer number 1. The US is #13, lucky us. Everyone above us is more socially democratic. With the possible exception of Iceland. And maybe Australia, though I bet they have universal health care.

That's because true rugged individuals run the survey-takers off with a shotgun, Dr. J. In doing that, they experience a level of personal responsibility and accomplishment that you or I cannot even imagine. "[T]he philosophical case for limited government - that human existence in the shadow of a nanny state doesn't conduce to "Aristotelian happiness"... because it strips human beings of the deeper sorts of agency and responsibility that ought to be involved in a life well lived"

Hmm. I take it that Ross Douthat has not read Malcolm Gladwell's _Outliers_? But, for christs sake, do you need Gladwell to tell you that, if you are struck with a childhood disease because of a crappy health system, or are given a lousy childhood education, or can't get a job at a certain company because you have the wrong color skin, then you DON'T HAVE MUCH of that precious agency that Douthat thinks is so important.

How about it Ross? Willing to come out squarely on the side of more government involvement in child healthcare, in education, in undoing the damage of past and current discrimination? Don't tell me, let me guess: Mr "screw agency for Asians and women" doesn't really give a damn about Aristotle except insofar as he can be used to extend the arguments of the plutocracy.

Ed quotes this definition of libertarian:

Libertarianism is a term adopted by a broad spectrum[1] of political philosophies which advocate the maximization of individual liberty[2] and the minimization or even abolition of the state.[3][4] Libertarians embrace viewpoints across that spectrum, ranging from pro-property to anti-property, from minarchist to openly anarchist

http://en.wikipedia.org/wiki/Libertarian

1. Since the effective liberty of most people would be diminished if not completely destroyed as the "state" is diminished (not that many are capable of liberty either way), even in pure liberty terms this is already really might makes right, right of the stronger, and "libertarian" is simply a fancy, dishonest word to dress up that fact.

Still, beyond the terminological dishonesty, might-makes-right in itself can be an internally consistent view.

2. But where they bring "property" into it is where we know the whole thing is a scam. Property and wealth accumulation (let alone all the bells and whistles of banks and stock markets and so on) of course cannot exist at all without a strong, aggressive government aggressively dedicated to those things.

It's absurd on its face to say "get rid of government" and yet say "I have property rights!"

"Property" and "rights" - one has to be doubly an aggressive statist.

So there's where we KNOW "libertarian" is just a stalking horse for the brutal, direct dictatorship of big corporations and the rich.

Law is the order of the land and its inception was to protect *property* from the mob (see the poor) by landed army's aka the Authoritarian system. We have evolved socially from feudal to monarchy to peoples forms of governance.

Democracy is an attempt to equalize societal pressures with regards to concentration of wealth and power by the few over the many (see Rome).

Now sorry for the 101, but what are we really debating here libertarian vs socialist vs free market vs ??????. I thought the Constitution said WE the people not some fence in the mind that has so many gray areas multiplied by the number individuals present in the republic at one time. Hence we all have different interpretations of definitions regardless of what wiped says.

I fear Democracy is under the knife by forces which would concentrate power for their benefit and not that of the people as a hole. Call that what you may, but remember the club of I over US has ramifications and one should consider fully their impact.

Hell lets all just get big stamps on our foreheads and call a spade, a spade and respond accordingly to their ideology with out interference.

Every system of governance I have studied evolves and then devolves to a basic state of community if not over whelmed by another budding system of youthful expansionist exuberance.

We are some where on that historical trajectory and need to sort out who we really are ie: a group of citizens ready to learn from our mistakes or a rowdy group of individuals ready to cut each others throats for our individualistic/ idealogical needs, especially when none can lay claim to fact, but merely see truth in own minds.

Skippy...sorry just so sick of the crap: see extremism.

Stephen Roach The case against Bernanke

naked capitalism
depresso said...
Nakedcapitalism and Stephen Roach are spreading LIES!
Bernanke is NOT and never was "an ultra-free market Libertarian".
Libertarians and proponents of free-markets believe in sound money, gold standard and want the Federal Reserve to be abolished.

I am tired of all the libertarian-bashing and free-market-bashing. Bernanke is no more a Libertarian and free-market believer than Roach/Yves is a radical communist.

Edward Harrison said...
depresso,

I happen to be a Libertarian myself albeit not as much a believer in the unadulterated form of the free markets espoused by some.

How would you describe Bernanke?

And do think we are spreading lies or giving opinion because it seems that it is obviously the latter?

Edward (the writer of the post)

roger said...
It is strange to me to look at Japan's lost decade, when we have our own staring at us in the face. The 00s were characterized by the worst employment figures, month by month, of any decade since the forties, the worst income figures for the medium household since the thirties, and an amazingly flabby technology sector - that is, in terms of innovation. What is really different about 2009 from 2001 or 2000? Youtube? From 2000, 1990 looked positively primitive. One could go decade by decade looking at major techno changes - but not the "lets spend money on the Mcmansion" decade. Although I'm forgetting the innovation in the "financial industry" - so excellent! of such social benefit! Like, oh, the invention of three card monte.

The Japanese slough is already here, and its been here since 2001.

moslof said...
A good article but I disagree with labeling Bernanke a Libertarian. Most Libertarians are for "sound money" in my view. Bernanke may well be our last Fed Chairman. The greatest cycle of real economic growth in history occurred in Hong Kong with no central bank.
We need to try it here because the short sighted knee jerk policies of the Fed have needlessly distorted the natural swings of the business cycle since day one.
Edward Harrison said...
Here's a definition of Libertarianism that I agree with:

Libertarianism is a term adopted by a broad spectrum[1] of political philosophies which advocate the maximization of individual liberty[2] and the minimization or even abolition of the state.[3][4] Libertarians embrace viewpoints across that spectrum, ranging from pro-property to anti-property, from minarchist to openly anarchist

http://en.wikipedia.org/wiki/Libertarian

The key thing that binds us Libertarians is a desire for individual liberty over power of the state. Otherwise, there are many different flavors.

depresso said...
If you use the proper definitions of terms, then you could call Bernanke a fascist (fascism is the merger of state and private interests).
The vast majority of libertarians I know were highly critical of Greenspan, Bernanke and Fed's policies and predicted the inevitable crisis that would result form their activities. So, calling Bernanke a libertarian is an insult to them. A very high number of libertarians are proponents of sound money and gold standard or at least favor very strong restrictions on fiat money creation. That would be the opposite of what Bernanke and Greenspan did and are doing.

I am not interested in what Bernanke supposedly or really says. I am interested in his actions. And his actions have nothing to do with libertarian principles, unless you happen to be a libertarian basher, liar or a simple ignorant.

Edward Harrison said...
Depresso, that's absolute rubbish. The seminal moment in Bernanke's tenure was his decision to let Lehman Brothers fail, a decision which was driven by free market thinking.

Use silly terms like basher, liar and ignorant all you want, they are not in any way adding strength to your argument.

Clearly Bernanke had 'libertarian sympathies' until the moment of truth post-Lehman.

Edward Harrison said...
This from Alan Blinder two years BEFORE the crisis:

http://money.cnn.com/magazines/fortune/fortune_archive/2005/05/02/8258489/

He's very driven on the inside, but comes across as a very calm personality--strong-minded, but not argumentative. Like Greenspan, he never raises his voice," said Princeton economist and former Clinton-appointed Fed vice chairman Alan Blinder. "I worked with him for years before I even knew he was a libertarian-leaning Republican."

Again, I certainly don't agree with much of what Bernanke did as Fed chairman, but in policy circles he is considered to be a Libertarian.

depresso said...
I don't give a damn about the "policy circles". Bernanke is not and never was a libertarian and anyone who says otherwise is a liar or ignorant. Considering the ongoing statist campaign against libertarians, I believe that the former is more true than the latter.

A person who is responsible for manipulating the interest rates and money supply, creating and popping bubbles, creating an alphabet soup of funny facilities, etc. can not be a libertarian by definition.
It does not matter how much the liars and libertarian-bashers say that black is white, they will not change this simple fact. They can however influence the public perceptions and that is their real agenda, the real reason why they falsely blame the libertarians and free markets for this crisis.

And, by the way, I also don't give a damn about you getting offended by "silly terms" like basher, liar, etc. The statist campaign is reaching gigantic proportions and I don't see a reason why I should restrain myself in the face of all this obnoxiousness coming from the "circles".

Edward Harrison said...
depresso, yours is not a well-reasoned argument. It's an entirely emotional response. And whether Bernanke is a Libertarian is irrelevant as it has nothing to do with whether he will be a good Fed chairman.

You have your view. I have mine. Let's just leave it at that.

Yves Smith said...
depresso.

Ad hominem attacks are against this blog's comment policy. If you want to disagree, that's fine, but abuse and name calling is not.

bob said...
"A person who is responsible for manipulating the interest rates and money supply, creating and popping bubbles, creating an alphabet soup of funny facilities, etc. can not be a libertarian by definition"

Nonsense. If its yours why can't you manipulate it? That is the heart of libertarianism.

Is it your assertion that I could not sell my gold for more (or less) than what it was going for in another market?

Who enforces libertarianism? By your definition, they would not be libertarian.

Its a word. An adjective. Hitler was libertarian compared to Stalin.

What you seem to be advocating is anarchy.

Where does this free market exist? Point to one example of it anywhere in the history of the world.

Edward Harrison said...
When it comes to Bernanke (and Greenspan), I think moslof has it right about the subversion of Libertarian ideas and makes criticism I can accept:

"...I disagree with labeling Bernanke a Libertarian. Most Libertarians are for "sound money" in my view. ...short sighted knee jerk policies of the Fed have needlessly distorted the natural swings of the business cycle since day one."

depresso said...
Yves, I consider calling Bernanke a Libertarian an ad hominem attack on all Libertarians.

Bob said: Nonsense. If its yours why can't you manipulate it? That is the heart of libertarianism.

Bob, that would be true if fed wasn't a state enforced monopoly. However, the Fed is a state enforced monopoly and thus is anti-libertarian.

Yves, feel free to block my access and/or delete my comments. It is your blog and you have a right to do as you wish here (unless a "libertarian" makes it illegal). I admit that my comments are partially emotional. I am simply sick and tired of all the nonsense that is nowadays coming out from the mainstream and from blogs like nakedcapitalism (which I used to like...).

Edward Harrison said: ...I think moslof has it right...

Interesting that you say this because before moslof said what you claim to agree with, I said: Libertarians and proponents of free-markets believe in sound money, gold standard and want the Federal Reserve to be abolished.

Bernanke is NOT libertarian, never was, never will be.

bob said...
You seem to have a monopoly on the word libertarian, who can use it and how they can use it.

That is anti-libertarian.

depresso said...
Very funny bob. Feel free to believe that a government monopoly is libertarian, up is down and black is white. As you can see on this blog, you will not be alone in your beliefs...
attempter said...
Ed quotes this definition of libertarian:

Libertarianism is a term adopted by a broad spectrum[1] of political philosophies which advocate the maximization of individual liberty[2] and the minimization or even abolition of the state.[3][4] Libertarians embrace viewpoints across that spectrum, ranging from pro-property to anti-property, from minarchist to openly anarchist

http://en.wikipedia.org/wiki/Libertarian

1. Since the effective liberty of most people would be diminished if not completely destroyed as the "state" is diminished (not that many are capable of liberty either way), even in pure liberty terms this is already really might makes right, right of the stronger, and "libertarian" is simply a fancy, dishonest word to dress up that fact.

Still, beyond the terminological dishonesty, might-makes-right in itself can be an internally consistent view.

2. But where they bring "property" into it is where we know the whole thing is a scam. Property and wealth accumulation (let alone all the bells and whistles of banks and stock markets and so on) of course cannot exist at all without a strong, aggressive government aggressively dedicated to those things.

It's absurd on its face to say "get rid of government" and yet say "I have property rights!"

"Property" and "rights" - one has to be doubly an aggressive statist.

So there's where we KNOW "libertarian" is just a stalking horse for the brutal, direct dictatorship of big corporations and the rich.

Prashant said...
I don't know about the definitions, but Bernanke, Greenspan and Co. are definitely no believers in Free markets.
All said and done, it is just another variant of Crony Capitalism that is practised in the United States despite what it preaches to the rest of the world.
skippy said...
Law is the order of the land and its inception was to protect *property* from the mob (see the poor) by landed army's aka the Authoritarian system. We have evolved socially from feudal to monarchy to peoples forms of governance.

Democracy is an attempt to equalize societal pressures with regards to concentration of wealth and power by the few over the many (see Rome).

Now sorry for the 101, but what are we really debating here libertarian vs socialist vs free market vs ??????. I thought the Constitution said WE the people not some fence in the mind that has so many gray areas multiplied by the number individuals present in the republic at one time. Hence we all have different interpretations of definitions regardless of what wiped says.

I fear Democracy is under the knife by forces which would concentrate power for their benefit and not that of the people as a hole. Call that what you may, but remember the club of I over US has ramifications and one should consider fully their impact.

Hell lets all just get big stamps on our foreheads and call a spade, a spade and respond accordingly to their ideology with out interference.

Communists can have one small room like all the others and rationing of all worldly goods.

Socialists can have an egalitarian world, little bits of everything the good and the bad ie: nobody really happy or completely fulfilled ideologically.

Free Marketeers can get screwed and screw over each other till one person owns it all, the hole planet.

Every system of governance I have studied evolves and then devolves to a basic state of community if not over whelmed by another budding system of youthful expansionist exuberance.

We are some where on that historical trajectory and need to sort out who we really are ie: a group of citizens ready to learn from our mistakes or a rowdy group of individuals ready to cut each others throats for our individualistic/ idealogical needs, especially when none can lay claim to fact, but merely see truth in own minds.

Skippy...sorry just so sick of the crap: see extremism.

PS. Have a good trip Ted K. you tried to do good things.

skippy said...
@above shez....wiped should read...wikipedia.

amends

stylerspeakslife said...
i guess you can never please everyone in Washington, and this Bernanke mess is no different. Obama and his supporters are confident that he can come in and save the day, but others think he helped cause the mess in the first place! http://www.newsy.com/videos/ben_bernanke_is_here_to_stay
Siggy said...
Roach wrote a very good piece. Bit of a realty check. A hugge amount of pointless parsing of libertarian/socialist/fascist here.

Why the reliance on democracy? We are a Constutionally Empowered Federal Republic! When we consistently mis-identify our political system as being a democracy, we erode the contract that was the great gift of our nations founders.

What Roach has clearly pointed out is that the extension of Bernanke's term was a choice of lessor evils, the devil we know.

Dave Raithel said...
Ed Harrison and all re "Libertarian" and "Libertarianism" etc.: So how come John Rawls wouldn't be called "Libertarian", since his first principle of justice is (paraphrased): Each person is to have the broadest degree of liberty consistent with a like degree of liberty for each other person...

Because he had no gold fetish, and was for redistribution (as needed to improve the circumstances of the representative least well-off person ...)

But all that is a mostly a digression from the main point of the argument: "The world needs central bankers who avoid problems...", which returns us to the whole foreknowledge problem I've lately been tasking myself about. Sure, but how much are you going to pay them? Has to be more than they can make in the private sector (with proper utility considerations for power and prestige.)

Granted, there's some limiting point at which past choices preclude one from future participation. (Imagine Goerring or Borman genuinely confessing that the whole kill the Jews thing was a terrible policy - doesn't seem to work.) On the other hand, for all I know - since I don't live and work in Financelandia - Bernanke is rational, and he's gotten past the errors of his previous ways. Reality has been the experiment, and it just didn't work out as predicted.

Or not. Here's an aspect of reality that persists as much as my extraordinary disappointment in Obamaman - somebody, somewhere, made money (and somebody lost some) because of how they speculated on who'd be running the Fed a year from now.

Bernanke is, at worst, a symptom.

attempter said...
Dave says:

Ed Harrison and all re "Libertarian" and "Libertarianism" etc.: So how come John Rawls wouldn't be called "Libertarian", since his first principle of justice is (paraphrased): Each person is to have the broadest degree of liberty consistent with a like degree of liberty for each other person...

Because he had no gold fetish, and was for redistribution (as needed to improve the circumstances of the representative least well-off person ...)

Just yesterday I was flipping through an Ayn Rand tome and chuckled to see her referring to the rather innocuous (a word I'm not using as a compliment) Rawls as "evil" and "malevolent".

Now I wonder what would inspire her to such a seemingly disproportionate response? Could it be that Rawls really does represent a kind of capitalistic liberty philosophy, exactly what she lyingly claimed to represent?

Edward Harrison said...
I have added this paragraph to the end of the post: Update: I wouldn't characterize Ben Bernanke as "cut from the same market libertarian cloth," as Roach does. I would suggest he has Libertarian leanings, but was probably the least inclined between himself, Paulson and Geithner to let Lehman fail.

Another thought: as to whether Bernanke would be the best choice, I think this is largely a political calculation (do we go with an unknown and roil markets/do we change horses mid-stream). Obama plays it safe when it comes to these kinds of decisions. His Biden pick reflects this. It was unlikely he was going to select anyone other than Bernamke, Summers, or Yellen, Although one or two other names have come up.

VangelV said...
"Bernanke, like Greenspan, is an ultra-free market Libertarian who believes markets always are better informed than regulators..."

So much for Roach's credibility. How can anyone who has the job of being a central planner and is arrogant enough to believe that the economy can be managed by pulling strings and pushing buttons be considered a 'libertarian?' It seems to me that those that favour meddling, as Roach seems to, do not blame the system of regulations that created the mess in the first place but the regulators for not doing enough meddling.

If Bernanke were a true libertarian he would resign his position.

Edward Harrison said...
Vangel,

I am pretty much sick and tired of people acting as if there is some absolute to being a Libertarian. It's utter rubbish.

I think you have a fairly narrow view of what it means to be Libertarian. In an ideal world, many believe the central bank shouldn't even exist. But Roach is NOT talking solely about monetary policy when he uses the word Libertarian, he's referring to Bernanke's belief in market forces in the financial sector a.k.a. de-regulation.

When I refer to the word Libertarian I mean to invoke the concept of liberty in a general sense. This would a believe in individual freedom, free markets, civil liberties, and so forth.

For instance, the Libertarian Party platform mentions all of these things but nowhere does it explicity state that it wishes to abolish the Federal Reserve, though it does call for the repeal of income taxes. The party does abhor "inflationary monetary policies" and calls for a repeal of legal tender laws.

Being a Libertarian or having Libertarian leanings is not just about monetary policy.

One final word: anyone who is foolish enough to believe that self-regulation in finance works - that allowing an economic ecosystem to flourish without the government enforcing law and acceptable codes of behavior - is either an anarchist or not particularly realistic.

[April 27 2009] How libertarian dogma led the Fed astray by Henry Kaufman

April 27 2009

The Federal Reserve has been hobbled by at least two major shortcomings that were primarily responsible for the current and several previous credit crises. Its failure to spot the importance of changing financial markets and its commitment to laisser faire economics were big mistakes and justify a fundamental overhaul of the Fed.

The first of these shortcomings was its failure to recognize the significance for monetary policy of structural changes in the markets, changes that surfaced early in the postwar era. The Fed failed to grasp early on the significance of financial innovations that eased the creation of new credit. Perhaps the most far-reaching of these was the securitisation of hard-to-trade assets. This created the illusion that credit risk could be reduced if instruments became marketable.

Moreover, elaborate new techniques employed in securitisation (such as credit guarantees and insurance) blurred credit risks and raised – from my perspective, many years ago – the vexing question, "Who is the real guardian of credit?" Instead of addressing these issues, the Fed was highly supportive of securitisation.

One of the Fed's biggest blind spots has been its failure to recognise the problems that huge financial conglomerates would pose for financial stability – including their key role in the current debt overload. The Fed allowed the Glass-Steagall Act to succumb without appreciating the negative consequences of allowing investment and commercial banks to be put together. Within two decades or so, financial conglomerates have come to utterly dominate financial markets and financial behaviour. But monetary policymakers failed to recognise that these behemoths were honeycombed with conflicts of interest that interfered with effective credit allocation.

Nor did the Fed recognise the crucial role that the large financial conglomerates have played in changing the public's perception of liquidity. Traditionally, liquidity was an asset-based concept. But this shifted to the liability side, as liquidity came to be virtually synonymous with easy borrowing. That would not have happened without the marketing efforts of large institutions.

My second major concern about the conduct of monetary policy is the Fed's prevailing economic libertarianism. At the heart of this economic dogma is the belief that markets know best and that those who compete well will prosper, while those who do not will fail.

How did this affect the Fed's actions and behaviour?

By guiding monetary policy in a libertarian direction, the Fed played a central role in creating a financial environment defined by excessive credit growth and unrestrained profit seeking. Major participants came to fear that if they failed to embrace the new world of securitised debt, proxy debt instruments, and quantitative risk analysis, they stood a very good chance of seeing their market shares shrink, top staff defect, and profits dwindle.

Ironically, the problem was made worse by the fact that the Fed was inconsistently libertarian. The central bank stuck to its hands-off approach during monetary expansion but abandoned it when constraint was necessary. And that, in turn, projected an unpredictable and inconsistent set of rules of the game.

We should, therefore, fundamentally re-examine the role of the Fed and the supervision of our financial institutions. Are the current arrangements within the Fed structure adequate – from its regional representation to its compensation for chairman and governors to its terms of office for governors? How can the Fed's decision-making process be improved? If we were to create a new central bank from the ground up, how would it differ? At a minimum, the Fed's sensitivity to financial excesses must be improved.

The writer is president, Henry Kaufman & Company

"Libertarian Dogma and the Fed"

hari says...

Old Henry is the master bond dealer of his time.

What he is saying is further confirmation of Waldman/MT on another link today. He's explaining the mindset of Fed when it comes to (ideological) policy orientation under Greenspan/Bernanke.

I don't think you can re-educate them...It's too late!

If you take Henry/Waldman links together, Geithner/Summers policy prescription is a very costly affair for taxpayers - and directly benefits WS Barons who inflicted the serious catastrophe.

It would be next to impossible framework of policy in Germany/France and rest of ECB-16. And for good political-economic reasons to boot.

bakho says...

Blaming "Libertarian tendencies" is a polite way of saying they took a chainsaw to regulations.

ken melvin says...

Part of reform should include driving a stake throught the heart of libertarianism. Generally, I believe in freedom of religion, but the worship of such false gods must henceforth be forbidden, and straight to the gallows with anyone who claims that the markets know best.

8 says...

Libertarianism in the Fed and deregulation was a response to the failed socialism/progressivism of 1910-1978. If we want to get rid of the false gods, we'll have to rip out everything since Teddy Roosevelt.

Patrick says...

"Libertarianism in the Fed and deregulation was a response to the failed socialism/progressivism of 1910-1978"

Not even wrong.

Brooks says...

Just a side note: Funny thing is, many (perhaps most) of the capital "L" Libertarians are the biggest Fed-haters in the nation, and many would like to see the Fed abolished. So when I saw the title of this post "Libertarian Dogma and the Fed" I thought it would be about those "Ban the Fed" types who constantly rail against "fiat currency".

Can Structured Finance Survive?

October 28, 2007 That is this week's question from Prudent Bear's Doug Noland. As for me I have decided to take a "wait and see" attitude-since I don't have faith in anyone's ability to know the future- and since my long-term approach of living frugally, saving some small sums (in part by investing a bit in things I hope offer a bit of an "asset inflation" hedge), and staying debt free for the last 20 years will MAY allow us to weather whatever storms may be on the horizon. Too many others, however, ought to be rightfully much more worried than I am by Doug Noland and others' gloom and doom forecasts. Here is a shortened form of Noland's latest:
Structured Finance Under Duress, Doug Noland, Credit Bubble Bulletin, Oct 26: The market may be been perfectly content to brush it aside. It was … a brutal week for "contemporary finance." Merrill Lynch, a kingpin of structured Credit products, shocked the marketplace with a $7.9bn asset write-down - up significantly from the $4.5bn amount discussed just two weeks ago.… Street analysts have already warned of the possibility for an additional $4bn hit. Merrill is not alone.

Also hit by sinking CDO fundamentals, Credit insurer Ambac Financial reported a third-quarter loss of $361 million - it's first-ever quarter of negative earnings. The company posted a $743 million markdown on its derivative exposures, "primarily the result of unfavorable market pricing of collateralized debt obligations." Credit insurance compatriot MBIA also reported its first loss ($36.6 million), on the back of a $352 million "mark-to-market" write-down of its "structured Credit derivatives portfolio." …

MBIA and Ambac combine for about $1.9 Trillion of "net debt service outstanding" - the amount of debt securities and Credit instruments they have guaranteed, at least in part, to make scheduled payments in the event of default. Throw in the Trillions of Credit insurance written by the mortgage guarantors and you're talking real "money." Importantly, the marketplace is beginning to question the long-term viability of the Credit insurance industry, placing many Trillions of dollars of debt securities in potential market limbo.

With recent developments - including the monstrous write-down from Merrill Lynch, the implosion in the mortgage insurers, and the losses reported by the "financial guarantors" - in mind, I'll revisit an excerpt from a January article by the Financial Times' Gillian Tett: "…Total issuance of CDOs…reached $503bn worldwide last year, 64% up from the year before. Impressive stuff for an asset class that barely existed a decade ago. But that understates the growth. For JPMorgan's figures do not include all the private CDO deals that bankers are apparently engaged in too. Meanwhile, if you chuck index derivative portfolio numbers into the mix, the zeros get bigger: extrapolating from trends in the first nine months of last year, total CDO issuance was probably around $2,800bn last year, a threefold increase over 2005. These startling numbers will certainly not shake the world outside investment banking. For, as I noted in last week's column, the CDO explosion is occurring in a relatively opaque part of the financial system, beyond the sight - let alone control - of ordinary household investors, or politicians."

Subprime and the SIVs are peanuts these days in comparison to the gigantic global CDO and Credit derivatives markets. CDOs may lack transparency, trade infrequently, and operate outside of market pricing ("mark-to-model"). Nonetheless, CDO exposure now permeates the entire global financial system - exposure that regrettably mushroomed in the midst of the most reckless end-of-cycle mortgage excesses imaginable. Rumors this week had major insurance companies suffering huge CDO losses. To what extent the big insurance "conglomerates" have exposure to CDOs and other Credit derivatives is unclear today, but there is no doubt that the global leveraged speculating community is knee deep in the stuff. Importantly, as goes the U.S. mortgage market, so goes the CDOs. I'm not optimistic.

I don't want to place undue weight on one month's data, but the California statewide median home price sank $58,140 over the month of September (down 4.7% y-o-y to $530,830). This was by far the largest monthly decline on record and the first year-over-year fall "in more than 10 years." September California sales were down 39% from a year earlier. Weakness was statewide ….;

We've definitely reached a critical point worthy of the question: Can "structured finance," as we know it, survive the California and U.S. mortgage/housing busts? I don't believe so. For one, the historic nature of the Credit Bubble virtually ensures the collapse of the Credit insurance "industry" (companies, markets, and derivative counter-parties). The mortgage insurers are now in the fight for their lives, while the "financial guarantors" today face an implosion of their "structured Credit" insurance business. Worse yet, major problems in municipal finance (certainly including California state and municipalities) are festering and will emerge when the economy sinks into recession. It is worth noting that California revenues were $777 million short of expectations during the first fiscal quarter ….

Returning to the vulnerable CDO market, some key dynamics are in play. With California now at the brink, uncertain but huge losses are in the pipeline for jumbo, "alt-A," and "option-ARM" mortgages - loans that were for the most part thought sound only weeks ago. The market began to revalue the top-rated CDO tranches this week, a process that should only accelerate. "AAA" is not going to mean much. If things unfold as I expect, a full-fledged run from California mortgage exposure could be in the offing. And as the dimensions of this debacle come into clearer market view, the viability of the Credit insurers will be cast further in doubt … with ramifications for Trillions of securities and derivatives. General Credit Availability would suffer mightily.

With global equities markets in melt-up mode, it might seem absurd to warn that a troubling global financial crisis is poised to worsen. But Structured Finance is Under Duress. The entire daisy-chain of liquidity agreements, securitization structures, Credit insurance and guarantees, derivatives counterparty exposures and, even, the GSEs is increasingly suspect. Trust has been broken and market confidence is not far behind.

The big global equities and commodities surge over the past few months certainly has been instrumental in counteracting what would have surely been a problematic "run" from the leveraged speculating community. How long this spectacle can divert attention from the unfolding mortgage/CDO/"structured finance" debacle is an open question. I can't think of a period when it has been more critical for stocks to rise - and rise they have. Yet I suspect recent developments will now encourage the more sophisticated players to begin reining in exposure.

The nightmare scenario - where the market abruptly comes to recognize that the leveraged speculating is hopelessly stuck in illiquid CDO, ABS, MBS, derivative and equities positions - doesn't seem all that outrageous or distant this week. [emphasis added]

October 28, 2007 at 03:18 PM in Asset Bubbles, Credit Bubble, Economic Indicators, Federal Reserve, Risk/Derivatives | Permalink | Comments (2) | TrackBack (0)

[Oct 26, 2007] In Defense of Government

I'm heartened to note an upwelling of support for government, finally, in the blogosphere I read. And heartened to see that the strident defense of Free Market Fundamentalism has waned in the wake of recent market/political aberration and scandal. Here are snips from four recent pieces talking about support for govenment and/or reasons for such support. One is from Paul Krugman, as interviewed by Ezra Klein from The American Prospect suggesting that a new dawn may be breaking for "progressives". One is from George Monboit, framed in the context of the Northern Rock bank meltdown, suggesting that "libertarianism" is a belief-system that can only survive when "perpetually subsidized by responsible citizens" of structured governments. Two are from Douglas Amy, as published on his recently renowned, Government is Good website:
TAP [Ezra Klein] Talks to Paul Krugman, The American Prospect, Oct 25: … EK: … [O]ne of the things you mention [in The Conscience of a Liberal] is that [tmes] have changed, and they've changed in part because the forces that kept egalitarian norms and egalitarian culture in place have dissolved. And to some degree, to put it in Galbraith's terms, the countervailing powers have receded, you don't have the government in the same way, the unions in the same way, you don't have the media channeling outrage on this. But how did we get to the place where we've accepted it?

PK: Well I think the outrage is starting to happen now. It takes a while, and part of it is just people … I have the sense that a lot people don't understand how rich the rich are. For the middle-class, it's a lot of the frog in the slowly warming pot syndrome. That year to year the fact that you're falling behind, that you're not getting anywhere despite a growing economy, is not that obvious, and you can chalk it up to your individual experience. But you look back at 35 years of technological progress, rising productivity, and at best arguable gains for the median family, then you can really see it. And the forces at the top are so large that, in a way, they're unimaginable, it's hard to get people focused on it. People at the [NY Times], when I did an article on inequality for the magazine five years ago, and they had artwork illustrating mansions, which I talked about in the article, but what they showed were not. Those were big new McMansions, $3 million dollar, 6,000 square foot homes. But they weren't what the truly rich were building. So people don't have a sense of how far it's gone.

EK: And you talk in the book a lot about political culture, and you touch a little bit on culture culture, but I want to focus on that. We've had "greed is good," Alex Keaton, corporate social responsibility … There's been this real move, not just in the politics and the taxes and so forth, but in the culture, to say, this is ok, even virtuous.

PK: It's the twenties all over again. We can think about what the cultural roots of this would have been, but I think the Great Depression and the war, and the fact that you had a powerful union movement, that forces of equality were big players in the society created a culture where people could say with full-throated voices we did that. …

PK: … [T]here's a progressive movement where there wasn't one before. Clinton came in when the Democratic Party was basically an uncoordinated coalition of people with their own special interests. There is a real progressive movement now. They've learned something from [particularly, the recent health care] debate. …

EK: Toward the end of [The Conscience of a Liberal], you define a liberal as someone who believes in these ideas, and you differentiate that from a progressive as someone who takes action on these ideas. I'm curious where you got that, because I haven't heard it before.

PK: Yeah, it's my own. A lot of people use progressive because liberal has become a bad word, and I don't think that's ultimately a strategy that is going to work, so you might as well adopt the traditional label. But I think in terms of movements a lot. Movement conservatism is a very real force, and movement conservatives, which are by some standards not true conservatives whatever that means. Now we do have a movement, and progressive is mostly used to denote that movement. The American Prospect or the Center for American Progress are clearly progressive movement institutions. That seems to me to be a natural distinction. The values they're exposing are clearly those that have been traditionally associated with liberalism, but the progressive movement is something new. If we had that movement in 1991, as Trent Lott would say, "we wouldn't have all these problems today."



Libertarians are True Social Parasites, George Monboit, Oct 23: … Wherever modern humans, living outside the narrow social mores of the clan, are allowed to pursue their genetic interests without constraint, they will hurt other people. They will grab other people's resources, they will dump their waste in other people's habitats, they will cheat, lie, steal and kill. And if they have power and weapons, no one will be able to stop them except those with more power and better weapons. Our genetic inheritance makes us smart enough to see that when the old society breaks down, we should appease those who are more powerful than ourselves, and exploit those who are less powerful. The survival strategies which once ensured cooperation among equals now ensure subservience to those who have broken the social contract.

The democratic challenge, which becomes ever more complex as the scale of human interactions increases, is to mimic the governance system of the small hominid troop. We need a state that rewards us for cooperating and punishes us for cheating and stealing. At the same time we must ensure that the state is also treated like a member of the hominid clan and punished when it acts against the common good. Human welfare, just as it was a million years ago, is guaranteed only by mutual scrutiny and regulation. …

Unless tax-payers' money and public services are available to repair the destruction it causes, libertarianism destroys people's savings, wrecks their lives and trashes their environment. It is the belief system of the free-rider, who is perpetually subsidised by responsible citizens. As biologists we both know what this means. Self-serving as governments might be, the true social parasites are those who demand their dissolution.



Government is Good, Welcome: … This site challenges many of common criticisms of government - that it is massively wasteful, incompetent, the enemy of economic prosperity, etc. An objective examination of the actual record of government reveals that most of these charges are exaggerated, misleading, or simply wrong. This is not to deny that American government has its problems. For one thing, it is certainly not as democratic and accountable as it could be, and special interests have way too much political power. Such problems need to be fixed, and this site identifies several needed reforms. Nonetheless, whatever drawbacks this institution has right now are far outweighed by the enormous benefits that we all enjoy from a vast array of public sector programs. On the whole, government is good.

Government is Good, Introduction: We Need to Stand Up for Government: We need to better understand the indispensable roles that government plays in our society, and we need to come to the defense of this unfairly maligned institution.

One reason why conservatives have been winning their ideological war against government is that too few people have been vigorously defending this institution. When was the last time you heard someone offering a positive vision of government - government as a good thing? To their credit, many centrist and liberal politicians have tried to defend various public sector programs - such as environmental protection and Social Security - from the conservative onslaught. But what they have rarely done is to defend the idea that government itself is valuable and beneficial. So while conservatives have been fighting on two fronts - attacking government programs and government itself - the defenders have been fighting back mostly by trying to protect programs. They have not been making the positive case for a healthier and more active public sector. …

This retreat from government must stop. Clearly many centrist and liberal lawmakers understand the valuable and indispensable role that government plays in our society, but they seem to believe that if they too jump on the anti-government band-wagon, this will take the issue away from the conservatives. But this strategy has utterly failed. It has only added fuel to the anti-government fire that Republicans have been stoking for years. Far from abandoning this issue, the right has only pressed harder in their efforts to delegitimize government and create the minimal state. What we need instead is a reasoned and vigorous counter-attack against the anti-government juggernaut - one that champions the vital roles that public sector plays in our society. That is what this website provides - it makes the case that government is good. …

[Oct 22, 2007] "Conservative" Economic Policy Dies a Timely Death

Obituary: Conservative Economic Policy, Jared Bernstein, TPM Café, Oct 19: Conservative economic policy is dead. It committed suicide.

Its allegiance to market solutions, tax cuts and spending cuts, supply-side nonsense, manipulative and corrosive ties to industry and the rich, have left it wholly unable to cope with the challenges we face. Its terribly limited toolbox simply cannot address the economic insecurities and opportunities generated by today's global, interconnected, polluted, insecure, dynamic, bubble-prone economy.

What's more, progressives have developed an alternative policy set with the flexibility to combine market forces with the necessary regulation and redistribution to address these challenges. Whether that agenda will ever see the light of day is another question.

… The fundamental flaw with conservative economic policy is its reliance on markets for problems that markets can't solve. It is widely recognized, for example, that consumer-driven health care … does not begin to address the challenge of health care reform. Similarly, while we can all agree that globalization has many positive attributes, simply calling for more "free trade" doesn't address either pervasive income losses to many Americans or the unfulfilled promise of trade to the poor in developing countries.

A related flaw is the inability of the empty conservative toolbox to deal with the critical economic questions of the day. How much regulation is necessary to both foster growth and innovation while avoiding the rampant speculation that has infected key sectors, such and housing and financial markets? The conservative answer is "none," and that's obviously wrong. The last two economic recoveries have been crippled by bursting speculative bubbles. But the trick, of course, is correctly calibrating the regulatory agenda.

On inequality, … [There is] nothing in [conservative ideology's] toolbox to address inequality. To the contrary, their tax policies exacerbate it.

And while education provides a critical leg up, it cannot be the sole policy solution for inequality …. When the benefits of (accelerated) productivity growth are flowing almost exclusively to a narrow sliver at the very top of the wealth scale, something else besides "enhanced returns to skills" is going on.

… Too much power rests in the hands of too few right now, and they have used their political and financial power to pursue violent, shortsighted foreign policy, steer the lion's share of growth their way, and avoid dealing with the challenges of global warming, health care, and inequality.

So we are left with a riddle: how can conservative, economic elites be both powerful and dead at the same time?

It's because they are zombies: their ideas that are dead but their political and economic clout remains prodigious and threatening. They can still win elections. But they cannot govern-they're proving that with every new failure of the government they demonize but still dominate. … Yet zombies are always dangerous, and while the tide appears to be turning against them, their defeat is by no means a sure thing. …

In my decades of life as a progressive economist, I've never seen such an outpouring of good ideas. … But good policy solutions by themselves won't win the day. I remain deeply nervous that progressives will fail to tap this uniquely clear moment of the failure of conservative policy. And the stakes are very high. If we squander this opportunity-if we fail to get the majority of the electorate behind the progressive ideas touted above, or we fail to push wavering centrist democrats toward these ideas-we may not be able to repair the damage. I don't mean to be alarmist, but we must stop the zombies before it's too late.


October 22, 2007 at 03:27 PM in Government, Markets | Permalink | Comments (2) | TrackBack (0)

[Oct 14, 2007] Two Minsky Disciples Differ on Bernanke's Leadership

Paul McCulley is once-again preaching the gospel of Keynes/Minsky. McCulley believes Fed Chairmam Bernanke is well aware of stumbling blocks and pitfalls in the path forward. While also preaching Keynes/Minsky, Doug Noland is, as usual, much less favorably inclined toward Bernanke's abilities/penchants to steer a thoughtful course forward. I'm still inclined to follow McCulley's bet on Bernanke.
A Reverse Minsky Journey, Paul McCulley, Oct 7:Double Bubbles … Keynes … words some 70 years ago… are near-perfect, and prescient description of what undergirded dramatic United States growth in recent years: (1) asset securitization, notably of subprime loans, and (2) the shadow banking system, defined as the whole alphabet soup of non-bank levered intermediaries. … The joint growth of these two beasts into double bubbles was grounded in the irrational belief, nay exuberance in:

Those two presumptions, or conventions, in Keynes' lexicon, did indeed provide, as he intoned, "a considerable measure of continuity and stability." Conventional wisdom Rule 1 held that rising home prices would cover all lax, even fraudulent mortgage underwriting sins. Conventional wisdom Rule 2 held that the "depositors" of the shadow banking system, more properly known as asset-back commercial paper holders, would forever roll their investments, content and confident in the low default experience of shadow banks' assets, per Rule 1.

In 2007, facts inconveniently neutered both of these Rules …

Just as Keynes predicted, when the conventional basis of valuation for the originate-to-distribute (to the shadow banking system) business model for subprime mortgages was undermined, the asset class imploded "violently." And the implosion was not, as both Wall Street and Beltway mavens predicted, contained. Rather it has become contagious, first on Wall Street, with all "risk assets" re-pricing to higher risk premiums, frequently in violent fashion, and now on Main Street, where the housing recession is taking a new leg down, with debt-deflation accelerating in the wake of a mushrooming mortgage credit crunch, notably in the sub-prime sector, but also up the quality ladder.

Yes, we are now experiencing a reverse Minsky Journey…, where instability will, in the fullness of time, restore stability, as Ponzi Debt Units are destroyed, Speculative Debt Units are severely disciplined, and Hedge Debt Units make a serious comeback (remember, in Minsky terms, Hedge Units are the good guys!). Meanwhile, rather than speaking of endogenous containment of the bursting of the double bubbles, the mission of policy makers, notably monetary policy, is to exogenously contain the contagion - cutting off the fat tails of systemic risk on Wall Street and of recession on Main Street.

Bottom Line… I have high confidence that Fed Chairman Ben Bernanke understands every Keynesian word quoted above! I also have high confidence that he fully understands that a reverse Minsky Journey lowers the neutral real Fed funds rate, in mirror image of how a forward Minsky Journey lifts it. He and his colleagues demonstrated that understanding in the most powerful way possible: deeds, not just words, with a 50 basis point cut in the Fed funds rate to 4¾% two weeks ago, when the Street consensus was for only 25 basis points.

There are many, many basis points of easing to come, as time and credit market dynamics prove that liquidity is indeed a state of mind, not some abstract measure of the money stock or pool of money putatively on the sidelines, ready to be put to work. Liquidity is all about the appetite of investors to assume risk with levered money and the appetite of savers to provide such investors the leverage they seek.

And until the housing sector recession - with inventories half the distance to the moon … and prices deflating in most major markets …, with debt-deflation/defaults in the wake - has run its course, liquidity will remain both scarce and expensive, even if it notionally remains plentiful.



Not So Benign Neglect , Doug Noland, Oct. 12: … The serious issues associated with the current "reflation" are many. For one, the dollar is structurally quite fragile while the most robust Inflationary Biases are in non-Dollar Asset Classes. Previously, Fed reflationary policies provided a competitive advantage for U.S. risk assets that worked to incite sufficient financial flows to support or even boost the greenback. This proved a huge ongoing advantage for our expansionary Credit system. Today, the negative ramifications associated with dollar weakness more than offset the Fed's capacity to inflate U.S. securities prices. The Fed's recent rate cut proved a bonanza for most foreign markets (currencies, commodities, equities, bonds, etc.), especially relative to dollar-denominated mortgage securities (the previous Bubble asset class of choice).

The Flow of Finance will now pose extraordinary challenges and risks. The unfolding mortgage crisis (especially in "private-label"and jumbo) will prove stubbornly immune to "reliquefication" benefits. This dynamic places home prices, the consumer balance sheet, and the general U.S. economy in harm's way. At the same time, there are the stock market Bubble and an acutely vulnerable dollar. I will presuppose that the Fed is hopeful to ignore equities and currencies, while operating monetary policy with a focus on the Credit market and real economy. Such a policy course, however, implies at this point much greater currency, market instability, and inflationary risks than our central bankers seem to appreciate.

I would furthermore contend that the nature of current Risk Intermediation is seductively problematic. On a short-term basis, enormous bank and money-fund led financial sector expansion has been sufficient to over-inflate non-mortgage Credit. It's been too easy - and Credit to sustain the boom too risky. Meantime, post-Bubble risk aversion festers in mortgage-related finance that will creep ever-closer to spilling over into an economic downturn and a reemergence of financial turbulence. We can expect foreign demand for our risk assets to remain tepid at best.

Despite current market euphoria, these processes are significantly elevating the systemic risks associated with today's ballooning financial sector balance sheet. A stock market Bubble beset by destabilizing speculative dynamics only compounds systemic vulnerabilities. Such a backdrop seems to beckon for a currency crisis, a risk that leaves our Federal Reserve policymakers with much less flexibility than they or the markets today appreciate. There are major costs associated with Not So Benign Neglect. The Fed had better at least start sounding like they've thought through some of the issues.