We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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“Instead of thinking of the pending bailouts and financial regulation as a new era of government supervisions of markets, think of it as preserving the system in which a Harvard elite controls other people’s money. In fact, very little is likely to change. Reading the news stories about how Secretary Paulson plans to implement the bailout, it seems as though the same people will be in charge of the money. Print some new business cards, change the logo on the front from “Goldman Sachs” to “U.S. Treasury,” and everything else continues as it was. It’s just that it becomes a lot more difficult for ordinary people to opt out of using the elite’s money management services.”
– Arnold Kling. He is not exactly a fan of the US financial bailout.
William Rees-Mogg wonders, in his Times (of London) column today, whether Barack Obama has it in him to be the next FDR. I sincerely hope not. Let us consider the following data on unemployment rates during the 1930s:
1930: 8.7%
1931: 15.9%
1932: 23.6%
1933: 24.9%
1934: 21.7%
1935: 20.1.%
1936:16.9%
1937:14.3%
1938:19%
1939:17.2%
1940:14.6%
(Source: US Department of Commerce, Historical Statistics of the United States, as quoted by Thomas J. Lorenzo, in “How Capitalism Saved America, page 180-181),
With a set of figures like that, perhaps it is no wonder that hagiographers of FDR prefer to focus more on his record as a war leader these days. If Obama does share any of FDR’s traits for sheer deviousness on the economic front, we have trouble on our hands.
It is amazing how certain myths persist. Back in the early 1980s, when I was doing my history A-levels, one of my teachers gave me the whole ‘heroic’ portrait of FDR. I suspect this is still the default position of most history textbooks today.
Plans have been unveiled to construct an incredibly tall skyscraper in the Gulf. One has to admire the sheer brio of the project, even if, at a time of global economic worries, such a project smacks of possible financial hubris. The region’s oil wealth may last a while yet and Dubai has taken strides in making itself less dependent on the stuff, but I do wonder what will happen in say, 10 or 20 years’ time if, for any reason, the oil revenues seriously go into decline.
Even so, it says a lot about how strong modern building materials now are that such a building is even thinkable.
In my many years I have come to a conclusion that one useless man is a shame, two is a law firm, and three or more is a congress.
– John Adams.
“Until August 1914 a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state, beyond the post office and the policeman. He could live where he liked and as he liked. He had no official number or identity card. He could travel abroad or leave his country for ever without a passport or any sort of official permission. He could exchange his money for any other currency without restriction or limit. He could buy goods from any country in the world on the same terms as he brought goods at home. For that matter, a foreigner could spend his life in this country without permit and without informing the police. Unlike the countries of the European continent, the state did not require its citizens to perform military service….The Englishman paid taxes on a modest scale: nearly £200 million in 1913-14, or rather less than 8 per cent of the national income.”
– A.J.P. Taylor, English History 1914-1945, page 1. Quoted by Alvin Rabushka in “From Adam Smith to The Wealth of America, page 80. The latter is a particularly good book, written very much from the “supply-side” school of economics with a strong account of developments in UK 19th century politics, Hong Kong, and the Reagan presidency.
This is simply brilliant:
Dear American:
I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude. I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.
I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transaction is 100% safe.
This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.
Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.
Yours Faithfully Minister of Treasury
Henry Paulson
The serious point here, of course is that Americans are being asked to bail themselves out, or their more feckless citizens, many of whom are far richer than they. And this is meant to save “unregulated capitalism”, apparently.
Thanks to Bob Bidinotto for the link. Bob has been on fire recently.
Update: here is an excellent summary of how the crisis has erupted, at Reason.
Over at EU Referendum blog, there is a good item about the regulatory system which to a degree, lies at the heart of the current market turmoil. It refers to the network of rules known as Basel II, taking their name from the fact that the headquarters of the Bank of International Settlements is based in the Swiss city. BIS is the place that central bankers meet regularly to discuss regulations governing the world’s main banks and other financial institutions. I used to go to Switzerland quite a bit to sit in on some of the discussions surrounding these rules when I used to report on this sort of stuff. Essentially, the rules lay down how much capital banks should set aside to cover against risks. They are extremely complicated, but in a nutshell, they are designed to protect the financial system from a wave of debt defaults. The Basel II rules have in turn acted as the foundation for bank capital regulations in the EU and other major industrial economies.
If I have a “point” to make here, it is that the existence of these and other regulations utterly nails the lie, put around by a lot of MSM commentators, that what we are seeing is the demise of unregulated, cowboy capitalism. Au contraire, what we have seen is the failure of a large body of rules, assembled over many years, to do what they were supposed to do. In fact, as EU Referendum persuasively argues, these rules may have even worsened the crisis and encouraged financial players to take certain risks “off balance sheet” to avoid having to set aside capital. But you can bet that policymakers will not draw the conclusion that too much regulation might actually be part of the problem.
Sometimes the odd phrase can tell you everything you need to know about the kind of philosophical assumptions, held either wittingly or not, that people carry around in their heads. In a rather fluffy BBC TV news item this morning about how elderly gardeners are helping young schoolkids to learn about the great outdoors, a character involved said that this showed the “valuable contribution that senior citizens make to society”. For some reason that really bugged the hell out of me.
There is this continued use of the word “society” as if this were a sort of person. I have contributions that I make to my married life such as paying certain bills and taking care of my wife if she gets ill or needs help, for instance, and I am very delighted to do so. I contribute to paying my mortgage by going out to work. I make contributions to certain services by paying for them, willingly or not, via private payments or through the violence-backed channel of tax (although “contribution” is not the right word in the latter case). But the idea that Johnathan Pearce’s activities somehow “contribute to society” is so much collectivist nonsense.
The turn of phrase shows that how people choose to live their lives is not viewed through an individualistic perspective – the idea that people are entitled to pursue their lives for their own sake and happiness – but according to some sort of utilitarian or altruistic calculus, as Ayn Rand might have put it. There is actually something rather chilling about this, in fact. What if some person decides that the oldies are not making a “contribution to society”? Should they be put down, like a crippled dog?
The Cato Institute blog makes this observation:
Some commentators are suggesting that the McCain campaign has panicked about Sarah Palin’s appeal, trying to cram her head with policy-wonkery and then hiding her in a closet when that didn’t work. Let Palin be Palin, they say — let her show her authentic self, the gun-totin’, family-raisin’, reformist governor that Alaskans love.
Good idea. Let’s start with the bailout. Surely a rugged individualist reformer from way outside the Beltway is champing at the bit to denounce this $700 billion bailout for Wall Street insiders cooked up by Washington insiders behind closed doors, without public hearings, with the unanimous support of the mainstream media. Let ‘er rip, Governor Palin. Tell the Wall Street bankers that when a small business makes bad decisions in Wasilla, it goes out of business, and the same rules should apply to large businesses in Manhattan. That’s the Sarah Palin conservatives say America would love.
I am not holding my breath. It would be interesting to see the reaction if she did give the bailout the finger, though. Judging by some of the media coverage of her and the credit crunch, large parts of the MSM press would lose their minds completely.
Yours truly escaped from the credit crunch, his computer keyboard and endless work hassles to get some much-needed relaxation in the Greek island of Crete last week. I can strongly recommend it, although not all aspects of life in that island are an unalloyed joy (they seem to assume that British tourists want chips with everything). I noticed that the locals have an agreeably “f**k you” approach to things like any smoking bans in restaurants, at least judging by my own observations. And I noticed that the driving standards have not improved much since I was last in Greece in 1992. A taxi driver who took me and the missus to the airport held a mobile phone in his hand, had innumerable phone calls and was busily texting his wife/mistress/whoever during a drive down a twisty lane. At one point I even suggested that this might not be a bright idea. I might as well have been talking to a martian.
Of course, such things are foolish and silly. And using a mobile phone while driving is dangerous. But maybe what has happened is not that the Greeks have got any nuttier or more reckless. It is that we Brits have, wittingly or otherwise, become even more safety conscious and worried about risk. Sometimes it takes a passage of time and a contrast with another culture to realise that.
Watching the UK’s Channel 4 programme tonight, hosted by Jon Snow, whose leftist views are easily discernible, I sensed an aspect of the coverage of the present financial turmoil that bothered me. Several times, during various back-and-forth questions with such luminaries as the left wing journalist Will Hutton and the Cazenove economist Richard Jeffries (I know Richard, he is a smart guy), Snow came up with the idea that instruments such as financial derivatives were “peddled” by banks and other institutions to investors. You see, the viewer was supposed to understand, buying or selling a swap, or a future, an option, a warrant, or basket of bonds and equities is like buying or selling crack cocaine or a porno magazine, not that I have a problem with porn magazines.
Of course, given the way in which hedge funds have been accused of colluding to destroy financial institutions such as Britain’s HBOS – which is beyond daft given that only a small fraction of HBOS shares were available to be short-sold in the first place – we can expect more of this demonisation of financial markets. Please understand me, gentle readers. I am not saying that banks and other intermediaries are not at times at fault for what has happened. Clearly it sticks in the throat to see bankers earn vast salaries in the good times and then bawl like so many 1980s coalminers or wheat farmers when the taxpayer refuses to get them out of trouble. I was grimly satisfied to see that the US allowed Lehman Brothers to go down, since it showed that at least some policymakers in the US were willing to see risk-takers pay the price of risks that have gone awry. But let there be no mistake: the financial derivative instruments that are being credited with voodoo powers by financial dunderheads like Will Hutton or Mr Snow are not the essence of the problem.
Derivatives are, after all, borne out of the desire by people to offload risks and by the desire of others to take those risks on; they are a consequence of the different appetite for bearing risk that occurs in any open market economy. Some people like uncertainty, others do not. That difference explains how, in a world of price movement, it is possible for people to swap uncertainty for certainty and vice-versa. It is the basis of insurance, for example. Without speculators willing to bear risks of fluctuations in everything from wheat to interest rates, other, more timid souls would not have fixed-rate mortgages or upfront payments for their wheat. Without those hedge funds, other, more cautious investors would not get prices for their investments, and so on.
We are in the midst of a very scary time in the financial world and there is no point in my trying to obscure that fact. I work in the wealth management business and have seen even some of the smartest minds in the business lose their heads. But I detect a decidedly unpleasant whiff in the air of scapegoating in the current time. One almost can hear an echo of anti-semitism, or something very similar.
Meanwhile, Roger Kimball pins much of the blame on US policies designed to encourage risky borrowers to get credit. He has got a point. I would also repeat the point that with Japan and other Asian countries operating ultra-low interest rates for a long time, these countries acted like ATM machines for the rest of the world. As Paul Marks of this parish likes to point out, until interest rates are based on a genuine balance between the demand for and stock of savings, the monetary system of the world will keep creating bubbles like this.
Update: here is a fine essay by economics historian Robert Higgs about how disastrous policy responses in the US ensured that the Wall Street Crash of 1929 mutated into a decade-long slump. Over and over again, it is necessary to nail the myth of Roosevelt’s New Deal. Far from “saving” US capitalism from itself, FDR lengthened the misery; unemployment was higher by the outbreak of WW2 than when he was elected to office.
“The investment business is based on people being able to do what they want with their money. They may want to do some odd things. “People put their money where their thoughts are,” said one investment banker I interviewed. This means that there are a lot of men who are, so to speak, in financial topless bars, sticking millions of dollars into the G-strings of lap-dancing debts and equities.”
– PJ O’Rourke, Eat The Rich (page 27).
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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