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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This, by Charles Spencer in the latest Spectator, made me smile:
“This is a time for making the most of small mercies. One of the greatest of these, as the financial system collapses around us, is the splendid joke that is Robert Peston of the BBC. His extraordinarily camp, over-emphatic delivery would be perfect for reporting glitzy Broadway first nights but seems hilariously at odds with worldwide economic catastrophe. Peston has all the glee of the callow cub reporter rejoicing in the size of his scoop while lacking the imagination to understand the anxiety his excitable tales of doom-and-gloom might be causing others.”
I admire the scoop-getting skills of Mr Peston, if not always his analytical skills. Anyway, as Mr Spencer continues:
“Like poor Mr and Mrs Spencer of Claygate, Surrey, for instance, who somehow managed to commit themselves to £40,000 worth of home improvements (double glazing and a new kitchen) just before the current crisis went big time. As I do my lengths at the swimming pool, I sometimes experience a knot of fear forming in my guts. Mercifully, thinking of Peston, an egregious character both Jane Austen and P.G. Wodehouse would have been proud to have invented, makes me laugh and my panic disperses.”
On a nicer note to Robert Peston, however, he has put economics at the top of the BBC news agenda in a way that would have been unthinkable a decade ago. Part of this is down to simple events, but part of it is due to Peston’s skills in ferreting out the news, not to mention his status as a friendly journalist to NuLab. Whether this continues if the current bunch get kicked out of Westminster is a moot point.
Last night I attended a Libertarian Alliance talk/discussion evening at the Evans household, the talk being given by Antoine Clarke. Here is what Antoine said in an email about his talk beforehand. I learned several interesting things which smarter people than me doubtless already realised but which were new to me. The most interesting thing I learned, assuming Antoine was right about it, was that after the first mega-billion dollar bale-out package failed to be agreed by the politicians of the USA, the market immediately went up. But then, as soon as a revised bale-out package, containing more bribes, was agreed, the market went down. “We should do nothing” is a tough political sell, but the smart move, said Antoine. And McCain should have gone with what, according to Antoine, were apparently his instincts and torpedoed the whole damn bale-out operation, and thereby clung onto a chance of being the next President of the USA.
My take on this is that there is a crowding out effect going on here, big time. I trust we are all familiar with this idea. It says that big government plans of any kind not only do harm because the government plans fail and all the wealth it wastes on them is wasted, but, and arguably even worse, because people with better plans in the same line of business are frightened into inactivity. In this spirit, I recall the disgraced former Tory MP Neil Hamilton once saying at a meeting I attended long ago that the money that an earlier Labour government had spent on buying up and ruining the British motor industry would have done a great deal less harm if it had just been put into several thousand suitcases and chucked into the sea (I daresay this would have been good for inflation also). That way, saner motor car entrepreneurs could have gone to work making cars and car stuff in better ways than then prevailed, unimpeded by the fear of great walls of government “investment” screwing up their plans, bidding up the prices of all the people and all the things they wanted to hire and buy and put to good use.
Well, now, exactly the same thing seems to be happening in the banking industry. Were I one of the immensely rich and immensely sensible banking people who had (a) seen this crash coming and cashed out at roughly the right time, and who now (b) has plans to gobble up failed banks and reorganise them along more sensible lines, I would now, despite all my hopes of profitable new business, be sitting on my hands, waiting for all the government plans to do their immense damage before I went wading in and god chewed up too. Only when these government plans had become an obvious failure, and the politicians had just totally given up, would I be ready to move in and sort things out. Only when the politicians lapse into inactivity, which for a brief shining moment looked as if it might happen straight away, does economic optimism, among the people willing to back their optimism with money, reassert itself.
But, as I like to say from time to time when blogging, what do I know? I am no expert on the banking business, and as I say, I only realised this thing about the ups and downs of the world’s stock exchanges when Antoine Clarke pointed it out to me last night. So, did Antoine get this story right? And have I explained this phenomenon, even part of it, even approximately right? Tomorrow afternoon, Antoine, I, and fellow Samizdatista Michael Jennings will be getting together to record a conversation about all this, so comments now would be especially welcome.
Economic historian Robert Higgs makes some interesting observations at the Liberty & Power group blog. I often disagree with some of its foreign policy views – it verges on outright pacifism – but its economics I like.
At least someone is enjoying themselves. The taxpayer has always paid his bills, except in his childhood, when God did. And now he gets to use unlimited power to seize whatever he likes and congratulate himself that he is punishing bad people for taking risks in the hope of making money for themselves.
pic hat-tip: Guido
This is a good, very fair-minded take on the current financial turmoil and all the more impressive for its insights precisely because the writer is not some sort of ultra-free market ideologue:
“The real roots of the crisis lie in a flawed response to China. Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China’s export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets ’round the world, driving up the price of everything from Florida condos to Latin American stocks.”
Absolutely. China, and the massive pool of savings that Asian economies have been able to provide to Western borrowers, is the 800 pound gorilla in the room in the current saga.
The author continues:
“That gave central bankers a choice: Should they carry on targeting regular consumer inflation, which Chinese exports had pushed down, or should they restrain asset inflation, which Chinese savings had pushed upward? Alan Greenspan’s Fed chose to stand aside as asset prices rose; it preferred to deal with bubbles after they popped by cutting interest rates rather than by preventing those bubbles from inflating. After the dot-com bubble, this clean-up-later policy worked fine. With the real estate bubble, it has proved disastrous.”
Yep, Mr Greenspan has a lot to explain.
“So the first cause of the crisis lies with the Fed, not with deregulation. If too much money was lent and borrowed, it was because Chinese savings made capital cheap and the Fed was not aggressive enough in hiking interest rates to counteract that. Moreover, the Fed’s track record of cutting interest rates to clear up previous bubbles had created a seductive one-way bet. Financial engineers built huge mountains of debt partly because they expected to profit in good times — and then be rescued by the Fed when they got into trouble.”
“Of course, the financiers did create those piles of debt, and they certainly deserve some blame for today’s crisis. But was the financiers’ miscalculation caused by deregulation? Not really.”
Try telling that to the likes of Will Hutton.
“So blaming deregulation for the financial mess is misguided. But it is dangerous, too, because one of the big challenges for the next president will be to defend markets against the inevitable backlash that follows this crisis. Even before finance went haywire, the Doha trade negotiations had collapsed; wage stagnation for middle-class Americans had raised legitimate questions about whom the market system served; and the food-price spike had driven many emerging economies to give up on global agricultural markets as a source of food security. Coming on top of all these challenges, the financial turmoil is bound to intensify skepticism about markets. Framing the mess as the product of deregulation will make the backlash nastier.”
Quite. In recent years, I have often heard fellow libertarians say something on the lines that “we’ve won the economic argument but lost the cultural one” sort of thing. I have never been entirely convinced about that. Yes, old-style central planning and crushingly high tax rates are unlikely to make a comback, but never underestimate the age-old hatred of financiers, of speculators and great wealth. Those of us who might imagine that the big battle of ideas fought after the war against socialism have been won may want to shake off some complacency. But maybe I am being gloomy. After all, much of the current round of government “rescues” are not quite of the same order as the nationalisations of the past. And in some cases, we might hope that eventually states will return banks they have nationalised into private hands.
As the French example of Credit Lyonnais shows – a corrupt bank if ever there was one – state-run banks are just as capable of making a mess of lending as any private one.
“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.
Peter Mandelson’s re-appointment to Gordon Brown’s cabinet is a potential disaster, and not just for Britain.
I have always liked Mandelson more than any other Labour politician. I ought to hate him, because his strategic genius gave us the New Labour revolution of the last decade. But his lucent unwillingness to pretend he is an imbecile, to conceal the fact of his cunning, or to act out his party’s customary hatred of private enterprise, even while his pupils execute their vile populist capers, is to me endearing.
Maybe that is why I’m worried more than stunned by his return to British politics. While most commentators are mesmerised by the story of Brown’s feud with The Prince of Darkness, and the daring of playing with Labour Party’s own resentment of him by bringing him back from Brussels, I am more interested in strategy. Do not just look at the flashy sacrifice; see how it changes the board.
There is now a gap in the European Commission. Brown will appoint one of his favourites to it, and have far reaching influence on Europe, and therefore Britain, even after he steps down. This can be seen as a subtle purge by bribery, and as a retirement strategy. A preparation for the Brown legacy.
There is now a gap in the European Commission. Whoever fills Mandelson’s Trade portfolio will be replacing one of the most free-trade-friendly commissioners that the EU has ever had, in a financial crisis, with protectionist populism surging on both sides of the Atlantic. Brown’s legacy could easily be a trade war and a real depression.
From the Spectator:
If you had purchased £1000 of Northern Rock shares one year ago it would now be worth £4.95, with HBOS, earlier this week your £1000 would have been worth £16.50, £1000 invested in XL Leisure would now be worth less than £5, but if you bought £1000 worth of Tennents Lager one year ago, drank it all, then took the empty cans to an aluminium re-cycling plant, you would get £214. So based on the above statistics the best current investment advice is to drink heavily and re-cycle.
This is from two weeks ago, so adjust for the financial turmoil since… the advice still stands.
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.
Giving Bear Stearns Bank a bailout was vital – otherwise the financial system and the thing that unkind people call the “credit/money bubble”, would have collapsed.
Bailing out Fannie Mae and Freddie Mac was also vital – otherwise the financial system would have collapsed. Senator Dodd and and Senator Obama were not paid a fortune by Fannie and Freddie for nothing.
And bailing out AIG was vital to – otherwise, again, the financial system would have collapsed.
And now all the “bad housing debt” of all the financial services companies must be taken up by the government – otherwise the financial system will collapse.
And Paul Marks must be bailed out too. After all once one has spent a trillion Dollars, more Dollars than there are stars in the sky or cells in your hands, what is a few Dollars more? His judgements were no worse than that of the bankers and other such. In fact they were better – after all he did not take on a lot of housing loans without even knowing who the money had been loaned to or which people had a chance of paying the money back.
And Paul Marks did not play complex games with the housing loans – treating a debt as an “asset” (“normal banking practice” of course) on which a vast castle-in-the-air could be built. The endless “lower interest rates” by the Federal Reserve system and the Bank of England, i.e. the endless flow of new credit/money that created the mad lending and manipulation in the first place, are not enough. Paul Marks must have a proper bailout – and he must have it now. If Paul Marks does not have a bailout I can assure you that the credit bubble financial system will come to grief.
Of course a “bitter and cynical” person would say that the credit bubble financial system will come to grief even if Paul Marks gets his bail out.
But that did not stop all the other bailouts. Each bailout was supposed to “save the financial system” and clearly did not, but that did not stop all the other bailouts.
Now everyone is going to get a bailout, so Paul Marks must have one too!
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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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