20 Sep 2008

Chicago Prof: "Why Paulson Is Wrong"

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Luigi Zingales makes some good points (pdf) about the Paulson Plan. (HT2MR) The best part is the conclusion:

The decisions that will be made this weekend matter not just to the prospects of the U.S. economy in the year to come; they will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalized and prudent behavior rewarded? For somebody like me who believes strongly in the free market system, the most serious risk of the current situation is that the interest of few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists.

19 Sep 2008

Ilana Mercer Plugs the Greatest Economics Book Ever

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…and she talks good sense on energy issues, too.

19 Sep 2008

Free Market Experts Explain Why Free Market Doesn’t Work

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Incidentally, the other thing that bothered me about CNBC today–btw I don’t own a TV, I saw all this while in Penn State–was that the timid, female commentators were honestly asking things like, “But why was this necessary? Why should taxpayers have to pick up the tab?”

Then the swaggering tough guys–with really cool silk ties that make me jealous–explained why it had to be this way. Even Stephen Moore–*sigh*–came on to the introduction of, “Now Steve, I’m as big a fan of the free market as you, but that doesn’t mean the freedom to totally collapse” or some glib excuse for repudiating their entire worldviews.

19 Sep 2008

Dumbest Quote of the Day

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So some guy on CNBC was explaining why the government had to buy up all the toxic debt. He said how there were only two major investment banks left, and that “Goldman Sachs is a symbol of market capitalism around the world. If the government had let that fail, it would have sent a strong message about the strength of our system” or something like that.

So the government has to socialize the financial sector, lest foreigners get the wrong idea about capitalism. Kinda like FDR saving capitalism, or better yet, Abe Lincoln violently suppressing secession to keep alive the experiment in self-determination.

19 Sep 2008

Bob, 21st Century; 21st Century, Bob

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For months now I have known that I “need to” get a PDA. Finally spurred by the recent loss of my cell phone (which ran on vacuum tubes), I broke down and bought a Blackberry before my Penn State trip. Let me just say: OH MY GOSH. I would have been going crazy had I not had internet access for several hours at a time during these crazy days. But now I have the CNBC Blackberry icon (not sure what the actual term for those things is). Now work can consume even more of my waking hours. Woo hoo!

19 Sep 2008

The Government Is Not Promoting Financial Stability

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The stock market is opening way way up today because of the announcement of massive government efforts to “support” financial shares. This just demonstrates that the government interventions have not been promoting “stability.”

Imagine that during normal economic times, the government started handing out hundreds of billions of dollars to various firms every few days, but that there wasn’t a discernible pattern. (I’m referring to the decision to let Lehman fail but not Bear, Fannie & Freddie, or AIG.) Moreover, investors learned that if a firm became troubled, the government might literally seize it and end up robbing the equity from common shareholders.

OK, so again, suppose we were in a normal economy and a delusional Treasury secretary started doing the above. Wouldn’t every “conservative” financial analyst decry how destabilizing these actions would be? Well, those actions are still just as destabilizing, but now we are treated to them during the midst of a financial crisis. I.e. it’s during periods of economic vulnerability that the government unleashes measures that would obviously be harmful even during times of strength.

Last observation: I have been saying for months that the government’s steadily increasing rescue attempts were prolonging the crisis, because investment banks and others with assets tied to suspect mortgages were postponing their adjustment, hoping the government would finally provide a massive bailout. And that’s exactly what happened. So those institutions performed “rationally” by trickling out the bad news and stringing their shareholders along for over a year, rather than giving a very candid disclosure 12 months ago, taking their losses, and getting on with a recovery.

18 Sep 2008

SEC to Impose More Restrictions on Short-Selling

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You can’t make this stuff up. (And if you did, your literary label would be “socialist fiction.”) The SEC is now going to “temporarily” ban short-selling.

Details of course are yet to be announced. It’s not clear what the timetable will be, or which stocks will be affected. Also, this particular story doesn’t say whether it will be bans on “naked” short-selling, or even fully clothed short-selling.

I stand by my earlier opinion that the completely useless ban on naked shorting back in July had the sole purpose of softening up the public, i.e. getting them used to the government meddling with shorting. Back then nobody raised a fuss, because the ban was so easily skirted. (It would be as if the government banned people from saying, “Bush is a big a-hole” but everything else was legal. The ACLU might not even bother bringing a suit, because critics of Bush could still legally say, “Bush is a huge a-hole.”)

BTW here is the madman Cramer spouting nonsense about short sellers, and how the SEC is to blame for our financial crisis. I guess it’s just a coincidence that these evil short sellers spread scurrilous rumors about Bear Stearns, Fannie & Freddie, Lehman, and AIG. Luck of the draw, I guess. The shorters could just as easily have destroyed the share prices of Exxon and Shell, right?

UPDATE: Here is Robert Wenzel with his angry yet cogent analysis. Warning, he uses some phallic metaphors in describing investment bankers. (And yes, now you have no choice but to click on the link.)

18 Sep 2008

Did Andrew Cuomo Make Palin-Like Gaffe On Naked Short Selling?

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I’m getting ready for my Penn State student radio interview so I can’t pontificate–don’t worry, I’ll be long-winded tonight. But I’ve got CNBC on in the hotel room, and CNBC’s Maria Bartiromo was interviewing NYS Attorney General Andrew Cuomo, who is getting ready to crack down on “illegal” short-selling. She said something like, “Well Mr. Cuomo, a lot of analysts are focusing primarily on naked short selling, saying this is the real problem, not short selling in general. Can you explain the difference to our viewers?”

Suffice to say, Cuomo’s answer gave no indication that he knew the difference. He totally dodged and just talked about other things that he understood. But because he wasn’t fighting the bimbo label, Bartiromo didn’t follow up with, “What do you interpret the difference to be?”