Tag Archives: government

The Fed’s Change of Subject

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Richard W. Fisher and Harvey Rosenblum, President and CEO and  Executive Vice President and Director of Research, respectively, of the Federal Reserve Bank of Dallas, wrote in Wednesday’s WSJ op-ed pages,

The phrase “too big to fail” is misleading. It really means too complex to manage. Not just for top bank executives, but too complex as well for creditors and shareholders to exert market discipline. And too big and complex for bank supervisors to exert regulatory discipline when internal management discipline and market discipline are lacking.

This is a cynically Alinsky-esque change of subject.  “Too big to fail” and “too complex to manage” are entirely separate concepts.  While there is some overlap—size does contribute to complexity—”too big to fail” is a purely political concept created to justify increased government interference in the private management of private enterprises.  “Too complex to manage” is at once a management and an economic concept.  It’s the managers who cannot keep up with the complexities of their enterprise (or, in fact they can; government has nothing legitimate to say here), and it is a free market economy that will demonstrate and react to the overcomplexification in a wholly appropriate manner: the truly too complex, and so poorly managed, enterprises will fail.

The proof of the political purpose of “too big to fail” is in that phrase “too big and complex for bank supervisors to exert regulatory discipline.”  But they add to that proof:

TBTF is a misnomer in another way. The phrase creates the impression that these banks cannot fail. … Suffice it to say, institutions holding one-third of U.S. banking system assets did essentially fail in 2008-09….  They were quasi-nationalized—bailed out….

Oh, and

…TBTF banks…contributed to reducing the impact of the Federal Reserve’s accommodative monetary policy.

The typical Progressive meme: it’s not my fault; it’s that other guy’s fault.  Never mind that the Fed’s “accommodative monetary policy” not only was, and is, not necessary, the inflation threat the Fed is creating with this policy is enormously and increasingly dangerous.

They also write, dismissively, that while principles (e.g., of “market capitalism”) count, economic performance also counts.  They use that superpositioning to justify government pressure to break up enterprises that the Fed (not the free market) considers too big.  In doing so, they ignore the fact that it is free market principles that maximize the capacity for performance.  They ignore the fact that while concentration can cause severe dislocation when the concentrated entities fail, the bankruptcy system of our particular free market system works very well.  That bankruptcy system has a habit of breaking up too complex, and/or “too big” enterprises that have failed—Merrill Lynch comes to mind, which was reduced in size and acquired by another enterprise; as does Lehman Brothers, which was allowed to disappear altogether and its assets sold to a multiplicity of other enterprises; and AIG, which is undergoing breakup and shrinkage today.  And the bankruptcy produces results far faster than can the government—just look at how many of our nationalized banks, and car companies, still have significant government ownership positions.

Government has to run things.  The free market system has to be centrally managed.  Our existing bankruptcy system has to be bypassed.  All this because government Knows Better.  A free market can’t be allowed to make its own decisions; that’s too messy for our antiseptic Progressive patróns.  And too far beyond their control.

He Just Doesn’t Get It, Treasury Precinct

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Eric Morath, of The Wall Street Journal, describes Secretary Treasury Timothy Geithner’s speech this week before the Economic Club of Chicago.  Geithner said,

The challenges facing the American economy today…are about the barriers to economic opportunity and economic security for many Americans and the political constraints that now stand in the way of better economic outcomes[.]

So far, so good.  But then, Geithner claims that the deficit- and debt-exploding “stimulus” spending this administration and its predecessor inflicted on our economy in 2008 and 2009 helped avoid a much deeper depression.  (As an aside, it’s interesting to note that, just as everyone else in this administration who’s made this claim has done, Geithner declined to offer any evidence whatsoever to support his claim.)  He also insists that government needs to do yet more to stimulate our economy.

Then he argued, in all seriousness, that cutting spending and taxes won’t stimulate the economy.  Here’s the Treasury Secretary insisting that leaving more of our money in our hands to spend—or save—according to our needs isn’t stimulative.

Additionally, here’s that same Treasury Secretary arguing the old, failed Keynesian thought that government spending, of its nature, is stimulative.  The thing with government spending, though, is that it crowds out private spending, it doesn’t add to it.  With the government buying, there’s less need for individuals or businesses to buy: government will, and give it to us.  Look at health care.  Look at food stamps (which I pick on due, among other things, to the impact of farm price supports and the government-mandated ethanol program on food prices).

And

There is no economic or financial case for using the fear of future deficits to cut as deeply into core functions of the government, to weaken the safety net or fundamentally alter Medicare benefits[.]

No, of course not.  He’ll just have more money printed up to cover those costs.  Never mind that all that inflowing printed currency is just inflation, either today or tomorrow, which will only erode the value of the money coming from that Federal spending—and the value of what money we still have after taxes.  The government can print money to keep up with its inflation.  We cannot.

No, Mr Geithner, the political constraints challenging our economy today consists entirely of too much Federal government interference in our economy.  The most important thing that government needs to do more of right now, to help our economy, to stimulate our economy, is to sit down and put its collective hands in its collective pockets.  Do more nothing

Recovery, and Recovery, and Recovery

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…creeps in this petty pace.*  Here are some statistics, courtesy of Edward Lazear, writing for The Wall Street Journal.

  • In the three years [after the Great Depression of 1930-33], the economy rebounded with growth rates of 11%, 9%, and 13%, respectively.
  • The current recovery, beginning in 2009, has had growth rates of in 3% and 1.7% in 2010 and 2011, respectively.  The [2012] growth rate looks to be about 2%.
  • From post-WWII to the current recession (1947-2007), the US’ average annual growth rate was 3.4%.
  • Since the ’80s, we’ve had somewhat slower growth, but even here, the average growth rate was 3%.
  • During our current “recovery,” our economy has grown at 2.4%—below both that long-term trend, and the intermediate, nearby trend.
  • Today our economy is 12% smaller than it would have been had we matched our growth trend since 2007.
  • Today our economy is 4 per centage points further off trend line than it was 1Q09 when President Obama’s nearly trillion-dollar “stimulus” effort started.

Historically, the deeper the recession, the stronger the subsequent recovery.  The present “recovery” isn’t robust by any measure.  It’s not even catching up.

Whose policies have been in effect throughout this creeping, petty “recovery?”  Not those of Bush the Younger.

*With apologies to the Thane, Macbeth.

Maybe It’s Time

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Andrew Ackerman and Jeffrey Sparshott described in The Wall Street Journal last week the status of the government’s recovery of TARP funds doled out during the bailouts.

Two things struck me:

Treasury has turned a profit on the Capital Purchase Program, the main federal effort to help stabilize financial markets. It invested a little less than $205 billion in 707 banks, and as of mid-February had gotten about $211 billion back.

However,

More than three years after the launch of TARP, the federal government still owns stakes in about 350 banks.

They continued on that last:

While the biggest institutions have long since paid back their rescue funding, many smaller banks have been slow to shed government aid.

The divide in part reflects the difficulties faced by many Main Street banks, often saddled with poorly performing commercial real-estate loans and limited ability to raise new funds. Together with weak regional economies and a tough lending environment, the banks haven’t been able to exit TARP.

Maybe it’s time for the Feds to exit them from TARP.  Maybe it’s time to get government out of the way, let these banks fail, and let them recover and move on.

And German Governance

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The following is excerpted from Spiegel Online:

SPIEGEL: Facebook is only eight years old, has annual revenues of $3.7 billion and, following its stock market debut, could be worth $100 billion. Is that normal?

[Co-founder of German business software giant SAP, Hasso] Plattner: Oh God, normal!? That’s just what America is like. They’re unbeatable when it comes to advertising. Don’t ask me if I think it’s a good thing …

SPIEGEL: Well, do you think it’s a good thing?

Plattner: You’re bombarded with advertising all day long there. But that’s just how it works. You really have to take your hat off to the Americans — the way they reinvent themselves again and again, especially in the high-tech sector.

SPIEGEL: But that could also be possible in Germany.

Plattner: A lot of the framework conditions are not right here. For instance, it’s much more difficult to obtain venture capital. But you need that so your company can quickly achieve a critical size. And anyone who follows all the daily debates in Germany that are critical of capitalism and growth could come to the conclusion that we Germans don’t want to be successful anymore.

…

Plattner: …it’s really only in Germany that I’m asked time and again such strange things like: Why growth? Or: Why does the database have to be so much faster? That just creates stress … And that, even though for the past 40 years IT has been almost exclusively about the question of speed. Americans are much more open and bolder in this respect. Their attitude has also long since been adopted by the Indians and the Chinese, which makes the competition even more difficult for us.

We, the people, have to take care, also, or we’re no better at governance than a top-down governance in China.  At least, though, we can correct our own mistakes.