Matt Yglesias, drunk

by on September 21, 2008 at 11:21 am in Food and Drink | Permalink

The plan is bad. But bad policies get enacted all the time. But
we’re at a point now where congress is, allegedly, in the hands of
progressive leadership. Simply put, if congressional Democrats manage
to acquiesce in a plan that spends $700 billion on a bailout while
doing nothing for average working people and giving the taxpayer
virtually no upside in a way that guarantees that even electoral
victory would give an Obama administration no resources with which to
implement a progressive domestic agenda in 2009 then everyone’s going
to have to give serious consideration to becoming a pretty hard-core
libertarian.

It’d be one thing for a bunch of conservative politicians to ram a
terrible policy through. Then we could say “well, if some progressives
win the next election things will be different.” But if this comes
through an allegedly progressive congress then the whole enterprise
starts looking pretty hollow.

Here is the link.  Personally, I don’t get drunk, but there are a number of enterprises — not just Matt’s — which are looking pretty hollow these days.  And I don’t just mean banks.  You can blame lots of the crisis on government — more than most people think — but at the end of the day it is hard to escape the conclusion that markets simply have performed horribly in a number of important regards.

As one of Matt’s commentators indicates, it is time for both candidates to show up in Washington and start…um…acting like Senators.

Addendum: Via Greg Mankiw, here is a chilling analysis of the bail-out.  Get this line:

Decisions by the Secretary pursuant to the authority of this Act are
non-reviewable and committed to agency discretion, and may not be
reviewed by any court of law or any administrative agency.

Second addendum: Also via Matt, here is a round-up of critical commentary on the Paulson plan.  Count me in too, among those screaming "no!"  Yet it seems it’s going to happen.

1 fusion September 21, 2008 at 11:44 am

What’s your view on the Treasury buying stock or convertible debt in financial institutions? Seems a much better policy than the current plan.

2 Robert Olson September 21, 2008 at 11:56 am

“As one of Matt’s commentators indicates, it is time for both candidates to show up in Washington and start…um…acting like Senators.”

Blast! Expecting our candidates to show up to their jobs!

What kind of America is that!

3 Paul Zrimsek September 21, 2008 at 12:58 pm

Wouldn’t Obama’s promised middle-class tax cut have put paid to any idea of a “progressive domestic agenda” even if the bailout had never come up?

4 Mark September 21, 2008 at 1:58 pm

Just remember everyone that Alex is paid to defend Conservatives and attack all things New Deal. If Alex does not, Alex will lose his bandwidth and his Magic Neoconservative Decoder Ring.

Reading Alex is like reading DailyKos or Little Green Football: the blind spewing bias to the bias, just opposite ends of the extreme and financially rewarded for that purpose.

5 travis September 21, 2008 at 3:09 pm

In contrast to Newman above, this crisis has completely shaken my faith in the markets. Every time a crisis happens, libertarians say that if it weren’t for the Fed, none of this would have happened. Considering that crises were happening before the Fed and now after the Fed, maybe it is instead the nature of markets to experience highly leveraged booms which then crash rendering the financial players insolvent. *This* is the fundamental problem of markets. Furthermore the financial markets on their own don’t produce adequate disclosure. Even *with* the SEC, we have incredible concentrations of liability within certain firms such as AIG. Consequently, when a crisis occurs, no one knows who the strong financial players are so lending stops. Thus the government becomes the financier of last resort. Libertarianism is dead.

6 jason voorhees September 21, 2008 at 3:28 pm

Becker and Posner offer their perspectives, and seem to echo some of Tyler’s sentiment, notably Posner who calls this mainly a failure of markets, not government. Becker uses the D-word several times in his (depression).

7 shortgamma September 21, 2008 at 3:31 pm

If markets didn’t believe that govt would bail them out, we would still see crises, but more often and smaller. Instead we got a giant game of chicken, which the market wins (some bailout will happen) because the economy is held hostage. If you didn’t have FDIC insurance, then there would be more bank runs; but since individual bank runs would be common, they would also be less threatening to the economy as a whole. The problem with institutions like FDIC is that they make the government the real underwriter, since I as small-time lender don’t have to consider the solvency of a bank. And that means we pack our crises into less frequent and less manageable chunks.

8 Anonymous September 21, 2008 at 3:48 pm

The “progressive domestic agenda” would have been DOA anyway. Obama may be a radical in his heart of hearts, but he is also pragmatic.

Recall that Clinton once had his own progressive agenda, which came to nothing: universal health care and (as the very first initiative, in his first few days) gays in the military. And that was with the post-Cold-War peace dividend, Internet bubble prosperity, no war on terror, and sharply lower budget deficits or even surpluses; far more favorable conditions than Obama could ever have hoped to face.

9 Zephyrus September 21, 2008 at 4:26 pm

You know, I hate this plan, but there’s a simple addendum that’d make me an enthusiastic supporter of it.

Execute any CEO of the failing institutions who let this happen on his or her watch. Solves the moral hazard problem.

Oh yeah, wouldn’t want to forget Greenspan, too.

10 ogmb September 21, 2008 at 5:21 pm

Obama may be a radical in his heart of hearts

There are only two extremist poles in this game. Extreme hostility against markets and extreme hostility against governments. The first brand of extremism collapsed in 1991, the second one collapsed this week.

11 chris September 21, 2008 at 5:37 pm

Look, we had banking institutions and monetary institutions that interacted with each other for several decades. Then the monetary institutions changed (when the dollar was made fiat),but the banking ones were not adjusted. All this inflated credit simply exaggerated banking flaws. Why is the lesson here that markets fail in this case? Government imposed these institutions, as well as its monopoly control over money, and markets performed deplorably, they did nonetheless act within the constraints set by the State. (Isn’t this the point of TC’s earlier post on derivatives?) Remove these constraints, allow competitive money again, allow bad businesses to fail (including banks), let shareholders control boards (repeal the 1993 legislation weakening their role).

12 Philo September 21, 2008 at 6:09 pm

“. . .it is hard to escape the conclusion that markets simply have performed horribly in a number of important regards.”

One is tempted to ask: What did you want markets to *do*? But, really, markets aren’t agents (actors, performers); the buyers and sellers (and brokers or other intermediaries) are the ones who are doing (or not doing) things. So the question should be: What have these people done wrong, according to you, and why have they acted so?

13 RobbL September 21, 2008 at 6:47 pm

Tyler,
Congratulations! I call you the first of the libertarian economist that I have seen to have the intellectual honesty to take a look at their own market bias.

Philo,
What do I want markets to do? I guess you didn’t get the memo. Markets are self regulating and able to generate mechanisms to insure against bad stuff happening without any government help.

14 Apostate September 21, 2008 at 8:12 pm

“Philo,
What do I want markets to do? I guess you didn’t get the memo. Markets are self regulating and able to generate mechanisms to insure against bad stuff happening without any government help.”

When you do not give the market the ability to correct it’s not really a market is it?

During this crisis, the complete lack of understanding people have shown about how markets perform is frankly astounding. I guess I have been giving the human race to much credit.

15 ogmb September 21, 2008 at 9:39 pm

All this talk by the market radicals holding on to their crumbling belief system reminds me of the last days of the Soviet Union, when the argument was peddled that it wasn’t really Communism that collapsed, only some misconceived amalgamate borne out of an unfortunate need to compromise with the real world. The are apparently no limits to the blindness of ideologues, left or right.

16 Bob Murphy September 21, 2008 at 9:44 pm

RobbL said:

We have been waiting for the market to correct for over a year. How long do you want to wait? What ability has been taken away? Could you be more specific?

Sure. The reason the real estate bust fueled the credit crunch is that all the big institutions were shielding how much mortgage-related debt they were holding. I.e., if 13 months ago all the major players had been completely forthcoming, then the worst offenders would have gone bankrupt, but the credit markets wouldn’t have frozen up. Everybody would know the counterparty risk and could set interest rates accordingly. The damage would have been assessed, resources reallocated, and then we could get on with recovery.

But that didn’t happen. Instead the I-banks et al. dribbled out the bad news to their investors as slowly as possible. Now why did they do that? Well, maybe because they anticipated getting a $700 billion bailout. The government kept taking more and more steps since last September to keep all the big firms afloat. Why in the world would they be forthcoming with how much MBS they were holding, when the government was probably going to eventually save them if things didn’t turn around on their own?

I elaborate on this theme here. The basic point is, the government is a humongous player throwing hundreds of billions around, AND literally engaging in hostile takeovers. Call this what you will, but it is not a test of the “free market.”

Your position is akin to Jonah Goldberg saying, “Hey, we did ‘give peace a chance,’ and we got 9/11 for our troubles. So that’s why we have to keep bombing foreigners, because isolationism was tried and failed.” (And btw Jonah Goldberg really did say that a few years ago.)

17 RobbL September 21, 2008 at 9:58 pm

Bob,

As I understand it, you are a supporter of a laissez-faire market economy. But in such a market businesses have just as much incentive to hide their crumbling balance sheets just to keep their stock price up so that at least the insiders can get out. How would things have worked out any different?

18 RW Rogers September 21, 2008 at 10:31 pm

Someone just waived their magic wand and Goldman and Morgan Stanley just became bank holding companies.

19 pants September 21, 2008 at 11:05 pm

Is this really a fait accompli? I don’t think it is. Pelosi doesn’t like it, I am reading. She was the one that said last week: “Why should Bernanke be allowed to loan out $85 billion?” Dems have been criticizing the Bush admin for 8 years abandoning checks and balances. I am crossing my fingers that they do not pass a law that well, gives a bunch of power and money to Paulson without having to come under review or anything.

doug-

I think that depends on your definition of root cause. there was bad lending/buying BUT the crisis would have been contained if there was more regulation of financial instruments like CDS, etc. or there wouldn’t have been such an explosion of lending without artificially low interest rates, or the “you must buy a house” mentality. it’s not like everyone who’s house is default lied on the mortgage application, either, and i think it’s unfair to blame the entire crisis on bad buying/lending.

20 Bob Murphy September 21, 2008 at 11:44 pm

RobbL said:

As I understand it, you are a supporter of a laissez-faire market economy. But in such a market businesses have just as much incentive to hide their crumbling balance sheets just to keep their stock price up so that at least the insiders can get out. How would things have worked out any different?

You really don’t think the possibility that the government would come in and buy up all that bad debt–which Paulson just said he would do–would give an incentive for firms to drag their feet, and not admit to their investors how deep they were in it?

To directly answer your question, they would have been more forthcoming if there were no possibility of a bailout. Rather than dribble out the bad news over 13 months, better to just drop the bomb upfront and move on. Again, I am arguing that the reason they didn’t do this, is that they thought maybe their holdings would turn out not to be such bad bets after all.

And they were right.

21 a young curmudgeon September 21, 2008 at 11:51 pm

ogmb-

The amalgamate can still be better than socialism/an amalgamate with even bigger government intervention, even with recurring crises. Failure of the current amalgamate does not delegitimate free market arguments, which were highly critical of the system as it exists/existed anyway.

What this crisis does do is delegitimate people defending the status quo as capitalist and optimal. Movements along the margin are not going to solve the problems of the system we currently have. The choice seems to be between 1) nationalizing the financial system or 2) abolishing the fed and fiat money or 3) nationalizing PARTS of the financial system ad-hoc. It seems that 3) will only delay an inevitable 1) as another crisis occurs. I don’t see 2) happening so route 3) will be chosen, and the amalgamate will move towards ever bigger governmental influence, and with recurring crises like the current one, the believe in an ill-defined “capitalism” (the status quo + “greed” + government cronies/CEO’s/wall street buddies bailing each other out at tax-payers expense) will deteriorate.

22 CJS September 22, 2008 at 1:23 am

I meant “would still have a claim on the actual properties” in the above post. And if it bought derivatives, that would be an entirely different animal in my view.

23 Doug September 22, 2008 at 3:58 am

“Since you acknowledge that these people misstated their income and assets (i.e. they really don’t have much to begin with), this will help banks shore up their balance sheets exactly how? It’s like a bunch of firefighters standing around a burning building saying the only thing that needs to be done is to prosecute someone for arson.”

No. Its more like when an epidemic of arson results in half a city burning down. The arsonists all left notes at the fires identifying themselves, but everyone is blaming the property owners for failing to build high enough fences, and thinking of ways to further regulate property owners, instead of trying to stop the arsonists.

If you read my post, I wasn’t talking about what to do to “put out the fires.” I was talking about putting the blame where it really belongs in order to prevent similar events in the future.

24 Hopefully Anonymous September 22, 2008 at 6:28 am

a pretty good retort by ogmb.
One reason to be leary about the proposed Paulson intervention is the lack of expert consensus that it’s the best approach.
Where does the expert consensus lean? Perhaps this is a job for pollster Scott Adams?

25 Barry September 22, 2008 at 9:38 am

Robert Olson: “The concept is the same: Congress can’t be trusted with a potato gun. Maybe allow some legal recourse if Paulson et. all REALLY screw up (and I do believe if they REALLY screw up, they can simply be impeached along with the President anyways), but this a much better move.

Unless you think Congress is a shining example of “responsible governance.” ;)”

Wow – in the 8th year of the Bush administration, and you think that *Congress* is the party to blame.

26 floccina September 22, 2008 at 10:01 am

The problem that I see here is that when people have freedom sometimes bad stuff happens but with highly restricted freedom different bad stuff happens. Unfortunately people are inclined to believe that if you try to prevent bad stuff from happening through restrictions of freedom (generally called by the nicer name regulation) then less bad stuff is likely to happen. But human behavior is so complex and our understanding of it so limited that the restrictions of freedom beyond some old tried and true basics are not likely to have a bet benefit but. This seems to the story for not only economic issues but for things like recreational drug use.

Another big problem is that changes (either more or less regulation) can cause bad stuff to happen in the short term but be good long term. In the case of deregulation people get angry but in the case of more regulation people assume that regulation was meant to do good and so they support it.

The adjustments can be harsh. E.G. if you suddenly legalized all recreational drugs the news people would have a feat reporting on lives destroyed by drugs.

Freedom advocates get blasted for the great depression but FDR is lauded because he tried stuff but the great depression lasted 10 years after the election of FDR. I think that if FDR was a do nothing advocate (freedom advocate) he would have been gone in 4 years.

And so you have commentators like Matt Yglesias and Ezra Klein and a continuous push for more and more regulation.

27 Nicholas Im hurting inside September 22, 2008 at 12:38 pm

I don’t even know why people even vote anymore. I say we all quit voting and see what happens. Gosh :-S

28 ogmb September 22, 2008 at 3:42 pm

he most regulated area of financials fails – NOT good for left-wing politics

Confusing “most regulated” with “overregulated” again? If you’re trying to argue that Ponzi schemes are best deflated by letting Ponzi police himself you should resort to something better than logical fallacies. No limits to the blindness of ideologues.

29 ogmb September 23, 2008 at 5:29 am

You know, curmudgeon, the difference between an advocate of free markets and a blind ideologue is that the advocate can recognize the emergence of counterveiling evidence and adjust his position accordingly. The ideologue treats his ideology as religion: faith only strengthens in the emergence of counterevidence. Tyler seems to fall under the first category, while you urge your peers to join the league of the second. “There was regulation. Markets failed. Thus, regulation caused the market failure.” is not an argument. It’s a classical logical fallacy.

30 gabe September 23, 2008 at 1:21 pm

“You know, curmudgeon, the difference between an advocate of free markets and a blind ideologue is that the advocate can recognize the emergence of counterveiling evidence and adjust his position accordingly.”

You mean a advocate fo free markets adjusts his position to advocate against free-markets? And advocates of peace need to advocate for war? and advocates of freedom need to advocate for slavery?

Oh now I understand. People against forcing poor people to give 700 billion to JP Morgan Chase are just mean spirited idealogues. Thanks for clearing it up for us OGMB.

31 Christina September 23, 2008 at 2:13 pm

Confusing “most regulated” with “overregulated” again? If you’re trying to argue that Ponzi schemes are best deflated by letting Ponzi police himself you should resort to something better than logical fallacies. No limits to the blindness of ideologues.

This is a pretty common attack among those hostile to the idea of free markets. Unfortunately for them, it isn’t correct.

The free market works because it is regulated by people with competing interests, not because it allows companies to regulate themselves. If, for example, you patronize a bank that screws you over, your best hope is not that the bank will suddenly learn the error in its ways and clean up its act. Instead you take your business elsewhere, to a bank that won’t do that. This is the self-regulation of the market. The fact that people can vote with their feet and wallets and choose NOT to patronize bad firms.

To the extent that such actions are constrained is generally the extent to which firms in the industry have lobbied for government protection (regulation).

Also, you must remember that though Republicans have done a good job confusing pro-business with pro-markets, the two are NOT the same. Capitalists, almost by definition, hate capitalism and seek to limit it. The hilarious thing about the political left in this country is they actually believe that they are sticking it to the big, bad corporations with more government regulation, when in actuality, they are sticking it to the big, bad corporations’ would-be competitors. Talk about useful idiots.

32 ogmb September 23, 2008 at 8:12 pm

You mean a advocate fo free markets adjusts his position to advocate against free-markets

False dichotomy.

33 ogmb September 23, 2008 at 8:30 pm

The ad hominem of “ideologue” is characteristic of a weak mental ability

By no means, because I leave it up to you if you want to self-select into the category of blind ideologues. And don’t you worry about my mental abilities. The rest of your comment is pretty much random bullshit which has nothing to do with anything I said.

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