This is a bit old by now in terms of the news cycle. Nonetheless, it's still a teachable moment. (see
here also
video)
The Administration is "trying to tamp down talk that it didn't get it quite right -- talk created by Vice President Biden," who told ABC's George Stephanopoulos that the Administration "misread the economy." Obama "tried to modulate the impact of the vice president's words." Obama said, "No, no, no, no, no. Rather than say 'misread,' we had incomplete information."
Which is almost always the case on anything of consequence regarding the economy. Fortunately,
Hayek is available to help:
The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
However, only someone with an open mind can grasp this idea if it is in conflict with their existing beliefs!
16 comments:
They no doubt think that somehow they have complete information now.
Yeah, letting the market assess risk is WAAAAY better. Everybody knows that!
Central bankers and other government policy makers create perverse incentives and I should be surprised that markets deliver a perverse result? Tell me why??
Yes. In addition we know how well public management of resources works.
Central banks created incentives for credit default swaps without any underlying assets?
Do tell how.
Bret, yeah, there aren't any private slumlords in Honolulu.
The reason public housing in Honolulu is so lousy is that it is starved of funds.
Harry, This statement surprises. The reason public housing in Honolulu is so lousy is that it is starved of funds.
We all know why private housing for the poor, owned by greedy landlords, is lousy, but public housing? Surely the generous citizens are paying their taxes so public housing can be funded. Could it be that greedy public officials are channeling funds into their own pockets instead of providing services for the downtrodden?
Nah. It was Reagan's fault.
It's starved of funds for the same reason that every community has better tennis courts than prisons. People vote taxes to benefit themselves.
Central banks created incentives for credit default swaps without any underlying assets?
The "underlying asset" issue matters in an insurance style regulatory scheme but is irrelevant in a equally viable option clearing house structure. The whole matter of credit default swaps is quite small compared to other Wall St. misconduct which was considerable. All of that is swamped in significance by matters covered here and the article referenced therein.
Ask yourself why there was such a huge housing bubble and why is there such a ridiculously high default rate on the actual mortgages which underlie many mortgage backed securities?
Monopoly power? Anybody can start a rating agency.
It was a market failure. To say that the government encouraged home ownership is what's irrelevant. The government did not require anybody to make funny loans. It wasn't the CRA.
Next thing I hear, you'll be blaming the central banks on the dot.com bubble.
Bubbles are always (so far as I know economic history) market driven. How could they be otherwise?
Click here for a very detailed IBD article about how the CRA not only required banks to make bad loans, but threatened and intimidated reluctant banks into compliance.
Incredible as it may seem, the same people, Emanuel, Dodge, Frank, who pushed the economy over the edge are still pushing the same policies yet according polls, 53% of the public think the economic collapse is Bush's fault.
You really can't make up stuff like this.
erp, I have one word for you: Countrywide.
It was the largest originator of funny loans, and since it was not a bank, it was not involved with the CRA.
I understand that the people who engineered this mess are desperate to direct attention away from themselves, but it won't wash.
And I await, with bated breath, an explanation of how Barney Frank forced investors in Norway to buy these crazy securities on the secondary market.
Countrywide was, in addition to Chris Dodd's piggy bank, a mortgage company of questionable repute.
The people who engineered this mess are still doing so while at the same time continuing to enrich themselves.
Would I be surprised if Barney Frank was involved in Norway's investment policies? Not really.
Countrywide was basically the marketing arm of Fannie Mae and Freddie Mac, both of which are essentially government entities.
'Basically the marketing arm of Fannie Mae and Freddie Mac' is close to meaningless. Nobody made people write funny mortgages, nor was there any compulsion to buy the strips in the secondary market.
Anybody could open his daily newspaper -- I did -- and look at ads for no-doc jumbos and figure out that the paper was dicey.
Sorry, it was a straight Wall Street robbery and everybody thought he was the robber. Most of them turned out to be mistaken about that.
Harry Eagar wrote: "Nobody made people write funny mortgages..."
Oh! I thought we were discussing "the people who engineered this mess".
Countrywide did not engineer this mess. While it's true they were neither "forced" nor "made" to write the mortgages they did, that's irrelevant because they were certainly provided incentives and encouraged by the government and government sponsored entities to do so. That's why it's the government that's responsible for the mess. If they had stayed out of it, it wouldn't have happend.
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