Can you say moral hazard much? The EU really doesn't need to set a precedent for the mismanaged economies of the south dumping their debt on the strong economies of the north.
That's nice rhetoric, but the fact is that there's no us and them, there's only us. We've had a monetary union for about a decade now - we opted-in on sharing each others pains.
So banks everywhere are sitting on a bunch of assets that scare the hell out of them, or have the potential to scare the hell out of them; they don't feel the assets have enough intrinsic value, without the guarantee of some government or central bank backing them up. If that government or central bank doesn't come through, then these banks will all race to dump these assets.
I'd like to see an article sort through one of these jittery bank's assets and place them into the two categories: 1) scares_the_hell_out_of_me, and 2) I_feel_pretty_good_about_this.
I wonder if we'd find the scary ones are strip malls in underpopulated areas, MLM schemes, sub-prime mortgage debt, and that the good ones are core manufacturing, agriculture, minerals, etc. If so, what's wrong with the banks dumping the crap?
The problem is that most of these assets, on an individual level, are small enough to not have to be explicitly disclosed publicly, making such an analysis near impossible for an outsider.
"The real damage [from the collapse of Lehman Brothers] was the message the failure sent--that the government might not do everything it could to prevent struggling firms from failing chaotically."
Does this mean the capital markets knowingly take extraordinary risks fully expecting a government bailout if they fail badly enough, but pocketing the profits if luck goes their way?
Are the ultimate free market advocates on Wall Street secretly non-believers in free markets?
There's nothing "secret" about it. Large players don't like free markets, because they have the resources to capture government regulators and jump over hoops that lesser competition can't, thus preventing the lesser competition from ever being formed.
An intrinsic part of getting the benefits of free markets is to make sure you don't end up with single companies that are too large. Beware the "socialism" that is just a cover for consolidating entire industries into one company.
As it stands, only an entity as large and powerful as the government is capable of busting up said combines, cartels, and monopolies.
My question is this: if officials at all levels of government are working in collusion with big-business, e.g. former finance executives making key decisions about fiscal policy and spending, who does the actual breaking? Those people will never be voted out, as those positions are usually filled by appointments. The irony is the government, as it stands, is the only entity capable of enforcing the "fair-play" necessary for a free market to function. Yet, if I recall, the government is the bane of free markets in the first place.
What does the size of the government have to do with breaking up monopolies? Does a multi-billion dollar expenditure on the Department of Education somehow make it easier to break up monopolies?
It needs power to break up monopolies, and a certain minimum size to be able to function effectively in this capacity, yes, but performing this function does not require massive staffs of bureaucrats making tons of regulations on every conceivable industry and thus being susceptible to capture in so many places. These two things are totally orthogonal; you can easily have either of "massive regulation" and "monopoly busting actions" without the other. Minimum size for monopoly busting would not be very large; monopolies aren't that tricky to detect.
I should clarify. My emphasis should have been on issues of power, rather than size. Governments happen to be large institutions for sure, but the power to realize a breakup of monopolistic practice lies in the fact that the government possesses that which private industry does not: a standing army. What is a decree sans power? A government mandate only means anything because it has coercive capability.
Besides, historically speaking monopolies have existed in lieu of strong government regulation or involvement. Look at Germany in the late 19th-early 20th century, e.g. the Rhine-Westphalian Coal Syndicate or Bayer.
Sadly you may well be right. I was just looking through Berkshire Hathaway's Annual Report 2008 the other night, and here's a crisp bit (page 18):
"...only companies having problems that can infect
the entire neighborhood – I won’t mention names – are certain to become a concern of the state (an outcome, I’m
sad to say, that is proper). From this irritating reality comes The First Law of Corporate Survival for ambitious
CEOs who pile on leverage and run large and unfathomable derivatives books: Modest incompetence simply
won’t do; it’s mindboggling screw-ups that are required."
> Are the ultimate free market advocates on Wall Street secretly non-believers in free markets?
What makes you think that the Wall Street folks are free market advocates? (Goldman Sachs, in particular, is a huge believer in govt intervention, perhaps because almost all of the folks in govt making such decisions have Goldman ties.)
In other news, big biz isn't a free market advocate either. GE is lobbying for govt mandates for its products. Walmart is lobbying to increase the health insurance costs of its competitors.
If you don't want big biz running something via govt, you can't let govt run said something. Regulatory capture is how things work.
"Does this mean the capital markets knowingly take extraordinary risks fully expecting a government bailout if they fail badly enough, but pocketing the profits if luck goes their way?"
No. But if you had a large sum of money in the financial system, would you have felt more secure if the government did or didn't bail out Lehman?
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[ 3.4 ms ] story [ 64.4 ms ] threadThe IMF could help. But it would be humiliating.
Krugman thinks the euro was a bad idea to begin with, you might find that interesting to read: http://krugman.blogs.nytimes.com/2010/02/05/the-spanish-trag...
I'd like to see an article sort through one of these jittery bank's assets and place them into the two categories: 1) scares_the_hell_out_of_me, and 2) I_feel_pretty_good_about_this.
I wonder if we'd find the scary ones are strip malls in underpopulated areas, MLM schemes, sub-prime mortgage debt, and that the good ones are core manufacturing, agriculture, minerals, etc. If so, what's wrong with the banks dumping the crap?
Does this mean the capital markets knowingly take extraordinary risks fully expecting a government bailout if they fail badly enough, but pocketing the profits if luck goes their way?
Are the ultimate free market advocates on Wall Street secretly non-believers in free markets?
An intrinsic part of getting the benefits of free markets is to make sure you don't end up with single companies that are too large. Beware the "socialism" that is just a cover for consolidating entire industries into one company.
My question is this: if officials at all levels of government are working in collusion with big-business, e.g. former finance executives making key decisions about fiscal policy and spending, who does the actual breaking? Those people will never be voted out, as those positions are usually filled by appointments. The irony is the government, as it stands, is the only entity capable of enforcing the "fair-play" necessary for a free market to function. Yet, if I recall, the government is the bane of free markets in the first place.
It needs power to break up monopolies, and a certain minimum size to be able to function effectively in this capacity, yes, but performing this function does not require massive staffs of bureaucrats making tons of regulations on every conceivable industry and thus being susceptible to capture in so many places. These two things are totally orthogonal; you can easily have either of "massive regulation" and "monopoly busting actions" without the other. Minimum size for monopoly busting would not be very large; monopolies aren't that tricky to detect.
Besides, historically speaking monopolies have existed in lieu of strong government regulation or involvement. Look at Germany in the late 19th-early 20th century, e.g. the Rhine-Westphalian Coal Syndicate or Bayer.
What makes you think that the Wall Street folks are free market advocates? (Goldman Sachs, in particular, is a huge believer in govt intervention, perhaps because almost all of the folks in govt making such decisions have Goldman ties.)
In other news, big biz isn't a free market advocate either. GE is lobbying for govt mandates for its products. Walmart is lobbying to increase the health insurance costs of its competitors.
If you don't want big biz running something via govt, you can't let govt run said something. Regulatory capture is how things work.
Good point. I guess I believe everything they tell me on CNBC. ;)
CNBC's audience is investors, not wall street folk.
No. But if you had a large sum of money in the financial system, would you have felt more secure if the government did or didn't bail out Lehman?
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