Saturday, March 07, 2009

QOTD

Don Boudreaux at Cafe Hayek:
It's become an article of faith among lots of people that recent events prove (or at least suggest) that markets don't work very well.

Let's assume -- contrary to what my assessment of the evidence tells me -- that the housing bubble and its crash, along with the current ills suffered by Detroit and other sectors, are exclusively the fault of the market. . .

But despite the current downturn, the market continues to work well in its typical silence. Do you have trouble today finding gasoline to buy? Are your local supermarket's shelves not stocked with food, wine, and (watch for it soon!) Easter candy? If your cat eats your socks, will you have trouble buying several new pair? If your car's battery dies this afternoon, must you resort to bicycling or public transportation because you can't replace your dead battery? If you're bored this evening with nothing to do, is there no movie you can go to or no DVD you can rent? If you miss your mom in Minneapolis or your boyfriend in Boston, can you not call them on your cell-phone -- or even buy a plane ticket and go visit them?
See also Robert Higgs at The Beacon:
[H]ow often do we pause to reflect on the near-miraculousness of this manner of living? Fresh fruits delivered in the middle of winter even to remote places all over this country! Who arranges this vast and complex distribution so successfully? How is it even possible to organize all the people who had to cooperate peacefully in order to make my splendid dessert possible. I have no idea who planted the fruit trees, tended them for years until they matured, picked the fruit, packaged and transported it through successive stages until it was ultimately placed on display in the grocery store I patronize. Of course, every one of these unknown people had to have the cooperation, directly or indirectly, of thousands of others, who manufactured the equipment and materials they used, produced the necessary fuels and lubricants, kept the accounts, insured the properties, arranged the payments, and so on and on and on.
(via Carpe Diem)

9 comments:

bobn said...

Well, if we believe in the market, then we must believe it when is says that the MBS, originally targetted for government purchase under TARP I, are toxic sludge.

The market, after all, is fully able to evaluate "hold to maturity" valuations. See here for an amazing example.

The geniuses owning this security price it at 97% of par. The geniuses at S&P rate it at 87%. The market gave it 38%. Keep in mind the security is composed of 2nd mortgages. Although the quoted article states "losses on defaulted mortgages are averaging 40 percent", in fact in this environment, the loss severity on 2nd mortgages is probably greater than 100%, after expences are factored in. So, is the market wrong? The only way I think it is wrong is if it paid too much.

So nobody can support the original purpose of TARP and simultaneously be a free marketeer. Many "free marketeers" are complete true believers, until 1 second after the market gives them the bad news.

Separately, you'll probably like this. Sadly, we may well be heading back to the simpler times Louis CK discusses.

Carl said...

The Calculated Risk post you cited, and the underlying New York Times article, are indeed excellent. And I agree that bailout advocates that merely want to be relived of their losses are hardly free marketers.

But I can't go along with your categorical claim that "nobody can support the original purpose of TARP and simultaneously be a free marketeer." The principal rationale for TARP was to prevent the further disaster that could have resulted had we allowed multiple counterparties to collapse. I'm not smart enough to insist we're better off if today because we did that. But conceding that some government intervention in the market may be warranted doesn't void my free market credentials.

By your definition, only an absolute hands-off approach qualifies. Such purity is impossible in the real world and would imply that no free market, or free marketeer, ever did or could exist.

bobn said...

The principal rationale for TARP was to prevent the further disaster that could have resulted had we allowed multiple counterparties to collapse

Except, when the bill was passed,

1) Paulson didn't use the money as he said he would.

2) They didn't use half the money at all.

3) Now that there are conditions on the money, many of the recipients are trying to give it back

AND

4) The Universe is still HERE!

SO

5) Bush and Paulson were bullshitting congress and the Dems fell for it like a sack of rocks.


In other words when somebody of either party says we have have to spend a bunch of money right now, without paying attention to details, that's a big warning flag that it's time to get the hip-boots out.

Did you look at the original 3 pager Paulson turned out, giving him sole discretion of the use of the money, with no oversight or recourse? How can you be a Conservative and fall for that one?

bobn said...

By your definition, only an absolute hands-off approach qualifies.

No, remember, I'm a Liberal-Socialist-Pinko of some sort because I think some regulation is a good thing. OBH has proved it ;-)

I just think that now that the curtain has been pulled aside, (the rating agencies have been unmasked for the scum they are), the market is a lot closer to the accurate price.

Also, think about it: if the Banks could have sold the stuff at market prices and survived, they would. Hence, the only way the Paulson plan could ever have worked would have been to knowingly over-paid for toxic sludge.

This thing was ALWAYS a big gift to Paulson's buddies on the Street.

OBloodyHell said...

> By your definition, only an absolute hands-off approach qualifies. Such purity is impossible in the real world and would imply that no free market, or free marketeer, ever did or could exist.

No, Hoover was clearly a fan of lassez-faire economics. We know how well that worked.

"Free markets", like any other notion concieved of by the mind of man, are subject to having someone take the idea and run straight off the end of the earth with it.

No rule should ever be *completely* inflexible.

OBloodyHell said...

> No, remember, I'm a Liberal-Socialist-Pinko of some sort because I think some regulation is a good thing.

No, you're a liberal-socialist-pinko because you're trying to ignore the seedcorn of this whole thing is not less than 8-10 years old.

You're an l-s-p because you want to only pay attention to the 2 years prior to the collapse so you can blame it all on Bush, and not on long-standing policies put in place mostly by Dem/Libtard politicos and bureaucrats over the last 15 and more years.

You're an l-s-p because you fail to grasp that anything this screwed up takes a lot more than 2-3 years to happen.

You're an l-s-p because you can't grasp that everyone piling onto a gravy train doesn't generally think about where the tracks are headed. As a matter of fact, smitten as so many are with gravy, they often argue with anyone trying to keep them off the train ride to hell. But you use those arguments to explain away how it's all the GOP's fault for not shutting them down, when any actual efforts to do that were consistently stonkered in committee by the Dems themselves.

(Barney Frank: "I want to roll the dice some more..." -- Sooner or later, you shoot craps. Guess what, Barney ?!?)

You're an l-s-p because you can't even begin to grasp (or won't admit) that this whole problem started with libs pushing for special exceptions to standard loan rules, then lying, via the GSE's own paperwork about how well they were doing, leading dullard idiots to believe that there was money to be made in ignoring standard loan rules, which caused them to push to get in on the deal. Gosh, it didn't actually work when you had to use REAL GAAP accounting instead of Magical Government Accounting Techniques (You know -- 1+1=4, 1-1=2, "Think of a number", that sort of thing).

===

NOW do you grasp why you're an l-s-p?

If so, glad I could help.

If not, well, you wouldn't be an l-s-p if you were all that rational in the first place.

;-P

bob, the word verification is "mange". Perhaps you should see a dermatologist...

Carl said...

bobn:

Maybe you're right--I don't know. But I do know that the TARP funding looks trivial compared to the stimulus and Obama's proposed budget today.

bobn said...

OBH says:

You're an l-s-p because you fail to grasp that anything this screwed up takes a lot more than 2-3 years to happen.

I think you're missing where I've stated that hold responsible de-regulationistas on both sides of the aisle, during both Clinton and Bush admins, at fault. But I've already spent more time than needed to discredit the CRA-caused-this idiocy. I still have serious doubts about the magnitude of GSE contributions, but in any case, the GSEs were regulated by the executive branch since 1992. OFHEO could and should have put the brakes on, but that was part of the Bush executive.

But the graphs are convincing: this happened on GWB's watch, and that is for a reason: the de-reg folks During the Clinton years may have helped drain the oil and put sugar in the gas tank, but it was Bush who disconnected all the warning lights and floored it.

By the way, I like the LSP thing - as satire anyhow. ;-)

Carl says:

But I do know that the TARP funding looks trivial compared to the stimulus and Obama's proposed budget today.

The TARP was one hundred percent government-sanctioned thievery. Some part of the stimulus plan will probably turn out to be proper counter-cyclical spending and/or serve some other useful purpose.

As for the budgets, I am pretty appalled and I agree with M_O_M that the energy policy is taking us down a black hole.

bobn said...

OBH said:

"Free markets", like any other notion concieved of by the mind of man, are subject to having someone take the idea and run straight off the end of the earth with it.

There's hope for you yet. Keep in mind that I feel the same way.

3 words: High School Football.

You wouldn't have a game with no boundary lines, no rules and no referees to enforce them. There are still winners and losers, and bad decisions still have consequences.

But you wouldn't let the Bush "regulators" manage a high school football game - that would put them out of their class - leave alone the biggest financial system in the world.