Krugman gets the facts wrong

by Russ Roberts on September 23, 2008

in Government Intervention

Back in July, as Fannie and Freddie were starting to implode, Krugman concluded that Fannie and Freddie weren’t part of the subprime crisis:

But here’s the thing: Fannie and Freddie had nothing to do with the
explosion of high-risk lending a few years ago, an explosion that
dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after
growing rapidly in the 1990s, largely faded from the scene during the
height of the housing bubble.

Partly that’s because regulators, responding to accounting scandals
at the companies, placed temporary restraints on both Fannie and
Freddie that curtailed their lending just as housing prices were really
taking off. Also, they didn’t do any subprime lending, because they
can’t: the definition of a subprime loan is precisely a loan that
doesn’t meet the requirement, imposed by law, that Fannie and Freddie
buy only mortgages issued to borrowers who made substantial down
payments and carefully documented their income.

So whatever bad
incentives the implicit federal guarantee creates have been offset by
the fact that Fannie and Freddie were and are tightly regulated with
regard to the risks they can take. You could say that the
Fannie-Freddie experience shows that regulation works.

His conclusion is quoted approvingly by Economist’s View, a couple of days ago. [CORRECTION: Economist's View didn't quote Krugman directly, just a post by someone else that referenced the Krugman article. But Economist's View does argue like Krugman that Fannie and Freddie didn't cause the meltdown.]

Alas, Krugman has his facts wrong. As the Washington Post has reported:

In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.

Eager to put more low-income and minority families into their own
homes, the agency required that two government-chartered mortgage
finance firms purchase far more "affordable" loans made to these
borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.

Housing experts and some congressional leaders now view those decisions
as mistakes that contributed to an escalation of subprime lending that
is roiling the U.S. economy.

The agency neglected to examine whether borrowers could make the
payments on the loans that Freddie and Fannie classified as affordable.
From 2004 to 2006, the two purchased $434 billion in securities backed
by subprime loans, creating a market for more such lending.

$434 billion isn’t zero, and that’s just from 2004 to 2006.

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Russ Wood September 23, 2008 at 10:32 pm

I find very little of value from Krugman's columns and no longer follow them. But I was pleasantly surprised to see from a third party column, Krugman's recent piece criticizing the Treasury's bailout. As the folks at BWR put it:
"We rarely agree with Paul Krugman. But when he makes a good point, such as when he argues against protectionism or like here, when he questions the Treasury's call for broad, sweeping powers that are beyond review by any court or agency in the land, he gets credit. The same Treasury that has offered throwaway lines on the value of the dollar since 2004, would have virtually unimpeachable authority to err grievously with this proposal." http://brettonwoodsresearch.com

Oil Shock September 23, 2008 at 10:47 pm
Lee September 23, 2008 at 10:59 pm

"Krugman gets the facts wrong"

This is not news anymore.

x.x.x. September 24, 2008 at 2:21 am

ahh yes…securitization is the SAME THING as socialist affordable housing programs. your fucking brilliant man.

Babinich September 24, 2008 at 5:39 am

Why take Paul Krugman seriously? Why take the New York Times seriously after they prove to be incompetent over and over again?

See Editors' Note

http://www.nytimes.com/2008/09/19/pageoneplus/corrections.html?_r=1&oref=slogin

indiana jim September 24, 2008 at 7:34 am

Thanks Russ for reinforcing the consistent propensity for Krugman to err.

Brad Warbiany September 24, 2008 at 10:01 am

xxx is right…

Fannie and Freddy weren't buying up the garbage paper. They were just buying the garbage *securities* based on the garbage paper. That absolves them from blame in xxx and Krugman-world.

muirgeo September 24, 2008 at 10:54 am

Russ,

You make some valid points of complicity of policy in effecting or enabling the sub-prime crisis. But this is at the expense of ignoring the much bigger picture of the causes of the current crisis.

The fact is there was a time when this could not have happened because rules that strictly prohibited commercial banks from being "engaged principally" in securities business.

This process could NOT have happened if it were not legal to package loans into securities. The big push to do so came from Wall Street not from policy makers.

"In the spring of 1987, the Federal Reserve Board votes 3-2 in favor of easing regulations under Glass-Steagall Act, overriding the opposition of Chairman Paul Volcker. The vote comes after the Fed Board hears proposals from Citicorp, J.P. Morgan and Bankers Trust advocating the loosening of Glass-Steagall restrictions to allow banks to handle several underwriting businesses, including commercial paper, municipal revenue bonds, and mortgage-backed securities. Thomas Theobald, then vice chairman of Citicorp, argues that three "outside checks" on corporate misbehavior had emerged since 1933: "a very effective" SEC; knowledgeable investors, and "very sophisticated" rating agencies. Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public. (LET ME RE-WRITE THIS FOR EMPHASIS. Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public.) For many critics, it boiled down to the issue of two different cultures – a culture of risk which was the securities business, and a culture of protection of deposits which was the culture of banking."

Now fast forward and you have Henry Paulson (known as Mr. Risk on Wall Street), former CEO of Goldman Sachs ( an investment conglomerate only made possible by repeal of Glass Steagall), threatening the American citizens with economic collapse if he doesn't get his $700,000,000,000 dollars with NO CONDITIONS attached. Oh yeah and he still owns about $500,000,000,000 in Goldman Sachs.

This is Naomi Kliens Shock Doctrine come home to roost.

None of this would have happened if Wall Street didn't get it's every wish. Further to emphasize is that these securities that caused this disaster are completely unregulated products and the fact that they intentionally made them opaque is all one needs to know to call this a market failure. No one forced these things on the markets. They specifically created them. Putting emphasis on the policy implications is simply noting the flea on the elephants behind. Ok OK it wasn't a flea it was a full sized fly ….. Deregulating markets is like saying you think Ponzi schemes are a good way to run an economy because that's what happens every time. Boom and Bust as guys get rich cheating faster and easier then by being forced to play by the rules on level playing field. The fact that there were NO major similar economic disasters between 1935 and 1975 is just one more piece of evidence against the blame regulation meme.

muirgeo September 24, 2008 at 12:18 pm

Also instructive to see the evolution of the crisis is to page through the archives of on-line newspapers like the NYT.

I search "subprime crisis" from 1985-2001 and found this;

Lenders Try to Fend Off Laws on Subprime Loans Published: April 4, 2001

Then searching the same from 2001- 2005 ;

A Hands-Off Policy on Mortgage Loans

The deregulation gurus prevailed even when experts where warning of impending problems. Wall Street got its way even to the point were "the Modern supposed Fedreralist" in the White House were over-riding states desires for more restrictions and forcing less stringent oversight on the states.

"The Bush administration and Republican lawmakers in Congress are seeking to pre-empt state laws on predatory lending, saying that consumers and lenders need a coherent set of national rules."

Bill September 24, 2008 at 12:51 pm

"Lenders Try to Fend Off Laws on Subprime Loans"

There is still something missing in this scenario. Why make those loans if they are so risky? Doing it just to "generate fees" seems a bit silly if in the end the loan doesn't get paid off.

There is also this interesting bit in the article:

Fueled by money from Wall Street, subprime home refinancings rose 900 percent, to 790,000 annually, from 1993 to 1998, HUD reported last year. More than half of the refinancings in predominantly black neighborhoods in 1998 were made with subprime loans, over five times the rate in white neighborhoods, HUD found.

That first sentence tells me that there was a boom being created and it was most likely because of the Fed monetary policy (i.e., the fuel). The second sentence lends credence to the notion that these institutions were reacting to social pressure from government and advocacy groups to increase lending to poor black neighborhoods.

Martin Brock September 24, 2008 at 1:36 pm

Oh yeah and he still owns about $500,000,000,000 in Goldman Sachs.

I doubt that. Count your zeros.

Martin Brock September 24, 2008 at 1:45 pm

Doing it just to "generate fees" seems a bit silly if in the end the loan doesn't get paid off.

It all depends on who earns the fees and who suffers the loss on the loan. If I earn a fee selling you a worthless security, I couldn't care less if you lose every penny you have. Even if I do feel your pain, I'll still manage to believe that the security isn't worthless before selling it to you. Does anyone really believe that Goldman Sachs executives, along with their salesmen, are immune to this psychological condition? The condition is unknown outside of the District of Columbia, and Paulson catches it only after moving? Puhleeez.

Sam Grove September 24, 2008 at 1:53 pm

What deregulatiom?
The finance industry has been, and remains, one of the most regulated industries.

Of course those in any regulated industris seek "changes" for their own benefit.That's what humans do.

The problems have no connection to free markets, since, as you have repeatedly averred, there's no such thing.

Sam Grove September 24, 2008 at 1:58 pm

Have you apprised your representatives of your opposition to any bailouts?

I have done so via downsizedc.org

Oil Shock September 24, 2008 at 2:04 pm

Hanky Panky Paulson cashed out his stock just before he became the treasury secretary. It is a requirement by law, to avoid any potential conflict of interest. Good for him. He got a chance to avoid paying capital gains, because he was doing it to fulfill legal requirements.

dg lesvic September 24, 2008 at 3:30 pm

The big question seems to be whether sub-prime loans were initiated by the private or public sector. If by the private, and the public agencies of it, the Community Reinvestment Act, and Fannie and Freddie, were superfluous and inoperative, why were they created, and why not abolish them?

The Left can’t seem to decide whether we’re a regulated or laissez faire nation. When things are going well, we’re regulated, but when not so well, laissez faire. And, likewise, when the nation is laissez faire, things are going badly, and, when regulated, wonderfully, as under Roosevelt, whose regulations saved America.

But, if he is to be credited with ending the Depression, he must also be blamed for starting World War II, for it was not until it absorbed the unemployed into the armed forces and war production that unemployment and the depression finally came to an end.

There was a better way. Harding, elected in 1920, “inherited… one of the sharpest recessions in American history. By July 1921 it was all over and the economy was booming again. Harding had done nothing except cut government expenditure."
Modern Times by Paul Johnson, P 216

With a policy of saving rather spending our way to prosperity, he got us out of a downturn without a depression and a world war.

And for that he is the most belittled president of the last century while Roosevelt is the most admired.

muirgeo September 24, 2008 at 4:45 pm

"Lenders Try to Fend Off Laws on Subprime Loans"

There is still something missing in this scenario. Why make those loans if they are so risky? Doing it just to "generate fees" seems a bit silly if in the end the loan doesn't get paid off.

Posted by: Bill

Great point Bill. Same for your second comment. Such loans would never be made if they couldn't quickly be off-loaded and repackaged as complex financial securities. Wall Street was not able to do so until they broke down the rules that separated commercial and investment banking.

dg lesvic September 24, 2008 at 6:14 pm

Modifying my post above just slightly:

Since, to the Left, the crisis “proves” one thing, and, to the Right, another, it proves nothing. But economics still proves that “regulation” is strangulation

Oil Shock September 24, 2008 at 6:40 pm

Great point Bill. Same for your second comment. Such loans would never be made if they couldn't quickly be off-loaded and repackaged as complex financial securities. Wall Street was not able to do so until they broke down the rules that separated commercial and investment banking.

Yes, market is fixing the problem. The punters are taking it on their chin, but the keynesians want to give them a bail out. I say no.

Here is a couple of interesting exchanges from TV.

1) Bernanke refuses to answer as to where he gets the authority to bail out private enterprises using public money. Then as always, this congressman insinuates that Federal Reserve itself may be illegal (LOL)

2) Interview on Fox business.

I say, "No Keynesian bail outs."

Mesa Econoguy September 24, 2008 at 8:12 pm

Apologies to Russ & Don,

I am sick of all this bullshit and factual misrepresentation about finance and capital markets being propagated on this blog by people like muirgeo who have no qualification, training or expertise to be talking about any of this.

Just some of the financial stupidity posted by this idiot, propagated by his leftist friends:

Now fast forward and you have Henry Paulson (known as Mr. Risk on Wall Street), former CEO of Goldman Sachs ( an investment conglomerate only made possible by repeal of Glass Steagall)

Wrong. Goldman Sachs is an investment bank started in 1869 engaged in 3 principal lines of business: investment banking, principal trading, and asset management. It does not engage in retail depository banking. On 9/21/08, Goldman submitted a status change request to become a bank holding company, which it previously was not, in order to achieve additional "protection" and liquidity access from the Fed in return for governance by the same regulatory bodies as "traditional" banks (e.g. Citigroup). This previously would have been impossible under Glass Steagall, so get your financial history straight before you open your fat yap, George.

… threatening the American citizens with economic collapse if he doesn't get his $700,000,000,000 dollars with NO CONDITIONS attached. Oh yeah and he still owns about $500,000,000,000 in Goldman Sachs.

No, he does not:

"One fringe benefit was the capital gains tax exemption given to federal appointees who have to sell holdings before they take office: When Paulson sold his $500 million of Goldman Sachs stock, he saved tens of millions of dollars."

Paulson to the rescue

And you're off by a factor of 1000 George. Are you that imprecise in surgery, shitbag?

[Adam Smith proposed an excess tax on government servants – one of my favorite ideas]

This is Naomi Kliens Shock Doctrine come home to roost.

Naomi Kline is an irrelevant, financially illiterate ignoramus. No one in the markets gives a fuck what she thinks.

None of this would have happened if Wall Street didn't get it's every wish.

Bullshit. You have absolutely no grounds to make that statement muiron, nor is it provable, nor is my contention that had this scenario not played out as it is, some other equally if not more troubling scenario wouldn't currently be occurring. Since I work in the financial markets, my opinion carries far more weight than anyone at PBS, or most other crap sources you quote, dumbass. Something else would be happening in its place right now.

Further to emphasize is that these securities that caused this disaster are completely unregulated products and the fact that they intentionally made them opaque is all one needs to know to call this a market failure.

No. Absolutely backwards.

No one forced these things on the markets. They specifically created them.

Let me explain something to you, moron, with emphasis: they were brought to market BECAUSE THERE WAS DEMAND FOR THEM, BACKED BY GOVERNMENT ASSURANCE (and some social engineering thrown in for good measure). What part of that do you not understand?

Apparently all of it, as that is what markets are: markets clear. There are buyers, and there are sellers, and in the financial markets, there are very specific rules governing who can sell what to whom, when, and with what disclosures. NONE of these extensive regulations prevented any of this, and I cannot imagine any conglomeration of any regulatory scheme that would have effectively dispersed this risk, or even evaluated it properly.

Let me explain something else mssrs. Muirgeo & Krugman, financial amateurs: Just because a security is no bid doesn't mean it is worthless. It means there's currently no bid, so nobody wants to buy. That can and does change over time, and will especially do so once panic and fire-sale selling activity stop, much of which is caused by MARK-TO-MARKET REGULATIONS. In order to maintain the capital ratios of their balance sheets, many of these banking entities are forced to raise cash by liquidating this crap, and many other nonblank entities (funds, pass-thru-trusts, etc.) must liquidate upon customer redemption, caused by financial press panic-mongering.

This is largely a mark-to-market crisis directly caused by regulation.

You (and Krugman) have absolutely no business commenting on finance or capital markets because you don't know jack shit about them. It’s time for you to sit down, shut up, and start paying attention to those of us in this mess, not some journalism school hussy like Naomi Klein.

Am I being clear?

Mesa Econoguy September 24, 2008 at 9:06 pm

October 20, 1997
First Union Capital Markets Corp., Bear, Stearns & Co. Price Securities Offering Backed By Affordable Mortgages
Unique Transaction To Benefit Underserved Housing Market

CHARLOTTE – First Union Capital Markets Corp. and Bear, Stearns & Co. Inc. have priced a $384.6 million offering of securities backed by Community Reinvestment Act (CRA) loans – marking the industry's first public securitization of CRA loans.

The affordable mortgages were originated or acquired by First Union Corporation and subsidiaries. Customers will experience no impact – they will continue to make payments to and be serviced by First Union Mortgage Corp. CRA loans are loans targeted to low and moderate income borrowers and neighborhoods under the Community Reinvestment Act of 1977.

"The securitization of these affordable mortgages allows us to redeploy capital back into our communities and to expand our ability to provide credit to low and moderate income individuals," said Jane Henderson, managing director of First Union's Community Reinvestment and Fair Lending Programs. "First Union is committed to promoting home ownership in traditionally underserved markets through a comprehensive line of competitive and flexible affordable mortgage products. This transaction enables us to continue to aggressively serve those markets."

The $384.6 million in senior certificates are guaranteed by Freddie Mac and have an implied "AAA" rating. First Union Capital Markets Corp. is the investment banking subsidiary of First Union Corporation.

"We are extremely pleased by how well this transaction was received by investors as many of the tranches were significantly oversubscribed," said Owen Williams, managing director of fixed income sales and trading at First Union Capital Markets Corp. "This offering is further proof of investors' b desire for a diverse range of collateral."

Brian Simpson, managing director of First Union Corporation's Structured Products and Real Estate Group, said the transaction exemplifies First Union's effective use of asset securitization in managing its own balance sheet. Last July, First Union Capital Markets Corp. completed a $405.6 million securities offering backed by student loans originated by a First Union Corporation subsidiary.

"Securitizing assets enables First Union to continue to grow its loan portfolio, while at the same time generate additional fee income," Simpson said. "We also have been very successful in providing innovative asset finance services to clients. We believe there is opportunity to expand our CRA loan securitization capabilities to other companies in the market."

First Union has completed 20 asset-backed transactions for clients in 1997 totaling $4.3 billion, including a $268 million public offering backed by equipment leases for Heller Financial Inc. and a $67 million public offering for National Auto Finance Company secured by retail auto loans.

First Union Capital Markets Corp. provides a full range of investment banking products and services, including asset-backed finance, public finance, syndicated loans, merger and acquisition advisory, private finance, equity underwriting and investment grade and high-yield debt finance.

First Union has grown its capital markets business substantially over the last three years. First Union's Capital Markets Group reported 1997 fee income through Sept. 30 of $531 million, up from $464 million for the full year of 1996 and $265 million in 1995.

First Union's community reinvestment activity averages $3.5 billion per year. First Union offers a broad range of financial products and services to low and moderate income communities, including affordable housing mortgages, home improvement loans, consumer loans, secured credit cards, small business loans, small farm loans, micro-lending and Low Income Housing Tax Credits.

Charlotte-based First Union Corporation is the nation's sixth-largest bank holding company with assets of $144 billion as of Sept. 30, 1997. The company serves approximately 12 million customers throughout the East Coast and nation.

– END –

Mesa Econoguy September 24, 2008 at 9:20 pm

Res ipsa loquitor

Martin Brock September 24, 2008 at 9:53 pm

… they were brought to market BECAUSE THERE WAS DEMAND FOR THEM, BACKED BY GOVERNMENT ASSURANCE …

If they were brought to market backed by government assurance, we wouldn't be having this debate. The government does not assure them, yet, and I don't want the government assuring them.

Mesa Econoguy September 24, 2008 at 11:10 pm

That’s the whole point, Martin.

Keep up.

Mesa Econoguy September 24, 2008 at 11:33 pm

And yes, they most definitely assure, insure, and back them up now.

muirgeo September 25, 2008 at 12:45 am

You (and Krugman) have absolutely no business commenting on finance or capital markets because you don't know jack shit about them.

Am I being clear?
Posted by: Mesa Econoguy

You guys obviously don't know much about markets either. You've brought down the house and you're looking for everyone else to blame and everyone else to bail you out. And now it's time for a good old fashion FDR style smack down of your out of control malpracticing asses. CLEAR?

Sam Grove September 25, 2008 at 1:11 am

muirgeo,

In tenor and intent, you sound just like several Lyndon LaRouche supporters I've had the misfortune to meet over the years.

FDR, ideological torch of the progressive/liberal who maneuvered the U.S. into WWII with blatant disregard for the lives he was willing to dispose of in his quest to further the U.S. empire.

Mesa Econoguy September 25, 2008 at 1:18 am

Fuck you, George, and your little “netroots” peons, k?

Go fuck yourself. Go learn financial intermediation, go learn basic microeconomics from Russ, go learn macro theory from Don, then come talk to me, k?

You little shit.

Mesa Econoguy September 25, 2008 at 1:27 am

Speaking of malpractice…..George…..

Sam Grove September 25, 2008 at 1:42 am

George forgets himself and reveals his inner fascist.

Fascist: one who seeks to use the power of the state to "make" the market work in a certain fashion.

Hans Luftner September 25, 2008 at 2:05 am

You've brought down the house and you're looking for everyone else to blame and everyone else to bail you out.

I didn't realize we were all in favor of the bailouts.

It's a good thing we have George here to carefully read our posts & respond thoughtfully instead of just reacting to his preconceived assumptions.

I wish I lived in the Bay Area so I could bring my kids to an intelligent pediatrician like George who knows how to listen. I would totally trust him with their health & well-being.

muirgeo September 25, 2008 at 2:15 am

Fascist: one who seeks to use the power of the state to "make" the market work in a certain fashion.

Posted by: Sam Grove

I think you have me confused with Hank Paulson former CEO of Goldman Sachs now turned socialist beggard with a tin cup and blind mans glasses. Unregulated capitalist always turn corporatist Sam. unless you think you can change human nature.

The good thing about Paulson was his rescue plan was honest and simple being on a single piece of paper in his own writing;

HAND OVER THE LOOT AND NO ONE GETS HURT!

Mr. Risk

brotio September 25, 2008 at 2:50 am

I'm pretty sure that it's been pointed out to the Muiron (HT: Mesa) that Goldman Sachs was not in an unregulated market. But I thought I'd point it out anyway, just so I could use the word 'Muiron' in a sentence.

brotio September 25, 2008 at 3:10 am

I wonder why we are supposed to have more sympathy for a pediatrician/socialist beggar than for a CEO/socialist beggar.

I would think, though, that Muirduck would welcome a brother socialist to the fold.

Mesa Econoguy September 25, 2008 at 3:16 am

One would think that fact trumps belief, particularly to “trained” men of science such as muirfuckwad, wouldn’t one?

Disturbing.

muirgeo September 25, 2008 at 3:22 am
Mesa Econoguy September 25, 2008 at 3:25 am

Hans, to an actual doctor, your comment is more insulting than anything I could possibly construct.

Entirely agreed.

Hans Luftner September 25, 2008 at 3:28 am

Unregulated capitalist always turn corporatist

In all seriousness, this is actually true. Here's how it works:

(1) Free people peacefully trade with one another ("unregulated capitalism")
(2) Someone otherwise uninvolved in the transaction decides he or she or they should force these unregulated capitalists to do what the interloper thinks they should do ("regulated capitalism")
(3) These newly regulated capitalists realize that if you can't beat the regulators, it's far better – almost necessary – to join them ("corporatism")
(4) Since the regulators' worldview has no null-hypothesis, anything that results from this scenario justifies a perpetual repeat of steps (2) through (4) ("insanity")

Mesa Econoguy September 25, 2008 at 3:30 am

Hey, quick quiz, dumbfuck – the hipbone is connected to the….

a) Obama

b) DNC

c) both

Mesa Econoguy September 25, 2008 at 3:37 am

Yes Hans, and sorry to insert the hip-check there…

(3) These newly regulated capitalists realize that if you can't beat the regulators, it's far better – almost necessary – to join them ("corporatism")

We also know them as rent-seeking lobbyists, the NEA, AFL-CIO, &c.

(4) Since the regulators' worldview has no null-hypothesis, anything that results from this scenario justifies a perpetual repeat of steps (2) through (4) ("insanity")

This is known as "voting." Part of it is legitimate business cycle, but increasingly more has become whim of regulatory zealots, and clever marketing.

We'll have a lot more before Saturday rolls around. I promise.

Hans Luftner September 25, 2008 at 3:38 am

The knee-jerk's connected to the…

A) "unregulated capitalism!"
B) "for, by, & of the people!"
C) "babies with guns!"

Mesa Econoguy September 25, 2008 at 3:42 am

Nice!

Hans Luftner September 25, 2008 at 3:47 am

Thank you. I'm here all week.

I figure as long as he's going to infect this otherwise terrific & informative blog with his mindless twaddle, we may as well have fun with it.

Your profanity-laden diatribes are fun, too.

Mesa Econoguy September 25, 2008 at 4:13 am

Hans, not my intent. I apologise if that’s my repertoire.

I just get so pissed off at clueless jerkoffs who have zero clue about what they’re opining on.

Now is not the time for amateur hour, but that’s exactly what were getting.

You get it; most of the posters here get it. We’re in a bit of trouble now, but nothing we can’t overcome, and nothing we haven’t seen before.

Markets are resilient; people are resilient. This isn’t The End, despite what Krugfuck and his disciples say.

Hans Luftner September 25, 2008 at 4:49 am

I hope you're right Mesa. But we know from history that there's nothing the state can't make worse by fixing it. Unfortunately Muirgeo isn't the only willfully uninformed useful idiot calling for a Newer Deal.

The election's just around the corner, & although both major candidates are, in my book, equally bad, both of them will come up with new "solutions" to persuade voters, filling people's heads with notions, more bunk for us to debunk. It's aggravating.

Babinich September 25, 2008 at 5:59 am

Muirgeo says:

"And now it's time for a good old fashion FDR style smack down of your out of control malpracticing asses. CLEAR?"

FDR and his 'New Deal' were nothing more than a series of failed policies that ended up hurting the economy far more than they helped the economy.

The New Deal channeled money away from the South. The South was the poorest region in the United States. The largest share of New Deal spending and loan programs went to political swing states in the West and East. The incomes of those in the West and East were at least 60% higher than in the South. As an incumbent, FDR give much money to the South because those voters were already on his side.

A number of New Deal laws and taxes made it more expensive for employers to hire people which discouraged hiring.

FDR's National Industrial Recovery Act forced consumers to pay above-market prices for goods and services, and the Agricultural Adjustment Act forced Americans to pay more for food.

Speaking of food, the New Deal implemented the aforementioned farm policy that physically destroyed food stock.

The level of industrial production of the USA in 1938 had reached only 65% the level of 1929.

In 1931 unemployment was at 16.3% of the workforce, maxing at 25.2% on FDR's inauguration in 1933. By 1938, unemployment was still 19.1% of the workforce, and in 1939 it remained at 17.2%.

And there is more…

Muirgeo,

Do you really want to return to this?

Do you believe that government bureaucrats have more virtue than capitalists?

Vog September 25, 2008 at 6:11 am

Russ
While this blog is one of the best and most interesting, I think it is time to exercise some regulatory oversight and delete the commentaries with swearing. Reading highly emotional replies with bad language does not add any value to the debate- in fact makes the participants look cheap and nasty. Clean it up!

Martin Brock September 25, 2008 at 7:39 am

Do you believe that government bureaucrats have more virtue than capitalists?

Many people we call "capitalists" today are government bureaucrats. What fairy dust descended on Paulson when he left Goldman Sachs to become Treasury secretary, and what magic transforms him from a "bureaucrat" back into a "capitalist" when he rejoins some "investment bank" and starts negotiating the exchange of its "investments" for Treasury securities with his successor at the Treasury under the very program he's crafting himself right now?

Paulson was also an assistant Secretary of Defense to Richard Nixon before joining Goldman Sachs, and he presumably could get Robert Rubin on the phone at will when Rubin was Treasury Secretary under Clinton and he was COO at Goldman, Rubin being the former CEO of Goldman. The whole idea that some shining, bright line separates evil "bureaucrats in the government" from virtuous "capitalists in the private sector" is laughably ridiculous.

Classical liberals were highly critical of rent seeking, and rents generally, including rents on land, though not quite sins definitively, were far from definitively virtuous. Modern "Capitalism", by contrast, elevates rent seeking to the pinnacle of virtue. It appropriates the language of "entrepreneurship" and "free markets" and "risk" only when this language is rhetorically useful.

Classical Liberalism was a critique of rent seeking. Capitalism is its apologetics.

Martin Brock September 25, 2008 at 7:57 am

Thus the mantra of Capitalism is "the miracle of compound interest", and the ascendant Capitalist nation is a Communist Party dictatorship. Orwell had it right.

Alan September 25, 2008 at 10:48 am

At least you've gone from not knowing what is going on to blaming Fannie and Freddie.

That's improvement

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