JULY 25, 2010

Reviewing the Financial Crisis

Nicole Gelinas has a great piece surveying a number of books on the financial crisis. Contrary to conventional wisdom, many in the finance world foresaw the collapse, some big Wall Street banks managed risk well, and the collapse was fueled not by unfettered free markets, but by continual government intervention.

What becomes clear—often despite the authors’ own intentions—after reading ten of the most significant of these works is that the mainstream narrative is wrong. Over the two decades leading up to 2008, financial markets were anything but free. The nuts-and-bolts government infrastructure that free markets require to thrive—healthy fear of failure, respect for the rule of law, and fair rules for everyone—was crumbling. The crisis books make clear, too, that Washington’s extraordinary rescues of Wall Street have eroded much of what’s left of free-market infrastructure in finance. Worse, Congress’s efforts to reform the industry will do yet more damage. The next time the financial world implodes, it will hurt the economy even more severely. ...

Clinton, a New Democrat who believed that “the business community could help achieve the aims of government,” later applied the same logic to the poor, asking Fannie and Freddie to buy more mortgages for affordable housing.

Fannie and Freddie helped distend a housing market that couldn’t withstand the slightest downturn. Housing, then, posed an ever-bigger danger to the economy. But regulators failed to do obvious things like requiring even modest down payments to cushion possible losses, since doing so would have made housing less “affordable” in the short term. As Sowell makes clear in detailing a century’s worth of “affordable” housing policies—from the construction of the first public-housing towers in the early 1900s to the ever-growing lending quotas that banks had to meet under the 1977 Community Reinvestment Act— making housing less “affordable” would have gone against every natural instinct of nearly every politician, not just in Washington but in states and cities, too. ...

While bailouts themselves are enough to make taxpayers angry, the willy-nilly method of determining who gets TARP funds - rewarding those who acted foolishly, but not firms that acted prudently - should outrage anyone with common sense:

Since the crisis started, markets have easily distinguished between the well-managed JPMorgan Chase and the too-big-to-manage Citigroup. But the Citi bailout has kept the economy from benefiting enough from that distinction. To this day, investors continue to direct capital to Citigroup, knowing that the government will never let it fail. The economy could put that capital to better use elsewhere—in a superior bank, or a company outside finance altogether. ...

The extent to which government threw away the rule of law in 2008 was shocking. Paulson kicks his book off with a description of his forced nationalization of Fannie and Freddie, observing that his subordinates’ concern—that the politically coddled mortgage giants would fight the effort—was groundless: “I didn’t think they completely recognized the awesome power of government and what it would mean for Ben [Bernanke, the Federal Reserve chairman] and me to sit across from the boards of Fannie Mae and Freddie Mac and tell them what we thought was necessary for them to do.” Paulson instinctively used threats in his meeting with the two companies’ management. If they resigned and handed over the reins quietly, he told Fannie’s and Freddie’s executives, he wouldn’t blame them for the firms’ failure. “I left unspoken what I would say publicly if they didn’t acquiesce.”

As Salinas notes, despite all of these publications, lawmakers haven't learned the lessons, as the "Wall Street Reform" addresses none of the causes of the crisis, and simply institutionalizes the government-induced bubble and subsequent Wall Street rescue.

posted by NATHAN BENEFIELD | 04:21 PM | 0 comment

JUNE 25, 2010

McDonalds Needs 'Sad Meals' to Help Powerless Parents

McDonald's Happy Meals are under attack. The Center for Science in the Public Interest (CSPI) has threatened to sue the restaurant chain if they continue to include toys in Happy Meals because a) toys lead to obesity and b) parents can't tell their children no.

Yes, that's correct, CSPI claims it is too difficult for a parent to tell their kid "no" to a Happy Meal.

"Multi-billion-dollar corporations make parents' job nearly impossible by giving away toys and bombarding kids with slick advertising."

Similarly, research from the Rudd Center for Food Policy and Obesity found parents incapable of making healthy food selection for kids at grocery stores and concluded that government should "regulate and curtail" the use of marketing unhealthy foods with popular cartoon characters.

Come on people, children don't grocery shop alone or drive themselves to McDonald's - they go with parents who decide what and when they eat. It's ludicrous to imply parents can't say "no" because of clever marketing or toys. Parents don't need a nanny state to help them raise their kids.

For the record, I liked Happy Meal toys as a child and plan on letting my future kids enjoy them - and not because the Hamburgler tricked me.

posted by KATRINA CURRIE | 00:56 PM | 0 comment