Because most philosophies that frown on reproduction don't survive.

Wednesday, October 01, 2008

Some Light Thoughts On A Potentially Dark Matter

Bernard of A Little Light From the East provides an amusing tour of the economics behind the "bailout".

9 comments:

Cliff said...

A little humor goes a long way to make sense of this situation.

HOWEVER - there needs to be understanding of how we got in this mess, AND accountability! This needs to happen BEFORE any fix or it will NEVER happen. We could start by lynching Dodd & Frank. OK, well, accepting their resignations & all their worldly possessions would suffice...

What say you to this?

BTW - y'all got a cute baby boy!

Anonymous said...

The Blackadder Says:

The linked to post is inane.

Kiwi Nomad 2008 said...

This was a great post.... thanks for the link! Made me laugh and understand at the same time...

Darwin said...

Cliff,

At a certain level I agree. However my concerns are:

1) If the bailout is in fact needed, it's probably needed fairly quickly. And it would seem that an attempt to really fix things would probably take a lot of negotiation (thus a lot of time) to get through.

2) I have very, very little trust in the majority of the current congress to know what is best in any given situation, so my fear is that if once turned loose on "making sure this will never happen again" we would end up with something worse than nothing.

And thought I think Dodd and Frank's views about the mortgage industry are much at fault -- it's unfortunately hard to do anything about them without retaking the congress, which the GOP has not been excelling at lately, more's the pity.

Blackadder,

Prose style aside -- I found it enjoyable, but I suppose others might not -- I generally enjoy posts in which people attempt to explain what is going on in a complex situation. It's something that people don't try to do often enough, and even if one does not agree (I happen to think this one is right in essentials) it provides one a much clearer view of what it is one is disputing with than more tactical forms of punditry.

Anonymous said...

The Blackadder Says:

The problem with trying to explain the current economic and financial situation in terms a child can understand is that your explanation will often end up being childish. I mean, how accurate or insightful can an explanation be when it:

1) equates the Market with the stock market;

2) says that a recession is when the stock market goes down (so I guess that there was a recession on Monday, but it was over by Tuesday morning);

3) defines a depression not in terms of the severity of an economic downturn but in terms of its geography;

4) says that it's dumb to try and figure out who to blame for a bubble only to proceed to blame Congress (despite having previously said that the problem was all the stupid people trading the bits of paper that weren't worth anything);

5) in particular, tries to blame Congress for the housing bubble by obliquely referring to the Community Reinvestment Act, which is not a very plausible scape goat; and

6) offers no actual explanation for why the bailout is a good idea, aside from saying that it's not socialism and that it's stupid to be against it;

7) all the while making false historical claims such as that President Hoover didn't do anything about the stock market crash or buying into the whole tulip mania legend.

Darwin said...

First off -- I think you might be taking it a bit too seriously. It's an essentially humorous piece, though at the same time it provides a framework in which to attempt to understand at a basic level what's going on. So, for instance, I took the recession/depression definition to be humorous, and indeed found it so. But hey, I get off on plays on words.

Secondly, I'd argue that several of these are, in their tongue in cheek way, but more accurate than you're giving them credit for. For instance, "a place where supposedly grown men and women buy and sell little pieces of paper which supposedly can be exchanged for things like gold and oil and land, or for companies that trade in those and other things." covers rather more than the stock market. Indeed, in a certain sense, isn't a mortgage simply a piece of paper which can be exchanged for land -- if certain conditions (payments) are not met? And though the CRA is probably only a minority cause of the present difficulties, the direction of Fannie and Freddie (which derived to a great extent from congressional pressure) was basically as outlined (humorously) in the piece, and was not a small (though certainly not the only) cause of the "housing bubble" -- to the extent to which it might be called a bubble. (I would describe the atmosphere I encountered out in California circa 2000 to 2003 as essentially a bubble, but outside of a few sky-high areas like that, it seems to me that most of the housing price declines we're seeing are just the result of the economy softening and interest rates coming into question.)

Cliff said...

"If the bailout is in fact needed, it's probably needed fairly quickly"

The darn thing is - We DO NOT have the money for this. We are a debtor nation and are going deeper in the hole. The longer the next depression is postponed, the worse it will be.

Darwin said...

Well, and that seems like it's the key question: If we essentailly have a credit bubble, if the US is massively over-leveraged and it needs to sort itself out through slow-down and default, then I'd agree that trying to keep things going for a while via the bail-out (though at that point -- I suspect it wouldn't work anyway) would probably make things worse.

I would tend to think that we're not over-leveraged -- at least not to an extent that requires a catastrophic correction. But if I'm wrong on that, then it would definitely be a very solid reason to oppose the bailout.

Another strong argument against (and this one does cause me some serious doubts) is that we could get through this credit crunch okay if people stopped having the possible future carrot of being bailed out at a higher rate by the government later. In that case, it could be that the hope of a government bailout is actually keeping the credit markets frozen over, when if people knew with certainty there would be no bailout, things would sort themselves out.

Bernard Brandt said...

I thank Darwin for his able defense of my lecture against Blackadder in the comments above. Rather than put my own response here, I have thought, for the sake of not befouling Darwin's comment box, to put it here:

http://pauca_lux_ex_oriente.blogspot.com/2008/10/economics-for-dummies-part-ii.html