Wednesday, January 05, 2011

Factual Politics (2)

(This is Part I of III of the conclusion to a crazy debate on political philosophy. For the back-story to what follows, jump back to Factual Politics)

1. Being Logically Challenged

What Is Politics?

Benjamin said... Politics is force.

Politics is the regulation of force. Absent government, force is unregulated, and anyone can kill or rob or hurt or intimidate anyone they please. Government exists for the purpose of regulating when force will be used, on whom, why, and how. And in the best solution the people democratically decide these things so that each person will have an equal say. The only logical alternative is to give some people more say than others (by giving some people no vote, or counting some people's vote multiple times), and since that alternative can be ruled out as consistently less fair and more disastrous (it always violates someone's liberty more than the alternative), you are left, by process of elimination, with democracy as the only logically available option.

As Churchill said, democracy is the worst form of government...except for all the others. And only an organized state can maintain and enforce a democracy.

Cooperative Self Defense

Benjamin said... Only an individual is capable of action, and therefore only an individual can legitimately act in self-defense.

Societies are just collections of individuals. When ten guys with guns are coming after ten other guys, it makes no sense for the latter ten to act as individuals. They have a common interest to work together to defend their individual rights. To claim otherwise is simply retarded. And when ten guys with guns come after you, if you expect no one to come to your aid, because "only an individual can legitimately act in self-defense," you'll just be screwed. Darwinism will then eliminate your harebrained political ideology from the arena of debate.

Benjamin said... When you get rid of the gun in the room, people do cooperate and live much more peacefully because there's an incentive to.

But you can't. We can't vaporize all the world's guns. And even if we did, people will have sticks. Take those away, and they'll still have fists. Reality is, there are irrational people, psychopathic people, and ignorant people (and whole nations likewise), and whether with guns, sticks, or fists, they will use force upon you. Unless you stop them. Yet you alone can't stop them. There are far too many. They outnumber you millions to one. Government arises therefore from the necessity of organizing with your neighbors to defend yourself against them. It's the only means of evening the odds.

Politics is the science of calculating how best to use government to regulate the use of force to exactly that end. And just as it would be in any free market, to gain the cooperation of your neighbors, you have to cut deals with them. You need them to back your play to fend off vandals, looters, murderers, polluters; they need roads and hospitals. You counter-offer, let's say, with fewer roads, and emergency rooms instead of whole hospitals. They accept. You make the trade. And they defend you when the wolves come. That's government. There is no substitute.

Richard Carrier said... [Your theory] simply makes no sense. If the solution is to persuade people to make the right choices, then that's what you should be advocating. The solution is thus not privatization or the abolition of government. The solution is better government, i.e. voters making better choices. In short, abolishing government will not cause people to make better choices. Thus it can't in any way be the solution to our problems.

Benjamin said... Politics is the initiation of force. I advocate the philosophy of liberty. Privatization and the abolition of government are natural consequences.

Only to a moron. We need to regulate force. Otherwise you can't have any rights to life, liberty, or property. Only the regulation of force can secure and protect those rights for you. Yet force can only be regulated by force. Thus we need government to regulate the use of force. Thus government is the natural consequence of any philosophy of liberty. Not the absence of government. The absence of government entails the obliteration of all rights. As then might simply makes right. Then the only right that will exist is the right of the spear.

Why We Need Public Schools

Benjamin said... [Regarding the need for public education] just listen to your statist language: "when given no resources." As if people are these things that have to be given stuff. No, people create stuff on their own, and government steals from them and redistributes it.

Bullshit. I can't create a yard of lumber. I have to get it from somewhere. Which means, from someone. I can't magically will myself to be educated. I have to get someone to educate me. And so on. People must have the sufficient resources to procure what they need, otherwise they won't get it. Period.

A school involves a vast outlay of resources (teachers, who in turn have to be educated, as well as housed and fed; plus janitors; builders and buildings; printers and books; bus drivers and buses; electricity and water; et al.). You can't just knit socks out of your own hair to get those resources. In plain dollar terms, the average American family of four cannot afford $20,000 a year to pay for their kids' education (that's the minimum cost of education in this country, public or private). Hence they depend on the wealthy, who have far more than they need, to subsidize the poor, who need what they can't afford. That's simply reality. The only question is how we, as a community, choose to deal with that reality.

The same goes for the maintenance of a community free of crime, vandalism, pollution, and all the other things that make economic success and human happiness possible. Wealth cannot be accumulated without depending on these community goods, these community efforts to create a healthy and prosperous environment. Therefore the accumulation of wealth entails the accumulation of a debt to the community that made that wealth possible. That debt is paid and collected in the form of taxes. Just as we would negotiate a price to trade with a neighbor for lumber to build our house, we must negotiate a price to trade with our neighbors for access to all these community goods that make our economic success possible. That negotiated price is the tax you pay.

And just as you might not like the price your neighbor forces you to pay for a flat of lumber, and you don't really get to choose that price (she only get to try to persuade her to come down), yet nevertheless you have to pay it because there is no other way (short of stealing it) that you can get the lumber you need, so, too, you might not like the price your community forces you to pay for the enjoyment of a peaceful, clean, productive social and physical environment, and you don't really get to choose that price (the majority only get to try to persuade them to come down), yet nevertheless you have to pay it because there is no other way (short of stealing them) that you can make use of them.

One of the prices we charge for keeping society in good order for you is schools. Indeed, schools are one of the means by which, in fact, we keep society in good order for you.

Banning Chemicals

Benjamin said... I work for a pest control company and we recently had to discontinue our goefer service because one of the chemicals that we use to kill them was banned by the government. It got banned because some idiot in another state ended up killing 2 children in a nearby home by not following safety precautions. He used over 10 times the correct dosage within 10 feet of a home - both of which are advised against. Does that mean that the product should have been banned?

First, name the chemical. Because I don't trust you are giving me a correct account of the facts. When you tell me which chemical you're talking about I'll find out why it was really banned. Since I know the Federal government doesn't ban chemicals because of a single incident, I know your story is bullshit. (For a realistic account of how and why insecticides get banned, see Dr. Doris Rapp's discussion of the ban on Dursban and the EPA press release on it).

But apart from my distrust of your facts, your logic here is atrocious. Even if your story were true, you are attempting to claim that the remedy for a bad government decision is the elimination of all government. That's a non sequitur. The remedy for bad government is better government.

You implicitly know this, since you carefully crafted your tall tale to avoid the obvious objections to your argument: if the chemical concerned caused thousands of human birth defects from pedestrians merely frequenting areas where it is used (as Dursban does), then you'd have no argument left, would you? Yet it is precisely such threats that we need a government to protect us from.

It's one thing to say government should let you use dangerous chemicals safely and responsibly (I agree it should and would vote with you on that), but wholly another to say we should let you use any chemical you want in any way you want. And only government can keep you or anyone else from using (for example) Dursban in public or residential areas, poisoning thousands of babies. Thus your case for anarchy is illogical.

2. Being Factually Challenged

Quality in Public Schools

Benjamin said... [Public schools should all be privatized because] of all of the students [nationwide] who entered 1st grade 12 years ago, about 70% of them are going to graduate this year. By school's own metrics, that's like a C-.

Not in Iowa. The graduation rate is over 88% there. In fact public schools with graduation rates exceeding 90% exist in communities all over this country (one Indiana high school topped 97%), and those stats don't even count GEDs. Other nations exceed 90% on average (e.g. Ireland, Denmark, and Germany), proving competent government education is achievable. There is therefore no argument here for privatization, but for better government. I made this point a hundred times in our discussion already. You won't listen. That's why talking to you is a waste of time. You distort the facts, do no honest research, argue in non sequiturs, and ignore everything I say. Nothing will ever get done if voters and politicians act like you do.

Did Clinton Balance the Budget?

Benjamin said... You might want to check your "knowledge" of history. ... [Bill Clinton didn't balance the budget.] In fact, during the height of the budget wars in the summer of 1995, the Clinton administration admitted that "balancing the budget is not one of our top priorities." Just Google it to find out more.

That's false. That quote is from 1993, not 1995. This is a stark example of how disastrously you make no effort to check your facts. You apparently just believe whatever conservative blowhards tell you. Start with Clinton's speech on June 13, 1995 (I trust you can find it without any help from me). That was the actual Clinton administration's position in summer of 1995.

As to what Labor Secretary Robert Reich said on 1993 (that's who you are quoting, not Clinton), you should go look at the actual context: first, Clinton had just taken office and Reich had just been appointed and was asked what his priorities would be; he did not say balancing the budget wasn't one of them, only that he had other things he believed more important to deal with first; second, Clinton came around to the balanced budget concept in 1994, a year later, so what his new appointee said in 1993 can hardly represent the administration's position in 1994, much less 1995 when balanced budget efforts actually began.

Indeed, Clinton canned Reich precisely because he didn't agree with making this top priority. Reich believed it was more important to close the widening gap between rich and poor. After Clinton fired Reich, the budget was subsequently balanced, and the state was even generating a surplus before Bush took power.

Don't accuse me of not being up on history. You are the one who seems out of touch with it. And you keep doing this, again and again. That renders discussion with you pointless. Responsible political debate requires responsible fact checking: attending to the actual contexts of facts, and getting those facts right to begin with. You did neither. Repeatedly.

Immigration Law

Benjamin said... Immigration is only a concern because of governments. In a free world, what difference would it make if I lived in Mexico?

No one cares if you move to Mexico. That you think that's the "problem" proves you are completely out of touch with reality and don't even understand what the problem is that necessitates an immigration policy. The public and economic danger of millions of impoverished Mexicans moving en masse into our cities is the problem. Terrorists and criminals smuggling bombs, poisons, and themselves into our communities is the problem. Criminals running from the law by skipping the country is the problem.

Immigration is only a concern because of huge economic disparities, and disparities in education, moral values, and cultural assumptions, and the incongruity between population densities and the availability and distributability of resources, as well as acts of war against us by criminals and foreign enemies. Governments had to be created to deal with all these threats, disparities, and incongruities. If you got rid of governments, these threats, disparities, and incongruities will still remain, and thus return to smack you in the face.

The only way to get rid of these problems would be through some sort of universal education of some scientifically precise design. But how can that ever exist without governments? And until those threats, disparities, and incongruities are removed, we still have the problems they cause, and thus need some kind of immigration policy to manage those problems. Anarchy has no solution to offer here. It just wants to wish these problems away. I can only guess anarchists believe in magic.

TARP and Taxes

Benjamin said... Bush signed a $700 billion financial bailout bill, Obama signed a bailout too.

Actually, Obama fixed the same bailout bill--which, incidentally, has cost us a net amount of barely $50 billion (see analysis here), which is less than 1.5% of the nation's annual budget. So if you pay $10,000 a year in taxes, then you paid less than $150 to save the entire nation's economy, which is simply the price of two tickets to a Raiders game. Why you or anyone would bitch about that is beyond me. A better deal could hardly be found. Indeed, by 2015 even that $50 billion may have been reduced to zero, or possibly even reversed into a net profit (because the state has yet to call it its marker on a lot of that cash).

This is the cost of not checking your facts or understanding their context: the cost of TARP was not $700 billion, as most of that number was either never spent or has actually been repaid, in some cases already with a profit. That is largely Obama's doing, not Bush's: Bush didn't structure the payouts so that we'd get most of the money back; Obama did (we've already gotten nearly all of it back); Bush didn't give any oversight structure to how the money was spent; Obama did. That's the difference between good government and bad: the same TARP bill under Obama was competently managed, which under Bush was incompetently managed. Thus the solution to bad government is better government.

The actual effects of TARP were both necessary and wise (even if it wasn't perfectly managed, it still worked, and was still needed). But to understand that you'd have to actually understand what happened to the economy in 2008 and what TARP actually did and why, and from what I've seen so far, I doubt you do. I'll return to this point later.

Benjamin said... Bush signed a $152 billion stimulus package.

This is a laughable example of ignorance being a dangerous thing in the hands of a voter. That bill consisted entirely of tax cuts. Are you now saying you disagree with government cutting taxes? I actually agree (at this point in time taxes should in fact be raised--we should never be cutting taxes when we're at war), but somehow I doubt that's what you meant to be arguing here. Evidently you ignorantly thought "stimulus" meant "spending" when in fact, as in this case, it did not involve any spending whatever, but a $152 billion reduction in taxes.

Not paying attention to the actual content of a fact-claim leads to asinine arguments like yours. Voters would do well not to emulate your methods here.

The National Debt

Benjamin said... And the national debt will never be paid, I can guarantee that.

It wouldn't matter if it were. If you know anything about finance, debts can be eternal without significant effect on an economy--e.g. every corporation on earth prospers specifically because it remains in perpetual debt; in fact all trade depends on permanent revolving credit, without which we would have no market in anything.

Companies actually expand by maintaining permanent debt: a mortgage on one factory, once paid off, frees up the same money each month to finance a second factory (for which the first factory becomes collateral). The monthly costs to the company remain unchanged, but now it has two factories instead of one. The government operates on the same principles to maintain bridges: once one bond is paid off, the money is freed to take out a new bond to build a new bridge to replace the crumbling old one, all at exactly the same monthly outlay as ever. This is quite sensible, and in fact more so than doing it any other way (if you doubt this, see how an economist proved me wrong, and thus changed my mind on this point, in comments following my blog post Death to Bond Measures).

As to whether our national debt will be paid down, that depends on whether, as with all private companies, we continue recycling the debt (taking out new loans as old ones are paid off). Otherwise the debt will be paid off, because it is legally mandatory, e.g. bonds last a fixed number of years, at which point they must be paid down. For instance, a five year bond (held by, say, the Chinese government) requires the U.S. to pay a fixed amount in five years, i.e. that five year bond must be paid off (completely) when it expires. The amount the U.S. pays to the bondholder is the amount the bondholder gave the U.S. plus five years interest. All bonds have a fixed expiration (ten, twenty, and thirty year bonds are typical).

You should also be aware that a lot of our debt is actually owed to ourselves, e.g. over $1 trillion of the national debt is owed to social security, i.e. we actually had that money (it wasn't borrowed, it was sitting in government coffers), but congress decided to "use" that money for other things (mostly war and military spending--by far most of what our money is spent on apart from social security), but by law it can't do that without promising to put that money back with interest (i.e. the interest that that money would have earned just sitting in the bank, as it normally had been).

Thus that money isn't really owed to anyone but the American people, and it will necessarily be paid off, since that's money earmarked already for social security checks in the future, which the government is legally required to pay. But since it was going to pay them out anyway, the actual net loss is zero relative to our country's budget obligations (i.e. we'd be paying that money even if we'd never borrowed it; borrowing it only made it harder to pay, since obviously, had we left it there, we wouldn't have had to come up with it elsewhere, as we'll now have to do). Likewise, the interest we are paying on that $1 trillion of our national debt is being paid to social security, and thus is not a net loss to the state, but just the shuffling of money from one public account to another.

People like you are routinely ignorant of these things, which is why you say stupid things about the national debt.

Obama Care

Benjamin said... But even worse, [the health care act] has a mandate that insurance companies have to accept those with preconditions. That means that people won't pay for insurance until they have conditions, which would then drive the cost of insurance up because the whole point of insurance has been defeated!

That's not true. Pre-existing conditions do not entail greater costs than inputs. That's why excluding such people was unjust (not everyone with a pre-existing condition has medical bills at all, much less catastrophic ones). And even when they do cause greater costs than inputs, that's in fact exactly the whole point of insurance: a thousand people pay $100 so the person who gets hit with a $100,000 bill doesn't go bankrupt. Every one of the thousand gets the same insurance against bankruptcy, which is why they pay the $100. It doesn't matter if that bill came due beforehand. As long as a thousand people pay $100, the $100,000 bill is covered, whether it came due before or after the agreement was entered.

Even from the perspective of profits to the insurance company, the company need only add a premium, say $10, and everyone pays $110 to pay the $100,000 bill and the insurance company makes a profit of $10,000 on that bill. Thus it makes its profit regardless of when the $100,000 bill came due. Indeed it makes exactly the same profit either way. As long as the thousand people pay the $110. And that's why the mandate is required: insurance companies will lose no money at all accepting the previously sick as long as everyone (including the well) is paying their premiums.

It's only when the well pay no premiums that insuring the sick becomes unprofitable. And yet even that isn't strictly true. If only the sick bought insurance, then insurance companies would simply set the premiums accordingly, e.g. if the average annual bill for the sick was $30,000, then the average annual premium would be $33,000 to realize the same profit margin. The insurance company would thus be able to pay every sick person's bills (even the $100,000 bills) and still bring in a profit of $3000 a year per customer. Of course, not many sick would be able to afford such premiums, so in that world, most people just die of illnesses untreated. In contrast, if the well are all paying, the insurance companies can make huge profits even when insuring the already-ill, and everyone's premiums will be low. It's win-win: the insurance companies make windfall profits, and we get affordable health care. That's why the Health Care Act is quite clever. And why voters are morons if they screw it up.

Ultimately, though, its merit will be decided on whether it is too onerous on taxpayers. But even if it is it will simply get refined to the level the community agrees is the best balance between cost and benefits: the amount they are willing to pay, for the amount (of care) they are willing to receive. Just as in the private market. Only now everything will be cheaper: because everyone is paying premiums, and because the market will have a uniform infrastructure (greatly reducing the economic redundancies now plaguing the system) and will have outcomes-based pricing (instead of pricing based on number of procedures), and because cost-increasing abuses by medical providers (and consumers, in the form of fraud) will be policed by the Federal government.

We won't know what will happen until the law actually goes into effect and people start to see what its costs and benefits actually are. Only the facts on the ground will determine if it gains support or gets repealed or modified. All as part of our negotiating to live together in a fair system that helps and protects us all. And that's exactly how democracy works. There is no better way to do it.

The Wild, Wild West

Benjamin said... For a historical example of an approximation of a free market, and for a glimpse of the principles by which it operates and how it could work today I highly recommend you read "The not so Wild, Wild, West - Property Rights on the Frontier" which describes the period of American western expansion and how society functioned.

I'm assuming you haven't read it then. It proves that local governments can step in when federal government is not around, and that this is often superior (because locally formed governments have a better read on local needs and idiosyncrasies and move faster and allow for greater experimentation). It thus does not support you at all. In fact it proves my point: in the absence of government, society only works when people pool together to create their own governments (as is exactly what Not So Wild, Wild West argues and demonstrates).

And I agree with its thesis: federal government shouldn't meddle in local affairs unless it has to (to uphold the Constitution, for example, e.g. to defend your rights). The federal government should concern itself with universal and nationwide issues, exactly as the Constitution establishes it should. But that still leaves us with state and municipal governments, not anarchy.

This is typical behavior from you. You repeatedly cite sources supporting you that, as soon as I check them, don't support you, and even refute you. That makes conversing with you like talking to a lunatic.

Economics Is Not So Simple

Benjamin said... You see, in a free market resources are allocated according to supply and demand. When demand goes up, so do prices based on how much demand there is.

That's actually not true. First, there is time lag in respect to each (prices shift substantially later than demand does); second, it only reliably holds for rational operators, but psychological science has proved no one operates rationally (see the first three chapters of The Christian Delusion); and third, even for rational operators the covering law only holds when information is bilateral and transparent. But as any economist will tell you, in reality information disparities are routine, and they destroy all naive models of supply-demand calculations in a free market. Indeed, that's exactly why the economy all but collapsed in 2008. Some people knew things others didn't. And when that happens, supply and demand no longer reliably dictate prices, much less production. Bubbles result, which burst, and chaos results.

The solution, incidentally, was regulation, which forces information transparency, so all consumers and producers have access to the same information, so the law of supply and demand can actually work. That law doesn't work otherwise, and yet a free market never produces that required information transparency on its own--to the contrary, it generates opacity (as had in fact happened in the fifteen years leading up to 2008, as in that period the derivatives market was wholly unregulated, despite repeated warnings of the danger inherent in this). That's why the free market needs government, to create, maintain and protect the conditions required for a free market to exist and function. Otherwise a free market only destroys itself (Somalia is a model example). This is why some of the earliest laws in human history were written to maintain a free market by ensuring information transparency (the classic case: standardized weights and measures).

The logical conclusion should be that the severe harm that is caused to all of us by deregulated markets compels us by right to protect ourselves from the assaults on our liberties caused by crashes and other systemic disasters and frauds. But that becomes a debate over what actual imperative follows from the facts. You first have to get straight what those facts are. And knowing how markets actually work is one of the most important of all facts to get straight.

Benjamin said... I don't fathom how you figure [inflation] has been under control for twenty years, except through some extreme ignorance of economics (i.e. Keynesianism). ... Under the gold standard, high levels of inflation are rare and hyperinflation is impossible as the money supply can only grow at the rate that the gold supply increases.

I told you that's demonstrably false (see the graph I linked you to), and theoretically boneheaded: you yourself said value derives from supply and demand. Inflation is demand-driven, not supply-driven. We can control the supply of dollars even more easily than we can control the supply of gold--and in fact we use this very fact to reverse the effects of wild fluctuations in demand that occurred under the gold standard.

This is again why arguing with you is a waste of time. You don't even pay attention to what I say or check the documents I specifically direct you to, but instead go on claiming that what is false is true even though I conclusively proved to you it was false.

Continue to Part II


Vince said...

RE: Tarp

I mostly agree with you that TARP or something like it was necessary. Or maybe I should say currently as I have wavered in my opinion on that. But, that is because the calculus is more complicated than you suggest. I realize that your main point was to argue for better government vs no government but I guess I am quibbling with the details.

First, there are technical details the number you use ignores. TARP wasn't the only program that was initiated. There was a whole alphabet soup of lending facilities the Fed had/has going. What the losses on that were are not public information. Even the recent disclosure forced by Bernie Sanders (and Ron Paul? I forget) didn't disclose enough information to be able to make that determination.

Next, as you seem to acknowledge, the number given isn't a done deal yet. It can go up too since the government isn't done selling off its interest in AIG and GM. I'll even grant you that $50bn most likely won't be too far off the mark but, something drastic could still happen, especially with the recent change in the House majority.

Also you have to be careful to compare TARP to the right thing. The proper thing to compare TARP to is not doing nothing but to the many other options that could have been chosen. Maybe this is just an artifact of who you were arguing against. The difficulty here is similar to the one in the bridge bond discussion. That money could have been spent in other ways.

As one example there was the option of a debt restructuring trust such as used in the Depression or the S&L scandal. I'm sure we have both read that those ways cost more money as a percentage of GDP. However, if people like Paul Krugman are correct (and I think he is) the recession and continued economic slowness are being driven by what he calls a balance sheet recession. An idea developed to explain Japan's troubles starting in '97. The basic idea is that some shock convinces people that they have too much debt (e.g. the collapse of a huge housing bubble). Instead of spending they use their money to pay down debt, thus pulling money out of the economy. But the shock is so large that businesses aren't willing to borrow that paid back money (what happens in normal times as the interest rate goes down) even at zero interest rate and so the economy contracts. How do we evaluate TARP + continued balance sheet problems (i.e. economic slowness) vs Resolution Trust + (probably)bigger banking panic. It certainly isn't an easy decision to make especially since the other options are counterfactuals that we have to guess at. There were other options as well of course, and all of those have effects beyond a line item on the federal deficit. Was the Obama administration right that our banking sector was too big for us to go the Swedish route? These things are hard to evaluate.

Finally, there is the parable economic blogger Dean Baker tells of banks counterfeiting money ( Suppose we had just told the largest banks that they were free to print as much counterfeit money as they needed to stay afloat. At some future point, once the economy was back at full employment, the Fed agreed to take that much money out of circulation (to avoid inflation). It wouldn't cost the tax payers a dime. And yet the banks, that would have otherwise been just a memory, would have claims on trillions of dollars of wealth they would not have had otherwise. Other people, who did not crash the world, would be in competition for the same items that the banks have a claim on.

Pikemann Urge said...

Benjamin said... You see, in a free market resources are allocated according to supply and demand. When demand goes up, so do prices based on how much demand there is.

I suppose two contradictory real world examples might help to show that it's not so simple:

1. Demand for gold is up, therefore the price will rise

2. iPods are cheaper now than in 2001, partly due to (huge) demand

Just my two cents.

Richard Carrier said...

Vince: I deleted the second version of your post, so as to cut the redundancy. Your first did get in, it just sat in the spam folder (for no good reason I could tell) until I got to it and approved it. Both posts seemed to say exactly the same things, although in slightly different wording. Hopefully the wording of the second doesn't make any difference to the following.

Richard Carrier said...

Vince said... I realize that your main point was to argue for better government vs no government but I guess I am quibbling with the details.

I agree there are certainly many pros and cons in the details. Even at its best TARP was not as well structured and deployed as it could have been, and wasn't the only thing that should have been done. But that again simply becomes an issue of replacing worse government with better, which I agree should always be the unavoidable aim of politics.

There was a whole alphabet soup of lending facilities the Fed had/has going. What the losses on that were are not public information.

To my knowledge none of those were anything out of the ordinary (those operations happen every year all the time), differing only numerically, but such differences are routine over any twenty year cycle.

I'll get back to that. But contrary to much that is claimed on the blogosphere and even in mainstream media, there isn't any way for the government to "hide" real losses since the government has to come up with the money (or else someone will bitch about not getting theirs), and that means the government has to get the money from somewhere, and there isn't any way to get large sums without someone complaining about it (namely, whomever the money is being taken from).

The only exception is flat out printing money, but no one is alleging the Fed secretly printed more money than it claimed.

Richard Carrier said...

Where Did the Money Go?

Vince said... Even the recent disclosure forced by Bernie Sanders (and Ron Paul? I forget) didn't disclose enough information to be able to make that determination.

You are confusing two different issues here: where Fed money actually went (which has in many cases not been determined, one of those failings that better government would have cured and now thanks to Sanders and Paul, likely will cure) and whether we got it back. It's not like the Fed could run off with a trillion dollars and no one notice it's missing. So the issue has not been whether we lost any. We know how much we have and how much we lost. The issue has been who got that money. That's what Sanders and Paul wanted to know.

(And indeed it was Sanders and Paul--ironically the one actual card-carrying socialist, and a libertarian iconoclast, doing what the Republicans, and to be honest the Democrats, should have done; but then that's another example of the difference between bad government and good and why we should aim at the former, which is one reason Sanders and Paul ought to be reelected, and more of them elected to fill Congress--I'm not saying I agree with them on everything, but I do know they are two of the only honest men in Congress who actually have, overall, better ideas of how to govern than the mainstreamers)

Remember the Federal Reserve runs an insurance program, which operates all the time (you probably stare at the insurance certificate every time you go to the bank, declaring how much of your money is insured). That is not a part of TARP but a standard part of what the Fed does ever since it was created. The Fed also controls monetary supply and interest rates (and thus lends money to banks all the time specifically to have those effects), and part of this program involves emergency short term credit: e.g. a bank can call in a billion dollar loan tomorrow but has suddenly had a billion dollar debt called in today, so it needs gap-cash to make it those 24 hours. In an ordinary economy (without a Fed) the bank would just go under (or fat cats could arrange for it to go under, by refusing to loan the money; or scared lenders could let it go under, by fearing the loss of their investment; etc.), which before the Fed happened a lot, and would happen more now that monetary value is so strongly tied to volatile capital (such as stocks, commodities, and land), thus creating unforeseeable situations where gaps in cash flow suddenly need to be filled. The Fed solves that problem, ensuring the economy runs smoothly, and it works very well. And it does it at a slight profit to the people (they do charge interest, even on emergency loans, although Sanders and Paul rightly complain there is too little oversight and congressional control over what those interest rates will be, and I agree with them: they want better government).

The Sanders-Paul disclosure was simply a requirement that the Fed be more accountable for how it runs this program. It was never a question of lost money. There has been no cost to the people here. The "cost" has been in insider trading and favoritism (in other words, soft corruption). Which screws people in the private sector, but not the public till.

Richard Carrier said...


Vince said... The proper thing to compare TARP to is not doing nothing but to the many other options that could have been chosen.

Certainly there were better ways to organize TARP, but again that's a question of replacing worse government with better, which was my point with Benjamin, who wanted to go entirely the other direction (and do nothing at all). But any replacement for TARP would have had to do essentially the same thing (deliver huge quantities of cash to various huge companies to prevent their bankruptcy or cushion their bankruptcy's effects on the general economy). The question is simply a matter of specific details (e.g. zero interest loans vs. interest earning loans or some other method altogether, etc.).

One example there was the option of a debt restructuring trust such as used in the Depression or the S&L scandal.

That would not have worked in this case.

The first problem was the immanent collapse of the worldwide insurance industry. That requires actual, real cash. Because if insurance companies can't pay their claims, insurance effectively does not exist, and that would grind the entire economy to a halt (much of which contractually can't even operate if it's uninsured, and certainly if insurees are no longer receiving compensations for their losses, the effect on the whole economy would be destructive). There is no way to ask all insurees to "restructure" what the insurance companies owe them--especially when the insuree is a bank. The money is owed now. Not later (e.g. imagine if you walk up to a bank and withdraw a grand to pay a medical bill: would you accept a "well, due to restructuring, you can't have your grand, but we'll get it back to you in installments over the next twenty years"; imagine the chain reaction of that being the answer to everyone on earth who has to pay any bill for anything).

The second problem was the immanent bankruptcy of the entire short term credit market, the very market all businesses need to operate, e.g. a supermarket needs instant credit to stock its shelves if there is a run on its products (ditto any other business that moves product: in other words, ditto almost the entire real economy), which it pays back in a day or two as those products are sold; now imagine no supermarket can get that credit because the cash doesn't exist. Now imagine the chain reaction throughout the entire economy of every business being in that same bind. The disaster would have been unimaginable--arguably worse than even the Great Depression.

Only something like TARP could have prevented this.

Richard Carrier said...

Two Different Problems

Vince said... The basic idea is that some shock convinces people that they have too much debt (e.g. the collapse of a huge housing bubble). Instead of spending they use their money to pay down debt, thus pulling money out of the economy.

To be exact, it's not that that pulls the money out, but the failure of banks (and other lenders) to re-loan or re-invest that money (and instead just sit on it). Unlike Japan, we had businesses pining to get the money (the short-term credit market and the insurance claims market), so our problem wasn't businesses refusing to borrow thereby leaving money that exists sitting in banks, but banks not having the money that businesses needed to survive--the exact opposite problem. Which is why we needed TARP: to provide that money.

The secondary problem of the economic slowdown (an entirely different problem from an economic crash) then needed businesses to start spending again and banks to start loaning more freely again, and the TARP managers actively sought to make sure both happened, within the extent of their powers, and their efforts now show signs of having succeeded. But even if they hadn't, we may have ended up where Japan is now, but we still would have avoided the complete crash that TARP was designed to prevent.

In other words, TARP was not enacted to solve the liquidity trap problem Japan is in, it was enacted to solve a vastly more serious problem of exactly the opposite kind. That the danger of a liquidity trap then arose was not the fault of TARP, but again the fault of timid investors, and it would have demanded a very different kind of solution (even if there were anything a government could Constitutionally do to solve it), but that is now moot because the economic indicators now show widespread liquidity and investment (for us; I don't know about Japan).

Richard Carrier said...

Bad Idea

Vince said... Suppose we had just told the largest banks that they were free to print as much counterfeit money as they needed to stay afloat. At some future point, once the economy was back at full employment, the Fed agreed to take that much money out of circulation (to avoid inflation). It wouldn't cost the tax payers a dime.

It doesn't cost us hardly anything to print money, so there is no difference between that and just instructing the Fed to print money (which in fact it has done, hence the quantitative easing discussion).

In contrast, allowing private companies to print money surrenders our power to control the money supply and is thus a disastrous policy even to recommend. We have to go to extreme lengths of security to make it difficult to counterfeit money. The only way to allow private banks to print money would be to give them access to all those security measures, creating a massive unpluggable hole in the security of our currency manufacturing system. That would be foolish.

Vince said...

Deleting the 2nd version is fine. My browser froze up. I don't remember if I re-wrote it or just tweaked it but I was definitely bummed!

I don't see a whole lot of differences between us but I'll bring up a couple points to clarify my previous comment. Also, keep in mind I simplified much in the comment here and on the other post (and on my own blog). Hey, I'm already long winded enough as it is!

The parable I mentioned was not intended as a viable alternative course of action. It would indeed be foolish and also immoral (imo). The point is just to illustrate, in a general sense, that there are costs to TARP outside of what may show up as as part of the Federal budget. The example given is one were there will not be any cost whatsoever to the taxpayers, in terms of the Federal budget but, where there are still costs to society.

I'm not sure if any of the Fed's alphabet soup of facilities were unprecedented. As you point out they are certainly consistent with what the Fed does on a regular basis to provide liquidity. Some of the specific facilities however are not used regularly. For example, in telling Congress why they needed to pass TARP, Bernanke said that the commercial paper market was about to collapse. To simplify, this is where businesses take short term loans to do things like pay salaries and buy inventory until they sell that inventory. Days after TARP was passed Bernanke started a facility at the Fed to serve that market. It was well within the Fed's existing pre-TARP rights to do so and, in essence, he lied to Congress because TARP was not necessary to fix that problem. The Fed already had the ability to fix it and became basically THE institution doing so going forward. Though they had the ability to do so already it was not something they normally do. Maybe he forgot that when he testified? I don't know.

Your point on where the money went vs did we lose any is well taken and I guess I had that wrong. I could have sworn I read otherwise but what you said sounds more reasonable.

My point about the balance sheet recession was probably sloppy. I realize that it is actually the combination of reduced consumption plus not enough new lending that causes a downturn. We agree TARP wasn't trying to solve that problem but I guess I see it slightly different than you. My point was that they could have chose to focus more strongly on the problem of the balance sheets of individuals by encouraging restructuring of individual debt. I guess I'm seeing it as a practical problem of there being only so much money to go around and, they chose to focus it in one place instead of another. Again, the Fed ended up solving the liquidity problem (the short term money for a supermarket) all by itself and it had nothing to do with TARP. That's the commercial paper and other facilities we already discussed. TARP was to make sure banks didn't go under, ostensibly, so that they could fill that role, but, for the most part they didn't fill that role, the Fed did!

Vince said...

I wanted to provide more details about the commercial paper facilities the Fed created. Mostly just because not many people know about it. It wasn't really reported. The background info will be a rehash for anyone who follows this stuff but I assume some that read this might not. The point is NOT that these facilities weren't successful. They were. In fact the article I will link later calls one of them the most successful interventions of the entire crisis. The point here is just to show that one of the primary reasons given for TARP wasn't even true.

If you asked a random person what the reasons for TARP were they would likely recall the story of the collapse of the short term credit market. The business that needs a short term loan to make payroll while it is selling off inventory. This is loan transaction is called commercial paper. The asset is generally a claim on future receivables or something similar. The company selling the asset, and receiving the loan, is called the issuer and the entity giving the loan an investor or buyer. Before the crisis most commercial paper was bought by money market funds(MMF). Over the years, as more people and institutions put their money in MMFs, issuers could get better rates than they could get through a bank.

After Lehman collapsed panicked investors withdrew large amounts from these funds. When that happens the funds have to sell their assets. Of course, since there is a panic at the time, this means they will be losing money on the sales. This caused at least one fund to “break the buck”, i.e. suffer a loss, which is very rare for a MMF. The Fed issued an blanket garuntee of the MMFs and created the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) . The AMLF was to give short term loans to banks so that they could buy up the assets of the MMFs at their face value (i.e. not at a loss for the MMF). (sometimes the bank doing the borrowing owned the MMF). It worked to stabilize the MMFs and stop investors from withdrawing their money.

The AMLF was for existing assets owned by the MMFs not new commercial paper from issuers. The hope was probably that stabilizing the funds would get them buying new commericial paper. It didn’t. These stresses in the commercial paper market were used heavily to sell the TARP package. Scare stories were common about how businesses wouldn’t be able to make payroll, etc. So TARP passed and days later the Fed started the Commercial Paper Funding Facility(CPFF). This is not something that was authorized by TARP. It was withing the Fed’s existing powers as buyer of last resort (though not something it had done before).

Both the AMLF and the CPFF were very successful there can be no doubt about that. The Fed created SPVs that ran them recorded profits on both. But what was all the non-sense about TARP being necessary to solve the commercial paper problem? The Fed had the ability to solve the problem all along. Why didn’t Bernanke mention this power of the Fed to Congress or the press to dispel the scare stories about people not getting their pay checks? Indeed, while selling TARP he even told the press, “"I see the financial markets as already quite fragile. The credit markets aren't working. Corporations aren't able to finance themselves through commercial paper." The Fed had been looking at the problem for a while so it can’t have been a surprise to him that TARP was not necessary to fix the problem.

This link: is about a possible conflict of interest in setting up these facilities. I’m not including it for that reason though. It is just the only article I could find with a background and timeline of them.

Eric said...

Richard Carrier's demolition of "libertarianism" here is breathtaking. I would have been proud to have done it myself. The best part of it was "The mere fact that you would never choose to go live in the very governmentless world you desire (like Mogadishu) and instead freeload on the government-built world we maintain for you at our expense, is proof enough of your hypocrisy, and the complete bankruptcy of your political worldview. You can't walk the walk. And you know it. That's why you cower here. Instead of live there."

I have long had a theory that "libertarianism" was invented and pumped by the aristocracy in order to fool the masses into accepting being ripped off by them. "Libertarianism" starts with the false assumption that the existing distribution of wealth is God-given and that thus children born rich "deserve" it; and so children born poor "deserve" that too. The American Revolution was fought against "libertarianism," not in Mogadishu, but in Europe, where there was plenty of law, only written by and for the aristocracy, against the public. Carrier's remarks didn't get to that, because Benjamin has been so fooled by the aristocracy's propaganda as to misinterpret the American Revolution. People who have been so deceived are inclined to consider anarchism as being the ideal, but the real issue isn't whether or not there will be law and government, but rather who will make and enforce the laws: the public, or the aristocracy? Carrier's responses suggest to me that he understands this.

Richard Carrier said...

Getting the Facts Straight

Vince said... there are costs to TARP outside of what may show up as as part of the Federal budget.

I quite agree. The Sanders-Paul act is a case in point. Hence again in this case better government is preferable to less government. That's my only point.

Vince said... [There was] a possible conflict of interest in setting up these facilities [for commercial paper].

I agree. And that's what the Sanders-Paul act was (in part) about.

It was well within the Fed's existing pre-TARP rights to do so and, in essence, he lied to Congress because TARP was not necessary to fix that problem.

That's not true. The Fed in no way has anywhere near the resources to serve the entire short term credit market. Congress would have had to provide vast new funding to do that. That's what the Fed was asking for in the form of TARP. I don't know where you are getting your version of events, but you need to check the actual numbers before believing everything you read. The Fed needed hundreds of billions of dollars that it didn't have. Having the "power" to give that money out is not the same thing as actually having money to give.

The Fed already had the ability to fix it and became basically THE institution doing so going forward.

Untrue. The vast majority of short term credit was not (and never could have been) provided by the Fed. Surely you don't think all America's supermarkets went directly to the Fed to get their payroll credits? Much less all other businesses whatever. That's absurd. The personnel the Fed would require even to field such a vast demand would alone be several orders of magnitude greater than it has. Never mind where the money would come from.

The Fed had to give the cash to existing institutions (who already have the infrastructure and personnel in place to distribute it). Which means the Fed had to have cash to give. TARP gave it the required cash.

My point was that they could have chose to focus more strongly on the problem of the balance sheets of individuals by encouraging restructuring of individual debt.

Whose debt? And where are the personnel going to come from to negotiate all these debt restructurings? Who will pay their salaries? Who will hire and manage them? I'm not sure you grasp the vast scale of the problem here. Never mind the fact that restructuring wouldn't have solved the catastrophic problem TARP was created for. As to that...

Richard Carrier said...

What Actually Happened

I guess I'm seeing it as a practical problem of there being only so much money to go around and, they chose to focus it in one place instead of another.

No. That's not what happened. I have to oversimplify, but basically what happened was this...

When the mortgage securities were all exposed as worthless, two things happened: banks that had bought them now could not sell them (so money they thought they had, actually didn't exist--they were swindled), but that left them with not enough money to pay their obligations (like, e.g., giving you access to your savings account: they spent your savings on a mortgage security that ended up having no value, equivalent to having spent your savings on a bag of sand, which they mistook for a bag of gold: now they don't have your money, just a bag of sand, which you certainly would not accept in lieu of your money; in reality, the problem wasn't small personal bank accounts, which are already insured by the Fed, but much larger business related accounts, but the analogy carries over: e.g. no one could make payroll because in their lines of credit there were only bags of sand, not money); so the banks called in their insurance to make up this huge loss, but the insurance companies didn't have anywhere near that kind of money on hand (ironically, in part, because they had spent that money on those same mortgage securities, so all they had were bags of sand, too), so the insurance industry was about to go under as well as the entire banking and credit industry.

Now, if the solution were just a question of finding where all the money went that was spent on those bags of sand, we would be doomed, because that would take decades, even if the government had any authority to take that money back (it doesn't: the fifth amendment requires they get it by due process, which would entail a million different trials, which take forever and are not even guaranteed to work, since the derivatives market wasn't regulated, and thus there wasn't anything clearly illegal about how that money was obtained, except in a very few nearly-impossible-to-prove cases of intent to defraud: just look at how few such cases have even gotten anywhere, and it's been two years already).

And that's even assuming the money existed. Due to the fact that mortgage securities were valued independently of the money paid for them, their assumed value was many times more than the money actually spent on them. Banks then backed loans with the capital value of the securities, so when those securities were exposed as having no value, millions of loans had no backing (which produces a crisis: if people default on those loans, there is no capital to seize to make good on the loss; and lo and behold, everyone was defaulting on their loans, because all they had were bags of sand to pay them down with). Likewise, insurance companies wrote insurance on the assumption that they had all this capital to back that insurance, but when it turns out they didn't (all they had were bags of sand), they had made promises to pay that they couldn't keep. So when the banks called in their insurance, the insurance companies had nothing to make good on those claims. Thus the problem wasn't just about money leaking out to a million various parties, but money that never existed in the first place, but that everyone assumed did.

Debt restructuring would be incapable of solving any of this.

Vince said...

Hence again in this case better government is preferable to less government. That's my only point.

We agree here.
Also, as I said in my first comment, I agree that TARP was probably necessary. I just don't think it was as obvious as you think. What tips things in favor of TARP for me is the complexity (and man hours required to unwind it) and sheer volume that you reference.

In some cases I think we are talking past each other.

I'm going to see if posting this as a short comment goes through. If not then I'm not going to bother going any further.

Vince said...

It was well within the Fed's existing pre-TARP rights to do so and, in essence, he lied to Congress because TARP was not necessary to fix that problem.

That's not true.

The Fed itself says on its page about the CPFF.
What is the legal basis for the CPFF?
The CPFF is authorized under Section 13(3) of the Federal Reserve Act, which permits the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations.

Their authorization to do it had zero to do with the TARP. They only have to make up the difference between what the market will do itself.

Here we can see a mistake that runs through your entire discussion. The alternative to TARP isn't to just have banks go away. It is to spin them back out with only their good assets. So, the manpower would still be there. The ability to make short term loans would still be there. The only things that wouldn't be there would be top management and the former shareholders.

Vince said...

My point was that they could have chose to focus more strongly on the problem of the balance sheets of individuals by encouraging restructuring of individual debt.

Whose debt? ... Never mind the fact that restructuring wouldn't have solved the catastrophic problem TARP was created for. As to that...

Wrong. Here is an article from an actual economist from not long back arguing exactly what I am saying.

Like us he wanted a smarter bailout. What would that look like? Helping households pay off their debt so they can spend again. This WOULD help the banks too as they would then have lower default rates. What would this look like? Cram down in the courts, more strict rules to force renegotiation of balances and terms of the loan.

From the article:
"But household balance sheets have not received as much attention. We could have helped households rebuild their balance sheets, and this would have helped banks by lowering the default rate on loans. Instead, we left households to mostly solve their problems on their own, and then helped banks when households could not repay what they owed."

Vince said...

Debt restructuring would be incapable of solving any of this.

It depends what you mean by solve. If you are committed to keeping current institutions alive with current management in place and no losses to bond holders and shareholders then yes you are right.

The Fed did indeed do a restructuring of a sort with the default swap policies. That is what the Maiden Lane vehicles did. They bought up the security that was insured and extinguished the contract. The problem was they did so at 100% of face value of the contract. They didn't have to.

How could they have done otherwise? In exactly the same way they did with GM's creditors. There is no big mystery here. I'm not sure why you are so confused about this. Like they did with GMs creditors they say, "Hey guys if we just let AIG go under or, make you go to court, we all know you are not getting 100%. So let's make a deal."

Richard Carrier said...

Missing the Point #1

Vince said... Their authorization to do it had zero to do with the TARP.

I think you're missing the point. I said they already had the power, just not the funds. Having the authorization to do it does not magically grant them the money to do it with. You can't "extend credit" to someone when you have no cash to extend them. That's kind of like saying you can buy a car with a loan of a bag of sand. Do you see what I mean? The Fed can only provide credit if it has money to give. And in this case, that meant lots of it. Far more than the Fed normally ever has.

It is to spin them back out with only their good assets.

But their good assets where wholly incapable of meeting their existing debt obligations. Imagine they spent $900 of your $1000 of savings on bags of sand. Saying you'll then "restructure" the bank with only it's good assets is to say you'll be left with $100 in your savings account. If you needed the $1000 to make your employees' payroll, your screwed. Now multiply that scenario by every business in the country. Thus, TARP was necessary, to replace the bags of sand (or at least enough of them to mitigate the shock to the economy of all that disappearing capital).

In other words, a company that needs to make payroll needs all the payroll; it can't survive with just 80% of it. Not least because it is contractually obligated: not only would you have to negotiate that loss with the company, but with every single union and employee that that company contractually owes a full salary to; ditto its suppliers and subcontractors, any owed customers, and all the way down the line.

Hence restructuring would entail an ungodly scale of government activity, whose administrative cost alone would likely far exceed TARP, if it would even be humanly possible (I doubt we even have a hundredth of the required number of qualified people to run such an administration, much less as quickly as was needed).

Do you see what I mean?

Richard Carrier said...

Missing the Point #2

Vince said... Whose debt? ... Never mind the fact that restructuring wouldn't have solved the catastrophic problem TARP was created for. As to that... Wrong. Here is an article...

First, that article isn't relevant to what we're discussing here. I agree something else in addition to TARP might have aided the recovery (I've already said as much), but in no way would anything proposed in that article have prevented the collapse of the credit and insurance markets (and hence the entire economic system). As to that, the article you cite actually agrees with me: "The present recession is an example of this, and policy has done a good job of preventing even worse problems from developing by rebuilding financial sector balance sheets through the bank bailout and other means." Hence it doesn't even purport to address the actual issues: for example, the immanent demise of AIG and all its subsidiary insurance companies, and the massive disappearance of capital leveraging the entire credit market.

Second, the article you cited didn't give a single actual recommendation. It didn't explain how "we [could] pay attention to all private sector balance sheets" in any way that would even be implementable much less affordable. As I said, the expense in bureaucracy and personnel alone would be prohibitive, and it's unclear what could even be done with that machinery, or how we'd afford it if we helped everyone equally, and if not equally, how we'd choose who gets helped and who not.

The only sort of thing I can think of would be, for instance, giving every homesteader (a homeowner who has filed a federal homestead protection on their single chosen residence) an inverse mortgage buffer if they are documentably facing a foreclosure, i.e. the federal government will pay their mortgage for one year in exchange for adding one year to their mortgage that will be paid in the same installments to the federal government in the final year (and the federal government would take its interest out of the bank's interest, i.e. reducing what the bank earns by 1/30th and transferring it to the federal government as interest on its gap loan). But what that would cost (not only in straight cash but in new bureaucracy and fraud losses) might have gagged the public voter even more than TARP did.

The problem was they did so at 100% of face value of the contract. They didn't have to.

I concur. And there are many other aspects of TARP that could have been run better (as I've said from the start).

Richard Carrier said...

Back to the Scale Problem...

Vince said... Like they did with GMs creditors they say, "Hey guys if we just let AIG go under or, make you go to court, we all know you are not getting 100%. So let's make a deal."

Except that AIG underwrites hundreds of billions of dollars of the world's insurance. How do you plan to manage a restructuring negotiation of hundreds of billions of dollars worth of the insurance policies in the entire world? Again, I really don't think you appreciate the scale of this. This is not GM. This is a million GM's. Think of the staff devoted to the GM deal. Multiply by a million. Where are those people going to come from? Who is going to pay their salaries? Who is going to police them against error, fraud and abuse? And how is this all going to happen fast enough to solve AIG's immediate obligations?

The scale is the problem. Using the existing machinery, by simply funding it, was vastly more efficient. I can't fathom any practicable alternative.

As IRMI reported: "The severe downturn has had a marked effect on AIG, the world's largest insurer, which nearly went bankrupt as a result of credit default swaps it wrote for asset-backed securities and collateralized debt obligations. These products, while derivative in form, were essentially insurance contracts in substance and served to protect third-parties from debt defaults on pools of loans that included subprime mortgages and other risky investments. As the nation suffered from skyrocketing foreclosure rates, the value of the assets underlying the credit default swaps plummeted, and AIG was forced to write down its positions. While loss rates on other types of insurance, such as life and property, may be reasonably consistent and estimable, AIG failed to account for systemic risk factors, such as a broadly declining market, to which financial guaranties are exposed. The results of AIG's decline have been far reaching. During its near collapse, the credit markets virtually froze, as lenders had to retain cash for fear of their own potential obligations and were unable to determine which companies were creditworthy. As companies were unable to obtain financing, they found it difficult to continue their operations, which caused their share prices to fall dramatically." [this was all anticipated logistically in a 1994 CBO Report]

I really don't see any "restructuring plan" even being able to have solved this problem, much less with the speed that was required.

macroman said...


This would be much better as a summary of your political philosophy if you had edited out all the abuse and name calling. You don't need to prove here (again) that you think the guy is a moron. What's the point?

macroman said...

I wonder if the Australian experience and reaction to the credit crunch got any publicity or discussion outside Australia? It seemed unprecedenent to me, and should be more widely discussed.

The first stimulus package from the government was to give, free gratis and for nothing, virtually everyone over 18 (every taxpayer and anyone on any of the various social security programs) $1000 in the form of check from the Government. It was obviously Keynes-inspired but the Government didn't try tp pick winners (certain banks, or certain manufacturers, or certain insurance companies). It allowed the people to decide how to spend it (which seems fair from one point of view, afterall the people would be paying eventually for this Government borrowing - perhaps it could be classed as "main street" not "wall street')

There was much criticism from fiscal conservatives of course (and court case that tried to stop it), and some keynesian type criticism that people wouldn't spend it but use it to pay off their debts. I think in the latter case those people with a newly unencumbered Visa card probably did get round to spending it. It did seem to have a big effect on confidence.

This avoided a criticism that has been made about the US FED, that its newly created money stayed in banks, and did not feed into spending.

This "cash-splash" was followed later by more conventional remedies.

macroman said...

The Australian "cash-splash" described above may be a form of household balance sheet re-structuring that Vince's economist was asking for. I don't see that it was an administrative nightmare for the tax department and the various social security departments to mail out checks to everyone on their lists.