Home > Economics - General > Greenspan concedes

Greenspan concedes

October 24th, 2008

There’s been a fair bit of debate about what, if anything, the current crisis means for economic policy and political philosophy more generally. A lot of this has been hung up on issues of terminology, which I will do my best to avoid here and in future.

Coming to substance, quite a few people have argued that the crisis doesn’t really signify very much, and that, once it is resolved, things will return to pretty much the way they were a couple of years ago. I disagree.

This concession of error by Alan Greenspan is, I think, pretty strong evidence against the view that the crisis is not so significant, in policy or ideological terms.

First up, Greenspan gave little or no support to the silly Republican talking point (repeated by quite a few commentators here in Australia) that the crisis was caused by marginal government interventions like Fannie&Freddie and the Community Reinvestment Act. On the contrary, he stated

The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations* (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower

And Greenspan conceded that his faith in deregulation had led him into erroneous policy decisions

“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,� said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?�

Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.�

To sum up, Greenspan’s concessions and the big interventions we’ve seen already lead me to believe that this crisis will result in much tighter regulation of financial markets and a much more central and explicit role for governments in the management of financial and economic risks.

How much this matters for bigger questions of what kind of political philosophy will predominate depends very much on the importance you attach to risk management as a central feature of public policy and as ground contested between democratic governments and financial markets. I’ve argued for a long time that risk is crucially important, and therefore see the failure of financial markets to manage it as having fundamental implications for the way in which society will be organised in future.

* Note, BTW, that CRA loans were mostly not subprime and that Fannie&Freddie only entered the subprime business very late in the development of the bubble.

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  1. rog
    October 24th, 2008 at 18:11 | #1

    Dont blame deregulation; it was a failing of the govt’s chief regulator that fueled this mess.

    It was F&F’s role to absorb risk which threw caution to the wind.

  2. Mike
    October 24th, 2008 at 19:07 | #2

    John, there was a discussion on The News Hour regarding Greenspans view. Worth watching.

  3. Joseph Clark
    October 24th, 2008 at 19:09 | #3

    “And Greenspan conceded that his faith in deregulation had led him into erroneous policy decisions”

    Like holding cash at 1%? You’re surprisingly quiet about the role of monetary policy.

  4. jquiggin
    October 24th, 2008 at 19:55 | #4

    Rog, take it up with Greenspan, not me. If an Ayn Rand acolyte, working under an extreme-right Republican Administration can’t manage a deregulated system, you need to either
    (a) admit that this kind of system can’t work; or
    (b) consider migration to an alternate universe where it does.

  5. gandhi
    October 24th, 2008 at 20:22 | #5

    “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.�

    Note the persistent egocentricity.

    Remember when Greenspan was a living deity whose every syllable was carefully scrutinized for meaning? To utter a word against him was heresy.

    The fall from grace must be distressing indeed. Just like the fall of a certain George W. Bush.

    How is it that such egotists rise to positions of power where altruism is more sorely needed?

    And why is it that those who saw the truth and spoke up were so marginalized, ridiculed and ignored? Could it have something to do with the media?

    Shouldn’t those early Greenspan critics now be elevated to positions of power, for the good of society?

    Shouldn’t those who rode the Greenspan gravy train now be marginalized, ridiculed and ignored? Shouldn’t their profits be appropriated for the public good? Shouldn’t they get down on their knees and beg forgiveness?

    It won’t happen, of course. Ego is everything in this sick society. We’ve still got a long way to go.

  6. sean
    October 24th, 2008 at 20:46 | #6

    Point 4, you don’t drive past a road crash and thing to yourself cars should be banned.

    There is no such thing as a perfect system (this is what the Maths tells us, butterfly effect and chaos theory.

    But you Mr Q, also make the fundamentalist Aristotelian mistakes with climate models and cap and trade, as did Greenspan with his view on the system.

    There are issues with deregulation and with regulation, there is no magic bullet. what is a known, is that the system has provided a massive expansion of living standards across the world.

    The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events “unlikely”.Tabel the black swan.

    this is known through our knowledge of Math not economics.

  7. RodF
    October 24th, 2008 at 20:57 | #7

    Mr Quiggan. Speaking of Alan Greenspan, I’m keen to hear your viewpoint on moving back to the system of the Gold Standard.
    Wouldn’t it have avoided all of this?

  8. SJ
    October 24th, 2008 at 20:59 | #8

    Sean:

    The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events “unlikely�.Tabel the black swan.

    Barry Ritholz:

    The “Blame Fannie/Freddie/CRA” crowd, do provide a service: I know anyone who repeats this meme is an empty headed parrot, a mindless drone without an ability to think. This is a huge timesaver, as it has allowed me to dismiss many of the ditto heads I might have otherwise wasted time on.

  9. Will
    October 24th, 2008 at 21:36 | #9

    Did the Austrian school have a meeting where it was decided that the current financial crisis would be a good opportunity to potentially take their theories off the bench of political economy, from a fringe heterodox position into the mainstream?

    How else to explain the fact that you can barely go anywhere online these days without finding some screed about the gold standard?

    Yes, it’s a great idea to use a commodity where mining supply can cause inflation, and value is distorted by it having practical industrial applications!

    Floating exchanges are far far superior; we’re never going back.

  10. Joseph Clark
    October 24th, 2008 at 21:58 | #10

    Will,
    Careful. It’s heresy around here to talk of “floating exchanges”. Don’t you know the era of the market is over? The time of the State is at hand!

    Don’t bother replying with any Republican Talking Points either. I’ve heard them all before.

  11. Ikonoclast
    October 24th, 2008 at 22:04 | #11

    More than anything, power corrupts perception. The mind cannot make any logical deductions when every perception is false. The cossetted American plutocracy have had a collision with reality. Welcome to the real world gentlemen. The rest of us have to deal with it everyday.

    A society whose ruling class feels no pain whilst the underclasses suffer is like a man with leprosy. It is the lack of transmission of pain from the extremities to the head which causes injuries to be ignored and allowed to fester. One can only hope that the plutocracy is in for much more pain. Then some change may come.

  12. TerjeP (say tay-a)
    October 24th, 2008 at 22:19 | #12

    Yes, it’s a great idea to use a commodity where mining supply can cause inflation,

    The point is that in practice it can’t really.

    Assume we have a gold standard and the value of $1 is fixed at 50 milligrams of gold. A gold miner produces gold. A gram of raw gold will never ever sell for more than $20 under this gold standard scenerio. So with the price of his product fixed the gold miner faces annilation if there is inflation. Inflation would drive up his input costs (labour and capital) and he has no scope to increase the sale price of his product. Which is of course why the gold standard was virtually immune from inflation.

    Okay if somebody finds a stack of gold that is easy to mine it might theoretically cause some temporary inflation. But the odds are very remote. During the hey day of the gold standard the Australian and Californian gold rushes caused inflation to move upward to around 3% per annum. Hardly shocking.

    Likewise you might get some inflation if there is a collapse in economic output as happened during the plague in medieval europe. However even that was short lived.

  13. sdfc
    October 24th, 2008 at 22:19 | #13

    There seems to be a hell of a lot of focus on side issues, the primary cause of the crisis was easy money.

    Its happened before and it’ll happen again.

  14. Joseph Clark
    October 24th, 2008 at 22:21 | #14

    Ikonoclast,
    That’s all very true but how would you know if your own perception were corrupted? You wouldn’t know, would you? You’d be just as deluded as those poor plutocrats. What a frightful thought!

  15. TerjeP (say tay-a)
    October 24th, 2008 at 22:22 | #15

    The second indented quote above is actually my response to the first piece of text. I fluffed the formating.

  16. Ernestine Gross
    October 24th, 2008 at 22:34 | #16

    Re 11 and 14. #14 is empty because the premise in #11, “power corrupts perceptions” has been removed.

  17. observa
    October 24th, 2008 at 23:35 | #17

    Greenspan as his name suggests spans the spectrum from the Louis Leeches to the Gordon Geckos with the majority of us stuck in the middle of their continual depradations. These extremes both unleash the ‘something for nothing’ mentality for which we all must pay eventually and welcome to eventually now. Greenspan could throw money at Asian meltdowns or Dotcom bubbles, putting off the day of reckoning because the money wasn’t his. In fact it didn’t seem to belong to anybody, although it would always represent a multitude of claims on real production. When his personally costless ponzi scheme finally ends he’s shocked and blames it all on others’ greed. The man’s generosity knows no bounds.

    As long as fiat money from thin air exists, such generosity and the ensuing mentality of something for nothing will be our permanent scourge. Short of mannah from Heaven with some divine intervention, a true gold standard is historically our best option. That is anathema to those who would be generous with other’s wealth to be sure, because it forces them to be honest politically about that. ie no taxation by stealth. However the spinoff for them and us generally is it limits the opportunity for something for nothing with asset booms and busts. Money(really claims on production) that is quietly appreciating is much more circumspect about its time use (forgone consumption) Clearly it’s time to put a stop to the divine right of elected kings, as well as rein in the carpetbaggers, because it’s all fool’s gold and childish ‘something for nothing’ games. None of this belongs in an adult world and I’m sick of both twin’s tantrums.

  18. sean
    October 25th, 2008 at 03:19 | #18

    Point 8, Its called competition, FF created a culture that the others run to pass and did.

    The nuclear detonator is a bit like a small bomb that sets the big bomb off, this is why F&F are the detonators, conceived and built in Washington by ideological idiots. (do you do butterfly effect in economics by the way?, its quite a big deal in the real world of Math)

    Point 9, Fiat money is political money, its a “social construction” (google it) its a systems based upon trust. When the trust goes the system collapses as we see now.

    What is needed (once again not a magic bullet) is currency competition and central banks stripping of their monopoly powers.

    What I advocate and I believe the Austrian school does is a system of dual currency, one fiat the main currency and another “material” currency (probably in higher denominations but still legal tender)a basket of commodities inc gold.

    This in a free market would hold the fiat currency to account, if the politicos messed up their ability to hold and use power would diminish.

  19. Freedom lover
    October 25th, 2008 at 04:08 | #19

    I’ve argued for a long time that risk is crucially important,

    Let’s follow that link:

    The US has maintained higher levels of reliance on private insurance than most other countries, but even so, almost 50 million people are uninsured. Many more are covered by the public residual insurance schemes Medicare and Medicaid, which are hugely expensive. In fact, despite offering coverage to only limited groups such as the elderly,military veterans and the very poor, the US government sector actually spends more on
    healthcare relative to GDP than its Australian counterpart.

    [snip]

    In other words, public financing is the only feasible response to the problems of health care.

    Some “argument”. Firstly, 50M “uninsured” does not mean 50M without treatment: those 50M use free clinics and hospital emergency rooms.

    I have personally been treated under both the US and Australian healthcare systems. The US system is far more competitive and consequently delivers a vastly superior product.

    So, ixnay the socialized healthcare.

    The fundamental problem with US healthcare is not provision but insurance. The health insurers have lobbied themselves too many loopholes that allow them to cherrypick who they insure. That negates the whole point of insurance. Also, insurance here is largely employer provided, which creates all kinds of problems for the the self-employed and those moving between jobs with pre-existing conditions.

    The solution is very simple: tighter regulation of the health insurance markets. Disallow cherrypicking. Force all insurers to treat people as members of large, well defined groups (eg, young, family, old). The main reason employers currently provide insurance because they can negotiate a group plan, whereas individuals cannot: they are underwritten based on their personal medical history, not based on their demographics or other “group” properties (since when is that “insurance”?).

    Of course you then have the adverse selection problem that only the sick will insure, but you can fix that by forcing everyone to pay a percentage of their income in health insurance, either into a complying policy or directly to the state which then doles out the money to the private insurers. The US already does this: we all pay into medicare (insurance for the elderly and poor).

    So don’t throw the baby out with the bathwater: the US healthcare system is private, competitive, and largely of very high quality (much higher quality than either the public system in Australia or the NHS in Britain, both of which I have experience of). It also drives much of the medical innovation used in the rest of the world.

  20. Bill Quango MP
    October 25th, 2008 at 05:48 | #20

    Its very strange how economists see human behaviour in very static, linear ways. Its very anti-human IMO.

  21. rog
    October 25th, 2008 at 06:24 | #21

    I dont know why I should quote Greenspan (who has admitted that he was mistaken)but it is better than some journos version;

    “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.”

    Is he suggesting that the govt guarantee all shareholder equity?

    The actions of Greenspan in particular and the Fed in general proves that there is fault lies within the system of central banking.

  22. rog
    October 25th, 2008 at 06:29 | #22

    The irony of the Greenspan quotation is that it applies equally to the Federal Bank.

  23. Alanna
    October 25th, 2008 at 09:06 | #23

    Thankyou Mr Greenspan.

    I admit to feeling sorry for Greenspan when I read those articles but then I remembered that many economists and notably Keynesian economists across Australian universities, have been derided and ridiculed and worse, for far too long now, because they expressed doubt that free market ideologies and those that relied too heavily on de-regulation, would be ultimately be effective.

    May we now move back from the edge towards some synthesis and stop looking to an ideal theoretical paradigm to solve all problems in all markets, but start to examine the real outcomes of implemented economic policy (and not wait for a mythical long run that may or may not ever arrive)? May we once again study and teach undergraduate economics students economic history rather than ONLY market theory?

    I would welcome the initiatives but more importantly so would undergraduate economics students who actually ask for it.

    Alanna

  24. Alanna
    October 25th, 2008 at 09:23 | #24

    The financial markets have been force fed with regulated mandatory superannuation in many industrialised nations for decades now. Whilst individuals can choose funds, they cannot choose the ultimate allocation of those funds and for the most part those funds have chased financial assets (too few financial assets such that new ones were created or existing assets became overvalued?). It is a glaring anomaly to argue for the de-regulation of the global financial sector when its very inflows have been decreed by regulation in the first place.

    That is living in a parallel universe.

    Would it not have been better to pay employees directly and let them choose? Some would have saved, some would not but it may have produced a better outcome overall, and prevented overextension of the financial sector.

    Alanna

  25. stuart
    October 25th, 2008 at 10:51 | #25

    ‘Its called competition, FF created a culture that the others run to pass and did’

    In which case market participants obviously arent rational actors. They knew the risks, knew that borrowers would be unable to pay and still lent money.

    ‘Fiat money is political money, its a “social constructionâ€? (google it) its a systems based upon trust. When the trust goes the system collapses as we see now.’

    Unless the value of Fiat money is derived from the need to pay government taxes. In which case trust is next to irrelevant, only the capacity of the government to levy and collect taxes.

  26. observa
    October 25th, 2008 at 11:07 | #26

    Alanna, it wasn’t just Greenspan that got it wrong as Gerry Jackson points out-
    ‘During the Howard years Australia experienced an extraordinary monetary expansion. Allow me to once again draw readers’ attention to the monetary aggregates. From March 1996 to December 2007 currency rose by 110 per cent, bank deposits by 178 per cent and M1 by 163 per cent. These are terrible figures that could only end in tears. Yet they have yet to register with our commentariat.’

    You could allow for some population growth (around 1.5% pa)and some funding of productivity growth, but the overall picture is pretty damning nevertheless. You’ll notice the market is working perfectly now to correct that gross imbalance, defying all Keynesian efforts to the contrary.

    The overriding economic history lesson for me is that in the long run market forces will always regulate the errant regulator. It’s like gravity I suppose. I didn’t invent it and it’s frustrating I can’t soar with eagles, but I find it’s best to work with an implicit understanding of its immutable laws. More one of your Wright Bros than the Icarus dreamers I suppose. Hey, it works for me and mine.

  27. October 25th, 2008 at 13:02 | #27

    I can add some things to Terje’s comments about gold and inflation:-

    - As there is a significant stock of gold around, this buffers the effects of changes of availability/cost of obtaining new gold, spreading the effect over time.

    - The industrial uses of gold actually contribute a stabilising effect too, also helped by the buffering.

    - Even so, new cheaper supplies do have a cumulative effect, one that makes a real difference to just where and how new capital gets laid down (historically, middleman countries like England and Holland were the long term gainers, with countries at each end of the trade chain like Spain, Turkey, Poland, India and China losing out in different ways).

    - Historically, there have indeed been sudden new releases of gold, notably after Alexander the Great’s conquests and the Spanish ones in the Americas (and, of course, the conquest of Granada provided a one off shot that set those off; it wouldn’t have mattered so much if it had not happened in just that time and place).

    Similar things apply to other bullion, like silver.

  28. Katz
    October 25th, 2008 at 13:41 | #28

    The Right were quick to condemn marxism for failing the Soviet Union. The Right refused to condemn the Soviet Union for failing marxism.

    So glad to see that since neoliberalism has failed the United States the Right are now prepared to entertain the possibility that the United States failed neoliberalism.

    Keep it up fellahs. You’re growing wiser by the decade (admittedly from a very low base).

  29. Alanna
    October 25th, 2008 at 14:37 | #29

    Observa

    Give me the Wright Brothers over the Icarus dreamers any day (whatever school). No matter how great the model looks – some doubt is a good thing.
    Its not without credit that Greenspan bared his doubts publicly.

    Alanna

  30. lukas
    October 25th, 2008 at 14:51 | #30

    Freedom lover @19 says:

    “I have personally been treated under both the US and Australian healthcare systems. The US system is far more competitive and consequently delivers a vastly superior product”

    Hmm. I’ve just been treated under the US system. AUD 350 for a short visit to a GP and a short course of antibiotics.

    One of the highest rations of health expenditures to GDP in the OECD.

    Commercials on TV that feature families who have been forced into bankruptcy by medical bills – people who had health insurance.

    Give me Australia’s “inferior” system any day.

  31. Tom N.
    October 25th, 2008 at 14:53 | #31

    I welcome Q’s dropping of the fairly meaningless battle of the “isms” (even if others here want to continue with such empty debates). What can be agreed is that recent events in financial markets provide an important additional datapoint for determining to optimal form and level of regulation in those markets. As for other markets, that there are significant lessons here is less clear: a sophisticated policy analyst would already be aware of the potential for imperfect information, cognitive limitations and systems externalities to create inefficiencies in markets. Perhaps the financial market events will remind such analysts of the potential extent of such market failures and the costs that in some instances can flow from them. But the policy calculus still appears much the same to me: certainly, I wouldn’t be recommending a reduction in the speed limit, increased scrutiny of GM foods, or other risk reducing measures, as a result of anything I’ve learned in recent times from studying events in financial markets. Nor is it immediately clear to me that, in more directly affected areas such a labour markets, judgments about the appropriate allocation of risk between employers, employees and the unemployed, and thus the appropriate form and level of regulation of labour markets, would change significantly as a result of recent events in financial markets.

  32. jrbarch
    October 25th, 2008 at 16:27 | #32

    “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.� (Greenspan)

    Altruism and responsibility based on self-interest?

    Alan needed only take one quick glance around planet earth to see selfishness rules selflessness; and that greed is only tempered by fear per se.

  33. jquiggin
    October 25th, 2008 at 17:19 | #33

    Tom N: I agree on most of your examples, but these are cases where government is already playing a big role in determining the optimal level of risk – your (correct) point is that the failure of markets doesn’t mean we should be more risk-averse in future.

    While the implications for labour markets aren’t, as you say, immediately clear, I think that they will end up being quite significant.

    For some more direct implications, let’s look at:

    The allocation of risk in public-private partnerships
    Retirement incomes policy
    Education financing/student loans

    In all of these areas, I think the case against relying on markets will be substantially strengthened. The starting points are different in different countries, but the direction of movement will be similar in all cases, I think.

    More to come soon on this, I hope.

  34. Alanna
    October 25th, 2008 at 17:38 | #34

    Observa wrote

    “You’ll notice the market is working perfectly now to correct that gross imbalance, defying all Keynesian efforts to the contrary.”

    I agree unsustainable markets do inevitably correct but I personally think Keynes would never have suggested pumping helium into an exploding Zeppelin as the bail out package and other initiatives appear to be trying to do.
    Far better to have used those taxpayers funds to clean up the debris which is likely to follow. The bail out package was in my mind a pure waste and I fail to see it as a Keynesian style intervention rather than a mad attempt to keep afloat an already top heavy over populated financial sector.

  35. October 25th, 2008 at 19:09 | #35

    F&F obviously contributed to the problems. I wasn’t aware that anybody was even trying to deny that.

    And the CRA was just one manifestation of a general policy of promoting home-ownership among lower socio-economic groups. Just looking at the CRA misses the woods for the trees.

    The reason Austrians seem vocal now is that this is exactly what many Austrians have been predicting for a long time. It’s strange then that when they are proved right by events, the this is used to promote anti-Austrian ideas.

  36. Will
    October 25th, 2008 at 20:57 | #36

    Sorry, but the Austrian school isn’t making a come back any time soon, and they certain aren’t justified in claiming some sort of vindication in all this mess.

    This is STILL fundamentally a debate between grown-ups in the orthodox economics, based on the neo-classical paradigm. Nothing in the present financial crisis suggests that it would be a good idea to abandon neo-classical econometric modelling in favour of the Austrian school’s business cycle theory, and its basis pseudo-scientific “Praxeology.”

    If anything the crisis pushes us to empirically re-examine, in a more comprehensive manner, the real constituent elements of efficient markets; it asks us to cease treating economic theory as as a axiomatic state of nature in need of no serious defence, and to look closely at real-world behaviour. Particularly, all myriad distortions that impeded markets, like, say, Soros’ theory of reflexive feedback in the system.

    In other words, we need to be keep our models, but be less rigidly prescriptive about their utility in the face of the real world. We need to take seriously behavioural economics as a discipline, and focus on incremental data-driven modification of our economic assumptions. In other words, we need to be outward-looking and non-utopian in our assumptions.

    The Austrian school is the exact opposite this – it is rigidly theoretical, and indifferent to real word behaviour; it is thus “inward-looking” which is what actually got us into this mess – a myopic TINA view that financial institutions were best equipped to manage risk through unregulated leveraged derivatives, because “government is always in the way.”

  37. observa
    October 25th, 2008 at 22:45 | #37

    Will,
    The Austrian school is not indifferent to ‘real world’ behaviour. Far from it, in that it recognises the real world consists of central bankers continually inflating money supply (in our Reserve’s case 2-3% reduction in purchasing power p.a.) with improper market signals, consequent malinvestments (particularly long term investment decisions) and hence the large booms and busts. That is not to totally deny animal spirits or unbridled enthusiasm for particular investments from time to time, but that monetary discipline must cause tradeoffs in other sectors to accomodate that. OTOH the real world of monetary monopolists, simply by printing more money, eventually induces the many to believe this means they can have more cake and the same quantity of ingredients for biscuits. Austrian economics denies such Utopian dreams from the very start.

    Alanna, I use ‘Keynesian’ in the broad sense. ie it is Keynesian to specifically target homeowners with tax clawback, rather than across the board tax cuts or rebates. It’s also Keynesian to believe in setting the overall level of interest rates. (actually it’s delusions of grandeur or just pure folly if you follow the Reserve of late)

  38. sean
    October 25th, 2008 at 23:09 | #38

    There seems to be a big misconception on here as to Greenspan and the Austrian school.

    Greenspan is part of the Randian school which is Aristotelian in it roots. The Austrian school is Socratian in its roots.

    IMO economics is just politics with numbers attached to Greek letters, the best way of understanding either of these two schools is to understand the philosophies that underpin them.
    Poppers open society is a good introduction to Austrian school economics, as too the entire work of Hayek.

  39. sean
    October 25th, 2008 at 23:17 | #39

    Post 25,

    “In which case market participants obviously arent rational actors. They knew the risks, knew that borrowers would be unable to pay and still lent money.”

    Not really its a bit like the “Bush lied people died” argument.

    Whatever your opinion of Bush or the Gulf war II, faulty intelligence is not the same as lying is it?

    As too the case of “Risk” here, they misjudged risk and miss calculated, but they did it believing what they believed to be correct.

    Anyways the solution is simple, we need to devise a banking market system where banks don’t get too big. Thus instead of one big bank going bang, you will have lots of small banks and if one goes bank its effect can be minimized.

    This is not a regulation issue, its a governance issue.

  40. Alanna
    October 25th, 2008 at 23:42 | #40

    Observa says

    Alanna, I use ‘Keynesian’ in the broad sense. ie it is Keynesian to specifically target homeowners with tax clawback, rather than across the board tax cuts or rebates. It’s also Keynesian to believe in setting the overall level of interest rates.

    Observa, I disagree. Keynes did not urge action until the great depression had taken full effect. It was not particularly Keynesian to intervene during the correction itself but rather post hoc to hasten the cure. I think that is the point being missed here. Would Keynes have urged action when the stock market was catually correcting itself? No. Would Keynesn have urged specific targetting of homeowners in an already overinfalted property market? I doubt it. What Keynes would have done is urged remedy for the unemployed that might follow from this crisis. That, to me is a Keynesian intervention. Im not sure that these recent interventions could be seen in the same way or be labelled as a Keynesian intervention Observa.

    Further, In dont really kmow what Greek letters the Austrian school arisesn from, nor am I familiar with the particular branch that Greenspan adhered to but I do find the Austrian school rigid and despite their apparent problems with central bankers inflating the money supply – there is very little suggestion for any interventions that may help recovery (once again I find I am wondering if these economists want to leave it to the market to sort out – in which case I find myself once more considering Keynes the most sensible yet the most maligned of the 20th century economists).

    Alanna

  41. Tom N.
    October 26th, 2008 at 00:04 | #41

    I await your promised posts with interest, John. However, a couple of quick points.

    1) Surely “retirement incomes policy” is largely a part of financial markets regulation, in which case I agree that the meltdown does indeed have implications for that policy, as my earlier post indicated.

    2) Few economists I know are particularly enchanted by what State Governments have been doing with PPPs. There is a strong case for redistributing responsibility for risk and its consequences to the public sector here, but that case existed prior to the meltdown. Again, apart from those aspects of PPPs that intersect with financial markets regulation more broadly, I am not sure what exactly the recent meltdown implies for the appropriate use and design of PPPs.

    3) I’ll be interested in what you come up with on student funding. How does the meltdown have any significant bearing on argument for vouchers rather than a provider-determined allocation of courses, for instance? Perhaps you have something else in mind, but for now the implications escape me.

    Perhaps your point, then, is really one of political rhetoric – that opponents of proposals to reduce regulation or increase market influence will be able to point to the meltdown as a means of smearing such proposals. Fair enough – I’m sure that will happen. But I suppose my interest is in what lessons we should draw from the meltdown; not what, errr, talking points will be drawn.

  42. Nick K
    October 26th, 2008 at 00:07 | #42

    katz says “So glad to see that since neoliberalism has failed the United States the Right are now prepared to entertain the possibility that the United States failed neoliberalism.”

    During his time in office, GW Bush has presided over massive increases in federal government spending. He also adopted a slightly more protectionist position on trade. I’m not sure how these policies fit into an extreme free-market or neoliberal framework, but anyway.

    Ronald Reagan and Bill Clinton actually have better records than Bush as market-based reformers. Clinton supported welfare-to-work measures, cut capital gains tax, and generally supported free trade. Under Clinton and Reagan, America generally did better economically than it has under Bush.

    There is no doubt W has been a very bad president. But he didn’t do the damage he has by following free-market principles. He did it by promoting big government (including the absurd notion that you can engineer democracy overnight in fractured societies), and throwing a few sops to social conservatives in the culture wars.

  43. Joseph Clark
    October 26th, 2008 at 00:08 | #43

    sean,
    I agree completely. It’s grating listening to people who only recently learnt what a CDS is solemnly denounce market participants for underestimating correlation risk. Fortunately there is a very simple riposte: If they are so clever and prescient why didn’t they bet on their superior information and take a position in the market?

    It’s great fun to watch these budding financial experts try to slip out of the noose. The most common responses clearly demonstrate their ignorance of financial derivatives and markets in general.

  44. Ubiquity
    October 26th, 2008 at 00:08 | #44

    Alan Greenspan, presided over the US Federal Reserve for almost 20 years. He is described as having a “cult of personality” defined by wikepidia as follows ” A cult of personality or personality cult arises when a country’s leader uses mass media to create a heroic public image through unquestioning flattery and praise. Cults of personality are often found in dictatorships”

    The thing about Alan Greenspan is that his “individual” power to effect/ implement his economic ideology had a tremendous effect and obviously a detrimental one on the US and global economy. His Cult status was enabled by a state propaganda machine that gave him unprecendented and unquestionable power to influence and implement his ideology all over the financial markets.

    It is unlikley that any democratic model could have reduced his influence and in fact it may have promoted and fed his position of power, particularly as he was around for twenty or so years as chairman of the Fed. This article “Democracy, Autocracy and the Individual Influence of Rulers” explains the idea of the individual influence of leaders.

    http://www.allacademic.com//meta/p_mla_apa_research_citation/1/9/7/3/2/pages197325/p197325-1.php.

    This maybe a shock to the collectivist. But suppose hypothetically their existed twenty Alan Greenspans individuals each with their own cult status, each with varying economic ideologies in the market place. Would this monstrous financial dilemma ever have occured. The odds are that the ideologically flawed “Alan Greenspans” would have failed and the mess would have been cleaned up long ago by the better ideological models with much less pain.

    Dismissing the praxeological models of Mises is foolish. To understand the individual behaviour at all levels of the economy and life should never be taken for granted. It is important to accept that any natural system will always have self correcting mechanisms. It is and illusion or a “control fantasy” that people like Alan G had and propagated that needed correction rapidly but was allowed to grow and wrap around our global economy like a cancer to the point were disaster was always going to be more uncomfortable then it should have been.

    Of course know that “Laissez Faire” Capitalism (not) myth has been proved, we will move on to the Social Democratic model with the “same” cult leaders, tighter (and extra) regulations , save the world ideals, centralised power and sadly vastly diminished liberties. All under the the “control fantasy” our next cult leader will share with us.

    Control is always a fantasy. Even though we know this on an intellectual level most of us often get caught in this escape from reality. Our need to control is a defense mechanism. We desire security, to avoid pain, want to be constantly happy, we want to control others so they don’t judge us or violate our boundaries. We want to control how others see us. In fact the control fantasy is usually always about the future and generally wastes a lot of time.

    Alan Greenspan was an idiot. It wasn’t capitalism that created him’ (in fact it would have got rid of him a lot earlier) it was his flawed ideology, “control fantasy” that people needed from him, and cult status afforded to him by our democratic propaganda machine for a prolonged period, that allowed his armageddon ideology to assist greatly in the capitulation of our financial markets.

  45. Alanna
    October 26th, 2008 at 00:21 | #45

    Joseph Clark said

    “If they are so clever and prescient why didn’t they bet on their superior information and take a position in the market?

    It’s great fun to watch these budding financial experts try to slip out of the noose. The most common responses clearly demonstrate their ignorance of financial derivatives and markets in general.”

    As a matter of fact Joseph I did just that and I am glad I did. I volunteered only so much super as was mandated on me and I did not gamble on shares over the past ten years (and I have lots of friends who went in heavy weight especially with Costello’s tax incetives.”)

    I always considered it more of a government benefit than mine and Im glad I did.

  46. sean
    October 26th, 2008 at 00:22 | #46

    Yes Keynes was certainly misunderstood especially by the left, of which he was not one. (the number of Lefties who think he was some sort of Modern Marxist is astonishing)

    Keynes general view that markets pretty well worked but needed a hand now and again.

    In simple terms Austrian school is trial and error market economics, a never ending correction of a living system. so its what they would see as political distortions that cause problems and they would seek to remedy. (this they saw well in advance of the current crisis)

    Randian economics is a rigid system that in itself is perfect, as with Marxism its a kind of fundamentalism.

    But folks on the left,love to lump them in the same basket for political purposes, as too the right with socialism and Marxism but the left that specialize in it.

    Boiling this down to their roots, it really comes down to your view on the nature of science. In short the Aristotle view is the future is knowable and predictable through our understand of the past. The Socratic view would be that the future is unknowable as it is shaped by our actions in the present.

  47. Alanna
    October 26th, 2008 at 00:28 | #47

    Joseph also writes

    “The most common responses clearly demonstrate their ignorance of financial derivatives and markets in general.”

    Some of us knew they were dangerous Joseph. They are just as capable of magnifying downsides as upsides.

    What is most alarming is the failure of regulators to dampen the exuberance of the upside magnification (those of us so authorised to act and who should have understood both financial derivatives and markets).

  48. sean
    October 26th, 2008 at 00:37 | #48

    Ludwig von Mises

    If one rejects laissez faire on account of mans fallibility and moral weakness, one must for the same reason also reject every kind of government action.

  49. Will
    October 26th, 2008 at 00:37 | #49

    observa, you side-stepped my point there about econometrics. Also, I do maintain that praxeology as a methodological system is inward-looking and very far from an humble empirical social science. You’re response that human fallibility is built into the assumptions of the system misses the point.

    Um, nobody is lumping in Randian Objectivist “political philosophy” with the Austrian school sorry.

    That’s just a misreading of the flow of discussion, probably caused by the fact that JQ happened to name-drop Rand as a pejorative in the OP.

    I’ve a background in political philosophy, and I quite familiar with her bad fiction and A=A ontological nonsense. Austrian economics may be an outlier, heterodox discipline, but I’m not disputing that it’s a legitimate school of political economy. In contrast, Objectivism is just unadulterated nonsense for angsty adolescent conservatives who’ve never studied real philosophy and are looking for some pithy combination of methodological individualism and ethical egoism to suit their pre-conceptions of ideological triumphalism.

    I would never, ever, but serious scholars like Mises and Hayek in the same camp as a hack like Ayn Rand.

  50. Alanna
    October 26th, 2008 at 00:50 | #50

    Hayek and Mises? Really? Flawed. Acknowledged as flawed but then there is always self interest isnt there? Except self interest rarely creates great contributions to mankind and is rapidly forgotten as they will be in time.

  51. Will
    October 26th, 2008 at 01:08 | #51

    “If one rejects laissez faire on account of mans fallibility and moral weakness, one must for the same reason also reject every kind of government action.”

    That’s a obtuse reading of the point. I don’t reject “laissez faire” broadly interpreted, or the efficiency of markets. I think markets should be preferred whenever possible, but I would argue we need to be clear about market interdependency on government to exist.

    The argument is that there are minimum structural requirements which need to be imposed by state-coordination in order for us to benefit from flourishing competition and market efficiency.

    This argument is a matter of degree, as nobody here would deny property rights are necessary and courts to enforce them. It’s about getting more precise and realistic about the best legal environment to prevent this kind of calamity happening, whilst still promoting maximin market freedom for agents to take risks and enjoy option luck advantages for their decisions.

    Coming back to your point, that view is entirely compatible with the idea of man’s fallibility having conjoint implications for limited government AND markets. You don’t get to redouble a strawman on government coordination simply because of fallibility, and things like agent-principal problems, exist in both domains.

    This thread is ultimately about a rhetorical lion of free-market faith ostensibly coming to grips with a more systemic level failure in his thinking. Many of us find this to be a justified reconciliation with reality, and are not satisfied with accounts of this crisis which try to divert us to a call to return to the Gold Standard, or simply to focus entirely on his monetary policy at the Fed.

    In that sense, I find myself in the camp of those who think too much of push-back, and their ought to be some unless we want to slip back too far into economic populism, is not facing up to the myopia of deregulation. It’s basically like a classic “no true Scotsman” fallacy, which then tries to double down on the same cynicism of government itself was premise of regulatory defects and omissions.

  52. October 26th, 2008 at 02:50 | #52

    The main causes of the crisis, being poor investments, are:

    1) The implicit system of government guarantees to intervene in a financial crisis.
    2) Lack of transparency and collateralization in certain trades and transactions. In other words, more precision in the trades to determine the correct level of capitalization, and the guaranteeing that the collateral be there.

    I understood him to be conceding 2. We need enough regulation, or better, supervision, to guarantee that these trade conditions are always met, especially in trades that involve the shifting of risk to a third party or the magnification of risk, where the correct amount of capital is difficult to determine.

    I don’t see either of these as having any large claim on the worthwhile nature of our capitalist system.

  53. sean
    October 26th, 2008 at 02:50 | #53

    “Except self interest rarely creates great contributions to mankind and is rapidly forgotten as they will be in time.”

    Did Michelangelo paint for the love of Art or did he do it for the money?

    But to the wider point, Altruism and Egoism, or a false choice because they are essentially the same thing. In Eastern Philosophy the issue they see is enlightenment and stupidity, they really dont use the terms good or evil ect, maybe we have something to learn from them.

    and to add Socrates is also known as the Buddha of the West.

  54. sean
    October 26th, 2008 at 03:01 | #54

    P52, Will

    I agree with a lot of that, as said, Austrian economics is loosely, Free market trial and error leading to an “Ideal” of Laissez faire, which is an ongoing goal.

    In Post no.18 I set out an alternative monetary system that is not the gold standard. That I believe would root Fiat money better in reality.

    I think a lot of the problems with Economics is that they don’t treat Money seriously enough, that’s both the Pols, the pubic and the financiers.

  55. sean
    October 26th, 2008 at 03:07 | #55

    P25, Stuart

    “Unless the value of Fiat money is derived from the need to pay government taxes. In which case trust is next to irrelevant, only the capacity of the government to levy and collect taxes.”

    So in short you are saying it comes from Power?

    If so where does power come from in a democracy?
    Afterall we could arm ourselves and not pay the required taxes, in which case we are back to trust again.

    I pay my taxes not because I support my pig headed government, I pay it because I support the democratic system, I trust it.

  56. Will
    October 26th, 2008 at 03:48 | #56

    Don, I agree with what you’ve said above, but the theory side of this has long been more humble than the actual rhetoric which rules us.

    It’s easy to say this doesn’t very challenge anything when the reference is academic economics, which has kept pace with critiques of systemic irrational exuberance; but unfortunately, our political discourse and practice has not kept pace with academic economics.

    So, whilst it may be easy to talk about matter-of-degree regulatory advocacy now, I think, if we are being realistic, we must admit that it has not been like this for the last couple of decades. People who dared stray too far from uncritical acceptance of the invisible hand, and the default mantra against government, would be risk being labelled as confused apostates against the moral certainties of an unfettered market. Or worse, they might be accused of harbouring socialist views and some kind of wrong-side-of-history Malthusian mistake.

    Now, there is no one single cause, but I do believe it is partly this bounded political discourse stunting incentives to pay attention that has allowed the burgeoning securities market to get to this point. Of course, the inattention wasn’t all ideology – some of it was simply expertise. The fact is these instruments were getting more and more sophisticated, and government was arguably happy to believe firms and the rating agencies knew what they were doing.

  57. jquiggin
    October 26th, 2008 at 07:04 | #57

    #42 As Alanna says, the sensible response was to get money out of the stock market and some of us did. The idea that, having said that derivatives are opaque and subject to wild fluctuations, default risk and so on, the sensible response is to try to construct a derivative portfolio which pays out if derivatives display wild fluctuations and default risk is precisely the kind of thing (practised on a scale much larger than that of individual investors) that helped to amplify this disaster.

  58. sean
    October 26th, 2008 at 07:05 | #58

    Yes Will the governments also wanted to believe too in fairy tales, the banks where paying billions in tax, its very hard to say stop sending us the money, or where are you getting all this money from? because the truth was the governments where printing it for them.

  59. TerjeP
    October 26th, 2008 at 07:45 | #59

    The best account I ever read of how selfishness (or self interest) can lead logically and consistently to altruism was in a book about biology by Richard Dawkins. It’s called “The Selfish Gene” and I think it’s a brilliant book. Although I’ll freely admit that in drawing the gene/organism analogy into the realm of human/society we might reason that the mechanism for creating altruism in society could be either selfish acts in the market or selfish acts via government or both. Either way it’s a great book.

  60. Katz
    October 26th, 2008 at 08:03 | #60

    The idea that, having said that derivatives are opaque and subject to wild fluctuations, default risk and so on, the sensible response is to try to construct a derivative portfolio which pays out if derivatives display wild fluctuations and default risk is precisely the kind of thing (practised on a scale much larger than that of individual investors) that helped to amplify this disaster.

    True, but this sorry state of affairs aroseonly because those risk-takers grievously underpriced the risk premium.

    The same collapse would happen to insurance companies if insurance companies grievously underpriced the risk of bushfires. This isn’t an argument against bushfire insurance, it’s an argument against underpricing the risk premium.

    Insurance should be one of the market signals to dissuade folks from doing certain things, like building houses in areas of unacceptable bushfire risk, or buying dodgy CDOs.

  61. Joseph Clark
    October 26th, 2008 at 10:28 | #61

    JQ@57,
    This in not an improvement on your previous argument. Given your certainty you could have made a great deal of money with a fairly simple, transparent, low cost trade. Your choice implies that you were not very certain of the prediction*. I’m convinced you don’t need a lecture on revealed preference to understand this.

    Taking money out of the equites is fine, but it is very weak evidence. If you were certain you would have gone much further. Default risk is not relevant unless you were worried about the exchanges defaulting. Your “Wild fluctuations” argument is also not relevant because you could have paid a small upfront premium and not had to worry about margins.

    I’m not just making this point to be annoying. I think it demonstrates a more important general point that markets have a strong collective incentive embody available information. It’s also a sobering proposition for the many who think they know better.

    * I’m hesitant to make assumptions about how you derive your utility, but I think this is true under plausible specifications. Still, it’s your utility and I’m happy to concede the argument if this is the issue.

  62. jquiggin
    October 26th, 2008 at 12:08 | #62

    Joseph, this is utterly unconvincing. You’re essentially advocating a strategy of short selling. You may not have noticed but it was banned at a crucial time. There was talk of doing the same for put options. Similarly, investments that were allegedly as good as cash (auction-rate securities, money market funds) have turned out to be illiquid. Insurance against default through CDS swaps has turned out to be problematic to put it mildly. And talk of the possibility of a market shutdown is not confined to the likes of Nouriel Roubini – it was under consideration yesterday morning after the futures market hit the downward limit on Wall Street.

    So to take up your invitation – show me an investment that will pay out in the event that any counterparty involved goes bankrupt and the stockmarket closes down (or the relevant trade is banned) when I want to realise it. If you have one, I’ll be glad to back my beliefs with dollars.

  63. Joseph Clark
    October 26th, 2008 at 12:35 | #63

    Since exchange traded options (just to take one example) are margined daily the largest amount of profit you could lose would be the change in value on one day. And that would only happen if the exchange defaulted.

    If the four horsemen rode and Satan came to collect the souls of the damned the exchanges probably would stop requiring margins but even then you would only have lost one day’s profit.

  64. Alanna
    October 26th, 2008 at 13:29 | #64

    Joseph said

    If the four horsemen rode and Satan came to collect the souls of the damned the exchanges probably would stop requiring margins but even then you would only have lost one day’s profit.

    I think the four horsemen have indeed arrived Joseph and people’s behaviour right now is more likely to be based on uncertainty. Animal spirits alive and well and people are moving with the rest of herd or being forced there by fear or debt constraints (the market itself).

    I dont believe individuals en masse have perfect information for if they did they would be trading to a greater extent in your exchange traded options if what you suggest is true. Im sure lots of of people really dont want to understand the complexity of financial derivatives and these products and organisations that deal in them have arisen simply in response to too much liquidity in financial markets (and I dont mean central banks interventions).

    Its an imperfect world full of imperfect markets, and people do not have perfect information, markets are not always efficient and they fail.

    Governments also fail. The ratchet effect applies too often to policy direction. We will go on permitting medium density construction until we reach the crisis of high density congestion. In the same way, anyone who has examined the growth of the financial sector as a component of GDP over the past decade or longer may have asked where all the growth was coming from – well in fact it was probably coming from people’s wages – some 9 to 17% of it. An ordinary person could also not have failed to notice the rise in household debt levels (not enough money from wages to pay the mortgages of the inflated real estate values driven by profits made perhaps in the share market?). I still maintain that mandatory super underlies the distortion obvious in the financial sector. The push to deregulate the outputs (and institutions) of this sector – whilst its inflows were guaranteed by regulation was a long brewing recipe for just such disaster as has arrived.

    The arguments for de-regulation have in essence been producer biased and thus entirely lop sided.

  65. jquiggin
    October 26th, 2008 at 13:56 | #65

    Joseph, if the bets are margined daily, what would have stopped me being wiped out before my predictions were proved correct? Markets can (and did) stay irrational longer than I can stay solvent, after all.

  66. Joseph Clark
    October 26th, 2008 at 14:10 | #66

    Only sellers have to post margin. You would only have lost the premium you paid which could have been quite small if you had bought when risk premiums were low. I’d do the numbers for you but I doubt any amount of evidence would change your stance.

  67. Joseph Clark
    October 26th, 2008 at 14:29 | #67

    You could have bought a 900 strike put on the December S&P 500 futures contract for $1.05 on 28/9/08, less than two months ago. It last traded at $99.25.

  68. Joseph Clark
    October 26th, 2008 at 14:33 | #68

    Sorry, 28/8/08.

  69. Joseph Clark
    October 26th, 2008 at 14:36 | #69

    .. and the prices are in index points not $.

  70. jquiggin
    October 26th, 2008 at 14:42 | #70

    Joseph, that would have been great if I could have got the timing right as well as the direction. And maybe you did better than I did.

    But I’m still well ahead of the market and well ahead of the hedge funds who are supposed to have this kind of thing covered.

    I think your crucial claim is this one “I think it demonstrates a more important general point that markets have a strong collective incentive embody available information.”

    Fairly clearly, this incentive hasn’t worked. Maybe that’s because those (like me) who could see that the whole thing was heading for a big crash were (as you’ve seen) unwilling to trust any security offered under these conditions, and therefore didn’t bet on our beliefs. But certainly the market didn’t get this right.

  71. Joseph Clark
    October 26th, 2008 at 14:56 | #71

    My point is not a criticism of your investment strategy or an endorsement of mine.

    In any case I agree very strongly with your last point. I think it’s important that those with information are able to express that information into prices and confidence is a big part of that. That’s why I think gagging the market by banning certain types of trades is incredibly counter-productive.

  72. jquiggin
    October 26th, 2008 at 15:01 | #72

    One thing I certainly got wrong about my predictions of the crisis was my expectation that the US dollar would fall, and that US bonds would become very unattractive relative to those of other countries.

    It seems to me that the rise in the dollar largely reflects various market participants getting squeezed, rather than a belief that the US economy is less exposed to the crisis than others, or that the US government is less likely to inflate its way out of trouble.

    But, either way, this is another reason I’m glad I only took the safe bet on my beliefs and not the risky bets I might have taken.

  73. Alanna
    October 26th, 2008 at 16:21 | #73

    There is no shortage of economists who could see trouble ahead and attempted warnings but the volume of propaganda being generated by some organisations (with self interested invariably wealthy funders and backers and little real research) in defence of free market theory has been like a WW11 air raid where planes dropped silver paper shreds to confuse radar.
    See Stilwell 2003
    http://www.onlineopinion.com.au/view.asp?article=878

  74. rog
    October 26th, 2008 at 18:15 | #74

    Alanna

    every day there are economists issuing warnings and advice, you would run yourself ragged acting on every claim.

    One economist called Greenspan was regularly upbeat.

  75. melanie
    October 26th, 2008 at 20:02 | #75

    It took 7 or more years to build a consensus around Keynesian policies after the 1929 crash.

    I hope we don’t have a disaster of that scale to contend with.

    If we don’t, on the other hand, I can’t really see what real changes are in the offing? So far it seems that we’re going to abandon our efforts to mitigate climate change and cancel immigration. That should improve things shouldn’t it now?

  76. sean
    October 26th, 2008 at 21:19 | #76

    You can say what you like Ayn Rands Toy boy, but the one thing he did see coming was the systemic risk posed by Fannie and Freddie.

    Yes securitisation was the gunpowder, but plenty of things carry explosive power, its the IGNITION that matters.

    125% mortgages and sub prime mortgages came about because Banks with the Nod of the politicos (who coined it in as well thru taxes) thought lending did not have to be insured by such trivial things as deposits. By putting down a good deposit the customer takes the risk, the bank takes the house and gets the rest of its money if you go under.

    The simple fact is IF banks were capitalized at twice the amount of the last 10 years, then you would never have heard of securitisation.

    Root cause is our desire to give people money who should not have been given money, or the socialization of lending by private banks and pseudo private banks.

    So then the weight of money kicked in and the seemingly self fulfilling prophecy of higher and higher property prices feed on itself and onto of the Gunpowder of secularization we added TNT in the form a massive market distortion.

  77. Alanna
    October 26th, 2008 at 22:40 | #77

    Rog

    Im sure I could find no end of quotes of politicians giving themselves a pat on the back for their sound economic policies delivering abundance and happiness, between 1925 and 1928 if I looked.

  78. sean
    October 26th, 2008 at 23:02 | #78

    JQ I think the reason you have got your Dollar predictions wrong can be found in Europe.

    Europe on the brink of currency crisis meltdown

    Even the coming of the BAM is not as frightening as this.

  79. Michael of Summer Hill
    October 27th, 2008 at 09:55 | #79

    John, if I may reply Freedom lover by saying who gives a stuff about the free market and competition when those in need of urgent medical treatment are left out in the cold. At least our public hospitals do provide a service to all comers including foreigners like you who might one day be in need of urgent medical treatment for a small fee and if you cannot pay the fee I believe it is waivered.

  80. October 27th, 2008 at 14:27 | #80

    This crisis will change the way the economy operates permanently, not to many people saw this coming, but lessons will be learnt and it will permanently change the way people look at risk and investment. At least for one generation anyway.

  81. steve
    October 30th, 2008 at 21:47 | #81

    Check out the Ted Spread that has the US Federal Reserve worried.

    http://www.nytimes.com/interactive/2008/10/08/business/economy/20081008-credit-chart-graphic.html

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