Economic Grief

http://money.cnn.com/…

The federal government, in what will be its most far-reaching attempt yet to contain the financial crisis, is poised to establish a program to let banks get rid of mortgage-related assets that have been hard to value and harder to trade.

Leaders from the House and the Senate were briefed on Thursday evening by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

“The root cause of distress in capital markets is the real estate correction and what’s going on in terms of the price declines in real estate,” Paulson said at a press briefing after the meeting. “So we’re coming together to work for an expeditious solution aimed right at the heart of this problem, which is illiquid assets on financial institutions’ balance sheets.”

Many details of the plan remained unclear, but it is likely the government would take on tens of billions of dollars in mortgage assets - if not more.

One way the agency under discussion could work is by setting up bulk auctions to buy mortgage assets from financial institutions. The auctions would be for set dollar amount purchases. Companies that want to offload the hard-to-sell assets from their balance sheets bid to sell to the government at a huge discount. The company willing to sell at the lowest price wins.

The government would then be able to sell the assets back into the market when it wanted.

According to policy research firm the Stanford Group, such a setup would allow the government to refinance borrowers in the loans owned by the government, thereby lowering the risk of their defaulting and eventually boosting the price of the mortgage security in which those loans are packaged.

“Lowering the risk” = artificial stimulus = another bubble.

These people just don’t learn. A single school of economists have predicted this and warned against all this for nearly 100 years and yet every time something happens they are ignored. I watch Ron Paul this morning on CNN describing the Austrian position on this crisis and the host shakes his head in agreement. Glenn Beck has him on all the time to weigh in as does MSNBC and Fox, Fox Business. His TV appearances have shot through the roof relative to when he was running for president and yet his words fall on ear unwilling to accept reality. The ocean of fascist/socialist diatribe nearly drowns out one of the only people speaking intelligently on that moving picture box.

Frustrating.

UPDATE: Paul on CNN this morning

It’s sad that Glenn, after everything he’s learned in the past year, still considers voting for McCain or Obama.

I’ve been told that Penn Gillette tonight was on Glenn Beck’s show and while talking about the size of government Beck said he needed to have Penn on again so they may further discuss things and Gillete said something to the effect: “Sure, you argue minarchism and I’ll argue anarcho-capitalism.” Not every day you hear that kind of dialog on primetime TV. If I run across the video I’ll post it.

http://www.economist.com/…

A LIFELONG libertarian, Alan Greenspan does not ordinarily advocate giving the government more power. But he does so in a new epilogue to the paperback edition of his memoir, parts of which were made available to The Economist. The crisis of the past year has convinced him it is the lesser evil. Better someone else be in charge of bail-outs, he argues, than the Federal Reserve, which he led for 18 years.

Mr Greenspan says a high-level panel of American financial officials should be given broad power to seize any financial institution whose failure threatens the entire economy, bail out its creditors and close it down. “We need laws that specify and limit the conditions for bail-outs” and do so transparently with taxpayers’ money, “rather than circuitously through the central bank, as was done during the blow-up of Bear Stearns,” he writes in “The Age of Turbulence”. (Penguin is to release the paperback on September 9th.)

If that means the government has to wade in, so be it. “Our country has long since abandoned the notion that we should leave crises to be resolved solely by the marketplace,” he says. “The critical need…is to formalise…the procedures improvised in the case of Bear Stearns. This should ensure that in the future, government financial assistance to lending institutions does not impact the Federal Reserve’s balance-sheet and monetary policy.”

He says a standby panel, empowered by Congress, should determine if an institution’s failure is dangerous enough to require taxpayer support. It would then form a vehicle to take the firm into “conservatorship”, wipe out the equity, preferably impose a “haircut” on its debts before guaranteeing them, and then sell its assets. Mr Greenspan’s model is the Resolution Trust Corporation (on whose board he served), created in 1989 to take over failing thrifts, sell their assets, then close itself down. He pours cold water on a proposal by Hank Paulson, America’s treasury secretary, to give the Fed broad responsibility over market stability.

Mr Greenspan’s proposal may be politically difficult. For years Fannie Mae and Freddie Mac, America’s mortgage giants, resisted the creation of a regulator that could close them down. With other large institutions—be they investment banks, hedge funds or insurance companies—there might be even more of a fuss. And the Fed is not yet ready to bow out. “Unless I hear from Congress that I should not be responding to a crisis situation, I think that it’s a long-standing role of the central bank to use its lender-of-last-resort facilities,” Ben Bernanke, Mr Greenspan’s successor at the Fed, said last month.

Just because the man used to hang out with Ayn Rand and was apparently a libertarian Objectivist doesn’t mean he continues to be one. Anyone who advocates aggression is not by definition a libertarian. But what better way to destroy a movement then by redefining the words? Eric Arthur Blair would be proud. It was done at around the turn of the 20th century with ‘liberal.’ In economics ‘inflation’ has been redefined. Now a concerted effort appears to be being made to change the meaning of ‘libertarian.’ People like Glenn Beck and Neil Bortz nationally claim to be libertarians. Advocating government manipulation of the market and money bailouts, immigration control and war with people who pose no threat is NOT libertarian.