Tuesday, April 28, 2009

Milton Friedman co-worker Anna Schwartz on the present financial problems

Yet isn't Bernanke a disciple of Friedman and Schwartz? He publicly refers to them as mentors, and, thanks to their scientific breakthrough, he has famously declared that "the Great Depression will not happen again." Bernanke is right about the past, Schwartz says, "but he is fighting the wrong war today; the present crisis has nothing to do with a lack of liquidity." President Obama's stimulus is similarly irrelevant, she believes, since the crisis also has nothing to do with a lack of demand or investment. The credit crunch, which is the recession's actual cause, comes only from a lack of trust, argues Schwartz. Lenders aren't lending because they don't know who is solvent, and they can't know who is solvent because portfolios remain full of mortgage-backed securities and other toxic assets.

To rekindle the credit market, the banks must get rid of those toxic assets. That's why Schwartz supported, in principle, the Bush administration's first proposal for responding to the crisis--to buy bad assets from banks--though not, she emphasizes, while pricing those assets so generously as to prop up failed institutions. The administration abandoned its plan when it appeared too complicated to price the assets. Bernanke and then-Treasury secretary Henry Paulson subsequently shifted to recapitalizing the banks directly. "Doing so is shifting from trying to save the banking system to trying to save bankers, which is not the same thing," Schwartz says. "Ultimately, though, firms that made wrong decisions should fail. The market works better when wrong decisions are punished and good decisions make you rich." She's more sympathetic to Treasury secretary Timothy Geithner's plan, unveiled in March, to give private investors money to help them buy the toxic assets, but wonders if the Obama administration will continue to support the plan if the assets' prices turn out to be so low, once investors start bidding for them, that they threaten the banks.

What about "systemic risk"--much heard about these days to justify the government's massive intervention in the economy in recent months? Schwartz considers this an excuse for bankers to save their skins after making so many bad decisions. "The worst thing for a government to do, though, is to act without principles, to make ad hoc decisions, to do something one day and another thing tomorrow," she says. The market will respond positively only after the government begins to follow a steady, predictable course. To prove her point, Schwartz points out that nothing the government has done to date has really thawed credit.

Schwartz indicts Bernanke for fighting the wrong war. Could one turn the same accusation against her? Should we worry about inflation when some believe deflation to be the real enemy? "The risk of deflation is very much exaggerated," she answers. Inflation seems to her "unavoidable": the Federal Reserve is creating money with little restraint, while Treasury expenditures remain far in excess of revenue. The inflation spigot is thus wide open. To beat the coming inflation, a "new Paul Volcker will be needed at the head of the Federal Reserve."

Who listens to her these days? "I'm not a media person," she tells me. She rarely grants interviews, which distract her from her current research: a survey of government intervention in setting foreign exchange rates between 1962 and 1985. Never before have these data been combined to show what works and what doesn't. In her nineties, she remains a trendsetter.



Bullets meant for bankers could kill the British welfare state

Note: "The City" is shorthand for London's financial services district. But it is the people there, not the geography, that matters and Britain's new higher taxes seem set to drive many of them abroad

My first reaction to Wednesday’s Budget was to focus on the increase in the top tax rate, rather than the explosion in public borrowing that horrified other commentators. On examining the Budget documents in greater detail, I am more confident than ever that the tax rise was Alistair Darling’s biggest blunder; but I have to concede that some other decisions and numbers hidden in the small print were far worse than I first thought....

The eye-catching measure in this respect was the increase to 50 per cent in the top tax rate, but there were several equally damaging changes, mostly relating to pensions, in the fine print. In terms of Treasury revenues, these reforms are likely to be self-defeating, or at best, utterly futile.

According to the Institute for Fiscal Studies, behavioural changes, such as changes in work patterns, relocations abroad and conversion of wages into corporate profits or capital gains, will mean that the Treasury raises much less than the £2 billion of revenue predicted. And even in the unlikely event that Mr Darling’s pre-election tax gesture did manage to raise the odd billion, these sums would be far too small to have any impact on public borrowing projections running at £150 billion to £200 billion a year...

Hopes of the quick improvement in UK economic conditions assumed by Treasury forecasts rely more than ever on maintaining the City’s role as the dominant centre of global financial and business services and on reviving the top end of the housing market. The Budget Red Book says the financial sector provided 25 per cent of the £47 billion in Britain’s total corporation tax before the recession, plus a “significant” proportion of income tax and national insurance receipts....

Yet the Budget tax measures seem deliberately designed to ensure that Britain’s financial and business service sectors never return to the global dominance they enjoyed... That, in turn, means that the growth of government revenues and the solvency of the British welfare state will depend largely on what happens to the international competitiveness of the financial sector. The logic of the Budget is simple: those who want to punish the bankers could end up destroying the welfare state.



Suspicions of staggering corruption surround GE’s CEO Jeffrey Immelt

O’Reilly: “Will GE get paid for supporting President Obama? GE, which owns MSNBC, has been very aggressive in helping Barack Obama.

O’Reilly: “There is also emerging evidence that GE CEO, Jeffrey Immelt, and NBC News Chief Jeff Zucker, told CNBC personnel to stop criticizing Obama’s economic policies. Now, that would be a major breach of journalistic ethics. In fact, Obama critic Rick Santelli was reported to have said that he was sent to a “Re-education camp” by NBC. “

An O’Reilly Factor producer and GE stockholder, Jesse Watters, asked GE CEO Jeffrey Immelt the following question at a stockholders’ meeting in Florida: “Last week on MSNBC, Janeane Garofalo, said that Americans who attended tea parties and were protesting high taxes and government spending were racist rednecks. She was not challenged by the anchor on MSNBC. Are you okay with that? And do you consider this a form of hate speech sir?”

Immelt’s response: “Again, we have not censored MSNBC. Again, my own personal beliefs aside, I believe that MSNBC has some standards that they follow and that’s what you are seeing.

Watters: With all due respect, this is the kind of hate that MSNBC traffics in on a regular basis. Are you comfortable with this and do you think this hurts the GE brand?

Immelt: I don’t censor what they do or what they say despite the fact that I might disagree with some of it or much of it, some of the time.

O’Reilly: “Most CEOs would have stopped NBC’s corruption a long time ago. But Immelt may be looking for a major payout. When a powerful corporation which controls a major part of the American media may be using its power and the airwaves to influence politics in order to make money from government contracts - That kind of corruption would make Watergate look small.”

TDC asks: Why would GE CEO Immelt put his own beliefs aside when GE owns MSNBC? He wouldn’t. However, he would choose to do nothing about this hate speech if he is trying to get into Obama’s good graces.




Drugs in Portugal: A decriminalization success story: “Pop quiz: Which European country has the most liberal drug laws? (Hint: It’s not the Netherlands.) Although its capital is notorious among stoners and college kids for marijuana haze–filled ‘coffee shops,’ Holland has never actually legalized cannabis — the Dutch simply don’t enforce their laws against the shops. The correct answer is Portugal, which in 2001 became the first European country to officially abolish all criminal penalties for personal possession of drugs, including marijuana, cocaine, heroin and methamphetamine. At the recommendation of a national commission charged with addressing Portugal’s drug problem, jail time was replaced with the offer of therapy. The argument was that the fear of prison drives addicts underground and that incarceration is more expensive than treatment — so why not give drug addicts health services instead?”

Credit card folly: “By mandating that the credit card companies lower their fees, the government will severely hinder their tenuous profitability. In order to avoid bankruptcy, the companies will have to deny credit to marginal borrowers, which would reverse the ‘easy access’ policies that have defined the industry over the last generation.”

Strange idea in Nevada: "On a party-line vote, the Democrat-dominated Nevada Assembly on Tuesday backed a bill designed to neuter the 538-member Electoral College, guaranteeing the presidential candidate who wins the national popular plurality will always be declared president.The purpose of Assembly Bill 413 is to see to it that Nevada’s five electoral votes go to the presidential candidate who wins the most popular votes nationwide, regardless of which candidates carries the majority of Nevadans."

There is a new lot of postings by Chris Brand just up -- on his usual vastly "incorrect" themes of race, genes, IQ etc.


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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


1 comment:

Anonymous said...

Chris Brand is a delightful eccentric that you seem to have become the physical publisher of. Bravo.