In spite of your repetition of the ‘big lie’, in the way Hitler repeated his big lies, Fuck You Capitalism doesn’t work, has never worked and most definately not what America was founded upon.

Me thinks thou doth protesteth too much!

Excellent and convincing comments. I have studied the leverage notion, but this seems to simply be an extension of the low interest rate environment. The bankers simply used the low interest rates, carry trades, etc to create these nifty financial products were essentially leveraged interest rate bets. Buying an adjustable rate mortgage or really any adjustable loan is a bet on the bond market.

As for my “disingenuous” argument about this not being political – it’s not. There are times when Austrian Economics is applicable and there are times when Keynesian Economics is applicable. No two economic situations are the same and all of them will require different answers. Why people have to categorize everything in the world into these black and white categories is beyond me. My guess is it simplifies things. I have voted Republican and I have voted Democrat. It all depends on the situation. And no, I am not a libertarian despite your assumptions. The fact that one facet of my argument happens to be in-line with Austrian/libertarian thinking doesn’t mean you should come to single conclusions about my thinking.

Thanks for the good comments.

Faulting the entire blowout on low-interest rates and the Fed is straight out of the Austrian economics playbook. Not only is the Austrian school considered to be a fringe view (mainstream economists in all camps reject it), but it also goes hand-in-hand with libertarian politics, with its fixation on blame of central banks as a proxy for a loathing of government in general.

It’s also a difficult argument to support. There’s really no evidence to support that the price of money (the overnight interest rate) was the sole cause of the crash. There were housing bubbles around the world in countries where structural interest rates were higher than in the US, such as Australia which saw price run-ups that were comparable to the US.

Likewise, to blame the Fed is to ignore the fact that long-term rates are ultimately decided by the free market. Securitization clearly contributed to that because it provided a much larger potential supply of money to borrow, which increased competition among lenders, which led to a widespread effort to lower standards in order to grab customers. In order to pursue profits, we larger amounts of money to more money to more people, creating a deleveraging bomb in the making.

The Soros-camp leverage arguments are far more compelling, and don’t fall into the libertarian blame-the-Fed-cuz-that’s-just-what-we-do trap. The market convinced itself that we could avoid risk by hedging for it (while earning a lot of fees in the process), and ignored the fact that systemic risks cannot be eliminated simply by reallocating them. (There was a reason why banks used to have higher down payment requirements.) Anyone with a finance background knows that higher leverage levels create more risk, at all tiers of borrower quality.

We had bubbles and crashes occur more frequently back in the good ol’ days of American capitalism when we had even fewer restraints. Some people do not want to see that, and you have to ask yourself why it is that they don’t.

Looking forward to higher taxes in CA (and eventually moving to Texas when the tax rate hits 50%),

TPC

I wonder if the beauty has something to do with the situation in Cali!:)

Have a good weekend, too. I very much like your blog, though I don’t always agree.

Cheers.

Thanks for the kind words. Your comments are an excellent addition to my general commentary. Thanks.

PS – It’s beautiful here in California.

Where “American” capitalism has an edge is that it is more creative and when it finds something that it can build out, it tends to do it well. I’m thinking technology, i. e., the computer, which has been the only real driver in the past three decades, and has been responsible for the creation of huge amounts of wealth (France, for instance, had the “minitel” system in the early 1990s, an internet on which you could buy tickets for the movies, plane tickets, and things like that. It couldn’t develop it). Much of the reason for this is that it has a huge internal market that allows it to achieve a scale that Europeans can only match at the European level, not the national level.

However–and this is the big sea-change that has come upon us–China, India, and Brazil, are now emerging as far larger populations, and this effectively negates the advantage that the US had in the 20th century. Add to that the fact that we have not yet learned the management techniques that the Europeans were forced to adopt in order to compete Efficiency, I think is the word here. For example, the European citizen uses about 1/3 the energy a US citizen does, produces 1/3 the trash). If you had to calculate the true cost of gas for us by pro-rating our military expenditures, I would bet that we pay somewhere to the tune of $5 and up. France gets 85% of its electricity from clean and safe nuclear. People don’t drive nearly as much and use a clean, efficient transportation system that employs many, many people. Etc. etc.). And don’t even get me started on health-care. If you have lived in Europe, y

Meanwhile, we have California on the verge of collapse because they are completely RETARDED!!!

My main point is that I think the idea of “American” pure capitalism is really keeping us from becoming a modern, 21st century high-education, high-productivity society. China, India, and Europe are kicking our butts in engineering, and the one advantage we continue to have–high tech–is rapidly narrowing.