Maggie's Farm

Whenever there are crises in markets, socialists are quick to label them as failures of capitalism and free markets.  While markets surely do, on occasion, fail, freeze-up, or get clogged (although they are far more effective than planned economies), in this case you need look no further than the role of government regulation and control to see the seeds of the problem:

Rep. Barney Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .

Yes, Congress asked Fannie and Freddie to roll the dice, and they did so while making a pretty penny for themselves. As Kimball put it today:

... in recent years the “invisible hand” that adjudicates among competing interests to produce the most efficient channels of economic growth has increasingly been replaced by the heavy hand of government-sponsored social engineering. One especially onerous one is in the form of the Community Reinvestment Act, which, in its fully-developed, post-1995 form, was a gigantic wrench tossed into the engine of capitalism that stymied the orderly evaluation and pricing of risk. It’s one thing to give Chris Dodd or Barack Obama a sweetheart mortgage for favors rendered. It’s quite another to force banks to issue more than $1 trillion of risky mortgages to people with bad, or no, credit history and then prop them up with taxpayer guarantees through the agency of entities like Fannie Mae and Freddy Mac.

Banks didn't want to own all these loans so they packaged them in creative ways and sold them like bonds to willing buyers (albeit with possibly erroneous triple-A ratings). You can call that "greed" or you can call that smart. But when the market for these packages disappeared because the housing bubble burst, the owners of the packages were forced under the new laws to mark to market - and there was no market. It's as if you tried to sell your house today for $500,000., but nobody gave you an offer today, so overnight your net worth (and your ability to get credit) dropped by $500,000.

Anyway, now banks are hoarding cash to meet their capital needs and to avoid further risk. That is why we will begin to see funds fail, and maybe more institutions fail, unless the Feds do more than their rescue bill to loosen up credit.

Malone put it this way:

Marxists and statists of all stripes are, as one might expect, rubbing their hands in glee and declaring this the final death crisis of Capitalism. But I think just the opposite is occurring. What we are in fact seeing are the final death throes of governmental social engineering. As I noted two weeks ago, we are in a kind of Mentos-in-coke world right now - where, thanks to tech, the sheer speed of transactions and the enormous breadth of response, almost any outside influence can quickly turn the whole economy (or culture) into an explosive brew.

Will Wilkinson takes on Thaler and Sunstein's "libertarian paternalism." One quote:

Despite the welcome weight Thaler and Sunstein throw behind a few genuinely liberty-enhancing policies, the thrust of the conceptual renovation behind the term libertarian paternalism is to empower, not limit, political elites. In the libertarian paternalist scheme, the rules will allow for an easy opt-out only so long as those writing the rules happen to care about preserving choice. The "libertarian" part of the equation is secured by good will alone. If that falters, we are left with paternalism, plain and simple. Old-fashioned libertarianism, it turns out, had a great deal to say about the choice architecture of politics. Given the intense attractions of power and the limits of benevolence, liberty (and therefore the commonweal) is best secured by setting in place a structure of rules that strictly limits the discretion of the powerful. That includes the discretion even of choice-loving technocrats.

All Nudge really offers is the idea that we should use what we know about how people act in order to design policy that will help them. And we shouldn't take away their choices. Well, I'm for all of it. If some policy makers really are misled by unrealistic economic models of rationality, then they should cut it out and bone up on psychology. Behavioral economics provides valuable new information about what will and won't work, and why. Thaler's work on savings plans is a great example of what can be done by taking into account new findings in psychology.

But it's no source of ideological realignment, no basis for what Thaler and Sunstein call a "Real Third Way."

You can read his whole piece on Nudge at the Cato Institute. Our readers already know my problems with their line of thinking: "Libertarian paternalism" is an oxymoron, and the academics and political elites, who claim they want to "help" us by guiding our lives, have never impressed me as possessed of any particular wisdom in that regard - or even of any ability to manage their own lives any better than anybody else.

Despite the hysterical fear-mongering, the US economy is just fine, outside of Wall Street - and outside the print MSM, which is in a chronic economic and emotional depression.

This is what seems truly depressing to me, and I think there is some truth to it despite being from Time:

The deeper problem, say growing numbers of worried GOP establishment types, is that while lurching around to win the daily and weekly news cycles, McCain has failed to give voters a broad, forward-looking explanation for why they should support him. McCain's national security experience and reputation as a reformer add substance to his theme of "putting country first," but they don't explain what a McCain presidency would mean, or how it would differ from the past eight years. "At no point have they told the American people where John wants to lead them," says a third Republican strategist. "Had they spent more time laying the predicate, they'd have something to fall back on now."

If McCain loses, prepare the circular firing squad. How could an inexperienced, left-wing guy with sketchy pals win an election? I think the banking mess has just freaked people out and made them feel insecure. It makes "change" sound good, regardless of what it really entails.

We have to remember that most people are too sane to follow politics closely, and are wise enough to know that this, too, shall pass...

Re world food prices, quoted from Our Daily Bread in The Boston Review:

What happens to future corn and vegetable oil prices, and therefore to the entire structure of food prices, is dependent primarily on the price of oil and on whether the new biofuel mandates for ethanol in the United States and biodiesel in Europe are imposed or rescinded.

The price of oil, in particular, is a fundamental factor in the overall equation. In a world of $50-per-barrel oil, growth in biofuels would have been more limited, with a much smaller spillover onto food prices. But the links that have emerged between agricultural and energy sectors will shape future investments and the well-being of farmers and consumers worldwide.

Quoted from a piece by the Anchoress:

It’s time for the GOP and people on the right to realize that - for now - the rules have changed. There is a whole ‘nother rulebook being used, and sitting around flapping the old rule book and whining “c’mon, guys, c’mmmmmmon,” is not going to get the game back on track.

John McCain needs to realize it today. So does Palin. We need to recognise it and begin to compete under these new rules, or just concede the game. John McCain needs to stop trying to act like a referee and start acting like the quarterback.

By the way, we’re outnumbered. Team Mainstream has all the heavyweights, the guards, the tackles and the microphones, too - so they call the plays the way they see them, regardless of what is actually happening. The spectators are eating pretzels and wondering if they’ll win the office pool, but they’re busy listening to the color commentary rather than watching the game with their own eyes.

How do we win? Maybe we can’t. Maybe things are too far gone. But I’m thinking McCain needs to make a very aggressive play, here - right now - to do or die.

The steamroller media is about to sack McCain - to flatten him before he ever gets the ball out of his hand - and Palin, the wide receiver, has a whole pack running right along side of her; they’re effectively blocking her from all sides.

McCain needs to make a Hail Mary pass, if he can, if he has one up his sleeve.

He has already tried a few of them. It's difficult to get a fair hearing these days from the MSM. But what else is new? This election feels like American Idol (which I have heard about, but never seen).

The moderator of the VP debate is the author of a pro-Obama book.

It's frustrating to play against a stacked deck, but that's what this election seems to be. The old saying is "Never get in an argument with people who buy ink by the barrel."