Comments on: Random Thoughts on the Financial Crisis http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/ Defending the liberal tradition in history, science, and philosophy. Wed, 23 May 2012 12:36:54 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: RogerR http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162587 RogerR Mon, 22 Sep 2008 23:52:34 +0000 http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162587  <em>If there is any likelihood that the crisis in the financial sector will translate into problems with the economy, generally, then this is not the time for worries about moral hazard </em>This is the only point at which considering the moral hazard can make any difference.  Once the deed is done, it's too late. I found this article very interesting: <a href="http://www.nytimes.com/2008/09/23/business/worldbusiness/23euro.html?ref=business" rel="nofollow">http://www.nytimes.com/2008/09/23/business/worldbusiness/23euro.html?ref=business</a> <strong>Europe and Japan Balk at U.S. Request on Bank Aid</strong> Nobody else seems to want to participate in the bailout.  Pretty clearly they don't think we are on the edge of a global financial crisis.  Yet the lobbyists have already been busy, convincing Paulson to bail out non-US companies with US tax dollars, and bail out debt unrelated to mortgages.  My initial reaction to this was that we probably did have to do the bailout, but I am turining skeptical.  The bailout, even if it calms the markets, may produce more economic pain for this country.  Note the spike in oil prices and the drop in the dollar.  The world markets are already worried about our debt levels, and now we are gonna try to bail out the world markets? I think they ought to debate this thing for at least a couple of weeks.  The reaction to this "crisis" may be potentially much more catastrophic than the crisis itself.   If there is any likelihood that the crisis in the financial sector will translate into problems with the economy, generally, then this is not the time for worries about moral hazard

This is the only point at which considering the moral hazard can make any difference.  Once the deed is done, it’s too late.

I found this article very interesting:

http://www.nytimes.com/2008/09/23/business/worldbusiness/23euro.html?ref=business

Europe and Japan Balk at U.S. Request on Bank Aid

Nobody else seems to want to participate in the bailout.  Pretty clearly they don’t think we are on the edge of a global financial crisis.  Yet the lobbyists have already been busy, convincing Paulson to bail out non-US companies with US tax dollars, and bail out debt unrelated to mortgages. 

My initial reaction to this was that we probably did have to do the bailout, but I am turining skeptical.  The bailout, even if it calms the markets, may produce more economic pain for this country.  Note the spike in oil prices and the drop in the dollar.  The world markets are already worried about our debt levels, and now we are gonna try to bail out the world markets?

I think they ought to debate this thing for at least a couple of weeks.  The reaction to this "crisis" may be potentially much more catastrophic than the crisis itself. 

]]> By: Dave Schuler http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162562 Dave Schuler Mon, 22 Sep 2008 20:42:11 +0000 http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162562 Your comment immediately above is a pretty fair summary of my view, Maniakes.  Heck, I don't even object to what I've been calling elsewhere a Congressional "auto da fe" but I think it should be done after we a) decide that something must be done (I think that's a done deal); and b) do it. Your comment immediately above is a pretty fair summary of my view, Maniakes.  Heck, I don’t even object to what I’ve been calling elsewhere a Congressional "auto da fe" but I think it should be done after we a) decide that something must be done (I think that’s a done deal); and b) do it.

]]> By: Maniakes http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162556 Maniakes Mon, 22 Sep 2008 17:22:50 +0000 http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162556 With that out of the way, I absolutely agree with you on most of your other points. The Hero Theory of Disaster is often tempting, but in situations like this there's generally plenty of blame to go around. And if there is a risk of the crisis spilling over into the broader economy, then we do need to do something about it even if that means compromising our principles on moral hazard, and everyone who's anywhere near the mainstream of the policial spectrum would be planning some form of government intervention if they were in power. Heck, I'm probably more libertarian than 80% of the population on fiscal issues, and I've been defending the ad hoc bailouts as necessary. With that out of the way, I absolutely agree with you on most of your other points. The Hero Theory of Disaster is often tempting, but in situations like this there’s generally plenty of blame to go around. And if there is a risk of the crisis spilling over into the broader economy, then we do need to do something about it even if that means compromising our principles on moral hazard, and everyone who’s anywhere near the mainstream of the policial spectrum would be planning some form of government intervention if they were in power. Heck, I’m probably more libertarian than 80% of the population on fiscal issues, and I’ve been defending the ad hoc bailouts as necessary.

]]> By: Maniakes http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162555 Maniakes Mon, 22 Sep 2008 17:18:00 +0000 http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162555 In other words: Something must be done. This is something. Therefore, we must do it. My argument is that before taking action, we need to weight the risk if we don't take the action against the direct cost of taking the action and the indirect cost of the action leading to us landing in a similar mess ten years from now. The Bush/Paulson proposal strikes me as too costly on both fronts, and I'm far from convinced that we can't avert the risk of financial collapse with a far lower cost (both dollars and moral hazard). I'm also concerned about the implications of a broad policy of socializing losses and privatizing profits. Nobody thinks that's a good situation. People are already starting to say that if losses are socialized, then profits and the decision making process that leads to those profits and losses must also be socialized to the same extent that losses are. There's a fair amount of justice to that argument. Those of us who don't want profits and the decision making process socialized must therefore oppose as much as possible the socializing of losses. In other words:
Something must be done.
This is something.
Therefore, we must do it.

My argument is that before taking action, we need to weight the risk if we don’t take the action against the direct cost of taking the action and the indirect cost of the action leading to us landing in a similar mess ten years from now. The Bush/Paulson proposal strikes me as too costly on both fronts, and I’m far from convinced that we can’t avert the risk of financial collapse with a far lower cost (both dollars and moral hazard).

I’m also concerned about the implications of a broad policy of socializing losses and privatizing profits. Nobody thinks that’s a good situation. People are already starting to say that if losses are socialized, then profits and the decision making process that leads to those profits and losses must also be socialized to the same extent that losses are. There’s a fair amount of justice to that argument. Those of us who don’t want profits and the decision making process socialized must therefore oppose as much as possible the socializing of losses.

]]> By: Around The Campaign 2008 Sphere http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162546 Around The Campaign 2008 Sphere Mon, 22 Sep 2008 15:12:18 +0000 http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162546 [...] BAILOUT, POLITICAL RESPONSIBITY AND POLITICAL NEED is the focus of a MUST READ post by Dave Schuler. Here is just a small part of it: As a brief digression I’ve seen quite a bit of chortling about [...] [...] BAILOUT, POLITICAL RESPONSIBITY AND POLITICAL NEED is the focus of a MUST READ post by Dave Schuler. Here is just a small part of it: As a brief digression I’ve seen quite a bit of chortling about [...]

]]> By: Around The Campaign 2008 Sphere http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162547 Around The Campaign 2008 Sphere Mon, 22 Sep 2008 15:12:18 +0000 http://deanesmay.com/2008/09/22/random-thoughts-on-the-financial-crisis/#comment-162547 [...] BAILOUT, POLITICAL RESPONSIBITY AND POLITICAL NEED is the focus of a MUST READ post by Dave Schuler. Here is just a small part of it: As a brief digression I’ve seen quite a bit of chortling about [...] [...] BAILOUT, POLITICAL RESPONSIBITY AND POLITICAL NEED is the focus of a MUST READ post by Dave Schuler. Here is just a small part of it: As a brief digression I’ve seen quite a bit of chortling about [...]

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