Fashionable Fictions

by Chidem Kurdas

Vanity Fair is not a magazine I follow, so I was taken aback when I flipped through an issue someone left behind at a café. According to the Editor’s Letter, “the chain of catastrophic bets made over the past decade by a few hundred bankers may well turn out to be the greatest nonviolent crime against humanity in history.”

Really? A few hundred bankers made millions of people live beyond their means, buy wildly over-priced houses, drive gigantic SUVs and put huge amounts of debt on their credit cards. Without those actions, the twin credit and real estate bubbles could not have inflated and hence there would have been no collapse.

“Never before have so few done so much to so many,” writes Vanity Fair editor Graydon Carter.  That’s a very convenient way of looking at it—some banker made me do it, he should pay for it and be hung, drawn and quartered. Always a handy story and right now supremely fashionable.

What Ended The Great Recession?

by Mario Rizzo  

Some business forecasters with a not-too-bad record are predicting that the recession will be over by the end of the year.  (NBER dates the beginning to December 2007.)  

Of course, the recovery in terms of real output from the Great Depression began in the 3Q of 1933 and that did not preclude high unemployment rates and a further recession in 1937. Here. Let that pass for the moment. 

If recovery begins, the discussion about why will also begin. Let’s confine ourselves to evaluating policies designed by the government to produce recovery.

OK, it’s “later” now

by Sandy Ikeda

MSNBC reports that “Evidence mounts that recession may be ending”. At the same time, in the Wall Street Journal:

[T]he central bank has been buying mortgage-backed securities and Treasurys. Through programs announced since last fall, it has bought more than $460 billion of mortgage-backed securities and more than $125 billion of Treasury bonds. But the winds turned against the Fed in recent days, as investors worry the government’s approach could lead to inflation.

Time to start crossing that bridge already?

Tarred by TARP

by Mario Rizzo

My long-time friend and coauthor, Jerry O’Driscoll, has an excellent post at Cato-at-Liberty on TARP. In a relatively few words he gets to the heart of the matter. Take a look here.

 

The Fed Against Equilibration

by Mario Rizzo

 

Reality is more complex than our models. Free-market forces are asserting themselves but the Fed is also intervening and trying to affect those forces. Real-world data is the result of both factors.

 

The Commerce Department  has issued some new data showing that house sales are rebounding (but still off their year-ago levels) and that house prices are falling. This is to be expected as supply and demand begin to equilibrate.

The Quality of Price Signals

by Mario Rizzo

In an under-appreciated book, The Foundations of Morality (1964), the Wall Street Journal and New York Times economic journalist, Henry Hazlitt, wrote that the price system does not send accurate signals in the absence of private property rights.

“It is important to insist that private property and free markets are not separable institutions… If I am a government commissar selling something I don’t really own, and you are another commissar buying it with money that really isn’t yours, then neither of us really cares what the price is” (p. 304).

The so-called Geithner (U.S. Treasury) plan to purchase toxic assets from banks disregards the relationship between an adequately functioning price system and property rights.