Topic: Finance, Banking & Monetary Policy

Chavez 1, Bush 0

It’s never enjoyable to be mocked by a socialist dictator, but Hugo Chavez of Venezuela scores some solid points as he welcomes comrade Bush to the socialist camp. Reuters also reports that Chavez says Bush is both “clueless” and to the “left of me.” Whether he’s right about Bush, Chavez certainly is right about the aptitude of anyone to his left:

Socialist Venezuelan President Hugo Chavez mocked George W. Bush as a “comrade” on Wednesday, saying the U.S. president was a hard-line leftist for his government’s intervention of major private banks in the U.S. financial crisis. Chavez, who calls capitalism an evil and ex-Cuban leader Fidel Castro his mentor, ridiculed Bush for his plan for the federal government to take equity in American banks… “Bush is to the left of me now,” Chavez told an audience of international intellectuals debating the benefits of socialism. “Comrade Bush announced he will buy shares in private banks.” Chavez, who has insulted Bush in the past as a drunkard or the devil, called him clueless on Wednesday. He accused him of simply parroting the words of his aides without understanding the new policies that rely on heavy state intervention.

News That Rich People Can Use

I was astounded to watch a segment on the Newshour With Jim Lehrer tonight about the concerns of Seattle-area arts and public service organizations in the face of Washington Mutual’s acquisition by JPMorganChase, an annual donor of $100 million to nonprofits.

This was not a story about the loss of funds. It was a story about concerns with the potential loss of funds.

Colorful images of ballet dancers, a symphony orchestra, and stage actors in rehearsal flowed across the screen as non-profit heads fretted about the fate of their funding sources.

I enjoy the Newshour and its long-story format, but I’m aware of its government funding and it’s skew toward the wealthy and the politically liberal. And I have to say I can’t recall seeing a story more effete or more indulgent of this audience. The financial crisis - whither capitalism? - is causing arts agencies … concerns.

Something many people don’t seem to understand about mergers, acquisitions, and bankruptcies is that the assets involved in all these transactions don’t just go away. They continue in use under different owners or managers. That’s it! If philanthropy was a good idea before the acquisition of WaMu, it’s a good idea afterwards. If it wasn’t, it wasn’t, and it will go away as it should. I, for one, would rather get cheap or free checking than donate to other rich people’s arts organizations through my banking.

Will wealthy liberals lose corporate-subsidized access to ballet? Oh, I swoon!

Or, here’s an alternative: Get out your checkbooks, richies!

Surely, there are stories about the financial crisis with more substance than this. How about something on Franklin Raines, who headed Fannie Mae from 1999 to 2004 and received a slap on the wrist for accounting irregularities in an organization that we now know was a dumptruck careening toward a crowd of schoolchildren. There are a zillion stories more important than the nervousness of ballet directors in the northwest.

Rant over.

Housing, Financial Markets, and Government

I’ve been absent for Cato-at-liberty in recent weeks because I’ve been busy with the bailout and various related issues. I’ve missed the opportunity to post and get feedback from readers, so I’m posting some of my recent articles for your reading pleasure.

My first foray into the issue was a column for Real Clear Politics arguing against the bailout.

Needless to say, the political class disregarded my sage advice and voted to give the Treasury Department a blank check for $700 billion. So my next article was part of a Google-sponsored debate on whether the turmoil in financial markets is a reason to expand the size and scope of government. You can also see my opponent’s article  and my rebuttal if you are so inclined. You can also rate both of our arguments if you feel like putting your thumbs on the scale.

I’m also taking part in a debate sponsored by the Los Angeles Times. Monday’s topic was whether government should have any role in subsidizing housing, and Tuesday’s topic focused on who should get blamed for the current mess. I’ll post subsequent debates as they become available.

McCullagh on “Other People’s Money”

Friend of liberty (and Cato) Declan McCullagh has a new column on CBSNews.com called “Other People’s Money.”

With that moniker for the column, methinks he’ll be addressing Washington’s ways from an important but underrepresented perspective.

His inaugural column, “Will U.S. Taxpayers Need a Bailout?”, points out the perils of politically directed investments in the banking sector.

If the Economy Is All About Confidence…

…then why are our so-called leaders in Washington doing so much fear-mongering and thrashing around?

Verizon’s CEO Ivan Seidenberg exhibits much better economic leadership than anything we’ve heard from congressional leaders, President Bush, or Treasury Secretary Paulson. He simply has confidence, and he hasn’t mistaken “investment banking” or “banking” for “the economy.”

From a WSJ Deal Journal post called “No Bailout For Me, Thanks”:

We have to retool the work force. We’re not going to do it by hunkering down,” Seidenberg told the attendees of the Dow Jones-Nielsen Media and Money conference. “We’re going to do it by reinvesting.…we can’t allow this period in which we feel bad about dislocations to take away from what America should be doing, which is creating competitive edge. If we ever lose our nerve to continue to take risk, then we’re in a lot of trouble.

While political leaders shivver in their boots and talk about confidence, here’s a genuine leader getting on with it.

The Biggest Economic Nonsense Since the Great Depression

An otherwise interesting Washington Post front-pager on “What Went Wrong” claims the current situation “has erupted into the biggest economic crisis since the Great Depression.”  On the contrary, that honor surely goes to 1980-82, with 1973-75 as a close runner-up.

This may indeed be the biggest postwar financial crisis, but that is a very different thing.

The biggest postwar financial crisis so far was the S&L collapse of the late 1980s, when nearly 3000 financial institutions were closed.  But the impact  of the S&L debacle on the real economy was minor at best (the economy grew by 2.9% a year during that “crisis”).  The stock market crash of 1987 inspired many hysterical predictions but no recession at all.

An economic crisis implies a deep and prolonged drop in real output and employment, not just another routine recession.  To describe current conditions as a worse economic crisis than 1980-82 is fanciful nonsense.

I’m from the Government, and I’m Here to Help You, Whether You Want It or Not

This story says a lot about who most wants bank bailout money, and why:

Community banking executives around the country responded with anger yesterday to the Bush administration’s strategy of investing $250 billion in financial firms, saying they don’t need the money, resent the intrusion and feel it’s unfair to rescue companies from their own mistakes.

But regulators said some banks will be pressed to take the taxpayer dollars anyway. Others banks judged too sick to save will be allowed to fail.

The government also said yesterday that it will guarantee up to $1.4 trillion of private investment in banks. The combination of public and private investment is intended to refill coffers emptied by losses on real estate lending. With the additional money, the government expects, banks would be able to start making additional loans, boosting the economy… .

Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, said he was “much chagrined that we will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government.”

At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady Adams said he has more than 2,000 loans outstanding and only three borrowers behind on payments. “We don’t need a bailout, and if other banks had run their banks like we ran our bank, they wouldn’t have needed a bailout, either,” Adams said.

“Pressed” how, exactly? One wonders. But common sense suggests two strong indicators that money is being misallocated. The first is when it goes to an institution with a track record of failure. The second is when it’s being urged on a recipient who does not even want it. It seems that we’re faced with one or the other now.