beating the dead horse economically

summary of plans

Aside from the use of the term 'ATM machine', this was a useful article.

Since I have often sided with the Chicago school on economic thought (which is a typical libertarian train), I can see this as a better expression of my own frustrations with the bills/bailouts that have been proposed. Economically thinking, it was far, far better to come up with something that addresses the particular issues that are straining the financial system right now and in the short term future to allow the market time to clear out its own mess. The proposals that were coming in remind me instead of our institutional thinking on education; ie throw money at the problem. It had the distinct look of being a panicky response without any forethought and with long-lasting implications, none of them potentially good. Some regulatory oversight and business watchdog type operations would seem useful, but these already existed (and went largely ignored). The last thing we should need is new regulatory agencies to slow down the now un-greased wheels of Wall St's engines. Instead, carefully defusing the bomb by allowing some institutions to fail (by being bought out by interested parties) and loans to those agencies which only need short term viability to clear portions of their silly business practices while the real estate market crumbles should be sufficient. It then makes sense, as suggested to create functional limits on banking practices of short term loans to finance long-term debts. Banks are not supposed to be in the business of risk.

I thought one of the other elements was that the crisis has been going on for almost a year now, with things like the Bear Stearns buyout raising some eyebrows but not inducing a total panic. In reflection, the continued reduced discount rates the Fed was offering basically allowed banks to keep borrowing money in the habit of robbing their future to pay their past, thus staying afloat a little while longer. Eventually enough major banks however began running out of time in this game of musical chairs, and the music stopped. Ordinary people finally became wise to the problem, without understanding it, and seeing it as a sudden and unnatural occasion (in otherwords, greed! corruption! scandal!). It was indeed unnatural and based on some unusual, often unethical, business practices. I think it would take far too long to explain such things to the average voter. And it has taken far too long to explain that yes, the government should be doing something, and yes, you will get screwed eventually if nothing at all happens. Corruption on Wall Street is a far bigger issue than corruption in DC. Dc corruption costs us some economic freedoms, and a few billion dollars here or there. It's a headache, or maybe a virus like a cold. We've all gotten sick off of it, but it's a manageable and known quantity. Corrupt business practices by investment firms or massive banks however becomes like a heart attack, with sudden and immediate panics by the masses. Without some effective treatment, the financial system becomes totally insolvent and prone to monopolize itself (thus defeating the competitive banking system we've come to rely on). Fortunately, there are still foreign banks and credit unions with solvent positions and several major US banks (ie, Bank of America, JPM, or Citi) are still perfectly fine with very minimal exposure to the crazy mortgage markets (and that mostly by buying up dead banks).