There are always unintended consequences. And they’re always so easy to see in hindsight.
So the government announces that banks will not be allowed to fail. What do you do if you’re a rational investor? You reason that there’s a floor under the debt-securities issued by these banks. You figure you might be able to exchange them for honest-to-goodness Treasury paper later on.
So you buy up bank-issued paper. What do you sell, to make room in your portfolio? Fannie/Freddie debt, which costs more because it’s presumed to be safer, so it yields less. It’s something like a pair-trade, or an arbitrage.
Unintended consequence? Retail mortgage rates have shot up nearly a full percentage point in just the last few days. Which makes housing all the less valuable and exacerbates the underlying problem.
This is fun, isn’t it?
Daniel Horowitz
Neil Stevens
Moe Lane
Steve Maley
Jake Walker
It still boggles my mind ...
alchemist17 (Diary) Friday, October 17th at 9:02AM EST (link)that people have such faith in the government to fix and run things. What’s the last government action where you came out and said “Wow, that was well planned and executed, and went off flawlessly”?
I fully expect the government to make a mess of this like they do everything else. I suppose it’s too much to hope that once we get through this that they leave well enough alone, even to the extent of allowing the natural recessions to run their course instead of delaying them in favor of one big crisis later.
Didn't some of us say something about unintended consequences before the bailout was passed????
Attack Mode (Diary) Friday, October 17th at 9:03AM EST (link)Too bad no one would listen. Too bad so many here were ready to get in bed with awful fiscal policy out of fear.
I would equate it to a guy getting told he has AIDS and since he has AIDS why not have sex with the girl with Herpes…only problem is that the test for AIDS was wrong….now he just has herpes for the rest of his very long life.
“Land of the Free and Home of da Whopper” Peter Griffin…Family Guy
conform and celebrate diversity….or else!!!
Steel-Belted Radial Right Winger
“I’ll create 5 million jobs from out of unicorn farts and pixie dust” Justatron paraphrasing Obamessiah…yes I love it that much.
Ok, so for your analogy to hold, you have to assume that...
Francis Cianfrocca (Diary) Friday, October 17th at 9:12AM EST (link)…the financial crisis wasn’t real. You’re saying the test was wrong and the patient didn’t have AIDS after all.
You also have to assume that herpes is forever.
To the first point: how many business people do you know that are suddenly very frightened and thinking about laying people off, because clients are bailing on new purchases?
I know a lot of them. I’m one of them myself. You’re more than welcome to bury your head in the sand, but that won’t work for me. I have to make payroll every two weeks. This crisis is the real thing.
To the second point: this is coming at a very unfortunate time, because we’re about to hand the reins over to a much-stronger Democratic majority. If Republicans had held on in this election, I’d have been reasonably confident that the extraordinary structures put in place to deal with the crisis would be temporary. But with Democrats in power, permanent herpes is a pretty good bet.
No one could have foreseen all of the issues.
birdmojo (Diary) Friday, October 17th at 9:15AM EST (link)Therefore the bailout was the right thing to do.
Man is free at the moment he wishes to be. –Voltaire
I think you misunderstood....
Attack Mode (Diary) Friday, October 17th at 9:24AM EST (link)The crisis was and is real…I just didn’t think it was AIDS.
The point is that the crisis blinded the common sense.
The AIDS blinded the man to the other diseases he could get.
I understand that people in the business got frightened but instead of coming out and calming the fear and treating the root causes the Gov’t came out and said WE ARE ALL DOOMED. This only bred more fear and when people are scared they do stupid stuff. People started taking money out of the market because of fear, and this caused more fear because of a dropping stock market. This is a perfect example of a self fulfilled prophecy.
“Land of the Free and Home of da Whopper” Peter Griffin…Family Guy
conform and celebrate diversity….or else!!!
Steel-Belted Radial Right Winger
“I’ll create 5 million jobs from out of unicorn farts and pixie dust” Justatron paraphrasing Obamessiah…yes I love it that much.
Who could've predicted this?
Joshua Persons (Diary) Friday, October 17th at 9:48AM EST (link)I mean, no one thought these bailouts would have negative consequences.
Formerly jpers36
NARF
Tip of the iceberg
Herodotus Friday, October 17th at 11:29AM EST (link)It will take several years at the very least for all the economic distortions from the bailout to become apparent.
Sign Newt’s Drilling Petition. I have included a link to it in the below. Thank you.
http://www.americansolutions.com/
It's okay. After all, the people in power won't have to deal with the consequences of the decision they made.
asleep06 (Diary) Friday, October 17th at 11:36AM EST (link)Blackhedd, you don’t have to worry.
All these wonderful decisions our wise elders in power are making that are crippling future generations of Americans won’t actualize their worst consequences till after you’re dead.
So everything’s fine for you. What’s to worry about? You got your own. That’s all that really matters, isn’t it?
Small is beautiful.
Money is growing again people
Alberta (Diary) Friday, October 17th at 12:26PM EST (link)Whether you were down with the socialite socialism or not, we now got like a trillion dollars in the pipeline. Thats gotta help.
Hey black, why are you worried about mortgage rates? Dont you know that Obama or McCain are gonna pay for them for us? On a serious note, I woulda figured with all the intervention talk about mortgages (renegotiation of principle and rates talk), that a bank would only give you one if you had 75% down and payed 20 points on the interest.
Sir, my concern is not whether God is on our side; my greatest concern is to be on God’s side, for God is always right.
Abraham Lincoln
GC suggested an incremental approach beinging with only changing mark-to-market
Mike gamecock DeVine (Diary) Friday, October 17th at 1:51PM EST (link)repealing SarBox and infuisng banks with money for NEW loans and not a $700B bailout of the bad paper, in about 4-5 detailed columns during the crisis.
Mike DeVine’s Examiner.com, Charlotte Observer and The Minority Report columns
“One man with courage makes a majority.” – Andrew Jackson
We had to DO something but not "the" bailout
Mike gamecock DeVine (Diary) Friday, October 17th at 1:55PM EST (link)Something had to be done to ensure liquidity for NEW loans, but that didn’t require the bailout as first proposed, nor even the improved version that passed and the even better version that is being implemented.
No reason to reward gamblers on housing prices to get to NEW loans. It doesn’t matter to WHOM the new loans go.
Mike DeVine’s Examiner.com, Charlotte Observer and The Minority Report columns
“One man with courage makes a majority.” – Andrew Jackson
yes, and it will take years for us to suffer the consequences of WHAT LED TO THE NEED FOR THE BAILOUT
Mike gamecock DeVine (Diary) Friday, October 17th at 1:59PM EST (link)We are going to have a deep recession and nothing can stop it. Too much debt for too long.
Mike DeVine’s Examiner.com, Charlotte Observer and The Minority Report columns
“One man with courage makes a majority.” – Andrew Jackson
One other thing Blackhedd.....and all the rest who wanted to discount the warnings of unintended consequences
Attack Mode (Diary) Friday, October 17th at 2:06PM EST (link)You are all correct that no one could predict what the unintended consequences would be, but that is not the point at all.
The point is precisely that you cannot predict those. The point is that we could predict that there would be unintended consequences and that none of you would listen.
You sold out for a lemon due to fear of known consequences, and know we will all reap the unintended consequences.
“Land of the Free and Home of da Whopper” Peter Griffin…Family Guy
conform and celebrate diversity….or else!!!
Steel-Belted Radial Right Winger
“I’ll create 5 million jobs from out of unicorn farts and pixie dust” Justatron paraphrasing Obamessiah…yes I love it that much.
Life sucks and then we die, but it beats the alternative.
streetwise (Diary) Friday, October 17th at 2:30PM EST (link)That woould be life, the leading cause of death, and also the leading cause of unintended consequences. :>)
I agree that there is too much debt,
Herodotus Friday, October 17th at 2:51PM EST (link)but I am not sure if we are going to see a deep recession, or even a mild one anytime soon in this country.
Sign Newt’s Drilling Petition. I have included a link to it in the below. Thank you.
http://www.americansolutions.com/
don't look friend, we are in it now - nt
Mike gamecock DeVine (Diary) Friday, October 17th at 2:52PM EST (link)5
Mike DeVine’s Examiner.com, Charlotte Observer and The Minority Report columns
“One man with courage makes a majority.” – Andrew Jackson
No it does not have to help.
Herodotus Friday, October 17th at 2:55PM EST (link)Increases in the money supply do though have to increase inflationary pressures upon the economy.
Sign Newt’s Drilling Petition. I have included a link to it in the below. Thank you.
http://www.americansolutions.com/
not necessarily
kyle8 (Diary) Friday, October 17th at 3:06PM EST (link)I mean, yes we will have a recession, but not necessarily a long one. The global economy we have now is not the same as the national economy we had in the past.
The global economy is robust, with the ability to move capital quickly to areas of need.
Debt is a big problem you are right about that, but I think it will be more a problem of inflation rather than low or negative growth.
“Nothing works like freedom, Nothing succeeds like liberty”
Kyle
No doubt
Terilyn Donaldson (Diary) Friday, October 17th at 3:45PM EST (link)we are smack in a recession. Scary……
SURVIVING IN WYOMING…
Join the RedState Strike Force
man what?
Alberta (Diary) Friday, October 17th at 4:29PM EST (link)If you think giving the banks a trillion dollars for free wont help entice banks to loan again…I dunno man, what can I say. They only got so much debt to repay. Once they do that with the free money, they gotta lend it. Like you say, inflationary pressure will make keeping the money a stupid move.
Sir, my concern is not whether God is on our side; my greatest concern is to be on God’s side, for God is always right.
Abraham Lincoln
The Government Thing
LibRick (Diary) Friday, October 17th at 5:14PM EST (link)“What’s the last government action where you came out and said “Wow, that was well planned and executed, and went off flawlessly”?
Government covers a lot of ground. I doubt “flawlessly” is achieved in any endeavor but among Federal, State, or Local government, much has been accomplished. Here’s some examples:
In my opinion, Desert Storm was planned and executed exceedingly well (90′s). And… how about Civil Rights legislation (60′s), or Capital Gains cuts (2000′s), or keeping interest rates down. I bought my first house in the 80′s at an adjustable rate starting at 11.5%. — some of you might remember.
Even, “back in the day,” they planned and executed a Constitution quite well. They even fostered the creation of the greatest free market system the world has ever known.
Government isn’t perfect but it does work and sometimes really well.
In this financial situation, the Government is responding, as it always has. The actions are not “flawless” and may even hurt some individuals. Unintended consequences usually occur in large scale reorganization.
But the Government is responding and in the long run, will help in everyone’s bottom line recovery. I’m confident that America (the People who are the Government) will excel.
not real good examples
kyle8 (Diary) Friday, October 17th at 5:26PM EST (link)Yes our military is a pretty good one, pretty effective, but not efficient. In fact it has long been one of the most expensive and wasteful parts of the government.
As to tax cuts and the like, how is letting you keep more of your own money an example of a good government program?
I can actually think of a few that went well, such as the Hoover Dam and the Interstate Highway system, but those are infrastructure which few people are opposed to, they are also old programs.
How much good has the war on poverty done for us? or the war on drugs? Or the increased meddling of the federal government into education. Or has the dept of energy actually created any energy?
“Nothing works like freedom, Nothing succeeds like liberty”
Kyle
One thing can keep it from being as deep: a jobs program
Mike gamecock DeVine (Diary) Friday, October 17th at 6:01PM EST (link)Not a government program. No.
rather, that we turn Americans loose to drill, drill, drill
We have lived off the fat of the land for 20+ years, passing paper around nd then eating the seed corn: our homes
and the piper is here
we are in a recession now
and it will not be pretty no matter who is elected
it will be MUCH worse if its Obama
but no world economy, esp one that is dependent on selling to us, will save us
they will go down too
worse
Mike DeVine’s Examiner.com, Charlotte Observer and The Minority Report columns
“One man with courage makes a majority.” – Andrew Jackson
Good points
LibRick (Diary) Friday, October 17th at 6:48PM EST (link)but consider this…
Military — Economically speaking, no Military is efficient to a Government’s current “bottom line.” History clearly shows that the Military does play an integral role in advancing economic opportunities and safety for it’s citizens. Factored in, the perceived efficiency would likely increase, dramatically.
Taxes — If you have a government like ours, then some taxes are necessary. How do you have a Military with no taxes in the modern world? You want to keep “all” your money? What chance would you have of that if our tax funded military was not ensuring that?
Infrastructure — We agree. Government needs to invest in all of us through sensible infrastructure projects. Everyone benefits and it’s something government can do well.
War on Poverty, Drugs — Clearly not efficient. We all wish this could be fixed but government is not the way. Good family values are. Government should focus on that.
Energy — The Government can play a big role in this. They can make it advantageous for businesses to push the limits and deliver technologies that free us from being mid east oil junkies.
Just my thoughts.
Decent Examples
alchemist17 (Diary) Friday, October 17th at 8:17PM EST (link)But I still don’t agree.
Desert Storm – tactically a brilliant operation. Strategically, the price we paid for “multinational” support we didn’t need militarily was to prevent us from sweeping in and occupying Iraq at the time, which might have saved us from going back there in 2003.
Civil Rights Legislation – For all the hoopla around this, I think far more significant were the protests and actions that convinced the people of the rightness of their cause. Racism wasn’t largely ended by government action, it was ended by people realizing that they were wrong and changing their behavior.
Capital Gains – the rate should be 0%. The fact that 15% is all they could manage isn’t all that great to me.
Interest Rates – Sure, they’ve managed interest rates to “fine tune” the economy. So instead of small frequent recessions we get rare ones that threaten the whole financial system. How is this better again?
I agree that the writing of the Constitution and Bill of Rights was a good start, but it was primarily the negative aspects that limited government that I’d champion.
Aaron, Gator wants me to tell you....
Susannah (Diary) Friday, October 17th at 10:40PM EST (link)Aaron, Biggator5 emailed me and asked me to tell you that you are his hero and to please email him at admin@biggator5.net. I am just passing on the message.
Do you disagree
LibRick (Diary) Saturday, October 18th at 12:36PM EST (link)on my point that government, though not flawless, gets the job done in many cases?
I know my examples aren’t bullet-proof, as you have clearly shown but America is us and we are the government. America does fall short of a perfect solution, but for 232 years we’ve consistently had the best solution.
Can’t please all of the people all of the time kinda thing. But we get it right most of the time.
I guess my big difference with you here ...
alchemist17 (Diary) Sunday, October 19th at 9:38AM EST (link)is in the idea that “for 232 years we’ve consistently had the best solution”. I don’t really believe that – I think that initially we had the best non-solutions, leaving most of the important decisions to the states and the people and keeping the federal government out of the way.
Over the course of the 20th century I think we’ve gotten worse – I can’t see Social Security, Medicare, the Great Society, Nixon/Carter economics, or fiscal/monetary fine-tuning to have been particularly successful, let alone the “best solution”. In fact, I think many of them just made things worse.
Broadly speaking I see government as the highest-cost, lowest-quality provider of goods/services you’re likely to find – significant change often requires an act of Congress, and effective competition is usually minimal. I’m not claiming that government can’t do the job in some cases, but rather that non-governmental actors could do it cheaper and more efficiently.
If the problem
Herodotus Monday, October 20th at 11:38AM EST (link)If the problem (or part there of) is that there is too much debt, then more debt might not be the solution?
Sign Newt’s Drilling Petition. I have included a link to it in the below. Thank you.
http://www.americansolutions.com/
P.S.
Herodotus Tuesday, October 21st at 11:33AM EST (link)Perhaps it would be a good idea to ask yourself: how could aNy governmental or quasi-governmental action produce less that its stated desired results.
Sign Newt’s Drilling Petition. I have included a link to it in the below. Thank you.
http://www.americansolutions.com/
Here is more of the iceberg.
Herodotus Monday, October 27th at 10:52AM EST (link)Here
Sign Newt’s Drilling Petition. I have included a link to it in the below. Thank you.
http://www.americansolutions.com/