Jay on Economics – Now for Something Completely Different

October 2nd, 2008

Robert Reich, Labor Secretary in the Clinton Administration and NPR pundit, has a terrific blog as well.  He has a lot to say about the failure of banks, credit markets and the proposed “Wall Street Bailout”.

He posted a blog today about the terms of the bailout and why it is better than nothing, but still not good.  The post inspired me so much I left a long comment, and I liked my comment enough that I am reblogging it here as well.  Go read his post, then check out my comment, and thanks for reading.

Robert,

I am with you most of the way here, but I would say the most important need is not *only* to help homeowners avoid foreclosure, but to help *all* borrowers- individuals and businesses- do the same.

If I run a business I need both customers to buy products and employees to create/provide the products.

The customers may be hard to find in the next 6-24 months. If I can’t borrow to pay my employees and stay alive- going much deeper into debt than I ever wanted in the process- I may simply be dead before the customers come back.

There is a line here from employee -> employer -> lender -> Fed. Everyone along the way needs direct help from the Fed, but the answer to your question about keeping credit markets functioning is that lots of individuals and businesses need the credit *even though* they can’t afford it. The Fed needs to either lend money to people and businesses directly or convince lenders they can afford to do so.

So how do you convince lenders to extend more credit to businesses and individuals who could be high default risks in the short term? That is the $700B question, to be sure.

I believe Congress is heterogeneous enough that it is incapable of giving a single answer to a question like that- the pitfall of democracy, I suppose.

Still though, the bailout package sure does miss the boat on a lot of issues.

Tags:
  • Comments Off on Jay on Economics – Now for Something Completely Different

Robert Reich’s Blog: The Bailout of All Bailouts is a Bad Idea

September 18th, 2008

I tuned into to Robert Reich’s blog recently, and it is currently one of my all-time favorite things on the Internet.  I like his segments on NPR as well.  As a Cabinet member under Bill Clinton, the man has the credentials to charge a bunch of money for his opinions.  It’s fantastic to see him offering them up for free instead.

Robert Reich’s Blog: The Bailout of All Bailouts is a Bad Idea

The post linked above lobs out a fascinating idea for a kind of mass-bankruptcy proceeding for every ailing bank on Wall Street, or perhaps a financial Truth and Reconcilation Committee proceeding. 

The idea is to bring out all the skeletons, wipe out the banks’ bad debt- and the equity of those who bought stock in the banks- and let them start fresh without putting US taxpayers on the hook for a super-massive bailout, BUT with improved disclosure and minimum capitalization rules.

Disclosure rules certainly need to evolve with the times, but for the record I’m not sure they are the main answer.  As my friend Sam put it, almost no one actually understands what a credit default swap really is.  As long as everyone was making money, understanding the mechanics didn’t seem that important.

All that said, Reich offers a lot of food for thought on a regular basis.  Definitely worth reading.

Tags:
  • Comments Off on Robert Reich’s Blog: The Bailout of All Bailouts is a Bad Idea

Former President John Adams Blogs from the Grave on Recessions

April 9th, 2008

I recently started following the blog of John Adams, the US’s second President.  He has good things to say, nothwithstanding that he has been dead for 182 years.  Some of his expressions seem a litle colloquial, leading me to suspect some conemporary help in getting his thoughts out (notice I didn’ say ghost writer).

Still this one on recessions is spot-on.  Recessions are historical labels.  Let’s not worry about whether we are entering the first of two consecutive quarters of negative growth (or in non-economist terms, "decline").  Let’s think about policies that will make the economy strong.

What would I say about a Recession? – JohnAdamsUncensored

Tags:
  • Comments Off on Former President John Adams Blogs from the Grave on Recessions