Demetri Martin offers a little clearification

Funny stuff.

See more Demetri Martin videos at Funny or Die

And somewhat relevant to my overachieving as of, late.

See more Demetri Martin videos at Funny or Die

You'll have to check out his website, Clearification.com to see more episodes. Somewhat clarifying for me, right now. Funny stuff, in the meantime.

Makes me want to skip teaching and make up some pie charts. Nothing like laughing your ass off while someone is fucking with you with graphs.

Letting the market do its job

Princeton law professor Jonathan Macey writes an excellent account of responsibility and correction for the problems in the current market in an October 11, 2008 Wall Street Journal piece.

The Goverment is Contributing to the Panic

Macey argues (with my italics):

"Despite all the hard work and good intentions on the part of our public officials, when economists and historians look back on the current financial crisis they are likely to conclude that government intervention prolonged and deepened it. In particular, officials at the Federal Reserve, the Securities and Exchange Commission and the Treasury Department are to blame for publicly losing confidence in the very economic system they are supposed to protect.

The Fed, the Treasury and the SEC appear to be in a state of panic. A crisis mentality led the custodians of the U.S. capital markets publicly to jettison their lifelong commitments to the capital markets in favor of a series of short-term regulatory quick fixes. Even more troubling, for the past several months the doyens of U.S. fiscal and monetary policy have ignored the most fundamental principle of central banking, which is that the primary responsibility of central bankers is to promote stability and to maintain confidence in the capital markets. Our central bankers appear to have suddenly lost confidence both in their own abilities and in the standard tools of fiscal and monetary policy.

The original Treasury plan -- which called for the transfer of virtually unlimited taxpayer dollars and unlimited spending discretion to Treasury with no judicial or congressional oversight -- sent a very bad signal to the markets. Instead of restoring confidence, this approach to the crisis instilled more fear and panic in the markets...

...On Feb. 14, just one month prior to the Bear Stearns bailout, Mr. Bernanke and Treasury Secretary Henry Paulson testified before the Senate Banking Committee. Both officials told the senators that the Fed's interest-rate cuts and the $170 billion economic-stimulus package signed into law the previous week would prevent a recession. They also testified in February that they were not concerned about bank failures because the banks were both adequately capitalized and had ready access to additional outside capital. In just over a month these regulators had completely reversed course about the state of the economy and about their own capacity to deal with the problems facing the capital markets. The regulators also changed course by losing their confidence in the strength of the free-market system and in the ability of the nation's capital markets to self-correct if provided with sufficient liquidity by the central bankers in traditional ways.

The government also wrongly abandoned market solutions when it temporarily banned short-selling. Asserting that "unbridled short selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation," the SEC temporarily forbade short-selling in financial institutions. The ban lasted from Sept. 17, until 11:59 p.m. Oct. 8, and was lifted only when the Treasury bailout was passed.

By the time the bailout package was passed, market sentiment had darkened to mirror the government's own pessimism about the ability of markets to play a salutary role in repairing the fractured capital market. The notion that the government rather than the private sector can create a market for distressed bank assets seems particularly misguided.

The solutions being implemented also send the message that resources devoted to risk management are wasted. All of these plans reward the financial institutions that acted like lemmings by chasing the mortgage-related debt bubble rather than rewarding the financial institutions that exercised restraint and risk avoidance and independent thought and action. This unfortunate "heads Wall Street Wins, tails America loses" economic policy is wholly inconsistent with the principles of personal and corporate responsibility that are essential to a functional free market.

Firms like Merrill Lynch that took decisive steps to deal with their problems now look like suckers, as do banks that watched their leverage ratios and paid diligently into a deposit insurance program that offers protection on a far smaller scale than their investment banking rivals are getting for nothing.

If the SEC had done half the job in ferreting out fraud and funny accounting that short-sellers have done, our capital markets would not be imploding. Now short-sellers, like other market participants, are threatened with new restrictions on their activities as Congress begins to hold hearings on the crisis in the capital markets and politicians and regulators turn their focus to the shibboleth of market manipulation.

Of course, market manipulation does exist, but federal regulators deserve much of the blame for this form of market abuse. For years the SEC has hampered companies' ability to protect themselves from manipulation by short-sellers. The most effective way for a company to respond to an attempt to manipulate its share prices is simply to repurchase its own shares, simultaneously "squeezing" the short positions and sending a clear signal of financial health to the capital market.

However, companies have long felt vulnerable to being charged by the SEC with manipulation whenever they go into the market to make share repurchases. The SEC finally acknowledged this problem after the collapse of Bear Stearns and Lehman when it stated publicly that "historically, issuers generally have been reluctant to undertake repurchases" when faced with manipulative short-sellers because of the massive amount of uncertainty about whether the SEC would sue them for trying to manipulate the market.

The Bear Stearns bailout, the restrictions on short-selling and the government's new $700 billion commitment to buy toxic mortgage-based assets all share the same fundamental flaw: They prevent the market from imposing discipline on banks guilty of massive over-leveraging and excessive risk-taking. Moreover, they punish prudent managers who invested conservatively, kept their companies' debt at reasonable levels and worked hard to raise new capital when necessary. The SEC's attack on short-selling punishes savvy traders who invested resources and effort in identifying companies with too much debt and unrealistically valued assets.

Letting markets work is messy and costly. Nevertheless, the only sensible way to deal with the current crisis is to force the companies who created the mess to bear at least some of the costs of their mistakes. Most of all, if the markets are to get back on track our regulators must put an immediate stop to their current practice of publicly demonizing the markets and work to restore confidence in the system."

There has been and is too much condifence in regulators to anticipate events that Professor Macey makes clear that they did not and, generally, cannot anticipate and correct for.

Bad things happen. It is not ideal. Neither is government always or even generally the most informed or better positioned player to resolve problems. We assume they are because we are afraid, not because they generally do a better job. There are important jobs for government to perform. But public confidence in the government to perform its essential jobs is undermined when we crow for and government responds with efforts that it is ill-equipped to tackle. We are better, generally, to allow government to do the jobs that it is best-suited to.

Correcting the market is not one of those jobs.

And Professor Macey makes a very good argument for why, in this case, that is likely true.

What created the financial meltdown?

I'm still researching the financial meltdown and all the original causes of this mess.

Lending discrimination suits by the Clinton Administration and community activists to force banks to offer loans to people who could not otherwise qualify. Securitization of mortgages my Freddie Mac and Fanny Mae with a false AAA credit rating. Credit default swaps, what may have been paper insurance not backed by real assets, for these bundled securities. Perhaps greed and confusion, given these very complicated realities, on the part of bankers.

Many people are likely responsible. Bankers must take responsibility for the debt because it was debt they assumed. I will not hold my breath for community activists and government officials who may have been responsibile for this situation to take responsibility. They just don't do responsibility. It's not their thing. That's the beauty of politics. There's always someone else to blame.

And though they don't take responsibility readily, this video and article by Ed Morrisey of Hotair does seem to make a pretty good case that discrimination lawsuits and Freddie Mac and Fanny Mae securitization may have been one of the original problems that caused this mess.

The quotes that explain the entire financial meltdown

And here's the video of Andrew Cuomo unknowlingly giving us all a peek into the beginnings of the country's financial problems.

Andrew Cuomo: Subprime Loans "Affirmative Action"



I'm still researching, so I'm not ready to point fingers, yet. But this does look like the most convincing theory to me, at this point, given what I've seen.

Unintended consequences. They are abundant in political and economic life. And we are often so quick to defend our intentions that we very often will not take responsibility for these consequences we did not anticipate.

The beauty of the market is that someone has to take responsibility. And there is a better opportunity for people to learn the lessons. The downfall of political solutions is that people are constantly shifting blame and noone wants to take it because it is so easy to escape it, given how irrationally we function in the political world.

This was exactly Terry Moe and John Chubb's point in their book Politics, Markets, and America's Schools and why they and I favor school choice and creating a non-profit and for-profit market for schools instead of the increasingly multi-layered government driven public education that you see today. People will always make mistakes. That cannot be escaped. What we must be concerned with is in what situation are they more likely to take responsibility for their mistakes and make corrections for their failures.

Markets are a better environment for people taking responsibility for those mistakes, long-term, I am convinced. And politics creates every incentive for people to avoid their mistakes and enforce them on others.

I'll keep researching this mess. In the meantime, I am deeply concerned about those who may have played a serious hand in creating this mess making economic policy for the next 4 years.

Thank goodness there are enough more thoroughly thoughtful and informed people in the market to not confuse politics with substantial knowledge about the market and the economy. We are going to need them.