Arnold Kling  

The Pattern

Can Singapore Understand Biolo... EconLog Book Club on For a ...
ActorThe PromiseThe Reality
Financial ExecutivesBrilliant Risk ManagementCatastrophic Losses
Eliot SpitzerMr. Clean, Financial ReformerCelebrity Prosecutions, Real Abuses Untouched, and Not So Clean
Sarbanes-OxleyFinancial ResponsibilityLarge Costs, No Apparent Benefits
Basel Capital StandardsInternational Coordination, Sound BanksWorldwide Banking Collapse
Fannie, FreddieStable Mortgage CreditFed the Boom, Stuck Taxpayers with the Bust
TARPUnclog the Financial SystemZombie Banks
Big Fiscal StimulusPut the Economy on a Better PathWait and See
The pattern is big egos, big money, and big power offering big promises, getting big media play, and making big mistakes (Spitzer's mistakes were relatively small, to be honest). To me, the fiscal stimulus represents yet another redistribution of power away from ordinary people and toward the elite, when already the imbalance is too high. I am more worried about rot at the top of society than at the bottom.

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The author at Club for Growth in a related article titled The Pattern of Abuse writes:
    Arnold Kling is sensing a pattern in recent events. I think he's on to something. Excerpt: The pattern is big egos, big money, and big power offering big promises, getting big media play, and making big mistakes.... [Tracked on January 14, 2009 10:11 AM]
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Heart&Diamond writes:

It seems to me that the "elites" are acting like blind men grabbing different part of an elephant and coming up with a different name. Except in this case, the consequences are a lot deadlier than in the case of the blind men, as in the global economy.

Les writes:

I also think Arnold is onto something.

It seems to me that the politicians are grabbing this golden chance to grow the government, rather than grow the economy.

Fannie Mae and Freddie Mac were government entities in all respect except their technical designation as private companies. They had special federal borrowing rights, a special regulator controlled by congress, their management was appointed by congressional committees, and (the disaster) they had the implicit backing of the federal government.

Fannie was a government agency until President Lyndon Johnson made took it off budget (and off the government's balance sheet) in 1968, to reduce the official government deficit at the time of the Vietnam War. The implicit government guarantee gave them the power to borrow whatever funds they wanted, to buy mortgages and issue mortgage backed bonds. This was $5.4 trillion at one point in the last two years, including $1.4 trillion in sub-prime mortgages.

The federally approved ratings agencies S&P, Moody's, and Fitch owed their profitability to political favor, and they came under pressure to give AAA ratings to the new mortgage backed bonds and the highly technical (and now understood as risky) CDO's (collateralized debt obligations). This allowed the bonds to be sold to financial institutions around the world. This put a stamp of approval on bonds by Fannie, Freddie, and huge volumes from private issuers.

Government oversight committees did not mistakenly overlook these developments; this was all government policy.

If these businesses had been designated as official agencies of the government, then the financial crisis would be correctly seen as a failure of a massive, off-budget, government program. However, because they were unofficial government agencies (the creatures of government policy, power, and influence), the cry is that the free market has failed. So, in the greatest irony, government argues for greater regulation and management of business and the people's lives.

"We Guarantee It"
A collection of references to information about the causes of the mortgage and financial crisis. How the government directed massive resources by implicitly guaranteeing the actions of Fannie Mae and Freddie Mac.

Brad Hutchings writes:

Arnold, I see what you're getting at. It's that even the insiders eat the narratives up. That there's no skepticism or (better?) cynicism built into the evaluations. It's not even allowed. WItness Brad DeLong's labeling of skeptics of Obama stimulus as ethics-free partisan hacks.

One interesting thing I've noticed on sports talk radio and blogs over the past few weeks is widespread borderline cynicism about Florida quarterback and part time Philippine missionary and assistant circumciser Tim Tebow. The guy has been built up as the next Jesus with a tight end's build and a whacky jump pass. One minor slip up in his personal life and the wolves are ready to feast. I don't sense that kind of lying in wait mentality in political or economic arenas. We need it.

RJ writes:

That's a wonderful story you came up with Andrew Garland. Too bad its BS. Blame government enterprises as much as you want, the real culprits lie in the private sector.

RL writes:

"Spitzer's mistakes were relatively small, to be honest"

That's only true if you're talking about the mistakes that brought him down. The mistakes that got him elected--his blatant and corrupt use of political power as Attorney General--were very large, albeit growingly common.

Tom Grey writes:

This excellent table is why Libs / Reps / small gov't folk need to offer a better 'active government' alternative.

Like: BIG tax holidays, until the deflation is over, to be paid for by *printing* money, not taxes not borrowing.

The companies getting the biggest benefit of a tax holiday are most likely to be the future growth companies.

Lester Hunt writes:

Arnold always makes sense. Good work!

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