One noteworthy aspect of the current bailouts and its discontents is that investors seem to like it. Even pseudo-tough Wall Street types who make a fetish of greed and the necessary hard knocks of the economy have whined like a bunch of college kids stranded in Cancun after their credit cards got stolen. $700B is not enough. We need lower interest rates . . . again!!!!
There is a notable dichotomy between the reaction of investors–for whom a downturn on Wall Street is a calamity far worse than the intense shocks endured by the working class for the last 30 years–and the more level-headed treatment of Paulson’s proposal by academic economists who remind us that loss, liquidation, and readjustments are facts of life inevitable after years of artificial inflation.
Economists, after all, tend to consider the economy as a whole. It is economists, and not big business types, who have long taught that everything from rent controls and farm subsidies to the public-private gobbeldygook partnerships in local government are inefficient at best, graft-breeding albatrosses at worst.
Wall Street is simply not to be trusted; the individual and institutional interests of these whiners is on the line, and their institutional culture and compensation structures breed a highly irresponsible penchant for extreme risk. They lack objectivity and credibility, as too does the former Goldman guy at the head of treasury and the former Goldman guy he just put at the helm of the toxic debt buyback. Don’t listen to them; it’s the guys in the tweed suits who actually have some stake in reality and objectivity.
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Well stated. Trouble is, “Don’t listen to them” is not a meaningful choice. Down here in the weeds of the blogosphere we can talk of common sense and reality … we can note for our own schadenfreudisch satisfaction that the authorities are doing everything precisely backwards, that their actions will lead to hyperinflation…. but it won’t matter. The Goldman coup has already occurred, and everyone with access to the levers of power loves it.
There’s an easy hedge available to anyone concerned about the inflationary risk: gold and silver. Nothing stops you or me or anyone from putting our money where our mouths are. Good luck.
That said, I do feel bad for decisionmarkers, whom I don’t expect to all be economists, being jaw-jawed by the head of the Fed and the Treasury. It takes uncommon wisdom and courage to resist this deference to authority, which happens to be completley wrong in this case.
Enjoyable read, however, we have created unrestrained, and independent leadership in the form of omnipotent economists. They are not what they seem.
http://pacificgatepost.blogspot.com/2008/11/economists-our-new-philosopher-kings.html
Perhaps society has simply overplayed them.