Holte's corner

Cato Spins the Concept of "Asset Bubble"

This article shows that "righties" are finally starting to become aware of a problem that has been talked about for nearly 80 years:
http://www.cato.org/pub_display.php?pub_id=9389

"In the past, the federal government has introduced moral hazard in the banking system through deposit insurance. Banks under-priced risk because of the federal guarantee that backed deposits. After banking crises in the 1980s and 1990s, deposit insurance was put on a sound basis and that source of moral hazard was mitigated. In its place, monetary policy has become a source of moral hazard. In acting to counter the economic effects of declining asset prices, the Federal Reserve has come to be viewed as underwriting risky investments. Policy pronouncements by senior Fed officials have reinforced that perception. These actions and pronouncements are mutually reinforcing and destructive to the operation of financial markets. The current financial crisis began in the subprime housing market and then spread throughout credit markets. The new Fed policy fueled the housing boom. Refusing to accept responsibility for the housing bubble, the Fed's recent actions will likely fuel a new asset bubble. The cumulative effects of recent monetary policy undermine the case for free markets."

One principle I believe in is that while people are entitled to their opinions, when debating with other people it is important to look first at the facts. Reporters used to report "facts". Facts are things like "So and so was arrested at the corner of Lamont and Driskoll after a fight broke out. There was a cut on John Does face afterward, and a bruise on So and So's face." Editorial content is when we start evaluating the information. A good reporter tries to limit editorial content. Modern Pseudo-Journalists all think of themselves as Editorialists. Because of that when we read reports, disguised as "objective" one has to deconstruct or analyze the facts and then look carefully at the editorial content. There is no getting away from POV, but sometimes the spin prevents the author of a reality from seeing the implications of his own reporting.

I'm glad that the Cato institute is finally addressing the "moral hazard" of bubbles and the developing mega-bubble that is about to collapse the dollar and ruin the majority of the middle class and lower upper class people who have made the mistake of trusting pundits such as the people working for the Cato Institute. The trouble is the analysis is so demagogued and spun as to have little useful analytical content.

The first problem with the above is that what they are talking about is a "financial bubble." Thinking of it as an "Asset Bubble" is supply side thinking. However, the issue is not the assets themselves it is the false valuation of those assets, which is "finance." We have a short term "supply surplus" of investment seeking assets, with no long term guarantee of a concurrent demand.

Second, the author starts out with a series of mis-statements:

"In the past, the federal government has introduced moral hazard in the banking system through deposit insurance."

This is a "mistatement" (to put it nicely) because moral hazard is why deposit insurance was introduced into the banking system in the first place. Moral hazard is the taking of innocent deposits from common folks by banks that mis-invested their money and predates the creation of the FDIC and involvement of the Federal Government. I would say the author is telling an outright lie but I think he's talking "temporally" and either doesn't know his history or doesn't care about actual the actual history of banking bubbles.

He should read Kevin Phillips. Starting with this link: http://www.huffingtonpost.com/kevin-phillips/the-destructive-rise-of-b_b_94351.html

Moral Hazard has been a regular and abiding feature of financial systems in general and United States Finances in particular during all times when banks have been a feature of the American landscape. Banking bubbles and collapses were a regular effect of moral hazard in investment bubbles and deflationary collapses long before the Federal Reserve tried to stop this phenomena with deposit insurance. Banking has regularly been a way that savvy con-men (sometimes known as bankers) could convert money from more or less innocent investors to their own pockets and then get out of town leaving their colleagues to deal with angry depositors who had just lost their entire life savings to banks that had promised them 'stability' and 'trust.' The FDIC didn't introduce moral hazard, it tried to mitigate it.

More Scoundrels

Speaking of "Naval Birshut Ha-Torah" -- "Scoundrel within the bounds of Torah." Which is similar to the Buddhist Idea of "parasites in the lion's boundary" or "law-eating monks"; a raid by the INS on a Kosher Slaughterhouse; http://www.forward.com/articles/13394/ went on this weekend. And it is hard to figure who the biggest scoundrels are; the Coyotes bringing in the illegal workers, the company that employed them in order to save money on labor costs, or the INS which has catch 22 laws selectively enforced; but certainly not the employees picked up in the dragnet. Oye Vey! I don't eat a lot of meat, but when I do eat meat, it is always Kosher.

Election Fraud and Jail terms for the victims

Elections have consequences -- especially fraudulent ones:

Congress is finally starting to dig into the allegations surrounding the politically driven prosecution of former Alabama Governor Don Siegelman, which is a case that shows why Democrats (and progressive people of all stripes) can't afford to be sanguine about the massive corruption of the past 7 years, nor the abuses of civil liberties involved with that corruption.

http://judiciary.house.gov/Printshop.aspx?Section=720
http://kerry.senate.gov/cfm/record.cfm?id=294236

It turns out all the usual suspects were involved: Karl Rove allegedly drove both the prosecution and some of the business involved, Abramoff drove the pecuniary financial motives involving efforts to derail a State Lottery initiative in Alabama in favor of Indian Gambling interests. The current (Riley) Governor's chief of Staff was Michael Scanlon who was later convicted along with Abramoff. The Chief Prosecutor in the case was Leura Canary, who had a financial interest not only in locking up Siegelman, but in derailing rival gambling efforts that would hurt her husbands interests.

Sounds like something out of Dallas. Come to think of it, the Bush Administration makes J.R.Ewing look like a mensch. The Ramban had a term for people like Abramoff, who keep the letter of "the law" but are still scoundrels: "Naval Birshut Ha-Torah" -- "Scoundrel within the bounds of Torah." What a shame.....

She Came one Night

I went to an excellent play last night at the "Teatro De la luna". It's name is "Volvió una noche" and it was written by Eduardo Rovner. Anyone who is an adult and has a traditional style mother can probably relate to this play. Even if they don't speak any Spanish. The play runs a translation in English over the play, and it is fun to watch even if one is a gringo like me....

References and more reading

"http://www.latinamericantheatre.com/rovner.htm"

http://www.potomacstages.com/Teatro.htm/a>

Exemplars and Originalism

It is important to listen to someone who is an enemy of important
principles. For example understanding the Federalist papers requires
understanding Patrick Henry, "Cato and Brutus" every bit as much as
any of the Federalist.

It's important to understand a document and its sections principles,
context, literal meaning, original intent, and historical developments
in its interpretation. Scalia as a sophisticated person is important
to listen to, but because he is sophisticated, radical and partisan it
is important to read him in context with others or balance his words
with someone like Ms. Smiths. He makes claims to an objectivity he
doesn't in fact possess. Which is the fault of many who claim an
objectivist position. They are not really objective at all. In fact their opinions are highly subjective.

Better than this is to use the principles of logic to ensure that principles are elucidated and applied as they are "originally" defined in the sense of being true principles. Ms. Smith appears to be critiquing Scalia, but she's really explaining how to reason from principle to practice.

http://www.law.duke.edu/journals/djclpp/index.php?action=showitem&id=46

Housing meltdown and the Brain

The housing market meltdown is occurring. Congress is letting the Feds bail out the largest perps, trying to close the barn-door (after the horses have run) and not doing much else. The "reform package" before them is a re-organization of the people involved in regulation and not a serious address of the underlying problems, which are the fact that a lot of people are losing their homes, and that financial institutions are backed by poor quality "financial instruments" as a result.

Jumping on Congress

Bruce Fein is still fighting for impeachment. So am I. The US Government broke laws at the behest of the President. They committed unconstitutional and immoral actions in torturing prisoners, spying on the People, and a long list of other corrupt, authoritarian and violent actions. The President, with cooperation from quisling democrats and goose-stepping followers broke the law and the constitution -- and continues to do so.

http://www.commondreams.org/views06/1205-28.htm

Darwinism in the Movies

Some good recent movies: "The counterfeiters", manages to combine a movie about the Holocaust with a crime and technology tale. It's well worth seeing. The real story is even better: http://www.lawrencemalkin.com/kruegers-men-the-story.html .
Another good movie to watch is "There will be blood" which profiles turn of the century wild-catting and corporate shenanigans.

Both profile a world where self-interest is betrayed by moral confusion, and where people are making decisions of life and death in a world that seems darwinian.