Archive for August, 2007

The Arsonist Is Now Playing Fireman Hero

Posted by PrestoPundit on 08/31/2007

A top economist calls for institutional reform at the Fed. Quotable:

Why did mortgage lenders earlier this decade start showering credit as if it were spewing from a public fountain? The answer is that credit was spewing from a public fountain – and that fountain was the Fed ..

The subprime lending crisis also shows that, while central banks certainly have the power to expand a nation’s spending power, they can’t guarantee that the extra power gets used as intended, namely, to give a roughly uniform boost to the overall demand for goods. On the contrary: The crisis supports the argument, first developed by Austrian-school economists Ludwig von Mises and Friedrich Hayek, that the techniques central banks employ to increase spending power are bound to distort spending patterns by driving lending rates below their sustainable, “natural” levels.

By injecting the new money they create into credit markets, central banks create an artificially high demand for long-term investments, such as real estate, in which interest costs loom large. Think back a few years. Even your auto mechanic was bragging about “flipping” condos with easy credit. That’s a natural consequence of the way central banks distort spending patterns. The trouble, however, is that the new money does eventually swell overall demand, including the demand for credit. Interest rates soon rise, ending the investment boom. Regrets multiply.

That’s exactly what happened last year, when the federal funds rate climbed back above 5 percent ..

Posted in Economics, Hayek | Leave a Comment »

Bernanke’s Mortgage Meltdown Speech

Posted by PrestoPundit on 08/31/2007

Always look for the “but”:

It is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy.

Wish the Fed had thought of this before it engineered the current disequalibration of the macroeconomy with 10 years of wildly irresponsible interest rates.

And just for the record, I don’t believe him. I think the Fed does see its job as protecting lenders and investors, and there is a building track record of this dating to the 1990s.

Posted in Ben Bernanke, Economics | Comments Off on Bernanke’s Mortgage Meltdown Speech

Bush’s Homeowner Mortgage Industry Bailout

Posted by PrestoPundit on 08/31/2007

Mish reads between the lines.

And you’ve got to love this. In order to “fix” the subprime lending mess among other things Bush announced that he would be:

Pushing Congress to pass his proposed FHA modernization bill, which would lower down payment requirements and increase loan limits, helping families with low incomes, blemished credit records or little savings.

You read that correctly. Bush is pushing a bill to lower down payment requirements and increase loan limits on government backed and subsidized home loans.

I’m wondering what there is left for the President to do to make me even more disgusted with the 7 years of the Bush Presidency.

UPDATE — Karl Rove thinks we should all be happy with the Bush Presidency.

And seen Malkin — “Bush Pulls a Hillary on Housing”.

Posted in Bush, Economics | Leave a Comment »

San Francisco’s $1,000,000 “Farmers”

Posted by PrestoPundit on 08/31/2007

The most lucrative place to be a farmer in California — if your chief crop is taxpayer money — turns out to be San Francisco. For a graphic click here.

Another fine spot for “farming”?  Beverly Hills. For a graphic go here and type in “90210”.

Posted in California, Economics | Leave a Comment »

Mish Knocks One Out Of The ParK

Posted by PrestoPundit on 08/31/2007

Mish Shedlock presents his Bernanke Gripe List.

Posted in Economics | Comments Off on Mish Knocks One Out Of The ParK

Christopher Hitchens on Mother Teresa

Posted by PrestoPundit on 08/30/2007

in Newsweek.

Posted in Uncategorized | Comments Off on Christopher Hitchens on Mother Teresa

Obama — Criminalize the Subprime Loan Business

Posted by PrestoPundit on 08/29/2007

Barack Obama wants to make subprime lending a criminal offense — at least that’s what he seems to be saying — the details are somewhat murky.

A key provision of his proposed legislation would effectively make it against the law to foreclose on anyone who took out a “risky” subprime home loan — defined as any loan the “borrower does not have the ability to repay at the maximum rate of interest.” The borrower would be given the right to “challenge the lenders business practices” rather than lose his home in foreclosure proceedings.

Bonus entertainment:  Obama provides a laughable historical account of the origins of the subprime mess — one in which Congressional pressure on Freddie Mae and Freddie Mac and Congressional legislation like the Community Reinvestment Act play no role in the current subprime meltdown. And don’t be shocked — Obama fails even to mention the Fed and its historic low interest rate policies.

Posted in Economics, Politics | Leave a Comment »

Peter Wehner Is Comparing the Civil War

Posted by PrestoPundit on 08/29/2007

and America in the 1860s to the religion-fueled clan war in Iraq today. I don’t know how such an analogy is going to convince anyone of anything. Here’s the article.

Wehner says that 2006 was an awful year for Iraq but says that 2007 was “significantly better”. But note well. According to the AP:

Nearly 1,000 more people have been killed in violence across Iraq in the first eight months of this year than in all of 2006.


According to the Iraqi Red Crescent Organization, the number of displaced Iraqis has more than doubled since the start of the year, from 447,337 on Jan. 1 to 1.14 million on July 31.

Wehner — known for his “think tank” memos circulated in conservative circles and at the White House — recently left his post as Bush’s head of policy “strategery” and is now a senior fellow at the Ethics and Public Policy Center.

Posted in Terror War | Comments Off on Peter Wehner Is Comparing the Civil War

Top 100 Economics Blogs

Posted by PrestoPundit on 08/29/2007

A very helpful thumbnail sketch of the Top 100 Economics Blogs from Laura Milligan, listed by category (International Economics, Finance Blogs, etc.) . Milligan describes PrestoPundit as a source for “analytic posts about the current political and economic scene.”

Posted in Economics | Comments Off on Top 100 Economics Blogs

Steve Sailer asks

Posted by PrestoPundit on 08/29/2007

“What’s the opposite of the sunk cost fallacy?” Here’s my answer:

Steve — technically, the opposite of the sunk cost fallacy is the Keynesian fallacy: the false assumption that the problem of the scarcity of capital doesn’t exist, meaning that there is no ongoing allocation problem requiring people to constantly make decisions about what types of capital needs to be maintained through additions of further capital. Hayek describes the fallacy (not under this name) in several places, most especially in his The Pure Theory of Capital.

The idea of “sunk costs” was developed by Hayek’s teach Friedrich Wieser. The idea of the maintenance of capital was developed by Hayek — essentially this problem was the genesis of his famous distributed “knowledge problem”, so influential in other contexts among most all other economists. But the problem is still fundamentally unrecognized by most of today’s economists working in the field of macroeconomics — the legacy of Keynes.

Posted in Economics, Hayek | Leave a Comment »