People are ******ed (in regards to the Memorial)

In regards to the Economy, the last few days I've been listening to economists who say that the current crisis has been caused by cheap, easy to get credit (for banks, big corporations, etc) and overleveraging it. The same people turn around and say the Government needs to extend credit to these banks in order to prevent things from getting worse, and remove the risk of investing (which they did, yesterday, guaranteeing they'd buy Commercial paper loans if they couldn't sell)

Um, if cheap credit and high risk investing is the cause of the crisis, how does providing more cheap credit and removing all risk in investing (again, only for the big players) help things? Do the people that say these things not examine their thoughts for logical consistency? Do the people that hear these things not THINK about them? Is ANYBODY, anywhere, with even the tiniest involvement in the situation actually thinking?

Zurvan,

I'm sure somewhere, some very rich, very powerful people are thinking. About themselves. About only themselves.

It's not like I'm listening to billionaires talk about this. It's economists. People with PHDs and who are instructing the next generation of Economists. I mean, it's one thing to have an opinion that seems wrong or illogical, which is far from uncommon when dealing with extremely esoteric subjects like macroeconomics.

It's something completely different to have a position that is patently ridiculous. Saying "More of what caused the problem is the way to fix the problem" is beyond comprehension. A 5 year old can find the flaw with that reasoning.

Be careful, most 5-year-olds these days are being taught in Government-controlled schools.

I was taught in a government controlled school, and I can still apply a minimum of brain power to most situations

I think we are conflating the difference between long term causes and solutions with short-term crisis-avoidaments. I don't think anyone has argued that in the long term the solution to the problem is to further increase leverage or increase credit, but rather that the "natural" course of events as a result of the over-leverage would be for the markets to collapse and a bunch of companies to go bankrupt and yada yada, and the reason for the bailout was that they think that this collapse would be severe to the point of being outside the normal scope of business cycles and hence be less desirable than intervention. Whether or not that is accurate, I couldn't say, but it's not an obviously illogical argument, I don't think. In the long term, I think the plan is still to enforce higher standards for mortgages, and to require greater capital requirements, and what not, I don't really know what the fed plan is in the long run.

There's just not sufficient evidence to tell them the models are not good enough at predicting what will happen (conveniently they never say how one could find out if their theories are falsified). Just change some variables and all will be fine, the next wave of tests will come I'm sure. Welcome aboard lab rats.

Well yeah that's why I argue epistemology.

From everything I've read and heard, the Government's "plan" is to put all this money in tot he system, increase lending and reduce risk, and "stimulate" the market.

Translated, that means "extend the artificial bubble a LITTLE BIT longer, and hope everything works out ok, because maybe this time everything wont' explode."

Further, Bernanke is an expert on the Great Depression. A common theory on the "correct" way to haev dealt with the Depression is that they should have increased capital and credit (like they're doing now). Of course, the Depression and this event have completely opposite causes - this is caused by too much credit, not a shortage. Bernake is solving an 80 year old problem to "avoid making the same mistakes we did in 1929" (paraphrase from a speech the other day).

That can't be true, considering the current economic situation was created due to the failure of the models being used in the finance industry

I think you're mischaracterizing the plan. The plan involves the government injecting capital in the short term (unlock credit markets) and subsidizing the loss on the bad debt in the long term, plus whatever regulatory changes they will make. The regulatory changes haven't gotten much media attention, but I think there is something there (and obviously long term that is the most important part.)

i'm amazed and sorely disappointed with most economists atm. The bulk are basically pollyanna cheerleaders and prepared to say 'nobody say this coming, of course we're all smart in hindsight, yadda yadda yadda,' with no hint of shame (before pointing out that it's not true). I linked to the paper earlier in which the authors asked a bunch of phd economists a basic question on opportunity cost and they did worse than random. I fell that they are too obsessed with math models at the expense of a decent dose of simple thinking, missing the big picture and simultaneously unaware of the degree to which they are ideological

Zurvan, I think your point is a bit simplistic, and not really true, but i don't have time to explain atm. Maybe later.

The government has said outright "you will not go bankrupt". They've removed the risk of overleveraging, and increased credit, thus removing the natural ro******* to high leveraging.

There's a reason nobody's lending money right now - the people that want to borrow don't have the assets to cover more debt. The govt coming in and lending money anyway is not, in any way, reasonable.

I really think you're mistaken about what Bernanke is trying to do - he isn't trying to "solve" what happened, he's trying to prevent an overreaction to what happened causing another great depression due to the drying up the legitimate credit markets. It may not be correct but it's perfectly logical (businesses as well as people have a tendency to overreact to traumatic events at the expense of sound long term practices).

yeah, herbie said it much better than I did.

I understand what he's trying to do.

I'm saying the way he's going about it is misguided and wrong. You don't sober up by drinking more beer, and you don't solve a crisis created from too much cheap credit and overleveraging by encouraging lending and leveraging.

Just watch the stuff I linked a couple of posts up. I think the ice skating ring is a pretty good metaphor.
Edit: relink: This is incorrect. There are lots of people willing to lend you money. But they ask for a realistic return on their investment and risk checks etc.

Well, now that you mention it........

This is kind of circular, though. A lot of people don't agree that this is the reason credit is becoming tighter.

The other thing is that, despite the government's intervention, financial companies are still trying very hard to reduce leverage by raising capital.

It would be the first reason that comes to mind. People that work with hundreds of millions or billions of dollars, in a market where t-bills are selling at 0.1%, aren't buying t-bills instead of loaning the money for profit reasons. It's because they don't feel the lenders are capable of paying them back. Or, borrowers aren't willing to pay the interest they want to charge.

This is good, for obvious reasons, but doesn't change anything I've said

Zurvan:
It's kind of hard to admit that you have earned a PhD in mathematics-puzzle-solving that may be completely useless in real life.

I'm not there yet but this is basically what I tell people all the time.

Could the government be misrepresenting the crisis? Some economists from the Minneapolis Federal Reserve have released a working paper about 4 Myths of the credit crisis.

The myths:
There's some real data to back this up, not to mention some pretty charts.

Is the Pope Catholic?

Long term, adding all of this liquidity (extra money) into the economy (money supply) is only going to result in one thing- double digit inflation and the destruction of the dollar

This is what Ron Paul and the Austrians are saying and its what I believe because it makes sense.

zurvan, those numbers seem a little cherry-picked. If you look at other measures, like public debt issuance, you'll see unprecedented retrenchment. The spike in bank loans just represents (some) companies that no longer have access to public markets going back to the old method of private bank loans.