How many times do you have to be told?

Get out NOW!

Plain and Simple Sense

This makes it.

According to the Austrians’ theory (despite their name, which dates back to the early twentieth century, today’s “Austrians” are mostly found in the United States), boom-and-bust cycles are, at root, not the consequence of rampaging greed, psychological mania, or insufficient regulation, but are the inevitable consequence of an excess of bank credit, which is the result of Federal Reserve policy.

The primary means of Fed expansion of the money supply is through buying government bonds on the open market. When it buys these bonds, the Fed pays for them by adding credit under its member banks’ accounts. These credits are created out of thin air; they are newly created money. It is through these “open market operations” that the Fed controls interest rates. Member banks, in turn, are only required by law to keep a small fraction of their deposits in reserve, and are free to lend out the rest, which multiplies the effects of the Fed’s purchases.

Interest rates are critical signals that tell businesses how much saving is available for investment in capital projects. When savings rates are low, the resulting high interest rates signal consumers’ preference for present over future consumption. Conversely, when savings rates are high, the resulting low interest rates show a preference of future consumption and a pool of savings available for investment. The low rates might then prompt business to invest in new projects, such as a new factory, subdivision, or online pet supply store. This is how the price of credit is set by the free market, resulting in the “natural” interest rate.

But when the Fed creates artificially cheap credit, businesses are misled into believing that riskier projects with more distant prospects of paying off will be profitable. A cluster of such projects will lead to a classic boom period, such as the dot-com bubble of the late 1990s. Cheap credit also leads to asset bubbles, such as the dot-com era stock market and the housing market in latter years. The distortions in the economy are exacerbated when consumers, believing themselves to be wealthier than they really are, decrease their savings and increase consumption.

Of course, there are also psychological aspects of the bubble economy that feed into the general irrationality, but this is more accurately seen as a follow-on effect of easy-money policies rather than as the cause of the bubbles.

The Fed can keep feeding the boom with continued low rates, but this only creates further mal-investments, and will deepen the inevitable crash when the irrationality of the boom-era projects becomes evident. When the party ends, bank credit contracts, unprofitable projects are liquidated, and economic resources shift to productive uses. Recessions, then, are a painful but necessary stage in the economy’s return to health.

The loose credit policies of the Greenspan years have led to consequences that fit in well with the Austrian view. During Alan Greenspan’s reign as chairman of the Fed, he maintained a loose monetary policy punctuated with generous injections of extra cash in times of crisis, such as the Asian financial crisis of 1997 and the collapse of the hedge fund Long Term Capital Management. This easy credit fed into the excesses of the dot-com era, which led directly to a stock market crash and recession in 2001.

Federal Reserve policy was also instrumental in inflating the housing bubble and creating the current recession. As the economist Mark Thornton points out, Alan Greenspan pushed interest rates down to unprecedented levels in the wake of the 9/11 attacks, which resulted in historically low mortgage rates. The fallout of the dot-com collapse led to massive losses, but the recession was mild, as the Fed’s easy money pumped up a real estate bubble just as the NASDAQ bubble unwound. The low rates led to increased borrowing for homes on a massive scale. House prices soared, but when reality eventually reasserted itself, they fell sharply, a process which culminated in last fall’s financial crisis.

Read the rest.

NPR Outs the Federal Reserve!

I am totally flabbergasted, NPR actually came right out and said the Fed just created $800 billion out of thin air. The threw in some fluff about them later taking it out of the economy later, in time to save the day, but I almost crashed my car when I heard that.

Ron Paul is still winning!

Go listen, especially at 3:32.

Here's the story. The have a link there to the audio.

This goes straight to the player at NPR and might not work.

Whose Fault was It?

Whose Fault was It?
October 8, 2008
Alvaro Vargas Llosa

WASHINGTON—As was the case with the 1929 crash that ushered in the Great Depression, the current financial meltdown is giving rise to myths that will influence public policy for decades to come. It is imperative that those myths be debunked before the next U.S. administration starts to make important decisions, followed by many other countries. By far the most dangerous myth is that deregulation is the root cause of the problem.

Yes, Wall Street firms were greedy, irresponsible and, in many cases, downright stupid. But those are fairly constant features in any society and there is no reason to believe that investment bankers were any more greedy, irresponsible and stupid in 2007 and 2008 than, say, five or 10 years earlier.

As many authoritative economists are desperately trying to explain amid all the confusion, the culprit was a system geared toward loaning money to people who were not in a position to pay it back. Two policies underpinned that system: easy money by the Federal Reserve and the government-induced lowering of standards for approving loan requests.

Lorenzo Bernaldo de Quiros, a leading European economist, is adamant that the crisis could have been avoided but for “the lax monetary strategy put in place by the Federal Reserve between 2001 and 2004. ... That is what caused the exuberant and unreal rise in the value of stock market and real assets, the excessive leverage on the part of families and companies, and the inevitable collapse of the house of cards once inflationary pressures forced the central bank to tighten its policy.”

The Fed’s policy would explain why asset values rose unrealistically, but not necessarily why they did so predominantly in the housing market. And here is where the second set of policies underpinning the system comes into play.

In a recent paper for the Independent Institute, University of Texas professor Stan Liebowitz argues that “in an attempt to increase homeownership...virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s.”

The government-promoted increase in homeownership dramatically increased the price of housing. As many as one in four buyers purchased property with purely speculative intentions. When prices stopped rising, the speculators tried to get out of the market. The rest is history. Read the rest...

Congress, You're Fired!

I already know how this worm is going to vote. As soon as he does he will be getting a fax from me and the 8th District of Maryland is going to get plastered with these.



Make your own with this blank and join me.

Click on the pictures for full size images you can use.

You can find you're representative's fax number here:
http://www.congress.org/congressorg/aila2/dbq/officials/



http://nocashfortrash.org/

Free Market My A$$

I get so sick of people talking about "market failure."

[T]he quaint notion that America has a free market economic system is gone. In reality, our government is manipulating nearly every aspect of our economy in an inefficient and horribly unjust manner. Market forces, which normally function to sort out winners and losers, have been largely replaced by arbitrary government diktats.

For instance, our government is straining every fiber of its regulatory muscle to raise real estate prices (in a vain attempt to re-inflate the housing bubble). But this is not a socially neutral endeavor. After all, for every person who sells a house, there is also a buyer. When the government manipulates housing prices upward, the practical effect is to steal money from buyers and give the loot to the sellers.

Or consider our interest rates. The Federal Reserve has been holding interest rates at absurdly low levels (even below the inflation rate) for years, because easy credit policies give a short-term "stimulus" to the economy (and help to keep the bankrupt federal government from paying higher finance charges).

But for every borrower, there is a lender. If the government uses its influence to lower interest rates, it is essentially stealing money from lenders for the benefit of borrowers. Thus, folks who buy bonds or CDs are getting a far lower return on their investments because of the interventionist policies of their own government.

Another example is the carefully orchestrated campaign to keep stock prices inflated. It is a poorly-kept secret that our government maintains a "plunge protection team" whose main duty is to prop up the Dow and prevent any major downturns in stock prices.

Aside from the issue of whether stock prices are any of the government’s business at all (they aren’t), the government’s actions are again unfair and confiscatory. If a hypothetical investor analyzes the market and decides that stocks are overpriced, his most logical strategy is to sell short. If this assessment is correct and the market falls, he’ll make money. But government intervention to re-inflate stock prices steals wealth from the short sellers and gives it to long buyers.

In essence, our government has implemented a series of massive interventions in the marketplace which harm certain individuals for the unearned benefit of others.

By what right does the government do this? Why should a person who buys a house, or lends money, or short-sells stocks have his financial livelihood undermined by his own government? Are not lenders also citizens of our republic? Don’t short sellers pay taxes too?

And why should those who sell houses, borrow money, or take a "long" position in stocks be the beneficiaries of arbitrary government interventions? Is the world somehow a better place because these individuals make money at the expense of those on the other side of the trades?

Read More...

If you don't know Scragged.com

You need to. It's spiffy.

The underlying reason for the fall is bad investments, unwisely made. The banks decided, directly and indirectly, to loan money to homebuyers who had no visible way of paying the money back. No matter what the paperwork might say, that is not a loan. It's a property speculation: the only way for the bank to get back its money (much less show a profit) would be for the property values to rise. As we all know, they didn't; they've instead been plummeting.

It is right for people who cannot pay the mortgages that they themselves signed to be foreclosed on and thrown out of their homes. It is right for banks to lose money, or even to be bankrupted themselves, because they unwisely made loans to people who could not pay for houses that are not worth the money spent on them. It is right for the tycoons of Wall Street who speculate in the hundreds of billions where ordinary folks might speculate in the thousands, to lose equally vast fortunes - all based on the results of their own free decisions.

Wealth is not a ratchet, and in a free economy, it's not supposed to be. The American dream says that every American has the opportunity to better themselves, and if they work hard and are lucky, to become rich. But for this to be possible, it is an absolute requirement for the converse to be true: if you are lazy, unlucky or unwise, you can become poor even if you start out wealthy. An investment with no risk is not a path to wealth; where it is, as with the executives of Fannie Mae and Freddie Mac who donated heavily to Democratic politicians in order to obtain and retain their cushy posts, it's a fraud; their newfound wealth is actually stolen from your pocket.

Read the rest...

Morgan Stanley, Goldman shares sink as fear spreads

By Joseph A. Giannone and Dena Aubin
NEW YORK (Reuters) - Anxious investors hacked away at Morgan Stanley and Goldman Sachs on Wednesday, sending shares of the two largest investment banks lower and boosting their debt-insurance prices higher amid rising fears over their ability to survive a deepening financial crisis.
http://www.reuters.com/article/businessNews/idUSN1735210820080918

Pro Libertate: Dispossession by Decree

William N. Grigg gets better with every post.

Perhaps I was too distracted to notice, but I don't recall a spontaneous outpouring of public demand for a taxpayer-financed bailout of Fannie and Freddie, the costs of which will eventually run into the trillions of dollars. In that case, however, there is an almost imperceptibly thin thread of public accountability, since Congress -- acting with the desperate haste it displays only when carrying out an errand on behalf of the Power Elite -- passed a patently unconstitutional measure "authorizing" the Secretary of the Treasury to bail out Fannie and Freddie.

This means that the electorate, which installed and tolerates Congress, shares some responsibility for this crime.

However, it's impossible to blame the electorate for the most recent act of mega-larceny, the Federal Reserve's $85 billion bailout of the American International Group. This was done by the FED -- an nominally private entity that exercises immense political and economic power without constitutional standing or accountability of any kind.

Pro Libertate: Dispossession by Decree

Pro Libertate: The Denouement (Updated)

Denouement (n) -- The unraveling of a plot; a catastrophe....

From Webster's Unabridged Dictionary (1913)

There is something supernally appropriate to the fact that, in order to find the most suitable definition for just right word to describe the ongoing crisis of the financial system, we have to refer to a dictionary published in 1913.

We are now into the second year of the unraveling of the world financial system. It could be described as the Great Denouement (or final act) of a plot that began in 1913, when Congress created the Federal Reserve System, aka the Focus of Evil in the Modern World. So far the effects of the unraveling have had minimal impact on the larger economy.

This is about to change.

Last Friday, there were five globe-bestriding Wall Street investment banks. Today there are three. Lehman Brothers, a 158-year-old financial colossus, is headed for bankruptcy and oblivion. Merrill Lynch, which was following the same trajectory, was bought by Bank of America.

Tellingly, the markets greeted that acquisition by selling off Bank of America shares, despite CEO Ken Lewis's happy prattle about the "synergies" supposedly catalyzed by this buy-out. Likwise, the bank's credit rating took a hit following the transaction. This is exactly the opposite of what we would expect to see when one business demonstrates its vitality by purchasing another. In this case, however, it is well understood that BofA wasn't gaining assets, but rather taking on an infection.

Read the rest... Pro Libertate: The Denouement (Updated)

Things I Found September 12, 2008

September 12: Today In History.

Foreign Affairs
U.S. Sanctions Ratchet Up Pressure on Venezuela: ELORZA, Venezuela -- The U.S. government, ratcheting up a diplomatic crisis with one of its leading suppliers of crude oil, placed sanctions on several high-ranking Venezuelan officials Friday, accusing them of aiding the drug trafficking of Colombia's main guerrilla army.

US Reported to Kill 12 in Pakistan: Islamabad, Pakistan - As the American campaign against suspected Al Qaeda and Taliban militants in Pakistan's tribal areas seemed to intensify on Friday, two missiles fired from remotely piloted American aircraft killed 12 people on Friday in an attack on a village compound in North Waziristan, according to a local journalist and television reports.

Weather
Hurricane Ike could be "potential catastrophe": GALVESTON, Texas (Reuters) - Massive Hurricane Ike bore down on the Texas coast on Friday with a wall of water that threatened a potential catastrophe for the United States.

Economy
Credit Crisis Strains: A year into a credit crisis that started with troubled mortgages to sketchy borrowers, the financial system is reeling once again, casting a pall over a widening array of financial institutions just days after history-making efforts by policy makers to contain the problem.

Ticking Time Bomb Explodes, Public Shocked: The failure of Fannie Mae and Freddie Mac, setting in motion the biggest government bailout/takeover in U.S. history, brings a grim sense of fulfillment to competent economists. After all, what did people expect, that water would flow uphill forever?

New York Fed Holds Emergency Meeting On Lehman's Future: The Federal Reserve Bank of New York held an emergency meeting Friday night with top Wall Street executives to discuss the future of venerable firm Lehman Brothers Holdings Inc. and the parlous state of U.S. financial markets.

Science
Near-Death Experiences: What Really Happens?: Many reports of near-death experiences sound the same: a welcoming white light and a replay of memories. But now scientists aim to study what really happens to the brain and consciousness when someone is on the verge of dying.

Commentary
Secession and Slavery: An interesting commentary, “Lincoln, Secession, and Slavery” by Tibor Machan, published by the Cato Institute on June 1, 2002, was recently brought to my attention. I should say at the outset that I have long been a fan of Machan, and have the utmost respect for his positions. I just think he got it way wrong here.

Our Trillion-Dollar War: No, it’s not the War in Iraq—it’s the War on Poverty. Incredible as it may seem, Americans transfer more than a trillion dollars each year to low-income families through a bewildering variety of programs, all in the name of fighting poverty and inequality. That’s about seven times the cost of the Iraq war.


More to come...

Things I Found September 11, 2008

September 11: Today In History.

News
Russian bombers will return in days from Venezuela: Two Russian long-range bombers capable of carrying nuclear weapons will return to base from Venezuela in four days, the Air Force was quoted by Interfax news agency as saying on Thursday.

US expels Bolivian ambassador: The US has ordered the expulsion of the Bolivian ambassador in an escalating diplomatic row after Washington's envoy to Bolivia was expelled by Evo Morales, the president.

Venezuela expels US ambassador: Hugo Chavez, the Venezuelan president, has ordered the US ambassador to leave the country amid a series of tit-for-tat diplomatic expulsions between Bolivia and the US.

Weather
Hurricane Ike takes aim at Texas coast, Houston: GALVESTON, Texas (Reuters) - Hundreds of thousands of people fled coastal areas in the path of Hurricane Ike on Thursday as the storm gathered strength on a collision course with the Texas Gulf Coast, threatening to swamp populous areas around Houston under a massive wave of water.

Economy
Small Fannie, Freddie Holders Take Issue With Washington: Adam Freid, a general contractor in Thousand Oaks, Calif., says he was through day-trading stocks and instead looking for a promising long-term investment when he read some of Henry Paulson's recent comments about Fannie Mae and Freddie Mac.

Lehman in sale talks as survival questioned-sources: NEW YORK (Reuters) - Lehman Brothers Holdings Inc was forced into talks about a possible sale after the Wall Street investment bank's shares plunged more than 40 percent on Thursday, raising questions about its survival.


Commentary
The American secessionist streak: In a recent poll, one in five agreed that states have the right to peacefully secede from the Union.

Stop the Bailout: It was the singular achievement of Murray Rothbard's America's Great Depression to have demonstrated that the Great Depression was a crisis manufactured and prolonged by the attempts to stop an inevitable downturn. The policy response – creating more money, propping up prices, ginning up employment, and a host of other devices – took a stock-market price collapse and a banking liquidation and spread the mess throughout every sector of the economy. What might have lasted a year to 18 months instead lasted 16 years.

More to come...

Things I Found September 9, 2008

September 9: Today In History

News
WSJ: Fannie, Freddie To Be Removed From S&P 500: Standard & Poor's will remove Fannie Mae and Freddie Mac from its S&P 500 Index after the close of trading Wednesday.

Alfalfa Sprouts Recalled in Salmonella Outbreak: New incident reported in Washington state. With the Salmonella-St. Paul outbreak finally contained, the Food and Drug Administration reports 13 cases of Salmonella Typhimirium in Oregon and Washington State. The outbreak is apparently linked with the consumption of raw alfalfa sprouts.

Weather
Ike gives Cuba final kick, moves to Gulf of Mexico : HAVANA - Hurricane Ike moved into the warm waters of the Gulf and took aim at the U.S. and Mexican coasts Tuesday after bringing down aging buildings in Havana and tearing through western Cuba's tobacco country.

Science
Will the Large Hadron Collider Destroy Earth? The potential for the world's largest atom smasher to destroy Earth is one question weighing on the minds of some lay people as the Large Hadron Collider (LHC) prepares to go online Wednesday.

Politics
Takimag: The Palin Illusion: Having been listening to happy talk for more than a week about the “Palin factor,” courtesy of all my local friends and the commentaries of Pat Buchanan, and having felt at least for a few minutes some of the same euphoria about the GOP vice-presidential candidate, it now seems appropriate to look at the gaping hole in the donut.

Things I Found September 8, 2008

September 8: Today In History

WSJ: Fannie and Freddie Likely to Plunge, Searing Investors: The government's plan to take over Fannie Mae and Freddie Mac may help the housing market and boost the value of the firm's bonds, but it's a body blow to stockholders that include some of the country's best known mutual funds and biggest banks.

Salmonellosis Outbreak Prompts Sprout Recall: Oregon public health officials and the U.S. Department of Agriculture announced a recall of Sprouter's Northwest brand alfalfa sprouts due to a salmonellosis outbreak.

Takimag: Freddie and Fannie--Too Big to Bail: One amusing aspect of the New York Times’s coverage of the government takeovers of Freddie Mac and Fannie Mae is that throughout the Gray Lady’s 2000-word lead essay, it’s never once mentioned that the two lending institutions have, well, already been federal organizations for the past 70 years (!).

BBC: Russia: Potential Flashpoints: The Russia-Georgia conflict has focused attention on other potential flashpoints that have their origin in the Soviet era, which ended in the collapse of the Soviet Union in 1991.

The One Rule: Most everyone who speaks a European language natively is familiar with the Golden Rule, attributed to Jesus Christ: Therefore all things whatsoever ye would that men should do to you, do ye even so to them. This is usually simplified to Do unto others as you would have them do unto you. Even more concisely as Love your neighbor as yourself.

NewsVine: US Military Deaths In Afghanistan Region At 514: As of Monday, Sept. 8, 2008, at least 514 members of the U.S. military had died in Afghanistan, Pakistan and Uzbekistan as a result of the U.S. invasion of Afghanistan in late 2001, according to the Defense Department. The department last updated its figures Monday at 10 a.m. EDT.

Things I Found September 7, 2008

September 7: Today In History

Pakistan Cuts Supply Lines to NATO Troops in Afghanistan: In a major development, the federal government on Friday announced disconnection of supply lines to the allied forces stationed in Afghanistan through Pakistan in an apparent reaction to a ground attack on a border village in South Waziristan agency by the Nato forces.

Russia Today Covers Rally for The Republic (YouTube): Texas Congressman Ron Paul may not be the next US President. But the firebrand Republican, who failed to win the party's nomination this year, is still hugely popular with grassroots supporters.

BBC: US Takes Over Key Mortgage Firms: US financial officials have outlined plans for the government to take over the failing mortgage giants Freddie Mac and Fannie Mae.

BBC: Caribbean Lashed By Hurricane Ike: Thousands of people have taken refuge across the Caribbean as one of the season's fiercest hurricanes barrels across the islands, on course for Cuba.

TimesOnline: Scramble For Cash As Central Banks Dry Up: British banks soon could be scrambling for short-term funding once more amid reports that supplies from Threadneedle Street and from Frankfurt may be drying up.

LiveScience: The Top 10 Mad Scientists: From mildly eccentric to downright wacky, these 10 hyper-intelligent characters didn't just march to a different beat, they each played their own tune altogether, all while changing how we look at the world.

Venezuela, Russia May Hold Joint Naval Exercises: President Hugo Chavez said Sunday that Venezuelan and Russian ships could soon hold joint naval exercises in the Caribbean — a move that would likely raise concerns in Washington.

Asia bourses cheer US bailout: Asian stock markets have soared following the US government's takeover of mortgage giants Fannie Mae and Freddie Mac.