The lump of unfairness fallacy
Note: rootless_e asks over Twitter that I “please put in some explicit indication that TARP was [enacted under] Bush/Paulson because many people don’t recall”. I am glad to do so. I bring up TARP to illustrate a policy error, not to pin that error on Barack Obama.
Ezra Klein is a wonderful writer, but I don’t love his retrospective on the financial crisis. (Kevin Drum and Brad DeLong do.) The account is far too sympathetic. The Obama administration’s response to the crisis was visibly poor in real time. Klein shrugs off the error as though it were inevitable, predestined. It was not. The administration screwed up, and they screwed up in a deeply toxic way. They defined “politically possible” to mean acceptable to powerful incumbents, and then restricted their policy advocacy to the realm of that possible. The administration could have chosen to fight for policies that would have been effective and fair rather than placate groups whose interests were opposed to good policy. They might not have succeeded, but even so, as Mike Koncazal puts it, they would have lost well. We would be better off with good policy options untried but still on the table than where we are now, with policy itself — monetary, fiscal, whatever — discredited as both ineffective and faintly corrupt.
There is a lot in Klein’s piece that I could react to, but I want to highlight one point that is particularly misguided:
But when talking about what might have worked on a massive, economy-wide scale — that is to say, what might have made this time different — you’re talking about something more drastic. You’re talking about getting rid of the debt. To do that, somebody has to pay it, or somebody has to take the loss on it.
The most politically appealing plans are the ones that force the banks to eat the debt, or at least appear to do so. “Cramdown,” in which judges simply reduce the principal owed by underwater homeowners, works this way. But any plan that leads to massive debt forgiveness would blow a massive hole in the banks. The worry would move from “What do we do about all this housing debt?” to “What do we do about all these failing banks?” And we know what we do about failing banks amid a recession: We bail them out to keep the credit markets from freezing up. There was no appetite for a second Lehman Brothers in late 2009.
Which means that the ultimate question was how much housing debt the American taxpayer was willing to shoulder. Whether that debt came in the form of nationalizing the banks and taking the bad assets off their books — a policy the administration estimated could cost taxpayers a trillion dollars — or simply paying off the debt directly was more of a political question than an economic one. And it wasn’t a political question anyone really knew how to answer.
On first blush, there are few groups more sympathetic than underwater homeowners or foreclosed families. They remain so until about two seconds after their neighbors are asked to pay their mortgages. Recall that Rick Santelli’s famous CNBC rant wasn’t about big government or high taxes or creeping socialism. It was about a modest program the White House was proposing to help certain homeowners restructure their mortgages. It had Santelli screaming bloody murder… If you believe Santelli’s rant kicked off the tea party, then that’s what the tea party was originally about: forgiving housing debt.
This all sounds very hard-nosed. There were debts. There were economic losses, such that the debts could not be serviced at initially agreed terms. The consequences of leaving those unserviceable debts in place — frozen household spending, bankruptcy courts and litigation, blown up banks — were intolerable. Therefore, the losses were going to have to be socialized, borne by taxpayers, one way or another. Ultimately, in this view, it is all a matter of dollars and cents. The taxpayer is going to eat the loss, so what’s the best sugar to make the medicine go down?
But human affairs are not about dollars and cents. Santelli’s rant and the tea party it kind-of inspired were not borne of a financial calculation — “Oh my God! My tax bill is going to be $600 higher if we refinance underwater mortgages!” Santelli’s rant, quite legitimately, reflected a fairness concern. The core political issue has never been the quantity of debt the government would incur to mitigate the crisis. It was and remains the fairness of the transfers all that debt would finance. A fact of human affairs that proved unfortunately consequential during the crisis is that people perceive injustice more powerfully on a personal scale than at an institutional level. Bailing out the dude next door who cashed out home equity to build a Jacuzzi is a crime. Bailing out the “financial system” is just a statistic. So the anger Santelli channeled led to economically stupid bail-outs of intermediaries rather than end-debtors.
Once you understand that the problem is a fairness issue rather than a dollars-and-cents issue, the policy space grows wider. Holding constant the level of expenditure, one can make bail-outs more or less fair by the degree to which you demand sacrifice from the people you are bailing out. TARP was deeply stupid not because it meant socializing risks and costs created by bankers. TARP was terrible public policy because it socialized risks and costs while demanding almost no sacrifice at all from the people most responsible for those risks. The alternative to TARP was never “let the banks fail, and see how the bankruptcy system deals with it.” The alternative would have been to inject public capital (socialize risks and costs!) while also haircutting creditors, writing-off equityholders, firing management, and aggressively investigating past behavior. It was not the money that made TARP unpopular. It was the unfairness. And the unfairness was not at all necessary to resolve the financial problem.
If the Obama administration, or any administration, decided to encourage principal writedowns by having the government simply cover half the loss, that would be unfair. The Rick Santellis of the world might object more than I would, but that would be to my discredit more than theirs. Fairness should never be a policy afterthought. Widely adhered norms of fair play are among the most valuable public goods a society can hold. A large part of why the financial crisis has been so corrosive is that people understand that major financial institutions violated these norms and got away with it, which leaves all of us uncertain about what our own standards of behavior should be and what we can reasonably expect from others. When policy wonks, however well meaning, treat fairness as a public relations matter, they are corroding social infrastructure that is more important than the particular problems they mean to fix.
The good news is that there are lots of ways to craft good economic policy without doing violence to widely shared norms of fairness. See, for example, Ashwin Parameswaran’s “simple policy program“. On a less grand-scale, you’ll find that very few fairness concerns arise if underwater borrowers enjoy principal writedowns in the context of bankruptcy. Such “cramdowns” are consistent with a widely shared social norm, that society will grant (and creditors must fund) some relief from past poor choices to individuals who go through a costly and somewhat shameful legal process. Including mortgages and student loans in that uncontroversial bargain will piss-off bankers who wish to avoid responsibility for bad credit decisions. But it won’t provoke a revolution in Peoria.
The Obama administration campaigned on “cramdowns”, but ultimately decided not to push them. I wonder why? Perhaps Ezra Klein will explain how research by Reinhart and Rogoff shows that this too was inevitable.
Update History:
- 9-Oct-2011, 1:25 a.m. EDT: Changed a “poor credit decisions” to a “bad credit decisions” to avoid repetition.
- 10-Oct-2011, 1:35 a.m. EDT: Added note re enactment of TARP under Bush in response to rootless_e’s request.
“The alternative would have been to inject public capital (socialize risks and costs!) while also haircutting creditors, writing-off equityholders, firing management, and aggressively investigating past behavior.”
Using what authority? Was there some secret receivership authority for investment banks and BHCs that existed in 2008 that you’re not telling us about? There’s no way the government could have designed — let alone passed — a brand new receivership authority in the time required to stop the global run on the financial markets in September 2008. There needed to be a policy action in a matter of days, not months.
It’s easy to sit on the sidelines and claim, “My preferred policy would have totally fixed the crisis,” but for those of us who were actually in the markets in September 2008, the idea that ANY of your policy alternatives would have halted the run on global financial markets doesn’t even pass the laugh test. If the government had started handing out haircuts to Citi’s creditors in September 2008, at least 10 more global banks would have failed because of bank runs, and we’d be staring at 25% unemployment right now. Guaranteed.
Why can’t you just admit that you were wrong about TARP? Is it just ego?
October 9th, 2011 at 12:19 am PDT
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Yes. And I can’t help thinking of the Eurozone as I read this.
Is the implied fairness rule: “we will bail them out, but only just enough so they still suffer and wish they hadn’t bought the Jacuzzi”?
Question that keeps running through my mind, that I don’t have a good answer to: suppose, just suppose, that monetary policy had been sufficiently aggressive to keep AD growing despite everything. Why is that impossible? Why would we need to do any bailouts? Let the chips fall where they may.
October 9th, 2011 at 6:31 am PDT
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[…] Steve Randy Waldman, “Widely adhered norms of fair play are among the most valuable public goods a society can hold.” (Interfluidity) […]
October 9th, 2011 at 7:10 am PDT
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“TARP was terrible public policy because it socialized risks and costs while demanding almost no sacrifice at all from the people most responsible for those risks. The alternative to TARP was never “let the banks fail, and see how the bankruptcy system deals with it.” The alternative would have been to inject public capital (socialize risks and costs!) while also haircutting creditors, writing-off equityholders, firing management, and aggressively investigating past behavior.”
I agree. And for TW (poster #1) to say that an organization bailing out failed business leaders had no authority to hold such failures accountable for their actions is simply wrong. The federal government assumed the authority to bail them out. And yes, they could have fired the people who had no idea how much debt was on their books, who brokered terribly risky deals that endangered the future of their company – and whose actions brought the economy to the brink of ruin. Instead, such business leaders got bonuses that added up to billions of dollars. That’s the very worst kind of capitalism – the kind that privatizes profit and socializes loss. Those terrible business failures were rewarded for failure – simply because they happened to work for businesses deemed TBTF. That is simply unacceptable and a business practice I hope never to see again in my lifetime.
October 9th, 2011 at 7:20 am PDT
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Sorry, but recommending as Ashwin does that banks be allowed to fail and new ones put in their place is about as interesting as recommending that the country should be shut down and a new one put in its place.
Sorry, but first we need practical, granular proposals for how existing banks can fail safely at an operational level – not open ended rants that they should be allowed to fail.
Just what is to be done with the various pieces of JPM and Citi after you’ve thrown management out of the building? What will be the business pieces of banking that are left, and who is going to run them? What will the regulatory system be? What capital and deposit structure will prevail going forward, not to mention the transitional adjustment that accommodates transitional failure in the first place? These are rather large questions that must be answered before proposing failure and replacement as the grand panacea. In short, what’s the plan? Let’s get a grip.
As far as I can see, we’re about nowhere on that sort of granular proposal. Just like Europe seems nowhere (just yet) on how to allow Greece to fail safely.
And on the lesser scale (which isn’t that much lesser, effectively), in the absence of mass failure of institutions, we need to see how the idea of systematized mass punishment and sacrifice will lead naturally to more effective banking operations in the future. This involves the same challenges of management transition and more flexible capital structure design.
October 9th, 2011 at 8:46 am PDT
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“It was not the money that made TARP unpopular. It was the unfairness. And the unfairness was not at all necessary to resolve the financial problem.”
Come on, Steve. You’re just making these sweeping statements without any evidence for them. The US government nationalized Fannie and Freddie. It nationalized AIG. It fired the management of those companies. It wiped out the equity holders. Do people feel fine about those moves? Is there a lot of public support for them? No. And when it comes to the top executives of the big banks, the head of Bank of America was fired, the head of Citigroup was fired, the head of Merrill Lynch was fired, the head of Bear Stearns was fired, the head of Wachovia was fired, the head of Washington Mutual was fired, and the executives at Lehman were all, obviously, fired. Indeed, of the fifteen or so institutions that were most important in inflating the housing bubble, the CEOs of at least ten of them were gone by the time Obama was inaugurated. Yet this made no difference to the public’s outrage, nor, apparently, does it make any difference to you. How would firing Vikram Pandit — who, whatever his flaws as CEO, had nothing to do with the housing bubble — have somehow served any policy interest.
More concretely, you are, as both TW and JKH point out, positing an alternative future that never could have been, given both the political and legal constraints, and one that, had it been, would have made things far far worse. You (like all critics of TARP) have yet to explain where the legal authority to take over bank holding companies or investment banks was located. You have yet to explain where the extra hundreds of billions of dollars (probably an underestimate) to pay for the resolution of Citigroup and Bank of America would have come from. You have yet to explain how you would have avoided the cascading bank failures that would have resulted from putting TBTF banks into receivership.
And even on the fairness of TARP question, the reality is this: Congress voted down TARP the first time around because voters were against it. When the consequences of that vote became clear — that is, the stock market dropped eight hundred points in a few hours — voters suddenly started venting their fury on Congress for rejecting TARP, and the law passed. The point is that this was a rotten situation, in which voters were never going to be satisfied with the outcome, because all the possible outcomes were unpleasant. The right decision was to make the choice that was going to be best for the economy and minimize the amount of suffering that people were going to go through, which was the choice not to topple the entire banking system in the pursuit of some ill-defined concept of fairness (even if, after all, the banks had been taken over, all those bank executives would still have stayed very very rich, which would still have been unfair).
October 9th, 2011 at 9:07 am PDT
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[…] seen. He reframes the lump of labor fallacy as “the lump of unfairness fallacy” and writes: The core political issue has never been the quantity of debt the government would incur to […]
October 9th, 2011 at 10:03 am PDT
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What’s “faint” about the corruption? What part of “accounting control fraud” do you not understand? The corruption is not “faint” but pervasive and systemic.
October 9th, 2011 at 10:30 am PDT
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TW writes: “If the government had started handing out haircuts to Citi’s creditors in September 2008, at least 10 more global banks would have failed because of bank runs, and we’d be staring at 25% unemployment right now. Guaranteed.”
There are two problems with this statement. First, it assumes that in the face of massive bank failures, fiscal and monetary policy are ineffective in maintaining output and employment. What if, as Nick Rowe asks, the Fed had been aggressive enough to meet a target for nominal GDP? The only way that we could have reached 25% unemployment would be if we had a severe and prolonged contraction coupled with runaway inflation. Maybe this would have been the outcome of large scale Fed asset purchases at fire sale prices, but I don’t see how anyone could consider it guaranteed.
The second problem with the statement is more insidious. If we know what the consequences of handing out haircuts to Citi creditors would have been (without considering the possible effects of any fiscal stimulus or monetary expansion) then there’s no debate to be had. This has been the view of TARP proponents along, that the merits of the policy, given the alternatives, are self-evident. They are not self-evident to me, and it would be good if we could have a discussion of these issues with a bit more open-mindedness and self-doubt.
October 9th, 2011 at 10:49 am PDT
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When recounting the economic policy errors of the Obama administration, I think it is a mistake to focus on the financial crisis and the initial responses to that crisis. Whether those policies are defensible or no, we were on our way to a recovery in 2010. Then the Obama administration stuck a fork in its own recovery.
The key problem at that point lay in the unemployment problem – and the massive loss of employment income and security which happened as a result. The administration should have pivoted to the challenge of restoring the jobs and security or ordinary Americans. But instead it turned to the pseudo-problem of the national debt, and wasted a year and a half in a neo-Hooverite mode following the Tea Party down the rabbit hole. They added their powerful voice to the debt hysterians and austerity-mongers. Now we have virtually the same level of unemployment and unemployment, and the same falling and stagnating real incomes. This was just incredibly stupid. It isn’t the same as the problem of no really good options for facing cascading collapses and bursting bubbles in the financial system. It’s instead a case of top-down bureaucratic blindness and a fundamental misunderstanding of what actually drives economic growth and activity at the ground level.
The fact that my company’s customers are poorer, more unemployed and more insecure on average than they were four years ago is not just a symptom of recession; it’s the main reason why the recession continues. But the Obama administration actually seems to have dedicated itself to letting real incomes fall.
The approach is simple: hire the unemployed and boost the incomes of the employed through both outright transfers and new regulations on companies’ compensation structure. Get rid of the buyers’ market for cheap labor, and boost employment security. Pay for it with a combination of money-financing, and taxes on the surplus savings of the wealthy.
There is no unfairness problem if the money is being spread around liberally. People with bad mortgages still have to suffer the effects of bad decisions, but they suffer less and dig out faster. The rest get a significant boost.
October 9th, 2011 at 10:59 am PDT
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I think JKH and K. Williams overstate their case.
-“Cascading bank failures.” Temporary nationalization would have occurred with capital injections and s.t. funding guarantees, which would have eliminated liquidity entirely.
-“voters were never going to be satisfied with the [TARP] outcome, because all the possible outcomes were unpleasant.” Voters would have been satisfied with banks being forced to: have much higher capital rations with dilutive capital raisings; shrink their derivatives books; raise liquidity ratios; fire their Boards of Directors; accept Glass-Steagal type legislation; enact bonus claw-back regimes and limit bonus pools; etc.
-“given both the political and legal constraints.” No newly-elected President has had Obama’s going-in popularity or level of support. Like FDR, he could have asked Congress for comprehensive powers to restructure the banking system. Instead he protected the status quo.
Unfairness is not an “airy-fairy” concept. It is a political construct. We have large alienated sections of the polity seeking redress as a result of what happened in 2008. So far the result has been the Tea Party and a re-emergent populist left. Both carry potentially damaging consequences.
What Steve’s critics are saying is, essentially, “creditors should never be allowed to take losses.” What results is a permanently fragile financial system, chronic slow growth, rising sovereign risk, and a populist backlash. IMO, we will be dealing with these problems for decades.
October 9th, 2011 at 11:36 am PDT
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Sorry, that third sentence should have read, “eliminated liquidity risk entirely”.
October 9th, 2011 at 11:37 am PDT
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Excellent
Yes it’s about fair play by uncle
And yes that means investigate indict fire and brimstone the hi fi executive teams that wrecked the band wagon roll
Punishment is fair
harsh rough punishment is justified circus
Households
Well you x
Can’t reward folly and laxity so
To recover you tax holiday
That is fair eh ?
Ie payroll tax holiday– total employee side — till we get to say 5% UE
Here’s the home owner relief
Rebate on property taxes a credit of fixed value
pass thru to renters
And if you have a mortgage the credit gets sent to pay that down
Fair even Steven stuff like that
Cost in debt
Hey Americans don’t care about uncles debt
If they see a turn around of epic proportions thru u cle giving them back the money they earnred
Only political hacks care
And ledhe heads like Peter orffzaggle
And uncle has a limitless dollar mine eh?….
Now
If gentle Ben didn’t want to play along
He gets sacked in winter ’10
But hey there is no time portal back to winter 09
That lots of us could have done better done it right
So what
The biggest god damn foolishness is thinking you get credit for if you leap half way across a pool of quick sand
I see the white house crowd up to their necks crying
Look we got half way
Just before gurgling under
October 9th, 2011 at 11:57 am PDT
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WRT Policy space, yes, whether one thinks the Tea Party movement was subverted and recruited by oligarchs or merely following its own ill-informed prejudices there is little doubt it restricted its policy agenda too quickly and too deeply making the Occupy movement inevitable and essential to the reopening of the closed space.
WRT half-leaps, the ‘official’ policy of incremental progress articulated by the Obama administration could only work if it established institutions and rhetorical logic sufficient to prevent political opponents from blocking funding or voting the policy out of existence when they came to power. To delay implementation as a matter of policy is effectively to a delay the initiative altogether.
Julius Hare is noted for the observation that “[H]alf the failures in life arise from pulling in one’s horse as he is leaping” but it is not clear what he would have said of an approach in which the horse was pulled in before the leap even occurred.
October 9th, 2011 at 12:26 pm PDT
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“Widely adhered norms of fair play are among the most valuable public goods a society can hold.”
This is one of those horrible statements that appears to say something self-evident while in fact saying something that is the precise opposite of what is true. It’s true that it is highly beneficial if citizens are self-motivated to play by a well-defined, widely-accepted, and potentially verifiable set of rules, provided that those rules are themselves reasonable. But “norms of fair play” is a vague concept that embraces both such well-defined, widely-accepted, verifiable, reasonable rules and a lot of vaguely-defined, unverifiable, and largely foolish rules that differ in subtle but important ways from person to person. The latter are the primary source of conflict in society (and among societies) and a tremendous detriment to progress.
To me “fairness” has a negative connotation, as it is essentially a euphemism for self-righteousness. Indeed I would suggest that the love of fairness is close to being the root of all evil — much closer than the love of money, whose virulence is limited by its lack of effective moral pretensions. In my opinion we should punish the love of fairness by pursing deliberately unfair policies, rather than appeasing the fairness junkies that populate our planet by giving them more dope.
Having said that, though, I am rather sympathetic to Nick Rowe’s point about aggregate demand. In my ideal world, as I conceive of it now, central banks would have a nominal GDP path mandate and enough power (possibly to the point of literal helicopter drops) that their ability to implement that mandate could not be reasonably questioned. I’m not sure this would entirely moot all the arguments about bailouts (since they may have beneficial supply side effects), but it would certainly make the case for bailouts a lot weaker and reduce the need for the government to make choices involving issues of fairness.
October 9th, 2011 at 2:03 pm PDT
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Andy Andy
What a horse collar you deserve
Helicopter drops translated into policy becomes transfer system supercharged
Ie fairness
No wonder you seem to have a tux on in your sites mug shot
Guys like you end up on the wagon to the chopping block
If the bell for the final round of fairness rings
October 9th, 2011 at 2:10 pm PDT
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This whole discussion about fairness goes back to a very basic human desire to not see any one free ride off some sort of social system. In fact its my own contention that one way to differentiate conservatives form liberals is in how far they will go to stop free rider problems. (back to this in a second) The cram down/jubilee issue is fundamentally one about free riders. We fear someone will get something for nothing while others who played by the rules wont get as much. I get this and certainly all social systems must deal with the issue of free riders. Obviously there is a critical mass of free riders which make the system collapse………….but theres also a critical mass of over compensating to stop free riders where the system is unworkable as well.
Free riders are a natural part of any animal social system, even in the non human animal world of social creatures they must deal with them.
I take the position that worrying too much about punishing free riders ( or NOT rewarding them) will hold us all back in the end. A debt jubillee recognizes, I believe, that whether we like it or not we are in this system together, and a solution that moves us forward and worries less about punishing everyone that was even the least bit irresponsible, is better for all. It is the better MACRO solution. This is a liberal view, while the conservative is most interested in the micro view of making EVERYONE pay their fair share (however that can be determined), regardless of what it does to the over all system.
Life is messy and I just think we need to look more towards forgiveness than punishment.
Forgiveness isnt fair, It isnt a natural human response. Thats why so many religious systems talk about it so much and the ardent followers of these systems are encouraged not to be caught up in the ways of the world. We dont do forgiveness well and thats why we have such trouble moving on. We are always worried that the forgiven person is being given something they dont deserve, yet we are taught by at least one renowned ethical teacher from a long time ago that we ALL deserve forgiveness.
October 9th, 2011 at 5:40 pm PDT
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I completely agree that a focus on fairness from the start would have resulted in quite different policy decisions. I would go as far as to say that an unfortunate and lasting fallout from this crisis is the damage that has been done to the underlying trust that makes economic transactions possible.
A focus on fairness from the start, for example, might have led to a widespread program of sale leasebacks, turning defaulted mortgagees into tenants and thereby avoiding the damage done by widespread evictions and an overhang of repossessed properties on the market. Give an income stream from rents, the properties could have been moved off the balance sheets of the banks into the hands of investors via securitization with government guaranties.
At this stage of the workout, I can’t imagine how fairness could be restored to a first principle. We have reached a stage where creditors are fighting to get what they can, fairness be damned, the first to get to the money gets to keep it.
Beyond fairness, there is a sense of futility now, in that we have not seen the balance sheets of the banks restored to a healthy state, because of their ongoing exposure to bad mortgage loans and foreclosed property inventories, because unsafe and unsound practices were not curtailed as part of the bailout package bargain, and because sovereigns, so to speak, stepped into the shoes of their banks without thinking about their exit strategy.
Bankruptcy as a judicial process is meant to bring some order and a principles of equity to this kind of fight. Foreclosures are stopped. Money paid 90 days prior to the bankruptcy filing is subject to possible recovery. Payments to creditors are prioritized in accordance with known rules and the claims of those who will not receive anything are discharged. In a bankruptcy context, to my knowledge, the term “cramdown” refers to the extension of the maturity of debt and a reduction of the contractual interest rate on the grounds that the creditor is adequately protected against a loss of principal. A creditor will generally lose money as a result of a cramdown based on a present value of money analysis.
October 9th, 2011 at 6:36 pm PDT
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Brilliant conclusion!
K. Williams writes: “You (like all critics of TARP) have yet to explain where the legal authority to take over bank holding companies or investment banks was located.”
Of course, the real question is why, after the Bear Stearns failure all the way back in March 2008 which had commentators calling for a resolution authority, Paulson didn’t have one ready to go come September, but instead proposed TARP.
October 9th, 2011 at 8:46 pm PDT
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Andy: “I’m not sure this would entirely moot all the arguments about bailouts (since they may have beneficial supply side effects), ….”
Yep. One thinks about Arnold Kling’s Patterns of Sustainable Specialisation and Trade (PSST) being disrupted. Only with banks, it’s more the patterns of creditors being knowledgeable about particular debtors. Those knowledge and trust networks get broken up, and it may take a long time to rebuild them.
If the AD problem were solvable (and my hunch is it is, with enough helicopters), I think that would be the biggest problem. In the Long Run, Finance only matters because of those supply-side effects, anyway.
October 9th, 2011 at 9:16 pm PDT
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I am with Nick Rowe, Rajiv Sethi ,and especially David Pearson on the TARP/fin crisis. The importance of the FIRE sector is rather overstated, somewhat hysterically, by the opponents of the no TARP option.
Sweden overcame its own financial crisis in a rather different and one might say fairer way:
“Stopping a Financial Crisis, the Swedish Way” (http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html). So, it was not like trodding the unknown grounds if one was willing to learn from others’ experience and mistakes.
Andy Harless’s comment on fairness, not to mince the words, is quite repugnant. Truly “progressive”.
October 9th, 2011 at 9:18 pm PDT
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The level of sheer fantasy in this article and the laudatory comments indicates why the left has been reduced to a force only within a few faculty lounges and some trust fund supported magazines filled with whining. I particularly love David Pearson’s display of historical ignorance and sheer wishful thinking in
“No newly-elected President has had Obama’s going-in popularity or level of support. Like FDR, he could have asked Congress for comprehensive powers to restructure the banking system. Instead he protected the status quo.” Yes, FDR coming in with a much larger majority, after 2 years of 25%+ unemployment and total bank collapse had ALREADY happened, and during a mushrooming labor/left insurrection that included incidents that our modern “left” seems to not know about like the West Coast Dockers Strike and General Strike – that FDR could ask for and get wide ranging powers that he used to radically change the whole banking system so that JP Morgan, Mellon, Rockefeller and others were – uh, left in charge! But Obama faced a mobilized GOP that had sworn to destroy his administration and a Senate majority that was, at best, weak. All this dim monday morning quarterbacking and fact free revolutionary babbling would have made Harry Bridges weep. Look him up.
The left used to know that major social change required a mobilized public, but today what remains of the “left” thinks that stern glances and steely resolution to push radical policies on the part of politicians who were elected on a platform of moderation would make even more radical change happen without all the hard work of organizing.
Pathetic.
October 9th, 2011 at 9:37 pm PDT
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Vjk – Sweden BAILED OUT its bankers. Absolutely nothing as tough as the wipeout of GM/Chrysler shareholders and most of the debtholders was even dreamed of in Sweden – during a much simpler crisis. Maybe it’s too complex for our “left” to understand but making Citadel swallow a massive loss was not politically easy.
October 9th, 2011 at 9:44 pm PDT
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I find it repugnant that, in a world as horrible as the one we live in, instead of trying to make it less horrible, people find it necessary to quibble, often violently, over whether someone is getting a bit more or a bit less than they deserve.
Concerning the Sweden article:
“…the final cost to Sweden ended up being less than 2 percent of its G.D.P.”
If I’m not mistaken, the final cost of TARP is expected to be less than 1% of US GDP. Apparently fairness can be expensive.
October 9th, 2011 at 9:48 pm PDT
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One can argue these issues, but please try to get the basic facts right.TARP was proposed by the BUSH ADMINISTRATION and 90% of all money sent to wall street under tarp was committed by the time Obama took the oath of office. So this wonderfully better “alternative” for which there was no legal basis and no Congressional majority could not have been invoked because Paulson and Bush were not interested in such a resolution and THEY WERE IN OFFICE.
If you are going to critique the Obama administration’s response to the financial crisis, you might start be researching a calendar.
October 9th, 2011 at 9:51 pm PDT
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Andy, before you embrace the view that love of fairness is the root of all evil you might want to give some thought to the question of why we humans have an attachment to fairness in the first place, and whether civilization would be possible without it. You could start with an old article by Trivers on the evolution of a sense of fairness.
Your comment reminded me of a talk by Marc Hauser in which he argued that we would all be better off if we did not have the capacity to feel disgust, since genocide becomes much more likely once a victimized group begins to be associated with disgust-inducing creatures such as vermin. I happened to be sitting next to the anthropologist Rob Boyd, who whispered to me that if it wasn’t for our sense of disgust, we would be eating rotten food and mating with siblings. In other words, we wouldn’t exist.
October 9th, 2011 at 10:10 pm PDT
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Collapse of the banking system is a hyperspace version of a liquidity trap. There are no effective monetary or fiscal tools to boost aggregate demand in such an environment.
October 9th, 2011 at 10:58 pm PDT
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ah, the blogosphere
one guy, ezra klein, writes some stuff, without a whole lot of research or data, and we have millions of words wasted on analyzing what someone thinks about what someone said about what kein wrote.
how about something useful, like organizing the data on criminal behaviour by mortgage originators (see Morgenson, Gretchen) and the willfull blind eye of wall street toward these mortages
Or better yet, everyone on this blog send 25 dollars to the bail fund for OWS
October 9th, 2011 at 11:06 pm PDT
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I’m not, in general, going to play in this comment thread. There would be too much to respond to. But rootless_e suggests I made a factual error that I did not make.
I want to make clear that I know when TARP was passed, and was very aware of it when I wrote the piece. I was, contra TW, “in the markets” during the events in question.
I did not assert that Obama passed TARP, and am not especially interested in harping on the fact that he whipped for it as a candidate. I brought up TARP as a quintessential example of policy where, in my view, hyper-visible (and cynically exaggerated) near-term technocratic benefits were pursued with reckless disregard for profoundly damaging but less visible costs. I did not bring up TARP to blame Obama, but to illustrate an orientation towards policy that is unfortunately shared by the wonkier wings of both political parties.
October 9th, 2011 at 11:18 pm PDT
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rootless_e writes:
Wonder where you take your information from — Swedish bank shareholders stakes were wiped out and the failed banks were temporarily nationalized through issuing common shares to the government. Additionally, “toxic” assets were collected into two separate entities and sold at about quarter of their original “value”.
Nothing remotely similar was even envisaged during the US bank bail out.
“Absolutely nothing as tough as the wipeout of GM/Chrysler shareholders”
See above.
Not sure what the Citadel reference is supposed to mean.
October 9th, 2011 at 11:25 pm PDT
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[…] – “It was not the money that made TARP unpopular. It was the unfairness.” […]
October 10th, 2011 at 3:07 am PDT
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[The Obama administration] defined “politically possible” to mean acceptable to powerful incumbents
Don’t pin this on them; that’s what it actually means. If you try to pass something that’s not acceptable to powerful incumbents, powerful incumbents call their Senators and say “filibuster this crap”, and they do (their ability to get the Senators to listen is what makes them powerful incumbents).
It looks like you either didn’t read Klein’s piece at all, or didn’t pay any attention to its main thesis. Politicians can’t just formulate theoretical solutions to problems from an armchair.
The alternative would have been to inject public capital (socialize risks and costs!) while also haircutting creditors, writing-off equityholders, firing management, and aggressively investigating past behavior.
You might get two-thirds of the Democratic caucus behind this (the rest are blue dogs or the Senate equivalent). You’ll get the first Republican vote for this agenda the week after pigs fly. A plan that is DOA in Congress doesn’t go into effect and therefore doesn’t solve any economic problem. Calling it “an alternative” is therefore a stretch; calling it “the alternative” is silly.
October 10th, 2011 at 8:09 am PDT
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[…] interfluidity » The lump of unfairness fallacy […]
October 10th, 2011 at 9:32 am PDT
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VJK:
AIG, Bear Stearns, Lehman – huge institutions – either bankrupted or mostly state owned.
GM/Chrysler -sent through bankruptcy – shareholders wiped out.
Citadel- I meant to write Cerberus – the extremely connected owner of Chrysler that was zeroed out.
So that’s before any stock holders losses – all creditors bailed out 100% – just like the hapless Irish did. The nation’s largest bank was recapitalized without any state involvement see here. And the state got shares and forced shareholder dilution in other banks – just as the US did with TARP funds. I love how Nordea bank is always cited as an example – as if it had not been mostly state owned BEFORE the crisis.
The mythologizing of the Swedish bailout here for anoher look seems to me to owe more to some idea that Sweden must be more enlightened than to any actual comparison.
What I find utterly remarkable is that the bravest and most important financial action of the Obama administration, its rescue of the nations manufacturing core at the expense of hedge funds and other creditors, and its concurrent saving of the nations largest industrial union is denigrated and ignored by both the GOP and “liberal critics”.
October 10th, 2011 at 9:40 am PDT
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Why do real incomes continue to fall? International labor arbitrage! Semi-skilled laborers compete in a world market. Excepting tariffs and taxes, one price rules in the market. American wages will fall. Tough. Which country is the current semi-skilled labor price setter? It looks like Vietnam to me. No amount of money printing will change this.
What was the cost of the bailouts? Has anyone considered the value to the banks of interest rate suppression? Assuming Citigroup has say $1 trillion in debt, a 5%, my estimate, Zimbabwe Ben induced interest rate suppression is a $50 billion a year benefit to Citigroup alone!
Trust no government number.
Steve, I love you but disagree. The TBTF banks should have been permitted to fail.
October 10th, 2011 at 10:00 am PDT
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“The administration could have chosen to fight for policies … They might not have succeeded, but even so, as Mike Koncazal puts it, they would have lost well. ”
In Obama’s own words re: Reagan, he could have “changed the trajectory.” Changed the terms of the conversation. Moved the “center” back to the left.
With the Pubs constantly playing to the wacky base and Dems constantly playing to the sensible center, the center steadily moves right.
cf. The famous Suskind quote: it’s true. They *are* changing [perceived] reality — have been for thirty years. The Dems aren’t.
My disappointment — and I think the fundamental disappointment of most progressives/liberals — is that Obama hasn’t changed, and certainly hasn’t reversed, that dynamic.
October 10th, 2011 at 10:09 am PDT
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[…] Steve Randy Waldman has an excellent response to Ezra Klein’s piece on how we might have responded differently to the financial crisis: Once you understand that the problem is a fairness issue rather than a dollars-and-cents issue, the policy space grows wider. Holding constant the level of expenditure, one can make bail-outs more or less fair by the degree to which you demand sacrifice from the people you are bailing out. TARP was deeply stupid not because it meant socializing risks and costs created by bankers. TARP was terrible public policy because it socialized risks and costs while demanding almost no sacrifice at all from the people most responsible for those risks. The alternative to TARP was never “let the banks fail, and see how the bankruptcy system deals with it.” The alternative would have been to inject public capital (socialize risks and costs!) while also haircutting creditors, writing-off equityholders, firing management, and aggressively investigating past behavior. It was not the money that made TARP unpopular. It was the unfairness. And the unfairness was not at all necessary to resolve the financial problem… […]
October 10th, 2011 at 10:10 am PDT
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Andy Harless @ http://www.interfluidity.com/v2/2296.html#comment-18938
“the love of fairness is close to being the root of all evil”
This Orwellianism is ucannily remniscent of a widespread mantra from the Civil War South:
“Slavery is Freedom”
October 10th, 2011 at 10:20 am PDT
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Steve Roth – even if “left-right” still made any sense, your argument is just a recitation of popular wisdom in a certain group. I’m always mystified by the value what remains of the left places on losing honorably or “right” or “with principles”. Those millions of people who have jobs in the auto industry because of the Obama administrations auto rescue or who have health insurance because of their health reform etc. are apparently a small price to pay for middle class progressives who value some wacky “principle”.
October 10th, 2011 at 11:36 am PDT
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Regardless of its intrinsic merit vis a vis tarpI
Ie
Wright defending tarp circa fall 08
hardly exculpates tarp II circa spring ’09
And talk about the social cost of the great bail outs
Seems to focus on narrow loses to uncle on directurchases not the global contraction and subsequent stagnation
That has literally strangled the planetary market system
Anything short of prison time for the perps of these outcomes
Strikes me as a particularly horrid installment
of
andy’ H’s tuxedo travesty
Rajiv has the key
We have the power thru u cle to counter any wall street implosion
The commanding heights can be on Penn ave not wall street
But keeping this fact from the majority of Americans
Is the greatest intellectual achievement of the last 4 generations of poli econs
In fact I think kelecki made that point long ago
The public must never learn
To mount a full and fast recovery
We don’t need wall street
And what’s more we don’t need the confidence of corporate amerika
October 10th, 2011 at 12:03 pm PDT
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The biggest farce is the credit system only school of macronautics
Which in essence suggests only corporate confidence fed by a thriving private banking system
Has legitimacy
The last 35 years fiscal policy has been at a road block manned by Second rate
Ivy league math nerds and wall street mobsters
And to think that consummate. Pre Zoomer generation mediocrity sergeant auto vector himself
Is awarded a bankers Nobel even as his whole rat ex monadology of an enterprise stinks up the profession
as it rots away amidst its indeed global refutation
October 10th, 2011 at 12:09 pm PDT
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My god poor pkis trying to claim
The prize was for his contribution to econometric water boarding
Not a glancing affirmation of his sour ilks
Thre deacde long anti Keynes festival
October 10th, 2011 at 12:12 pm PDT
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Thank you for giving voice to the “unfairness” problem. Although I am a liberal, I have been disturbed by the lefty bloggers agitation for mortgage debt relief. As a renter, I am appalled by the actions of all involved… real estate agents, devlopers, mortgage brokers, lenders, appraisers, securitizers, ratings agencies, regulators… the list is endless. It’s hard to stomach helping any of them.
October 10th, 2011 at 12:23 pm PDT
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[…] Steve Randy Waldman is critical of Ezra Klein’s overview of the Obama’s administration’s successes and failures in its response to the financial crisis. Waldman labels the piece “far too sympathetic,” but it’s tough to figure out his preferred alternative when he writes things like this: Klein shrugs off the error as though it were inevitable, predestined. It was not. The administration screwed up, and they screwed up in a deeply toxic way. They defined “politically possible” to mean acceptable to powerful incumbents, and then restricted their policy advocacy to the realm of that possible. […]
October 10th, 2011 at 2:38 pm PDT
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Because lowering interest rates wouldn’t have accomplished anything. In fact, interest rates were lowered dramatically and repeatedly, and the Fed bought up all the bad debt that banks wanted to get rid of. That was the real scandal.
This is a great blog, but posts like the above cause me to lose interest in the ensuing discussion…
October 10th, 2011 at 9:32 pm PDT
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@Detroit Dan, before you lose interest, please take a look at this graph of real interest rates in 2008 from Sumner’s blog.
http://www.themoneyillusion.com/?p=11310
Also, lowering rates is not the only tool in the toolbox.
October 10th, 2011 at 10:13 pm PDT
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[…] The lump of unfairness fallacy Steve Waldman. This is, as usual very good, and the usually indefatigably polite Waldman shows some annoyance. He’s completely justified in the face of a Kleining. […]
October 11th, 2011 at 4:14 am PDT
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[…] The lump of unfairness fallacy Steve Waldman. This is, as usual very good, and the usually indefatigably polite Waldman shows some annoyance. He’s completely justified in the face of a Kleining. […]
October 11th, 2011 at 4:14 am PDT
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It seems there has been plenty of disagreement on the details of this post, but to me the fundamental point–that what happened was unfair and unjust, and that this is what people are protesting against, however incoherently–is spot on. What happened was wrong, and someone ought to be punished–presumably the people who caused the problem. Some may look on this as vengeance, but I think it’s more a matter to encourager les autres.
Most people need to believe the system is fair for it to work. Right now they don’t. Obama missed his chance to make them believe. The rest is detail.
October 11th, 2011 at 7:37 am PDT
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As always, a critical and insightful piece.
“A large part of why the financial crisis has been so corrosive is that people understand that major financial institutions violated these norms and got away with it, which leaves all of us uncertain about what our own standards of behavior should be and what we can reasonably expect from others.”
I know now that I am beginning to see our government as deeply corrupt. I thought in the past it was naive, stupid, or shortsighted…but now, it is doing what is wrong, and it knows that it is wrong.
October 11th, 2011 at 7:54 am PDT
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Excellent piece Steve. Get Bill Black to weigh in on TW’s opening claim that what you propose could not have been accomplished and had no legal basis. It is, for the most part, utter bs, and Bill Black at UMKC can site you the chapter and verse on this if you want to take it any further. Keep up the brilliant work – this one really cuts the heart of the matter, though not without stirring up controversy, which needs to be done. This stuff needs to be thrashed out or we will remain stuck in the current quagmire doing our version of Japan’s lost decade(s).
October 11th, 2011 at 8:59 am PDT
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Precisely.
October 11th, 2011 at 9:29 am PDT
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Obama’s biggest political failure was his failure to demand anything from the banks when he bailed them out. Even if you didn’t vote for the guy, its embarrassing to watch our President being taken to the cleaners. If nothing else, it encouraged the Republicans in their policy of standing firm, even in the face of Obama’s relentless pre-concessions, because they knew he would always cave again (the debt ceiling train wreck most pathetically of all).
If the President had simply required what Jessie Jones always demanded (and sometimes accepted) before any RFC bailout– the signed resignations of the top 3 bank officers, he’d have been taken a lot more seriously in Wall Street and DC.
October 11th, 2011 at 11:40 am PDT
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Phillip Crawford,
I hate it when monetarists say we could stimulate lending. Of course, we could. What I don’t understand is this: Why would anyone want to economically enforce putting a middle man to take a cut of nearly every large transaction in the economy?
Banks aren’t sacred decision makers who should be allowed near absolute control over who gets money during crisis times. Yet, this is what some people propose.
Self-funded expansion can exist. FYI: Self-funded expansion does not require lending or equity infusions.
Back to the post – banks are special creatures and letting them fail has huge consequences. So does propping them up as we are seeing every damn day.
We need to recognize that we did lots of things that didn’t have laws in place until the crisis hit.
I find the argument “We didn’t have laws in place to unwind big banks properly” to be very weak. At some point, laws are just what we decide to do as a nation, not actual restrictions. We’ve seen this over and over in the past, and the future will have countless examples too.
We can’t make laws for every possibility, nor should we.
Then, as JKH points out, letting banks fail have huge consequences that aren’t clear before the failure, and the process of cleaning up after is really messy.
But I am quite sure that these decisions and actions do not need to be taken all at one time.
What we are doing right now is watching our banks fail over years and years instead of days or weeks. As Soros says “People don’t realize the systems has already collapsed.”
Dealing with the fallout of collapsed banks can be taken rather slowly. The problem with this approach is that lots of people delude themselves these banks haven’t collapsed – and that all is fine, all we need to do is increase monetary policy and all will be fine.
Steve is pointing out is the current situation is extremely unfair to everyone but the lenders.
The fallout from the current situation is this: Every person in the U.S. is 10% less wealthy so we can maintain the facade our banks are solvent.
Then even better WE CAN MAKE A DECISION TODAY ON HOW TO ALLOCATE THIS UNFAIRNESS that would result in improved outcomes for 95% of the people in the United States.
This is a problem more akin to the aftermath of a war than a few loans going bad. There is massive amounts of collateral damage in war – and what do you do with this unfair allocation of collateral damage? There are no easy to enforce laws, or clear cut procedures that take a few days to do after a war.
Regarding TARP unfairness: It’s way worse than you think. It wasn’t even fair in the banking community. Let me assure you that not all banks were treated equally in the TARP process. A large bank holding company here in Oak Park, Il was essentially stolen during the worst days of the crisis by U.S. bank. It was promised TARP funds – and then 24 hours before it was supposed to receive funds, it was seized by the feds and sold to U.S. Bank.
Who’s in control of U.S. Bank? Former Goldman guys who worked under Hank Paulson. The amount of unfairness we see in TARP from the 10,000 foot view isn’t even close to how bad this program was out on the street.
I personally am a huge fan of the bite the bullet, let the banks fail in a controlled manner faster than today, give money to people without a middleman in place, bailout borrowers so both borrowers and lenders are closer to being made whole, and clean up the vomit afterwards.
It’s unfair as all hell, but letting the current situation continue is so egregiously unfair it’s destroying our economy. We have millions of people sitting around because we can’t force people who made criminal decisions on how to structure lending into facing their losses, and these same criminals are against fiscal programs that would improve our economy.
October 11th, 2011 at 11:59 am PDT
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There needs to be a prototype model for big bank failure – one that allows a big bank to fail decisively and comprehensively, but safely. I’ve not seen anything approaching that yet in published version. A lot of what must be done is to ensure safer bank capital structures – including debt that is convertible into equity capital at the bank’s option under specified failure triggers. I think Steve has written something about making capital structures less brittle. Part of it is what is to be done with management when banks fail. That’s not a problem with a slam dunk prototype solution that I can see. And then a good part of it is strategic pre-emption in the design of banking system architecture. Surely the dangers of commercial and investment banking fusion are obvious by now.
It seems to me the lack of such a prototype is the catalyst for the appearance of slow death in the environment we have today.
I’m a huge believer in the importance of equity capital and contingent equity capital. At the end of the day, this problem can’t be solved unless losses can be taken swiftly and absorbed comprehensively by the bank itself – either with or absent an event of defined “failure”.
There is also a general lack of appreciation for the fact that a proper specification of required equity capital must by logic and analytic construction include proper specification of the risk associated with all manner of permissible banking activities – and on that basis it is possible to drive out counterproductive activities (e.g. speculative trading) according to wise attribution of fat capital requirements for such risky and relatively useless endeavors.
October 11th, 2011 at 12:56 pm PDT
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To TM (Potser #1)..you need you ass kicked hard.
-rufus
October 11th, 2011 at 2:37 pm PDT
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[…] The lump of unfairness fallacy Steve Waldman. This is, as usual very good, and the usually indefatigably polite Waldman shows some annoyance. He’s completely justified in the face of a Kleining. […]
October 11th, 2011 at 5:22 pm PDT
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[…] continuing decline in real median incomes, the injustice of the bailouts, and the outperformance of companies that are politically-connected might explain why so many […]
October 11th, 2011 at 6:39 pm PDT
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“The fallout from the current situation is this: Every person in the U.S. is 10% less wealthy so we can maintain the facade our banks are solvent.”
-TC
Excellent! Best one-liner that I’ve read all week…
October 11th, 2011 at 8:50 pm PDT
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[…] Waldman highlights the role of fairness in economic […]
October 12th, 2011 at 3:09 pm PDT
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Conservatives who believe in meritocracy fail to find any merit in an oligarchy that enriched itself at the expense of the public, which finds its livelihood threatened and destroyed. The sense of profound unfairness is responsible for widespread animosity toward bankers, and not hatred of the rich or some Marxian scheme to redistribute income from the rich to the middle class–to say nothing of the poor. It is an awareness that the oligarchy is consistently winning asymmetric zero-sum games against the public–whether losses are socialized or managers and investors take a bath while their institutions are permitted to survive.
October 12th, 2011 at 3:57 pm PDT
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Easy way out is to give a one-time tax “credit” to all taxpayers, to the tune of $10,000 or so. That will be enough to help underwater homeowners, students struggling with loans, and yet still be fair enough to not offend the sensibilities of the virtuous who never indulged in reckless borrowing.
October 12th, 2011 at 9:15 pm PDT
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[…] onto the List of Suitable Topics for Discussion. Steve Randy Waldman, in an interesting post, about fairness and mortgage debt relief argues that debt relief violates notions of fairness (boldface mine): [Tea Party inspiration Rick] […]
October 13th, 2011 at 12:00 pm PDT
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As almost all your posts are Mr. Waldman, this is a true gem. And it seems to a certain degree you’ve been reading my thoughts telepathically, although your own thoughts and way of expressing them are on a higher plain than mine.
I am a Democrat, and a fiercely loyal Democrat. I don’t usually call myself a “liberal” as I feel this is a label Republicans forced as a blanket judgement, and pretty much equates to the term “degenerate”. And Republicans have worked very hard to make the terms “liberal” and “degenerate” equate to each other, and liberals have been as easy to accept the term gladly like some prostitute laying down for her 500th trick. I refuse to accept that label. I am a DEMOCRAT.
But I tell you, as a “lefty” or as I prefer, a DEMOCRAT, ninnies like Ezra Klein who say “Well the economy was just too bad to force the big banks to ‘cramdown’ mortgages” or “the economy was too bad to force banks into FDIC receivership”….. ninnies like Melissa Harris Lacewell who laughingly in essence say “Well if you voted for Obama the first time, and now you’re not voting for him, you need to get in touch with your inner racist”….. do these TWO ninnies (Klein and Lacewell) really think anyone in either party can take them seriously??? THEY MAKE TOTAL FOOLS OF THEMSELVES. I don’t know what party they belong to. But as a Democrat I don’t claim them in mine. Even Obama MUST cackle at these two idiots privately.
October 13th, 2011 at 10:06 pm PDT
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TARP was far better than the massive guarantee programs and FED asset buying because it extracted equity options and high yield preferred stock from the banks it supported. Granted it should have gone further. I don’t see why the government’s offer should have been better than Warren Buffett’s. I’d have preferred a program where additional options were granted that were exercisable in say 3 years for an undilutable half interest in any firm that didn’t repay their bailout money by then.
October 13th, 2011 at 10:08 pm PDT
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I also want to add, and Waldman can delete this comment, and 101+ commenters can scold me and tell me what a “horrid person” I am. But I tell you this as a FACT. A FACT which whether people choose to believe or not, is not my problem. Very light-skinned blacks (mixed, mulatto, choose your term) who make careerism out of their racial make-up (read MHL) make me sick, and I think it’s pathetic.
When a largely obese, unattractive, dark skinned black hosts the Rachel Maddow Show—give me a phone call.
October 13th, 2011 at 10:25 pm PDT
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vjk@21, I believe krugman gets one correct.
http://krugman.blogs.nytimes.com/2011/03/29/two-faced-sweden/
Strange to say, there’s no mention of the swing in Sweden’s trade, which was equivalent to a 6 percent of GDP stimulus:
Title of the chart right below that:
The secret of their success
October 13th, 2011 at 10:32 pm PDT
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JKH@55 said: “There needs to be a prototype model for big bank failure – one that allows a big bank to fail decisively and comprehensively, but safely.”
If there is no debt in an economy, then is there no need to worry about big or small bank failures?
Which leads me to …
The way the system is set up now and if there are no banks and no bank-like entities, then how would the amount of medium of exchange in circulation go up?
October 13th, 2011 at 10:41 pm PDT
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If you do not like fairness so much … Well, you are unfair. What to expect from an unfair person? Not that we all expect fairness from life. Life itself is unfair. But, isn’t it fair to strive to achieve fairness? Otherwise, why would any capable person try to do better if she could have gotten by while just being unfair? TARP is unfair because in any “Troubled Asset Relief Program”, trying to bring relief to mediocrity (troubled) instead of letting wash out naturally. And … in so wrong doing, robbing those who are not in trouble (because they did not buy what they cannot afford) to give relief to thieves is not only unfair but much worst, criminal.
Anyone who does critic harshly Steve for bring up fairness is unfair. Well, “to purchase assets and equity from financial institutions to strengthen its financial sector …” is to purchase the bad apples with the fair and good money of half of the crowd, to strengthen the evil doers of the unfair half. This is not only unfair but plain … economically stupid!
October 14th, 2011 at 12:51 am PDT
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Rather, >> TARP is unfair because in any “Troubled Asset Relief Program”, trying to bring relief to mediocrity (troubled) instead of letting wash out naturally, and … in so wrong doing, robbing those who are not in trouble (because they did not buy what they cannot afford) to give relief to thieves is … not only unfair but much worst, criminal.<<
October 14th, 2011 at 1:00 am PDT
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[…] interfluidity » The lump of unfairness fallacy […]
October 15th, 2011 at 8:47 pm PDT
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[…] So there’s a charade of reform. But without transparency, rule of law, proper record-keeping, without a basic sense of fairness, bankers as well as borrowers accepting consequences of their actions, you can’t have a healthy democracy and capitalist system. […]
October 16th, 2011 at 7:38 pm PDT
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bailing out banks in the first place was the wrong thing to do… bacnks got used to the “free money” and that was the fall of the banking systemi
October 22nd, 2011 at 9:40 am PDT
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