Archive for the 'Government' Category

Capitalists Turn to Intervention and Socialists to Laissez Faire

Published
by
Doug
on March 31, 2008
in Banks, Credit, Economy, Federal Reserve, Government and Money
. 0 Comments

Ben Bittrolff of The Financial Ninja provides more excellent analysis and commentary on the current crises in the financial sectors.

First, Bittrolff argues that the Fed has done nearly all that it can do to prevent a total collapse of confidence in the financial systems and markets when he writes, “The Fed has almost run out of ammo. Much like George Soros on Black Wednesday, when he ‘broke the Bank of England,’ global capitalists are damn near close to breaking the Fed. 60% [of the $700 billion in Treasury securities on his balance sheet] has been committed and it doesn’t seem to be working. Another push and things could unravel quickly…”

Second, it seems inevitable that Citigroup will be breaking itself up over the coming years. Bittrolf sees Citirgoup’s separation of its credit card business from its banking business is the first step of the pending dismantling of Citigroup.

But, what struck me the most is this simple statement: “It is truly humorous that the Socialists across the pond are the one’s considering taking the ‘laissez faire’ approach while the CHAMPIONS of Capitalism over here are pounding the table for mass intervention.” I don’t think there could be a more telling signal of the immense troubles of the financial sector.

A Letter Regarding the Current Financial Crisis

Published
by
Doug
on March 8, 2008
in Banks, Economy, Federal Reserve, Government, Markets and Recession
. 1 Comment

Karl Denninger of Market Ticker has written an extremely cogent letter that describes the financial crisis facing this nation. He describes how we got to where we are, the immediate problems this nation faces, and the steps the government should take to correct or ameliorate the situation. Here are just a couple changes that Karl says the government must implement:

  • All securities and instruments traded and held for investment by regulated financial entities must have a CUSIP assigned and be traded on a public exchange or their value must be established by independent appraisal (in the case of a house or other real property.)
  • Margin requirements must be enforced against all market participants.
  • All off-balance sheet vehicles must be banned and existing ones immediately brought back onto the balance sheet of the firm involved and disclosed in full
  • We must either get rid of the NRSRO label for ratings agencies, allowing free and open competition, or we must hold those certified agencies to their ratings.

(There is more to this list than these four items; plus, Karl goes into much more detail, so please read the letter in full.)

This might be hard medicine to swallow, but I fear that Karl may be correct when he says that the consequences of not taking his outlined steps will be much worse than causing some institutions to fail immediately.

A Record Budget Proposed by a Republican President

Published
by
Doug
on February 4, 2008
in Government, Money, POTUS, Politics and United States
. 0 Comments

A Republican president today proposed a record-setting budget of $3.1 trillion:

WASHINGTON - President Bush sent the nation’s first-ever $3 trillion budget proposal to Congress on Monday, contending that the spending blueprint will fulfill his chief responsibility to keep America safe.
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The $3.1 trillion proposed budget projects sizable increases in national security but forces the rest of government to pinch pennies. It seeks $196 billion in savings over five years in the government’s giant health care programs — Medicare and Medicaid.

But even with those restraints, the budget projects the deficits will soar to near-record levels of $410 billion this year and $407 billion in 2009, driven higher in part by efforts to revive the sagging economy with a $145 billion stimulus package.

Granted, we have a war on terror to support, but still, a good Republican president would have left office with total government spending as a percentage of GDP nearly unchanged. Ryan Ellis of American Shareholders Association says that for a Republican president to grow the size of government, as an opening bid in his last year of office, is not a good harbinger of where we’ll end up.

If a Republican president thinks its fine to grow government, just think how much the two Dem frontrunners will grow government. Another worry of mine is that people are growing accustomed to the idea of government entitlements. People have no conception of what three trillion is like. The number is hard to put into any sort of meaningful context. This is a dangerous situation when we’re talking about your, mine, and our money because I feel it gives the false impression that money is no object. Tim over at The Mess Greenspan Made says, “[N]o one really has any concept of just how big a number that is and, therefore, no one really seems to know or care if it is too big, too small, or just right.”

The fact that people might not care whether $3.1 trillion is too big, small, or just right is a scary prospect.