Monday, September 22, 2008

Blame game for the financial crisis

David Blake at FT indicts Alan Greenspan's Federal Reserve for creating the housing bubble. While I would disagree with Blake's assertion that the Fed did not keep interest rates artificially low in the early 00's, his fundamental conclusion is sound. Greenspan's activist Fed, in a quest to manage the macro-economy (instead of just fighting inflation), helped create two massive asset bubbles (tech and housing) that subsequently deflated and hit the U.S. economy hard over the past 8 years.

Meanwhile, Kevin Hassert, a McCain economic advisor, blames the Democrats in a Bloomberg op-ed piece. He contends that Fannie and Freddie directly created the sub-prime mortgage market, which contained risks that remained hidden as long as home prices rose. But when prices fell, the systematic risk created by the securitization of this debt walloped the entire financial industry. Hassert blames Senate Democrats for holding up reform bills during 2005-2007, and calls out Obama for receiving $125,000 in campaign contributions from various Fannie and Freddie sources.

Putting aside the partisan blame (and I don't follow Congress enough to comment on the validity of Hassert's charge), these viewpoints seem like two sides of the same coin. We know from history that markets are susceptible to occasional asset bubbles; it can be difficult to establish prices for certain types of assets, especially in the face of new technologies or changing economic conditions. But this susceptibility didn't cause the crisis. Structural flaws in the housing market, created by Fannie and Freddie's efforts to separate the risk of sub-prime lending from the lenders themselves, were the underlying problem. And the Greenspan liquidity bubble fueled this dangerous habit, so much so that these dangerous securities, which were sold as "risk free," flooded the financial markets and created the systematic danger that has engulfed Wall Street in recent weeks.

Wall Street surely deserves some blame in this mess, but from where we now stand, it appears that Greenspan, Congress, Fannie, and Freddie are the culprits who distorted the market and added fuel to the fire.

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Thursday, September 18, 2008

What's really scary about this financial crisis...

What to say about the unfolding crisis on Wall Street? In the past two weeks, Lehman Brothers has gone bankrupt, and Morgan Stanley is looking for a buyer. But more earth-shaking is the fact that the feds have nationalized the mortgage market (Fannie and Freddie) and the nation's largest insurer (AIG). This quote from an article in Der Spiegel entitled "The World As We Know It Is Going Down" sadly says it all:
"I fear the government has passed the point of no return," financial historian Ron Chernow told the New York Times. "We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams."

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Monday, September 15, 2008

Google to move its data out to sea?

Google may move its data centers to offshore barges. While ostensibly this would be a cost-saving measure, it could also place the control of their service beyond the jurisdiction of any government. Readers of Cryptonomicon by Neal Stephenson -- or my book, for that matter -- will experience a sense of déjà vu.

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Thursday, September 11, 2008

Much of world blames U.S. government for 9/11

Today is the 7th anniversary of nearly 3,000 Americans being murdered by Islamofascists.

Reuters reports that a global poll found that majorities in only 9 of 17 countries believe that al Qaeda was behind the attacks. While one would expect this kind of reaction in the Middle East (where the antisemitic screed The Protocols of the Elders of Zion still sells briskly), the data out of Europe was depressing:
In Europe, al Qaeda was cited by 56 percent of Britons and Italians, 63 percent of French and 64 percent of Germans. The U.S. government was to blame, according to 23 percent of Germans and 15 percent of Italians.

Of the 17 nations in the survey, the "only countries with overwhelming majorities blaming al Qaeda were Kenya with 77 percent and Nigeria with 71 percent."


Monday, September 08, 2008

Penguin unveils new Greenspan epilogue as e-book

PW reports that Penguin is releasing a standalone e-book version of the epilogue to Alan Greenspan's The Age of Turbulence. The epilogue -- which features up-to-date commentary on current market turmoil -- also appeared in the paperback edition of the book, but for those who either own the hardcover or don't want to purchase the book, they can buy the downloadable version for $5.

(Shameless plug: Readers of my book, The PayPal Wars, will recall that it dresses down Greenspan for his own roll in creating a previous financial crisis. It's available in both paperback and Kindle e-book editions.)