Mo’ Money, Mo’ Problems

This presentation attempts to explain what is happening in the economy and evaluates the potential policy and personal responses to economic conditions.

The presentation was impromptu, so the slides were made afterwards upon request. Hopefully, they are clear without commentary, but questions and comments are appreciated.

Click to download -> Bar Camp Presentation

UPDATE: Careful reading by my friend James Shannahan caught a very big mistake in the original slides. I said the economy contracted in real terms because I subtracted the inflation rate from the rate of GDP growth. Turns out that the GDP statistic I was using was inflation-adjusted. However, there is some controversy about how the inflation number is calculated, and some contend it is intentionally manipulated by the government for its own benefit. You can read the argument at Shadow Stats and see an another alternative inflation calculation metric at the MIT Billion Prices Project.

(Please comment below instead of on social media sites, so that readers coming from different sources can participate in one discussion.)

Images courtesy of americanprogressjoanna8555darkuncletalkradionews, The Big Pictureestebando, BusinessInsider,  matthewpaulsontcd123lumaxartfhkejoeltelling, and lynac.

  • http://www.facebook.com/jimmy.egan Jimmy Egan

    first of all, please forgive all my shit editing and poor grammar. second, the following views expressed are those of some author somewhere and are made independently of the person assigned to this email address.

    I disagree with your position that cutting spending would hurt the economy. I would try to explain but I’m a little drunk and not that smart so Wikipedia will be easier http://en.wikipedia.org/wiki/Parable_of_the_broken_window The main idea is essentially you force money to be spent in places the economy would not spend it and it is thus spent drastically more inefficiently than if it were reallocated back to the citizens and they decided how it should be spent (ie. bridge to nowhere vs. tax refunds). Also I disagree with many basic tenets of Keynesianism before you even respond to this paragraph. Keynes is infinitely more intelligent than myself, but I don’t think that jump starting an economy is similar to ‘priming a pump.’

    I agree that raising taxes is near politically infeasible. My personal position is a flat tax on some transaction (it could be sales/consumption or income, doesn’t really matter). I like the idea of a $10 per gallon tax on gas but that will never happen. I also think that raising taxes has a similar effect to crowding out private spending/investment mentioned in the paragraph above. These are really two sides of the same coin. This is the taking piece rather than the reallocating piece.

    I don’t think default would have repercussions similar to a post-apocalyptic movie. History is full of examples of world powers/large economies defaulting several times before failing. http://en.wikipedia.org/wiki/Spanish_Empire#The_Spanish_Habsburgs_and_the_Golden_Age_.281516.E2.80.931643.29 The most recent is probably Argentina. While default would be very fucking shitty, it would not be as if we just stop paying off everybody all at once. We would just fuck a few people here and there. This would be shite, and it may fuck our currency, but life would go on. Our currency would probably be valued similar to an eastern euro or a south american country, but we are the f’ng USA so it would probably take multiple defaults over several years to get to that point.

    hahahaha, the statement ‘those lines definitely prove something’ is fucking classic. I’m going to assume this line is a joke and move on. I do agree that inflation is probably the most likely scenario given the stalemate in our political system and the ignorance of our citizens to realize that it is happening.

    But inflation is not as linear as you make it out to be. It is not simply a measure of the quantity of dollars compared to quantity of goods. There is a huge psychological/time component to money. You have to measure your current money hoard pot and potential goods it could buy now against your future money hoards and potential goods it could buy in the future. If you think that you will not have a job in the future, the value of your current money is worth significantly more than the value of a big screen tv NOW. I believe, for this reason and reasons similar (and some not so similar), we have not seen inflation. Although, yes, hyperinflation would suck, I don’t think we are going to see that given the overall shittiness of our economy.

    Lastly, small biznastys rule. more power to you. economic goodwill is the only way to combat inflation.http://www.intelligentinvestorclub.com/accounting/economic-and-accounting-goodwill

    and lastly, to reference buffet one last time “I could end the deficit in 5 minutes. You just pass a law that says anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.”

  • http://twitter.com/NouveauSouth Ryan Michael Murphy (@NouveauSouth)

    Cutting spending would change the allocation of capital, and this would certainly create discomfort in the short term. And we know how much the political process responds to discomfort.

    I’m not willing to concede that the private sector is necessarily better at allocating capital than government on the basis of bridges nowhere alone. The private sector misallocated capital into the housing market, tech stocks, leveraged mutual funds, railroad stocks, tulip bulbs, and every other fad you can think of. Its people who are bad at capital allocation. If that’s the case, then it shouldn’t really matter who decides whether to repair the broken window or not. In these exceptional circumstances, I think the government is in a better position to assess the opportunity costs of alternative capital allocations. I don’t think this is true generally, nor do it think that they will even consider alternative capital allocations rather than throwing massive amounts of resources at perpetuating the status quo, but I do think if they are in the best position to determine and implement a wholesale fix.

    I think this is the better argument for why deficit spending by the government is worthless. http://en.wikipedia.org/wiki/Ricardian_equivalence

    There will be lots of tax policy shortly. I think that will reveal more of my personal economic views. This was more geared towards reading the tea leaves and trying to prepare for the future. I’ll also address some Greece default scenarios on a superficial level. I don’t think our current situation is analogous to Argentina or Spain.

  • John Headley

    Responding to Sean Mullan from Murphy’s Facebook wall:

    I’m not sure it’s fair to call what I brought up a bromide. I was pretty concrete about the reason I thought was at the heart of it which had to do with the moral hazards inherent in the power to tax. I don’t know why it would be particularly objectionable to you to concede that an institution with the ability extract wealth from external sources by mere decree might have a problem every now and then with being entirely concerned about pinching every last penny. Of course, you can sit there and tell me that other factors (say, democratic checks on government spending priorities) mitigate the degree to which this problem manifests itself, but it seems somewhat disingenuous to just act as though I was merely aping dogmas in raising that as an issue to be aware of.

    You’re right that there is currently a degree of hoarding, and I would submit it’s related to some of the incentives problems I brought up later in my comment. There’s also the subject of the increasing government regulation of the private sector that imposes permit fees, additional hiring costs, etc. I think one statistic I read claimed that while in 1950 5% of people needed government permission to do their job, it’s up to around 33% now. That’s not insignificant to consider. When the economy had been booming on an increasing and unsustainable mound of debt, you could ignore this kind of stuff, but once you have to confront the reality of how the economy’s productive base has eroded and what’s required to build it back up, you have to be much more sensitive to the kinds of piece meal costs that make the process less efficient. (This is why I think your argument about few factors being new is bogus. The gigantic, pink-elephant-in-the-living-room new factor is that we had a serious financial reckoning day when we entered the recession.) One of the problems with your demand-side argument is that if the pool of expected consumer dollars lowers to a certain level, that tends to incentivize investment in cheaper goods and services or goods and services that have a longer time horizon for pay-off. I’m from a historically poor area of Appalachia. The fact that people don’t have a lot of money to spend doesn’t mean there just aren’t businesses here. They just happen to be dollar stores, used clothing stores, etc. to a much greater proportion than you’ll ever find in places like Manhattan. The problem for many businesses that a lot of people on the left seem to have a problem taking seriously is actually that there is a lot of uncertainty for investors that is politically driven. If it was only a matter of adjusting to a lower level of effective aggregate demand, that wouldn’t be a major long-run issue.

    There are entire websites dedicated to the subject of government waste that list so much inane pork that it’s silly to try to name everything here. For example, about $3 million in government money was directed to a university so that students could perform research on the game “World of Warcraft” because doing so had some nebulously argued relationship to understanding the global economy. That’s just one circumstance. And I would actually agree that some of the defense budget is contributing to this type of piecemeal waste, by the way. I actually think that the fact that Social Security isn’t a means tested system is probably also wasteful. Implicit in these budgets as well is the administrative overhead associated with the transfer payments system itself. You don’t get a free lunch when it comes to the costs of taxing Peter to pay Paul. But the parts of the budget that aren’t defense, Social Security, or Medicare/Medicaid (and I don’t think you even actually included Medicaid) make up around 40% of the Federal budget. That also doesn’t even account for the entirety of government spending because it doesn’t include state or local government spending. So I really don’t know what you mean by suggesting that the government’s waste is “primarily” in the programs you explicitly brought up.

    Since you didn’t really go into detail about what you think needs to be done in terms of exchange rate and trade policy, I don’t have much to respond to on that front, but if you’d care to say more, it might be interesting.

  • jimmy

    Cutting spending – true, I guess I just always think long-term.

    Bridges to Nowhere is an extreme example, but so are Bubbles, so we are both guilty of extremism. However, I think bubbles are a natural part of a healthy system and so are recessions/depressions. I think of the business cycle like waves and we shouldn’t interfere with them. We can only position ourselves to take advantage of the waves like surfers, we cannot build financial machines that create a single never ending tide, this just fucks everyone trying to surf.

    Additionally, I think if the government runs the investing, you eliminate the incentive for people to profit from their ideas. I think the question is what inventions/new products has a government ever produced? I agree that the gubs are in the best position to implement a wholesale fix, but I think we probably disagree on what the fix should be.

    Ricardian equivalence is a nice theory, but I don’t think it exists in the real world. I think most people are too stupid to take current government spending/future higher taxes into consideration as part of their personal future expenses/savings rate.

    Lastly, i like your blog.

    Also, I am coming down to Nola in the next couple of months. i’ll hit you up.

  • Sean Mullan

    “I was pretty concrete about the reason I thought was at the heart of it which had to do with the moral hazards inherent in the power to tax.”

    The opposition to taxes is a Republican bromide. The government somehow expropriates wealth. I see this argument as based upon the presumption that markets are the fundamental basis of society; that the commodification of land, labor, and other products is natural; that problems of collective action do not arise; that rational expectations ensure the stability of market systems; and that markets ensure the efficient allocation of funds.

    I suppose none of these positions. The furtherest I am willing to move “to the right” is Ordoliberalism, also known as the Frankfurt School. Markets are artificial constructions and do not naturally arise in all aspects of life; people are not rational; markets are not necessarily efficient when left unregulated; collective action problems do not solve themselves. http://en.wikipedia.org/wiki/Ordoliberalism

    Taxes ensure the provision of education, infrastructure, R&D development, and a variety of other “public goods” that are essential to the economy and might not otherwise be provided, or made available to all, in a laissez faire market system.

    “I don’t know why it would be particularly objectionable to you to concede that an institution with the ability extract wealth from external sources by mere decree might have a problem every now and then with being entirely concerned about pinching every last penny.”

    One could make the same statement about private entities, be they organizations or corporations. They can control commodities or goods and extract “wealth” from those who need to access them. The state is supposed to be the representation of society and therefore ensure the provision of a certain public goods. It is also to ensure, along the lines of the Ordoliberals, that the market functions to their full potential, which is impossible when they are left to their own devices.

    “Of course, you can sit there and tell me that other factors (say, democratic checks on government spending priorities) mitigate the degree to which this problem manifests itself”

    I am honestly flummoxed as to how democratic checks in a *representative* system ensure the proper allocation of funds. Look at the system that has developed in this country, whereby politicians lie about the funds necessary to provide the services promised, or small interest groups are able to manipulate support for narrow agendas. If by democratic checks you imply a more direct-democratic system, i.e., the Swiss, then this is true. It does hold spending and taxes in check as individual interest groups are forced to ally and seek consensus in order to “win” services.

    “There’s also the subject of the increasing government regulation of the private sector that imposes permit fees, additional hiring costs, etc. I think one statistic I read claimed that while in 1950 5% of people needed government permission to do their job, it’s up to around 33% now.”

    Government permission in what way? Accreditation? Permitting? Pollution? Do you object to the regulation of externalities, i.e., problems that private activities create for non-participants? Are you referring to payroll taxes? I certainly dislike payroll taxes – I prefer the general taxation of income and consumption along the lines of Scandinavia. There are plenty of philosophical arguments in favor of payroll taxes, however. I would like some more specificity before I comment. I really find it difficult to believe that Obama has added new regulation beyond health care, especially as I have seen no specifics listed by conservatives who rant about his “anti-business” agenda. And regardless of Obamacare, health care was and still remains a problem that has had a band-aide placed upon it.

    “If it was only a matter of adjusting to a lower level of effective aggregate demand, that wouldn’t be a major long-run issue.”

    How on earth is lower per capita demand not a “major long-run issue” that requires adjustment?! That means that fewer services will be used, fewer products purchased, and therefore fewer people employed! Unless services or goods can be exported, the economy as a whole is smaller! The market would reach “equilibrium” at a level below what the country could handle at full employment.

    “There are entire websites dedicated to the subject of government waste that list so much inane pork that it’s silly to try to name everything here.”

    That’s great, but the aggregate amount of waste is rather miniscule as a percentage of overall government expenditure, particularly when one considers the small amount of federal outlays allocated to discretionary spending.

    “I actually think that the fact that Social Security isn’t a means tested system is probably also wasteful.”

    Social Security is, to some extent, means tested. It resembles the continental European insurance-based system far more than the egalitarian Nordic one that the right appears to assume exists. The amount you contribute to the system helps determine the amount you receive upon entry, i.e., when you become eligible for benefits. The same applies to people who enter earlier or later – their benefit level is adjusted. In addition, means-testing the system would ultimately lead to its repeal. As public goods become means tested, those excluded tend to resent having to contribute to a system that they see as foreign and benefiting those unlike them. It is the first step in the ultimate abolition of the system.

    “But the parts of the budget that aren’t defense, Social Security, or Medicare/Medicaid (and I don’t think you even actually included Medicaid) make up around 40% of the Federal budget.”

    And these “entitlements” are funded via payroll taxes that supposedly collect and allocate funding directly, bypassing the general revenue stream. They are presently in surplus.

    “So I really don’t know what you mean by suggesting that the government’s waste is “primarily” in the programs you explicitly brought up.”

    I was referring to the fact that areas of government where you cite waste are relatively small. One could also look into the amount of “overhead” expenditure of private sector companies which provide the same services. What about waste among private health insurers?

    Good video, I presume, because I like the author and loved the book: http://www.youtube.com/watch?v=lRKPuhH4TZg

  • John Headley

    In the first part of what you say, it seems like you’re assuming I’m making a metaphysical contention about public vs. private sector “primacy” that just wasn’t there in what I wrote. The issue was totally about the inherent moral hazards being able to simple take money from other sources by your own decree. It would help communicate a lot if you refrained from assuming you had some kind of deeper insight into what I’m supposedly really saying that goes beyond what I’ve actually written about. I’m familiar with ordoliberalism. I don’t necessarily think there’s anything special about the state that per se gives it a unique vantage point for resolving market failures, and government failures can also be systemic problems. However, I’ve said in a prior comment on the facebook wall that I’m not in principle opposed to government allocation of resources or intervention in market processes. Governments can have problems, markets can have problems, and my position is nothing substitutes for a good, hard-nosed empirical look at what’s actually going on in our social institutions of any sort.

    So it’s true that there are certain goods that are provided by the public sector. I don’t know why, just on the basis of the little you’ve written, that you think that private entities are incapable of providing any of these, but it sounds (and I totally admit I’m speculating here) like you’re making a merit goods argument or possibly an argument that rests upon the recognition of positive externalities. We simply don’t know the opportunity costs of what tax revenues could have been used for if they had been left in the private sector. Is it possible we wouldn’t have an interstate highway system? Sure. Is it also possible that companies might have decided air travel or rail was a better way to ship goods? Is it possible we would have better and faster planes or trains if we hadn’t dedicated as much of our time and efforts to building and maintaining the interstate highway system for the last half century? What was lost in local community development by making it easier to just zip down the interstate to a tourist destination or a mega mall? Would it be viable to put offices in places that some people have to make 2- or 3-hour commutes to get to? Or would they have had to structure investment in business infrastructure in a more convenient, geographically diffused manner? We just don’t know, but to insinuate that we would just be scratching our heads not knowing what to do with ourselves if the government hadn’t stepped in seems manifestly implausible.

    For merit goods, I don’t really know how you determine with any certainty which goods are underprovided, but it seems like you’d also have to have a good idea of which goods were significantly overprovided to get a clear picture of how you had to shift resources to provide the underprovided goods. Obviously, I don’t think you’d want to wind up underproviding some goods in the process of trying to cure the underprovision of other goods. If you have two guys that hit the lottery and one of them puts the cash in a college trust fund and the other blows it all on expensive luxury items and recreational goods, is it actually a matter of social justice that the first guy’s kid goes to college and the second guy’s kid doesn’t? Even just focusing on secondary school, would no one offer scholarships in the absence of state funding? Companies would just be okay illiterate and innumerate workers? Best selling authors, renown artists and famous actors wouldn’t be amenable to solicitations to set up any endowments to raise the next generation of cultured citizens? It really seems like you’ve got a lot to account for when you suggest that civil society would just sit around twiddling its thumbs without state intervention. Again, we use the state for certain allocative puposes, and there might in fact be switching costs that make moving its functions to the private sector impracticable, but to say there’s anything unique about the government that makes it necessary for certain goods to exist is unsupported.

    Positive externalities? Say a company wants to build a new golf course that would raise property values in a particular neighbor if built, but they can’t afford to build it on their budget. However, if everyone whose property would rise in value from building the course took out home equity loans in the amount that their property values were to be increased by, the project could get off the ground. Is it right to make them do so just because that would internalize the costs to the homeowners that benefitted from building the golf course? Lots of potential economy activities could have positive externalities, but it would be insane to try to internalize them all just to make something happen that might not have otherwise.

    The obvious disanalogy of the state’s extraction of wealth to that of ordinary private entities is that such private entities can’t simply pass a resolution that such-and-such person is going to just give them so much money if their bottom line winds up in the red.
    I was sort of throwing you a bone by suggesting democratic checks might be something that might mitigate the moral hazards in the power to tax, I made no effort to elaborate anything about the relative merits of representative or direct democratic decision making, or even whether I actually agreed that any such checks were ultimately effective. You just addressed something that was totally tangential to what I was attempting to communicate.

    Some of my sources about government permission are on websites I no longer have access to, but there was a Wall Street Journal story entitled “Why I’m not Hiring” that’s worth looking into. I’m going to gracefully excuse myself from this particular issue at the current time. 😉

    Lower per capita demand isn’t a long-run issue from the perspective of prospective investors for the reasons I mentioned (which you didn’t actually address in any way). Like I said, under those circumstances, you need cheaper goods and services or ones that have a longer time horizon for eventual pay-off. Just as many people can be employed in producing cheap goods as expensive ones, sometimes moreso. The point is just that lower demand isn’t of itself the reason why investors wouldn’t make capital outlays. And yes, the economy would be “smaller” for awhile under such circumstances because what happened previously was that people consumed more on the basis of utterly decimating their savings and it takes time to build a sustainable productive infrastructure back up after lighting the torch and watching the old one burn. It’s useless to lament the fact that people aren’t living as well as they were when they just spent like a drunken sailor and more financial manipulation wouldn’t fundamentally do anything to restore the real economy.

    I just want to confirm that in fact the 40% of the budget that was in discretionary spending outside of defense, social security and Medicare/Medicaid is what you consider to be “small.”

    I suppose the fact that food stamp eligibility is means tested should have led to its repeal a long time ago too, if your general theory in this matter is correct. In fact, it’s a wonder how any type of means-tested government aid ever got off the ground in the first place if that was true. This seems like a silly slippery slope argument.

    Private companies certainly have administrative costs. The question is whether the extra overlay of the administrative costs of government on top of that is justified in terms of any possible value added by government in making transfers. Is it the case that every time the government redistributes wealth it does so on the basis of a cool-headed analysis that wealth used in one particular area of the economy being taxed is utilized less efficiently when left there as opposed to the more efficient purpose for which it could be used if spent in a different area? Are the costs of setting up offices to do the paperwork and diligence to make sure the money gets taken from one area, channeled through other administrative offices and spent in another area less than the efficiency gains of making the transfer? Does it work in that kind of technocratic fashion? Or is it mostly just based on doling our spoils on the basis of political clout? Some private administrative costs are indeed higher, and usually those extra costs go into providing better services, but the general trend is to be as cost-saving as possible, which is a pressure that isn’t as strong when applied to government.

  • http://twitter.com/NouveauSouth Ryan Michael Murphy (@NouveauSouth)

    Thanks everyone for the quality of debate in these comments.

    Jimmy – Glad to hear you’re headed down this way. I don’t think bridges to nowhere and World of Warcraft studies are extreme at all. They are nothing in the big picture. Extreme examples of government misallocation are the fall of the Soviet Union, North Korea, Burma, Zimbabwe, etc.

    I agree on Ricardo. Any theory that assumes rationality is going to be deeply flawed. Equivalence theory is at least better directed to prove your point.

    I have a hard time accepting any categorical declaration against government participating in capital allocation. As for incentives, I think government has a profit motive of sorts as long as the political system rewards productive investment with continued right to rule. Our economic system is breaking down because our political system fails to effectively incentivize the investment in our collective future rather than maintain the status quo at steep cost.

    Since the beginning of WWII, our government sponsored the invention of nuclear power, microwaves, and THE INTERNET. Yes, government is responsible for the most important invention since electricity. Also, NASA invented velcro, and that saved me hundreds of hours of shoe-tying during my most important developmental stage which I devoted to high-level mathematics.

    Ultimately, I think any line of reasoning that starts from the point that the market is the only way or government is the only way are just cognitive shortcuts we take because they are easier ways of making sense of incredibly complex systems. They are impediments to actual understanding and solutions.

    The liquidity trap we’re currently in is a collective action problem, and government is better positioned than individuals to solve that problem. Individuals, all acting in their own self-interest, will not do the things necessary to promote economic growth. But the government solutions (as currently implemented) are bound to fail because they don’t take into account the individual incentives to not take on debt or pay down debt. Their “solutions” lack the necessary creativity and ability to resit the urge to hand out money to the politically influential.

    I think we do agree on the solution. I don’t want to see broken windows repaired on a crumbling house. I want to see the system cleared of bad debts. I don’t think we’ll see actual growth again until that happens because there is just too much debt. And I want some creative destruction for those who extended that credit, for motives related to justice as much as moral hazard and economics. It will suck in the short term, but I don’t want to go through the rest of my life watching a slow-motion car crash.

    John – I really like the point on moral hazard of taxation. I’ve also given some thought to the nature of regulation. I think in a lot of cases, the government barriers to entry in certain professions are granted to limit labor supply for the benefit of the profession as much as they are about public welfare. The lines between government and cartel are blurred. Either way, I agree that the regulatory system disincentivizes productive investment and needs overhaul. Maybe a pure tort system of deterrence and compensation is better economically, but the small non-utilitarian in me says compensation is probably cold-comfort for a number of harms. The double-sided system of regulation/barriers to entry (preventing harms) and criminal law/tort (deterring and compensating harms) does seem to be an excessive and creates needless friction in the economy, but I’m not sure what’s the solution.

    I think your counterfactual questions about what could be in a more market-oriented system are a great argument for federalism and decentralization. We really don’t know whether those accounts are true because we’ve tended towards on-size-fits-all policy for places with different circumstances and values. I find it very frustration to see Europe pushed toward greater integration when its clear that integration didn’t work and the people don’t want it. Banking is holding politics hostage with a gun to its own head and is creating a bigger pie to manipulate.

    Sean – I’m skeptical about the merits of direct democracy. California’s referendum system is direct democracy and has created an untenable political system. No one is ultimately responsible for each decision, and each decision is made without necessarily considering its implications on the whole. I’m becoming of the option that all democracies destroy themselves by the electorate demanding more while refusing to pay more. Maybe its a failure of civic education, but “civic education” may just be a euphemism for government social control. There is probably a necessary evil somewhere in the dilemma, and which one you chose depends on your worldview and values.

  • Ryan Michael Bleek

    Great stuff. For anyone interested in issues of “what’s really going on” I highly suggest “The Great Stagnation” by Tyler Cowen. It’s a short and very good, interesting read. Also, apropos of nothing, I also highly, highly recommend “Adapt” by Tim Harford. He does touch on government investment a bit.

    Finally, I’m deeply disappointed to see “Ryan Murphy” instead of “Ryan Michael Murphy.”

    • http://twitter.com/NouveauSouth Ryan Michael Murphy (@NouveauSouth)

      I linked The Great Stagnation in today’s post. I really enjoyed it, and its good to get an overview from someone who is processing so much information.

      I’ve always thought of RMM as my stage name, but this blog is public facing as well. I should change it.

  • http://twitter.com/NouveauSouth Ryan Michael Murphy (@NouveauSouth)

    This post reached an executive at a small bank, and this person felt compelled to further explain the reasons why banks are not investing in the real economy. Its really interesting stuff from an insider.

    “[The post] didn’t touch on the reason “Big Banks” (all banks) didn’t jump in feet first and lend this money back into the money supply though. It’s a good question since interest income is the primary source of income for a bank. From my perspective, with 28 years in the business, the answer was simple and the offhanded accusations of banks crippling the money supply were intolerable. Here goes:

    “When the recession hit, federal & state bank regulators tightened lending standards in a misguided effort to minimize loan losses and bank closures. Poor timing. The real estate market was flooded with repossessed homes, [real estate] values fell, [real estate] equity vanished. Banks were required to reduce real estate lines of credit (to businesses and consumers) in tandem with declining property values in order to keep loans in compliance with banking regulations. This tightened credit, the wealth affect of equity disappeared, people stopped spending, businesses suffered and jobs were lost..

    “For banks, this meant that yesterday’s qualified borrowers were on the fast track to becoming today’s non-qualified borrowers under the safe, sound and prudent lending guidelines that banks are required to follow. Big bad banks hanging on to money rather than lend it and make a profit? No. Business as usual with prudent lending standards in place, which were established to protect the FDIC, the Depositor and the Treasury from loss; but those standards always have and always will disqualify people if they are borrowing money to survive.

    “There was no encouraging of banks to “get out and lend!” There was no magic loan loss cushion to protect banks from closure if loans made to non-qualified borrowers went bad. “Increasing the money supply” is not/was not a reasonable explanation to a bank examiner for making a loan to a non-qualified borrower. There was no correlation between the massive onslaught of closures of banks with suddenly shaky loan portfolios and the finger pointing at banks, by politicians and the Administration, for “refusing to lend”. It was damned if you do in the public eye and the rhetoric being shouted from podiums was simply louder than the sound of the banks tumbling down, all around us.”

  • http://www.facebook.com/jimmy.egan Jimmy Egan

    I think we all know Al Gore created the internet.

    Actually I’m pretty sure the internet was a collaboration between lots of people, and yes, the government was involved, but saying they are responsible gives too much credit.

    I think there could be a stronger profit motive in our political system. Our current system is some bs. So we agree there. How would you fix our current system? Would it be non-democratic? I like the following: enforce gerrymandering, no more corporate or legal entity campaign contributions, no more lobbyists, 4 year terms for house members, 8 year terms for senators but no re-election, increase supreme court power, line item veto for president, free fleshlights for all elected officials.

    Also, Tang was waaaaaaay fucking better than Velcro.

    • http://twitter.com/NouveauSouth Ryan Michael Murphy (@NouveauSouth)

      Whatever. Don’t be a poor sport. I played the internet card, and that’s the highest card in the deck. The government funded that card, by the way.

      Tang is weak. Sunny D is where its at. Its always in the back of my fridge and I have to push aside the purple stuff to get to it. It really hits the spot after I play basketball in my driveway with my hat backwards.

      I’ve got a half-written post on what I think the structural problems are in our government and some solutions. Here’s a teaser: invade Saudi Arabia and Alberta. That’s what I would do if I was playing Civilization.

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