Cafe Hayek: The anti-market narrative of the crisis

The Government bails out banks they consider 'too big to fail' so what incentive do those large banks have to conduct business using sound financial principles instead of speculating? Zero, zip, nada incentive. Why should these bankers be worried about spending borrowed money on various financial ventures many of which have lost large amounts of money as all they have to do is run to Uncle Sam for bailout money?

This is a cycle that needs to stop. Someone is making money off of all of these unwise investments and it is not the taxpayer -- we are the ones footing the bill for their unwise investments.

We are still waiting for the first Democrat to stand up and call out the banks on their investment 'strategy' which keeps failing. All we get are we have to do more to save the banks. Why give more money when they have already wasted the last handout on more unwise investments?

We have Republicans speaking out like Senator Charles Grassley of Iowa wanting to know the details from this non-transparent administration. In the House Cong Steven King (R-IA) and Mike Pence (R-IN) are speaking out along with others but the voices are not loud enough for the mainstream media to pay attention as they continue to defend anything this Administration does. What have members of the media received in return for their lapdog coverage of Obama and the Dems?

We believe this one sentence from Cong Steve King says it best:

We must act to bring long-term stability to the financial markets. I believe in personal responsibility and the free market, not government bailouts.

As Democrats try to paint Republicans as unwilling to get on-board the Dodd financial bill, once against they are not telling the truth. Republicans know something has to be done but are objecting to a bill just thrown together by Dodd and his lobbyist friends. It is amazing how many former Goldman Sachs and other Wall Street people are in this Administration and yet Obama goes to New York City to chew out Wall Street. Is it collusion where Wall Street knows Obama will give a speech against them but it will be all talk and no substance? Time will tell as we see the details emerge of the Dodd bill!

The anti-market narrative of the crisis

Posted: 25 Apr 2010 08:19 PM PDT

Louis Uchitelle reviews 13 Bankers by Simon Johnson and James Kwak in the New York Times Book Review and nicely summarizes what has become a mainstream view of the crisis:

To put it bluntly, as this book does: the efficient-market hypothesis does not work. It never has. Markets are not self-­correcting. Left to their own devices, bankers at the biggest institutions can’t seem to stop themselves from speculating with borrowed money until they inevitably crash the system.

Those poor impulsive bankers. They can’t seem to stop themselves and that’s how we know that markets aren’t self-correcting. Ignore the weird (and common) conflating of the efficient market hypothesis and market stability. Let’s just look at market stability and the idea of leaving bankers to their own devices. That’s supposed to mean “unregulated.” Ignore the fact that financial markets are regulated in all kinds of ways.

Just focus on that phrase “can’t seem to stop themselves.” They just keep driving the financial vehicles off the cliff using all that borrowed money. Does the fact that the government often reimburses the lenders in the name of preserving financial stablity have something to do with bankers’ inability to stop themselves?

Does the quest for complete stability have something to do with the failure to achieve stability?

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