Saturday, October 17, 2015

Poor defense of 2008-2009 bailouts

A WSJ op-ed claims:
The publicity surrounding former Federal Reserve Chairman Ben Bernanke’s memoir prompts a look-back at the stunning array of policy responses promulgated by the Fed, Congress and two administrations to avert catastrophe during the financial crisis in 2008-09. This is important because many of these initiatives haven’t aged well in the eyes of politicians and the public.

TARP, fiscal stimulus, quantitative easing and auto bailout remain dirty words to many people who increasingly blame them for prolonging the Great Recession and the slow pace of recovery. But in a study released Thursday for the Center on Budget and Policy Priorities, we found the reverse to be true: These extraordinary policies ended the crisis and jump-started an economic recovery that is stronger in the U.S. than in most countries.

Specifically, we estimate that:
• The peak-to-trough decline in real gross domestic product, which was barely more than 4%, would have been close to a stunning 14%.
• The contraction would have lasted three years, more than twice as long as it did. ...
No, I do not believe this. There are more details, and I have not studied them.

They assume that General Motors and Chrysler would have disappeared without the bailouts. But that is doubtful. Also the govt could have taken less drastic measures, such as guaranteeing loans to car buyers, or not bailing out the unions.

A comparison should be made to the tech crisis of 2000. By some measures, such as lost capital, that was as big a crisis as the 2008 financial crisis. It was a bigger crisis here in Silicon Valley. And yet no one was bailed out.

The severity of the 2008 crisis is constantly exaggerated. The biggest losers were people who bought houses at the peak of the boom with money they did not have, by lying on their loan forms, and by banks and others who seemed to be acting with criminal negligence. Some speculators also lost money. Long-term homeowners were not significantly affected.

The op-ed continues:
The Federal Reserve has also come under attack for its unprecedented actions, especially its quantitative easing or bond-buying programs. Yet QE lowered long-term interest rates and boosted stock and housing prices — all to the economy’s benefit. Yes, QE has possible negative side-effects, but for the most part they have yet to materialize.
No, saying that boosting housing prices benefits the economy is like saying that boosting oil prices benefits the economy. Sure, it benefits those in the housing or oil businesses. But most people are better off when goods are cheaper, not more expensive.

To me, this just reveals what a warped view these financial experts have. They are full of opinions about what is good for the economy, but it is from a banker's point of view. They think that it is great to spend trillions on the banking system to prop it up. I think that in a few years, we will not even need the banking system as we know it today.

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