Government Bailout Misdeeds

                                         

In the case of AIG, the value of its derivative insurance coverage, in 2008-2009, was  being determined on the basis of fictitious existing market value. Not on possible claims in the future, at the maturing of AIG company obligations, but at supposed current valuations.

                       

That produced a condition that induced premature bankruptcy, in a panic venue; a rush to judgment when cool heads and hands ought to have been the hallmarks of expertise.

                       

The AIG panic was evidenced by the rescuer’s paying of debts on the basis of 100 cents on the dollar to some bankers in this country and abroad.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Human Error and Political Mistakes

                      

Human error was instrumental in the financial meltdown of 2008/2009,and various bubbles that we have had in the past.

                       

In each case, there has been finger-pointing, usually by anti-business politicians and by bureaucrats whose immediate impulse is to blame big business and bankers; the usual scapegoats. That is the litany of criminalization.

                       

I have always blamed human error. Whether it be loose monetary policy of the Federal Reserve, in inflating currency, or inappropriate accounting rules for normal securities market situations, actions that hasten the ruin of investment liquidity. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Credit Default Swaps

                     

Just a few years ago CDS, or credit default swaps, were considered by liberal politicians to be the cause of the financial meltdown.

                       

They thus conveniently forgot the real cause of the financial meltdown, which would have pointed to much o their past political activity. That financial debacle owed much more to Washington antics and influence than it did to Wall Street.

                       

But Credit Default Swaps are back because they are needed in a burgeoning market by a number of industries, particularly big banks. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

   

Big Banks Can Now More Easily Fail

                       

The Glass-Steagall Act, created under the Banking Act of 1934, was terminated during the Clinton administration. It had separated regular banking from investment banking activity.

                       

However, it’s easy to talk about the problems requiring the separation of investment banking and ordinary banking. There are, however, difficulties once the two have been so connected for years. The question of proprietary trading arises.

Both regular and investment banks had executed such trades, ordinary banks to a lesser extent. Moreover, such trading generally represented a very small, insignificant amount of activity and income.

                       

Furthermore, the definition of what is a proprietary or “prop” trade is hard to delineate.

                       

The result, with all our populist politicians, we have bombast, finger-pointing, and economic panic and damage.

                       

We wound up with Dodd-Frank, a complex maze of regulations that has, as one of its missions, an attempt to separate commercial and investment banking. And preventing banks from getting too big to unwind as failures.

                       

The result so far: Banks are getting bigger and the risk of failing is ever-larger. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

           

                   

Are “Smart” Investors Really Smart?

                        

Most investors are not too sharp when they constantly try to outsmart the mass of other investors such as they are.

                       

There is a better, disciplined way of investing, whether you come from Wall Street or Main Street. It’s not by acting on the same mass information, at the same time, usually incorrectly.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Do Bankers Make Too Much Money?

                   

They may if they earn commissions and options of hundreds of millions a year. But who is to say what is too much? Some politician or bureaucrat with favors to hand out for votes?

                   

Do baseball players earn too much money?

                   

They certainly do, if they earn up to $30 million a year for playing a kid’s game. And which many sandlot amateurs do for nothing, but just a little less efficiently. The real difference in their ball- hitting capability is not learned the hard way but in their luck in having eyes to see the ball.

                   

Do gymnasts deserve more than they earn?

                   

They get practically no income despite all the incurred pain, and years of training and practice, and the need to overcome initial physical fear.

                   

From my personal experience with all three practices, it is difficult to see how bureaucrats and politicians in Washington are so ready to damn bankers for making “too much” money while other genuinely overpaid groups are left to make their fortunes politically undisturbed.

                   

And ballplayers are indirectly being financed by bailout funds of their bosses’ subsidized ballparks.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole atTwitter.)

Financial Stimulus Facts

                       

Interest rates normally adjust to supply and demand forces and thereby adjust economic events. However, whenever the government imposes stimulus proposals to raise credit and lift the economy, the system is disturbed and thus distorted.

                       

This unbalances the economy and does the exact opposite of what has been intended. It’s a lesson politicians wantonly overlook to suit their election goals.

                       

Ludwig von Mises wrote fully about the phenomenon in the 1920s but the economist in fashion during the 1930s recession was, unfortunately, John Maynard Keynes. He became the political icon of that recovery movement.

                       

The Keynes government pump-priming thesis prolonged stimuli that actually deepened and helped induce the Great Depression. Nevertheless, it is the premise of failed current policy. (See the Earl J. Weinreb NewsHole® commentaries.)