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GOP Has Zero Economic Credibility With Me


Fergasun

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Sorry, I must have missed that one.

You should seriously watch how right he was while people were laughing at him (on both sides politically). It's easy to try to fall into the left vs right category and to try to defend one side or the other, but its a lot better to try to find anyone/everyone who was correct about our crisis and see what lead them to their conclusions. I'll look into the guy you posted and see what he was saying back then and try to pick his brain a little bit to see what he was basing his predictions on (any links you have that will save me the google search are appreciated!) But if your just looking to see how wrong one side or the other was its not that difficult as both pretty much got it wrong.

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Maybe consider googling it then? Im working and dont have time to teach

I did. Try going back to my original questions then.

Is there any evidence that the Fed was buying MBS in 2000? I know they did post-crisis, but I don't see any where they did pre-crisis.

What is the connection between MBS and public housing?

And "Montetizing the debt based on Mortgage backed securities" doesn't answer either of those two questions. If you don't have time to respond, then don't respond.

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I did. Try going back to my original questions then.

Is there any evidence that the Fed was buying MBS in 2000? I know they did post-crisis, but I don't see any where they did pre-crisis.

What is the connection between MBS and public housing?

And "Montetizing the debt based on Mortgage backed securities" doesn't answer either of those two questions. If you don't have time to respond, then don't respond.

I do have time to do short responses, I dont have time for doing other posters research for them when they have a question.

But to answer your question, I did your googling for you and learned that Yes, there is evidence...

n an August 1999 Fed meeting officials temporarily suspended clauses 3 to 6, giving themselves the authority to freely purchase Ginnie Mae–, Freddie Mac–, and Fannie Mae–issued MBS on a provisional basis without hindrance on size and timing. The reason given: it needed full reign to inject money into the banking system in preparation for the year 2000 crisis.[3] The period for which the temporary suspension was to extend was from October 1, 1999 through April 7, 2000.

http://mises.org/daily/2676

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You should seriously watch how right he was while people were laughing at him (on both sides politically). It's easy to try to fall into the left vs right category and to try to defend one side or the other, but its a lot better to try to find anyone/everyone who was correct about our crisis and see what lead them to their conclusions. I'll look into the guy you posted and see what he was saying back then and try to pick his brain a little bit to see what he was basing his predictions on (any links you have that will save me the google search are appreciated!) But if your just looking to see how wrong one side or the other was its not that difficult as both pretty much got it wrong.

There is a whole report on it.

http://www.cepr.net/documents/publications/housing_2002_08.pdf

Through the years he's wrote various pieces on the housing bubble:

e.g.

http://www.cepr.net/documents/publications/housing_fact_2005_07.pdf

He also writes a regular blog for an organization called CEPR:

http://www.cepr.net/index.php/blogs/cepr-blog/ending-loser-liberalism-and-restructuring-the-market-economy

Another person to look at his Robert Shiller.

http://en.wikipedia.org/wiki/Robert_Shiller

Shiller also said there was a stock market bubble. He's a real economist in that he publishes papers in economic journals. I think his work showing that markets (at least the stock market) isn't really all that effecient was a major blow to the Chicago school and a major issue for the Austrians.

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There is a whole report on it.

http://www.cepr.net/documents/publications/housing_2002_08.pdf

Through the years he's wrote various pieces on the housing bubble:

e.g.

http://www.cepr.net/documents/publications/housing_fact_2005_07.pdf

He also writes a regular blog for an organization called CEPR:

http://www.cepr.net/index.php/blogs/cepr-blog/ending-loser-liberalism-and-restructuring-the-market-economy

Another person to look at his Robert Shiller.

http://en.wikipedia.org/wiki/Robert_Shiller

Shiller also said there was a stock market bubble. He's a real economist in that he publishes papers in economic journals. I think his work showing that markets (at least the stock market) isn't really all that effecient was a major blow to the Chicago school and a major issue for the Austrians.

Shiller sounds very familiar to me?? Where do I know him from?

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he is one half of the Case-Shiller home index that is basically universally used to measure whether there is overvaluation in housing markets

Out out of curiosity, who do you find to be credibile in terms of describing how current situation, and how we got here?

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You shouldn't. Bush and the Republicans got pretty much everything they wanted between 2000 and 2006. Did they try to attack abortion? Did they try to get rid of the Dept of Education or the National Endowment for the Arts? Did they address the housing and banking laws (or lack of regulation/enforcement)? Did they try to flatten the tax code? Did they say debt doesn't matter?

They're not solely to blame, but they had a large hand in creating this mess. Obama and his crew now also have very dirty hands. They really blew the opportunity to make meaningful change when they had their supermajority. They really should have done better. What they tried hasn't been effective enough or hasn't been effective. And they too, haven't challanged the status quo in any significant way... except in going after health care, and even that was too timid. It should have been a nationalized, socialist policy if they wanted universal care. To try to create universal care using the existing insurance/capitalist infrastructure is dumb.

agree with you 100%! Republicans and Democrats in past 15 years have both wasted their chance to make any real changes in the country...

For me, the past 15 years.... all it did was verify how much of our political system is controled and influenced by the special interest groups...

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At his heart, I don't think Ron Paul is in the Chicago School of economics, as the other post I responded to alluded, I think in reality he falls into the Austrian school (i.e. Paul favors "market" controls of currency (e.g. a gold standard)).

Paul has always described himself as an Austrian.

The problem with the Austrians is they only predicted one side of the issue and that side is really dubious. They didn't predict the issues with mortgage backed securities, and whether Freddie and Fannie's problem is really their connection to government or their private portion like people like Dean Baker did.

Was Fannie and Freddie's ability to get money tied to their association with the government, or the relaxed lending standards which were lead by private industry.

Absolutely none of that is true.

As an example, Ginnie Mae has no private association and is only government associated, and they didn't have the problems of Freddie and Fannie

It's not about whether or not a certain entity is owned and operated by the government. It's about credit inflation.

(I think the better Austrian argument is that it wasn't really Freddie, Fannie, or the CRA, but to much money because of the actions of the Fed (and at the time the Fed was lead by Geenspan, who was a clearly in the Chicago school of economics)).

That's the core of Austrian theory. A boom that everyone thinks is a Super Happy Fun Time is created when a central bank expands credit, and during this boom malinvestments (inefficient uses of resources) spread and grow thanks to the excess credit. Then, when a recession hits, inevitably some sectors will perform worse than others, so they will be blamed for the recession, when really they were nothing more than recipients of some of the largest amount of credit, and therefore malinvestment. It was the tech sector and Wall St. in 2000-2001. It was the housing sector and Wall St. in 2008. I personally believe that the past three recessions are part of a larger, much more powerful cycle, going back before the early 90's recession to Black Monday. (And it really could be argued that it's actually the past four recessions.) Some say that the reason Black Monday wasn't another 1929 was the fact that Alan Greenspan made sure that Wall St. knew that emergency Fed ambulances full of cash were ready to be dispatched wherever they were necessary to help shore up the markets. (To be clear, that's a metaphor, the Fed's tools are actually much simpler and much more powerful than actual ambulances full of cash.) That was the first time the Fed "prevented the next Great Depression." Only it wasn't prevented. It was merely postponed. And each time it's been postponed, it's been made even worse when it finally comes.

Your quote hops back and forth between talking about the government BUYING mortgage backed securities, and the government renting out public housing.

Near as I an tell, the only thing the two topics have in common is "government is evil".

The latter has little to do with Austrian theory. The former is somewhat related, in that it involves both a type of debt/credit and the price of a debt-based asset.

There is a whole report on it.

http://www.cepr.net/documents/publications/housing_2002_08.pdf

Through the years he's wrote various pieces on the housing bubble:

e.g.

http://www.cepr.net/documents/publications/housing_fact_2005_07.pdf

He also writes a regular blog for an organization called CEPR:

http://www.cepr.net/index.php/blogs/cepr-blog/ending-loser-liberalism-and-restructuring-the-market-economy

Another person to look at his Robert Shiller.

http://en.wikipedia.org/wiki/Robert_Shiller

Shiller also said there was a stock market bubble. He's a real economist in that he publishes papers in economic journals. I think his work showing that markets (at least the stock market) isn't really all that effecient was a major blow to the Chicago school and a major issue for the Austrians.

It's not really that much of an issue for Austrians. You're right about the Chicago school, however. Personally, I don't really buy into the efficient market hypothesis, at least how it's typically understood. Markets are never at an equilibrium. Never even all that close.

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A boom that everyone thinks is a Super Happy Fun Time is created when a central bank expands credit, and during this boom malinvestments (inefficient uses of resources) spread and grow thanks to the excess credit. Then, when a recession hits, inevitably some sectors will perform worse than others, so they will be blamed for the recession, when really they were nothing more than recipients of some of the largest amount of credit, and therefore malinvestment. It was the tech sector and Wall St. in 2000-2001. It was the housing sector and Wall St. in 2008.

That at least resonates with me. I even think I followed it.

Although I suspect that my perspective may be simpler. IMO, any time you have kids announcing that they're making piles of money in some casino where you can't lose, then something bad's about to happen.

(I recall in 2001, some panel of investment experts making the comment that a lot of internet millionaires were about to hear an investment term that they've never heard before: "Risk".)

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Although I suspect that my perspective may be simpler. IMO, any time you have kids announcing that they're making piles of money in some casino where you can't lose, then something bad's about to happen.

That's most certainly true.

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Absolutely none of that is true.

I was responding to a part where Paul himself was talking about the ability of Freddie and Fannie to secure credit because of their connection to the government.

You can say it isn't true, but that's what Paul said in the one case the video that was posted (or quoted; I don't remember which). Like I said, I don't think that's a good argument because it doesn't explain the whole situation. The Austrians can make a better argument than Paul did in the posted work.

That's the core of Austrian theory. A boom that everyone thinks is a Super Happy Fun Time is created when a central bank expands credit, and during this boom malinvestments (inefficient uses of resources) spread and grow thanks to the excess credit. Then, when a recession hits, inevitably some sectors will perform worse than others, so they will be blamed for the recession, when really they were nothing more than recipients of some of the largest amount of credit, and therefore malinvestment.

It's not really that much of an issue for Austrians. You're right about the Chicago school, however. Personally, I don't really buy into the efficient market hypothesis, at least how it's typically understood. Markets are never at an equilibrium. Never even all that close.

1. I don't THINK that the Chicago school ever argued that the markets are at equilibrium. Generally, something can be effeceint and not at equilibrium. From a chemical perspective equilibrium processes are generally considered ineffecient (e.g. an equilibrium process can't do work or be regulated).

2. Isn't the Austrian school arguing that the credit market is effecient? Essentially that it won't make mistakes? That credit won't get to high, to low, or become to concentrated in one area of the economy? I don't know of any research that has been directly in that direction (though I don't read a ton of economic literature), but if Stiller has shown the stock market doesn't behave that way, then you'd have to argue the credit market is different than the stock market (and realistically, they are connected and related).

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I was responding to a part where Paul himself was talking about the ability of Freddie and Fannie to secure credit because of their connection to the government.

You can say it isn't true, but that's what Paul said in the one case the video that was posted (or quoted; I don't remember which). Like I said, I don't think that's a good argument because it doesn't explain the whole situation. The Austrians can make a better argument than Paul did in the posted work.

You're misunderstanding what I was saying wasn't true. Of course it's true that Paul said that Fannie and Freddie could secure credit that they otherwise couldn't if they were completely private entities. He said it because it's plainly factual. I don't think you could find an investor who would say otherwise. But you then went on to say that Austrians didn't predict things like mortgage-backed securities going bust or Fannie and Freddie reeling from their private portfolios. And those are complete and utter falsehoods, because it would be impossible for an Austrian to not predict those things so long as we're talking about an Austrian who understood what the hell they were. Austrian economics is a macro school; it's possible to understand the basics of Austrian thinking and not understand how a mortgage-backed security works. But I would go so far as to say that it wouldn't have been possible to be an Austrian who truly understood how mortgage-backed securities worked and not be predicting in 2007 what a disaster they would become. (This being the Internet, I'm sure the next phase of this conversation will be you posting a link to someone like that. :ols: To which I would say, this would have to be a person who didn't really understand Austrian theory, mortgage-backed securities, or both. I honestly don't know if Ron Paul ever talked much about mortgage-backed securities, but seeing as he's the same age as people who honestly think that the Internet is a series of tubes, it wouldn't surprise me if he didn't feel particularly comfortable talking about complex Wall St. financial products. But anyone who understood them in the middle of the housing bubble would know that if Ron Paul's predictions came true, he was also predicting the complete demolition of mortgage-backed securities.)

This is related to a post I found from earlier in the thread where you make some similar statements:

I'd point out that NOT just the Austrians predicted the collapse of the housing market.

Others went even further than talking about the things like Fannie and Freddie to talking about things like mortgage back securities and the related issues, which are what REALLY caused the damage and caused companies that aren't directly related to mortgages (e.g. AIG) to go have financial issues.

These people are generally democrats and favored/favor MORE regulation. Just as example:

http://en.wikipedia.org/wiki/Dean_Baker

The people that seems like they really should have lost were the Chicago school of economics, which were almost universally Republicans and what most Republican elected officials have run back to.

"Others" didn't go even further. Austrians went there, too.

1. I don't THINK that the Chicago school ever argued that the markets are at equilibrium. Generally, something can be effeceint and not at equilibrium. From a chemical perspective equilibrium processes are generally considered ineffecient (e.g. an equilibrium process can't do work or be regulated).

Chemicals have nothing to do with it, and Chicago Schoolers love them some equilibrium. (Keynesians do, too, by the way. Not quite as much as Chicagoers, but quite a bit. See: Neoclassical synthesis.)

2. Isn't the Austrian school arguing that the credit market is effecient? Essentially that it won't make mistakes? That credit won't get to high, to low, or become to concentrated in one area of the economy? I don't know of any research that has been directly in that direction (though I don't read a ton of economic literature), but if Stiller has shown the stock market doesn't behave that way, then you'd have to argue the credit market is different than the stock market (and realistically, they are connected and related).

To my knowledge, I've never seen an Austrian argue that the credit market is "efficient" in a way that would mean that it won't make mistakes. In fact, Austrian theory depends on the credit market making mistakes. The very problem that Austrians have with the modern monetary system is that it is, in essence, a giant attempt to prevent mistakes. That's more or less the definition of a malinvestment—a mistaken investment that shouldn't succeed, but does, because the government is doing what it can to steer the economy. Malinvestments are self-replicating phenomena, because when a mistaken investment that shouldn't succeed does, the market will react by basing other investments on the one that shouldn't have succeeded in the first place. This can take the form of both copycat investments and investments that rely on the original type of malinvestment in order to succeed. Then still other malinvestments are made that rely on the distortions of the first two. And so on and so on, repeating countless times across an entire economy.

I'll compare it to one of your favorite topics, the environment. Austrians are fond of saying that the economy is not a machine, it's an ecology, and operates as such. The comparison to an ecology fits so very well because human beings make thousands of economic decisions every day, decisions which appear quite independent from, yet are actually quite dependent upon, one another from an individual's standpoint while simultaneously appearing quite independent from, yet actually being quite dependent upon, one another in terms of the economy as a whole. This is not unlike the way an ecosystem works. I'll try to make an analogy. Imagine that we discovered a planet remarkably like Earth, and we had the technology to monitor and control all sorts of things on this planet. Imagine also that we decided that we should leave it alone, except for one notion: We would manipulate the ecosystem of this planet to be "better." Such a goal could have multiple definitions, of course. Our ability to execute this plan would rest upon a technology which would allow us to manipulate the life that ultimately affects everything: Single-celled organisms. (Which fulfill the role of credit.) Exactly how successful do you think this experiment would be?

I hope that the results would be rather obvious. Every tweak we would make to certain single-celled organisms would have far-reaching, chain-reaction results that we couldn't possibly hope to predict ahead of time. (Malinvestments, and malinvestments that feed upon malinvestments which feed upon malinvestments.) Yet if we were committed to our goal, we would react by making still more changes to the single-celled organisms of this planet in hope of countering the negative results of our first actions. Inevitably, this would only result in more effects that we never saw coming, producing a need to intervene even more, and so on. If a select group of human beings was given control of a planet through manipulation of its single-celled organisms, and told to somehow go about "improving" life on the planet via this manipulation, I would very much expect all life on this planet to be on the verge of extinction within a couple of centuries.

I'm sure the preceding paragraphs are exceedingly simplistic, but I'm only trying to produce an analogy. This is Part I. Am I making sense so far?

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Chemicals have nothing to do with it, and Chicago Schoolers love them some equilibrium. (Keynesians do, too, by the way. Not quite as much as Chicagoers, but quite a bit. See: Neoclassical synthesis.)

Chemists like to study equilibriums too, and in some cases in a complex system a subset of things are at equilibrium (or close enough that they can be treated like equilibriums) and so those things can be studied. In addition, things that aren't equilibrium can most easily be understood by understanding why they are not at equilibrium.

Basic economic theory states for transactions to occur there must be some basic equilibrium between the seller and the buyer. It is related to basic supply and demand. The concept of equilibrium at this level is related to the idea that prices aren't only set by production costs (which was the prevailing economic theory previously). If at that level Austrians don't think there is an equilibrium, then I'd be interested in what they think happens with respect to setting prices and transactions occurring.

That doesn't mean everything is at equilibirum (e.g. the values of stock A and B aren't at equilibrium if nobody is directly trading stock A for B), or that the equilibrium is constant (because then prices would never change). Just like chemists don't think the whole world or universe is at equilibrium because somethings at some points in time are at equilibrium.

I believe the Chicago school believes there are equilibriums at that level. Not that the whole market is in equilibrium.

To my knowledge, I've never seen an Austrian argue that the credit market is "efficient" in a way that would mean that it won't make mistakes. In fact, Austrian theory depends on the credit market making mistakes. The very problem that Austrians have with the modern monetary system is that it is, in essence, a giant attempt to prevent mistakes. That's more or less the definition of a malinvestment—a mistaken investment that shouldn't succeed, but does, because the government is doing what it can to steer the economy. Malinvestments are self-replicating phenomena, because when a mistaken investment that shouldn't succeed does, the market will react by basing other investments on the one that shouldn't have succeeded in the first place. This can take the form of both copycat investments and investments that rely on the original type of malinvestment in order to succeed. Then still other malinvestments are made that rely on the distortions of the first two. And so on and so on, repeating countless times across an entire economy.

I'll compare it to one of your favorite topics, the environment. Austrians are fond of saying that the economy is not a machine, it's an ecology, and operates as such. The comparison to an ecology fits so very well because human beings make thousands of economic decisions every day, decisions which appear quite independent from, yet are actually quite dependent upon, one another from an individual's standpoint while simultaneously appearing quite independent from, yet actually being quite dependent upon, one another in terms of the economy as a whole. This is not unlike the way an ecosystem works. I'll try to make an analogy. Imagine that we discovered a planet remarkably like Earth, and we had the technology to monitor and control all sorts of things on this planet. Imagine also that we decided that we should leave it alone, except for one notion: We would manipulate the ecosystem of this planet to be "better." Such a definition could have multiple definitions, of course. Our ability to execute this plan would rest upon a technology which would allow us to manipulate the life that ultimately affects everything: Single-celled organisms. (Which fulfill the role of credit.) Exactly how successful do you think this experiment would be?

I hope that the results would be rather obvious. Every tweak we would make to certain single-celled organisms would have far-reaching, chain-reaction results that we couldn't possibly hope to predict ahead of time. (Malinvestments, and malinvestments that feed upon malinvestments which feed upon malinvestments.) Yet if we were committed to our goal, we would react by making still more changes to the single-celled organisms of this planet in hope of countering the negative results of our first actions. Inevitably, this would only result in more effects that we never saw coming, producing a need to intervene even more, and so on. If a select group of human beings as given control of a planet through manipulation of its single-celled organisms, and told to somehow go about "improving" life on the planet via this manipulation, I would very much expect all life on this planet to be on the verge of extinction within a couple of centuries.

I'm sure the preceding paragraphs are exceedingly simplistic, but I'm only trying to produce an analogy. This is Part I. Am I making sense so far?

Yes, but realistically there is a relationship between efficiency and the probability the effect of a perturbation to the system. You're assuming the changes will be negative, when there is no evidence to make that assumption.

The null hypthesis for any system should be that a random set of perturbations will have a net 0 effect. This is probably most easy to understand if we consider some undefined system that has some generic measure as effeciency where the effeciency is at 50% (the point half way between maximal and minimal efficiency). If my perturbations are random sometimes the net effect is positive and sometimes it is negative, and the positives and negatives will cancel out (though I'll point out that this is true irregardless of the efficiency of the system).

In addition, in the absence of data indicating otherwise that perturbations are random.

For this not to be the case one of two things must be true:

1. The set of perturbations is non-infinite in both directions, and the efficiency of the system is such that the population of possible perturbations is biased towards negative perturbations. That is any change to the system is more kely to have a negative affect than a positive affect. This is essentially what the Chicago school has been asserting (i.e the markets are highly efficient and most changes will be negative).

2. The other possibility is that our perturbations are non-random because we are pulling perturbations biased towards negative perturbations. In this case, this would mean that the Fed is a bad decision maker. That is the Fed is so BAD over longish periods of time that its actions can't even be considered random.

(Or some combination of the 2).

Anybody asserting either of the both should be able to provide quantitative data backing them up.

I'll also point, if we pursue an evidence bases course of action, over time our decisions should improve (though I'd buy the argument that the government doesn't do that in a lot of cases, and there is no reason to believe the Fed, as an extension of our government, is doing that either).

Back to your analogy, in a poorly understood system (the ecosystem on the other planet), there is no reason to believe that our perturbations will be negative without there being a reason to believe the system is already efficient with respect to our measure and/or our perturbations aren't AT LEAST random. In the absence of other information, the assumption should be that even our poorly educated guesses are at least random and the net effect will be no change in the efficiency of the system.

**EDIT**

This is a situation where complexity doesn't change the basic probability. If I give you a system that is made of A and B, and tell you I want to maximize B, and here is knob that controls the levels of A and B and you have to adjust the knob to maximize B. Given no other information, any guess is as likely to be right or wrong, and it doesn't matter what the starting level of A and B are (assuming they aren't 0 or 100%) or the position of the knob. You essentially have to assume you have 1/3 chance of a positive, negative, and neutral affect each until you have more information.

That probability doesn't change if there are 1,000 other knobs that have an effect on the levels of A and B that are constantly moving themselves and the levels of A and B are constantly changing. It makes it much more difficult for you to gather enough information that you are actually making good decisions (and not just random moves), but the basics haven't changed.

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