Quote Of The Day – Miserable Choices

By Justin Gardner | Related entries in Bush, Economic crisis, History, Quotes

“Sometimes you have to make the tough decisions. If you think this has to be done, you have my blessing. But someday you guys are going to need to tell me how we ended up with a system like this. I know this is not the time to test them and put them through failure, but we’re not doing something right if we’re stuck with these miserable choices.”
- George W. Bush on September 16, 2008

That’s from an upcoming 19,000 word piece in The New Yorker entitled, “A Reporter at Large — Eight Days: The battle to save the American financial system piece.” It will be a must read for anybody interested in seeing how things went so horrible, terribly wrong, but as the Bush quote hints at…deregulation is why we were stuck with miserable choices.

If this raises your conservative/libertarian hackles, well, tough. It’s time to accept the fact that markets are not self regulating and never can be due to the very nature of capitalism itself.

Why do I bring this up? Well, this fall Obama is set to propose much tougher regulations on banking and the marketplace. So I want everybody to remember why we find ourselves in the economic situation we’re in and why we need to never let it happen again.

Until then…


This entry was posted on Sunday, September 13th, 2009 and is filed under Bush, Economic crisis, History, Quotes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

15 Responses to “Quote Of The Day – Miserable Choices”

  1. Chris Says:

    “It’s time to accept the fact that markets are not self regulating ”

    RABBLE RABBLE RABBLE RABBLE!

  2. Nick Benjamin Says:

    Damn. While Bush was in office he said something I agreed with.

    I didn’t know that was alllowed.

  3. Jimmy the Dhimmi Says:

    It’s time to accept the fact that markets are not self regulating and never can be due to the very nature of capitalism itself.

    So Justin, you must believe that interest rates on the federal reserve being lowered in 2001 to 1% had absolutely nothing to do with this, correct?

  4. Simon Says:

    The argument that deregulation caused the crisis doesn’t work unless, as a threshold question, the industries where the crisis originated were actually deregulated. Yet the financial industry was one of the most heavily-regulated sectors of the economy, no?

  5. gerryf Says:

    Simon,

    There you go again…confusing reality with that conservative GOP fantasy.

    What regulations there are were not enforced by understaffed regulators hamstrung by a republican administration.

    Where regulations existed, they had been emasculated by folks like Phill Gramm.

    Meanwhile there were many activities that were so new there were no or minimal regulations governing them.

    And Jimmy, you have a point, but surely you cannot be claiming that the fed dropping interest rates is the primary cause of the financial crisis. BY itself, it impacts maybe the housing bubble and too easy credit–what about sub-prime lending, deregulation, over leveraging, all the new financial investments schemes like credit default swaps, the shadow banking system, the commodities bubble and just plan bad financial forecasting–to name just some of the causes.

    Anyone who does not see a need for increased regulation is kidding himself or herself.

  6. patrikios Says:

    Greenspan’s Fed should not have lowered interest rates as far as they did. That was a major contributor to the crisis- it effectively inflated the housing bubble.

    But what about Commodity Futures Modernization Act and Gramm-Leach-Bliley? Don’t you think those had something to do with toxic credit default swaps and too-big-to-fail banks?

    What about the SEC allowing, at the urging of Wall Street, 30-to-1 leveraging on securities (2004), or the Office of the Comptroller of the Currency intervening to protect banks’ “predatory lending” practices from state consumer protection regulators (2005)?

    I am aware that much of the deregulation occurred under Clinton, with the support of the GOP Congress (especially Phil Gramm) and Clinton’s neoliberal, Wall Street-oriented financial advisers Rubin and Summers.

  7. Nick Benjamin Says:

    So Jimmy,

    Would abolishing the Federal Reserve in 2000 have prevented this crises?

    If yes, how?

  8. Jimmy the Dhimmi Says:

    And Jimmy, you have a point, but surely you cannot be claiming that the fed dropping interest rates is the primary cause of the financial crisis.

    Yes I am. Think of it this way, if interest rates rose after the dot-com bust, as they would have if they were set based on the supply and demand of money, it would have been impossible to get an adjustable teaser-rate loan. Yes, the recession would have been much deeper, but it wouldn’t have been a financial collapse, and it would have lasted no more than 2 years. We certainly wouldn’t be in the position we are now.

    Everything that went bad in this economy had to do with interest-earning products: Colateralized debt obligations, Subprime loans, adjustable rate mortages, credit default swaps. Everything was distorted based on interest rates arbitrarily set too low by the Fed in order to “stimulate” the economy.

    If we lived in a country where interest rates were set as low as 1% by the free market, then it would be because everyone was rich, banks were full of deposits, everyone was employed and had cash on hand and nobody needed credit. Was that the country we lived in during the 2000 recession? How about now? Reminder: interest rates are now zero. Watch out.

    Nick:

    Would abolishing the Federal Reserve in 2000 have prevented this crises?

    No. All you need is a responsible chairman who realizes its none of the Fed’s business what the Treasury department wants to do to “stimulate” the economy. It is not the role of the Fed to engineer the economy for the sake of social policy set by congress or the President, which is precisely what Greenspan did (maybe it was 9/11 that scared him? – another topic for another day).

  9. Trescml Says:

    There were many causes for the mess we are in. Regulations are part of that since there is nothing in place that would prevent the same thing from happening again. Heck they are working on ones for Life Insurance Polices. So far the main lesson the sector has learned is that the government will bail them out if things go too wrong so when you bet, bet big.

  10. Chris Says:

    So lets bring it back to the core question, how would a completely unregulated “free market” keep things like this from happening?

  11. kranky kritter Says:

    If this raises your conservative/libertarian hackles, well, tough. It’s time to accept the fact that markets are not self regulating and never can be due to the very nature of capitalism itself.

    My first impulse is to respond with a string of pejoratives and expletives. Why is it Justin, that you feel free to make statements like this that amount to reason-free insults? The translation of this statement is:

    If you don’t like this, too bad. Time to admit that you are wrong and I am right.

    Where I come from the rational response to an “argument” like should be simply “bite me.” But if I said that, you’d make me out the bad guy.

    The question of regulations is never a yes or no question. It’s a “when, where, hoiw much” question. What I see here in your silly contention is way too much simplistic indulgence in hindsight. I fully agree that various well-placed and seriously enforced regulations could have prevented much of the risky excess that caused the economic collapse. But collectively, the system lacked both the will and the insight.

    Anyone who is an anti-idiotarian does not become pro- or anti-regulation because of these episodes. He or she becomes more committed to understanding these episodes in details in an attempt to ensure that future regulations are appropriate.

    As Trescmi states, there are indeed MANY causes for the current mess. It’s a disgrace that the home mortgage market was as poorly regulated and permissive as it was. Republicans and Democrats alike were drinking and dealing THAT koolaid. And if you look upstream from the collapse to the causes of the dangerous economic state we were in, you see that Jimmi is extremely on target.

    Very cheap capital, fueled by irresponsible gov’t fiscal policy, was a primary cause of all of this. The lower the costs to borrow capital for a venture or enterprise, the lower the standard a borrower sets for the likelihood of success and profit of that venture.

  12. kranky kritter Says:

    It’s time to accept the fact that markets are not self regulating and never can be … .

    It’s well past time to accept the fact that the truth is never as simple as the human penchant for binary reasoning suggests. If you are not a free market true believer (and I’m not), then you’re happy to acknowledge that markets are not perfectly self-regulating. They’re never perfect, period. They are never 100% efficient, any more than any other engine is perfectly efficient.

    But they can be pretty efficient, nevertheless. They do substantially self-regulate in important ways that ought not to be dismissed for ideological reasons. Anyone who bothers to understand basic economics becomes too smart to simply put a notch on the progressive bedpost and say

    markets are not self regulating and never can be … .

    One problem with markets is that they can’t entirely regulate foolish human nature. The latter stages of booms are always characterized by hordes of self-interested douchebags who insist that basic economic principles have been repealed, that the old ideas no longer applied. And THAT is always the signal to get your coat and head for the exit with deliberate speed.

    The alternative to market-based capitalism these days is some sort of more heavily regulated economy with planned and managed growth. And the primary (and WELL known) flaw to this approach is that bureacratically engineered growth is usually slow and clunky at best. And it too encounters the problem of human nature. People quickly grow impatient and frustrated under such a system.

    That’s why the pendulum will keep swinging. It has just begun swinging back leftward towards higher regulation and gov’t intervention. As it swings, it sows the seeds for its future preordained failings. As we go too far here in America with regulations, the rest of Earth will pick up the slack. There are plenty of other modern markets on Earth, and they have good currencies backed by more highly productive economies. They don’t need us as much as they still think they do, but they are on their way to figuring that out.

    If Wall Street gets neutered too badly, smart money will flow to overseas markets even more quickly than it is flowing now. So it behooves America not to regulate things to death. But we’ll go too far in some ways, as we always do, and people will become impatient and frustrated at the anemic pace of what will be called a “recovery.”

    I still think that the most likely path over the next few years is as follows:
    •the gov’t will continue grossly overspending for the next few budgets because it feels it must, until

    •we have finished painting ourselves totally into the corner, and foreign creditors (the folks buying US treasuries to finance our deficits) undertake several quite viable options to curb this, leading to

    •changes in gov’t spending policies, higher interest rates, higher prices, and a dollar with a value even more reduced than it has been over the last year or so

    I have no idea how bad it will be. Some folks forecast hyperinflation and so on. I don’t know about that. But I do think that we’re not going to come close to recovering to the business as usual of say 1995-2007.

    We’ll need to establish a new equilibrium before we see real growth beyond fits and starts and stops. That equilibrium must be related to a simple balance between income and expenditures, both individually and collectively as a nation.

    The sad fact for most Americans who had big dreams in 2006 is that we won’t get what we want. But as a nation, we will most assuredly get what we CHOOSE, whether we know what we are really choosing or not when we make various decisions.

  13. Jimmy the Dhimmi Says:

    So lets bring it back to the core question, how would a completely unregulated “free market” keep things like this from happening?

    If “things like this” refers to nearly every financial institution in the country failing at the same time, then yes. Free markets don’t mean every finacial endevour will succeed, it does mean that they are free to fail – with no government bail-outs. In a free market, if one company mal-invests its capital, it will fail, but its more successful competitors will pick up the pieces and the economy over-all will actually benefit.

    The problem this time is that all of these financials (and over-leveraged companies like GM) use the dollar, which was artificially manipulted to cause the boom and bust cycle over the entire system.

    Lets also not forget that government institutions like the FDIC, Freddy & Fanny amongst others gave implicit guarantees to investors and shareholders that the government would prevent those investments from failing. This creates a “moral hazard;” the risk is shifted to the taxpayer and the Fed but the rewards are reaped on wall-street.

  14. kranky kritter Says:

    So lets bring it back to the core question, how would a completely unregulated “free market” keep things like this from happening?

    It wouldn’t. Let’s look at the level of understanding that underlies anyone who thinks that this is the core question. If this is th ecore question for you, then you probably don’t understand that much about economics, so you have some work to do.

    Start by understanding that there is not and never will be anything resembling a pure unfettered free market. Anyone who refers to “the free market” is usually referring to whatever currently passes for a free market.

    AS much better understanding of the core question would be something like

    How do we target and “rightsize” regulation so that there’s some protection from the worst boom and bust cycles without stifling growth?

    IOW, how do we strike the right balance? And sadly for ideologues, the answer is “one regulation at a time, formed by a good faith effort of both well-informed experienced business folk and well-informed experienced government leaders.

    Nothing is solved by being inherently opposed to or in favor of regulation as a principle. One sentence positions don’t get it done.

  15. Nick Benjamin Says:

    If “things like this” refers to nearly every financial institution in the country failing at the same time, then yes. Free markets don’t mean every finacial endevour will succeed, it does mean that they are free to fail – with no government bail-outs. In a free market, if one company mal-invests its capital, it will fail, but its more successful competitors will pick up the pieces and the economy over-all will actually benefit.

    That’s some neat reasoning, but like much social science theory it dies on the shoals of reality. In the late 1800s there were no financial regulations at all. After several boom and bust cycles, each of which made the early 2000s boom, and 2008 bust, look like a walk in the park; Teddy Roosevelt and the Progressives took power.

    Later “normalcy” returned, regulations were relaxed, and the country experienced a decade of massive growth followed by the Great Depression.

    Objectively there seems to be a simple dynamic here:
    Markets are extremely efficient, but also predictably stupid. Wise regulations like those advocated by TR keep the stupidity to a minimum. But every now and then a knee-jerk anti-regulation idiot shows up, relaxes the wise regulations because he’s stupid; the market goes crazy, and a few years later they all lose their shirts and go crazy the other way.

    kk, don’t take Justin personally. He’s speaking to people who honestly think all regulation is stupid. People like our last President and Jimmy.

Leave a Reply


NOTE TO COMMENTERS:


You must ALWAYS fill in the two word CAPTCHA below to submit a comment. And if this is your first time commenting on Donklephant, it will be held in a moderation queue for approval. Please don't resubmit the same comment a couple times. We'll get around to moderating it soon enough.


Also, sometimes even if you've commented before, it may still get placed in a moderation queue and/or sent to the spam folder. If it's just in moderation queue, it'll be published, but it may be deleted if it lands in the spam folder. My apologies if this happens but there are some keywords that push it into the spam folder.


One last note, we will not tolerate comments that disparage people based on age, sex, handicap, race, color, sexual orientation, national origin or ancestry. We reserve the right to delete these comments and ban the people who make them from ever commenting here again.


Thanks for understanding and have a pleasurable commenting experience.


Related Posts: