In hindsight, the crisis ended – precisely – on March 16, 2009, when the Financial Accounting Standards Board abandoned FAS 157 “mark-to-market” accounting, in response to Congressional pressure from the House Committee on Financial Services on March 12, 2009. That change immediately removed the threat of widespread insolvency by making insolvency opaque. My impression is that much of the market’s confidence and oversensitivity to quantitative easing stems from misattribution of the initial recovery to QE. This has created a nearly self-fulfilling superstition that links the level of stock prices directly to the size of the Fed’s balance sheet, despite the absence of any reliable or historically demonstrable transmission mechanism that relates the two with any precision at all.
The FOMC certainly had a part in creating a low-interest rate environment that provoked a reach-for-yield and a gush of demand for securities backed by mortgage lending of increasingly poor credit quality (I’ll note in passing that new issuance of “covenant lite” debt has now eclipsed the pre-crisis peak largely due to the same yield-seeking). Still, it may ease the burden of power to consider the likelihood that the actions of the Federal Reserve – though clearly supportive of the mortgage market – were not responsible for the recovery. One can thank the FASB for that, provided we’re all comfortable with the reduced transparency that results from mark-to-model and mark-to-unicorn accounting.
Looking Back November 25, 2013
Unbelievable Fiasco November 16, 2013
There’s another one besides Obamacare?
The new chairperson’s hopeful view is detached from reality. In a critical upshot of years of flawed policymaking, central bank liquidity these days greatly prefers Bubble securities markets to real economies. Having now fueled a full-fledged global securities market Bubble, there will be no “returning to a more normal approach to monetary policy.” It’s a myth in the same vein as the Fed’s 2011 “exit strategy.” It’s now a matter of how long until this “how crazy do things get” phase runs its fateful course.
I sympathize with Dr. Yellen. Her predecessors were never held accountable. Deeply flawed economic doctrine has yet to be called out. History’s greatest monetary experiment has not yet run its course. Inflationism, with the contemporary version cloaked in sophisticated and elegant rationalizations, is widely accepted by policymakers, Wall Street, the media and popular commentators alike. Meanwhile, the great flaw in discretionary monetary policymaking has come to fruition: a major error has ensured a series of ever greater policy blunders and a course toward catastrophic failure. It’s an unbelievable fiasco – and I don’t see how this historic Bubble doesn’t burst on her watch.
Kinda Like I Said… November 6, 2013
…long, long ago, on a website far, far away…
If you’ve read that, this should sound somewhat familiar:
Healthcare will not be truly competitive or cost effective until the patient is the one in the drivers seat. The patient should be informed, empowered to make care decisions and should pay the bill.
The bill should be discussed and agreed upon before service, whenever possible. Service prices should be posted so that consumers can comparison shop.
Right now patients are the point of service but are not part of the decision process. ACA did not change that and, in my mind, that is its greatest shortcoming.
Emphasis mine. And, sadly, at the rate (and direction) we’re going, we’ll never get there.
The Health Insurance Problem October 24, 2013
I wrote this a looong time ago (in February ’05) back on the old site. And as we all know with the current Obamacare mess that’s unfolding on the front pages each day, we’re still headed in the wrong direction (IMO), never to turn back again.
My opinion hasn’t changed…
Wow, what a concept. Like no one has ever thought of actually paying for their health care costs out of their pocket before.
Which brings BMB to one of his pet peeves, and that is the whole idea of health insurance.
First off, the idea that health care is “free” if you have health insurance is absurd. Take a look at your pay stubs and see how much is taken out each time to pay the premiums on your health insurance coverage. You’re paying for it. Now more than ever. And as the costs go up, you’re complaining about it. But you’re partly to blame.
And here’s where BMB sticks his neck out when it comes to the rising costs of health care:
I maintain that health insurance, while it was intended to be part of the ‘solution’, is a large part of the problem.
The widespread availability and use of health insurance discourages competition in the health care industry. It discourages the consumer from “shopping around” for better prices on any of their health care needs, be it prescription drugs, office visits, tests, etc. It also prevents and/or discourages the consumer from even asking what a particular test or procedure might cost, or whether it’s even necessary. We just let the doctors do “what they think needs to be done” without asking any questions or wondering how much it’s going to cost – after all, “insurance is paying for it.”
Baloney – YOU are paying for it every time you make that payment on your health insurance premium (Where do you think the insurance company gets their money? Bingo – from you and your employer.). And you never even bother to find out what any of your actual health care costs are, until after the bill arrives. And then, the insurance company pays it – or at least, most of it. Would you do that when shopping for a car, or for your groceries? Would you walk into Wal-Mart and start grabbing stuff off the shelves without knowing what they cost? Of course you wouldn’t – but that’s what you do when you go to the doctor. Do you see a nice lighted board above the reception desk with the prices listed on it?? NO. Why?? Because they don’t even really have a predetermined price list — it depends on who will be paying the bill.
What’s the first question they ask at the doctor’s office when you call for an appointment? Yes, you know: “What insurance do you have?” Why do they ask? Because, 1) they want to know they will be paid – can’t blame them for that, but 2) The insurance you have not only determines how much they’ll charge for your visit, but in many cases, also determines what they will do!! If your insurance company doesn’t cover a certain procedure, the doctor won’t do that. And vice versa, the doctor may perform a certain procedure just because your insurance company does cover it! That is a broken system, and it needs fixing. And “health care coverage for everyone” is NOT the right answer.
We need a system that leans back toward paying cash for office visits and simple procedures, and gets away from hiding the real costs from the consumer, thereby increasing competition in the industry and driving prices down.
I’m not saying we shouldn’t have some sort of catastrophic coverage, but I think we should move toward a health care model that is similar to our auto insurance model. We carry auto insurance for the big things like theft and accidents, but our insurance does not cover regular maintenance and simple procedures like oil changes. And that forces shops to actually advertise their pricing and tell you what an oil change or minor repair will cost you before you agree to have it done. Even for major repairs, they’ll give you a quote before they do the work. That’s the way our health care system used to work — and we need to get moving back in that direction to get things back in order.
Think about it.
Paradigm Breakdown October 22, 2013
I’ve believed we are at the end of an economic paradigm, and the way out of those in the past has been breakdown. In ECONNED, I listed four theories, and I believe the last was the most problematic:
Cognitive regulatory capture, meaning the regulators have adopted the industry worldview, which makes them reluctant to act.
Extortion, meaning that the financial services industry controls infrastructure that is essential to capitalism, and cannot be displaced except at very high cost. Think of what happened to the civilization at Ur when the king shut down the overly powerful lenders.
State capture, meaning the financial services industry now has the status of oligarchs in third world countries, having used its economic clout to buy so much political influence that they largely dictate policy regarding its interests.
Paradigm breakdown, meaning key elements of the current system are no longer viable, but that is a possibility that no one is prepared to face, since the old system seemed to work well for a protracted period. Thus the authorities reflexively put duct tape on the machinery rather than hazard a teardown.
All these factors play a role in the hesitance to impose tough reforms, but the most intractable and least recognized is the last, the difficulty of seeing that the failings of the current system are deeply rooted and not amenable to simple remedies. Any resolution of the major problems facing the financial system would take a good deal of time, care, and persistent effort, and would simultaneously be highly politicized. That makes it very likely that the financial services industry will derail or blunt reform efforts. That in turn means the current paradigm will be patched up and restored to service only to fail again. This pattern will replay until the breakdown is beyond repair…
So it’s not surprising that experts like Akyüz see only grim outcomes and no ready way out. The incumbents are simply unwilling to risk, both politically and economically, the degree of intervention needed to come up with or even ease the way to a new set of institutional arrangements. Ideas like a jobs guarantee, which would be far more salutary than a lot of other alternatives, are dismissed as too far out to even get a serious hearing. The authorities have done an impressive job of keeping a badly impaired system limping along, and it might even have periods of credible-looking improvement. But as Herbert Stein said, “If something cannot go on forever, it will stop.” So the end game seems inevitable, even if the timing is unclear.
Nothing Else Matters October 21, 2013
As Scott Bleier put it:
The problem, obviously, is that once the Fed has no choice but to start easing off the Koolaid, whether that means S&P at 2000, 5000, 10,000 or much more, only then will the market finally awake to years of pent up fiscal policy mistakes but courtesy of the inflationary inferno that the very same central bankers will have created, there will be nobody to run to.
But that’s in the future. For now, all that matters as Mr. Sack-O-Money put it, is that “the stock market is up.” Nothing else matters.
Until it matters.
Comin’ After It October 16, 2013
If they think they need to, they’ll come after your money. Don’t think they won’t.
Cyprus was not a one-time thing. It just proved they’ll do it.
It goes on to build a case for drastic measures and recommends a series of escalating income and consumption tax increases culminating in the direct confiscation of assets.
Yes, you read that right. But don’t take it from me. The report itself says:
“The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”— a one-off tax on private wealth—as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair). …
Just the fact they have the nerve to say these things is enough to prove they have the nerve to do it — and the fact that they’ve already done it…
Don’t ya like that part that says, “if it is implemented before avoidance is possible”?
We were wondering just how long it would take for the rest to figure out this wasn’t going to work — after all, we were warned.
ObamaCare promised a free lunch: universal (or near-universal) coverage at lower cost without any diminution of quality or choice. It’s a perpetual-motion machine. But even the Supreme Court can’t strike down the laws of physics. If a large number of people benefit from ObamaCare–itself a big if–somebody has to pay. Much of the burden was supposed to fall on young, healthy people, who frequently do not have medical insurance. To compensate for price controls on premiums for patients with pre-existing conditions, their premiums would be jacked up. Somehow higher prices are supposed to induce them to get insured.
Link from Instapundit.
This Is It October 12, 2013
An inflation target; an unemployment rate target; a target for the short-term “Fed funds” rate; a target for market bond yields; and now, perhaps, a GDP target. Lots of policy targets that obfuscate the Fed’s true intentions: The Fed is trapped in a desperate monetary inflation and there is apparently no mechanism to rein in our central bank.
Our great nation’s brilliant Founding Fathers clearly appreciated the perils of unsound money. They understood the dangers of excessive power and the necessity for checks and balances. They would have never anticipated an American central bank printing money without restraint. There was a major flaw in the structure of the Federal Reserve System – and for central bank structures generally. I just don’t think anyone ever anticipated that central bankers might someday resort to creating Trillions of “money” as they do today – on a whim or academic theory. The Federal Reserve needs some basic concrete rules. It’s insanity to allow a small group of unelected officials the discretion to pump $85bn – or more! – of purchasing power into the markets every month. It’s undemocratic, highly risky and this has gone on for much too long. If there was one issue worth closing down the government and risking default, this would be it.
Seriously Folks October 9, 2013
As long as Randal brought it up…
Here’s Larry Doyle on Janet Yellen — The Wrong Choice:
New and risky policies? In hopes of lowering unemployment?
Remember, hope is certainly an important virtue but when it comes to finance and central bank policy . . . hope is a lousy hedge.
Creating bubbles via QE may be nice for those with excess reserves buying cheap assets (i.e. Wall Street banks and the like), but let’s be honest. How has QE really helped the Fed in its stated mandates of lowering unemployment and generating stable prices?
Whatever happened to sound central bank policy in which a currency is defended and rigorous regulatory oversight of banking practices is delivered? I guess that approach remains dead and buried in the midst of the central bank cesspool filled by Alan Greenspan and further filled by Ben Bernanke.
Seriously folks, bring an extra set of waders and navigate accordingly.
Then again, if there’s anything we can count on from politicians and/or central bankers these days, it’s that they’ll make “the wrong choice.”