Archive for September 2008
This guy puts it in perspective. As I haved stated before Trust is what drives our financial system.
To put it in terms of Sunday football. Would you watch the NFL and have faith that it is fair if the referees were paid by the teams and favored the teams that paid them the most?
If the world loses faith in the fairness of the American economic system we will see a collapse that makes the Great Depression laughable. It is essential that we fairly reward winners and losers and allow or economy (not politicians) the freedom to pick them.
Is the root cause of the financial crisis house values falling or over valued houses?
It is essential to understand this distinction to know how to properly solve the problem. Depending on which disease is diagnosed the country should prescribe 2 very different medicines.
If the problem is that house prices are falling then the solution is to make them more expensive. The government would do this by inflating house prices and forcing people to buy them. This would be accomplished by injecting cash into the economy that can only be used to purchase houses. (the bailout)
If the problem is that houses were overvalued then the solution is to get them properly valued as quickly as possible. The solution to this would be to do nothing. Allow the market to correct itself and possibly remove the programs that allowed houses to get over valued in the first place. (no bailout)
In the first case the ones that would benefit are the people that own houses and mortgages that are overvalued. In the second case the prudent investor that did not jump on the easy money train will be rewarded.
It is important to remember that every dollar spent on housing is a dollar that can not be spent on infrastructure, health care, education and defense. It is not possible to have our cake and eat it too.
The questions are what sort of behavior should be rewarded? And where is the most productive place for the dwindling capital that exists in our country?
Last night to a packed house at Tipitinas 504ward announced their business plan competition. The applications are do by 5:04 pm on December 4th.
Here are more details:
“One winner will be selected out of 5 finalists who are flown to New Orleans, if not already in the region. Three different committees will evaluate the applicants during various stages of the competition and the final decision will be made, in part, by an audience of 23-35 year olds in New Orleans.
Resources for winning entrepreneur:
1. $100,000 cash prize
2. Strategic business consulting and customized execution plan with The Idea Village
3. Professional services and resources (office space, web development, legal, marketing, website optimization, PR, advertising, etc.)”
All information can be found here. Also they created an inspirational video that can be viewed below.
The financial meltdown the economists of the Austrian School predicted has arrived.
We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy – all the capital misallocation, all the malinvestment – and prevent the market’s attempt to re-establish rational pricing of houses and other assets.
Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I’d only be repeating what I’ve been saying over and over – not just for the past several days, but for years and even decades.
Still, at least a few observations are necessary.
The president assures us that his administration “is working with Congress to address the root cause behind much of the instability in our markets.” Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?
We are told that “low interest rates” led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments – investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.