(Guest Post by Matthew Ladner)
Ok- so I don’t like Bill O’Reilly, don’t watch his show, etc.
I also think that he should have made a more substantive case against Frank. Anybody who buys stock based on what some Congressman says on CNBC, after all, is asking for trouble, especially if it is Barney Frank.
Having said that, Frank’s story he tries to get out about doing something about the Freddies as soon as he became chairman is simply revisionist spin.
3 Comments | 
economics | Tagged: Bailout, Barney Frank, Bill O'Reilly, Credit Crunch | 
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Posted by matthewladner
George Carlin compares football and baseball.
The congressional bailout isn’t the only scheme that redistributes resources, punishing excellence and rewarding failure. The National Football League’s revenue sharing scheme does the same. All football teams, regardless of their performance or fan base, draw an equal share of the TV revenue, which is the lion’s share of all revenue in football. Doing so rewards teams that flop and undermines the incentive to excel.
The arguments for revenue sharing are unpersuasive. People say that revenue sharing produces parity, where all teams have an equal chance of winning, which makes it more exciting to watch. But flipping a coin also has parity, with an equal chance of either side “winning.” Who wants to watch a coin being flipped?
I think what people really want — or at least should want — is excellence. That is, sport offers fans the chance to see excellence in athletic achievement. If all we wanted to see was parity, people would fill stadiums to see little league games where the players are randomly assigned to teams. Instead, people fill stadiums to see the very best athletes doing the very best they can.
Now, it’s true that we wouldn’t see excellence if one team could beat the other without effort. If teams could simply buy so much superiority that they didn’t have to try to win, we would be disappointed. But the reality is that without revenue sharing teams still cannot be assured victory, especially over an entire season.
Just look at Major League Baseball, which has limited revenue sharing and historically had none. The highest spending baseball teams cannot assure themselves a spot in the playoffs, so they must regularly try hard. There is a relationship between how much a baseball team spends on its payroll and how many games it wins, but that relationship isn’t very strong. In 2008 the correlation between team payroll and regular season games won was only .33. Consider that the top three payroll teams (Yankees, Mets, and Tigers) aren’t in the post-season, while the Tampa Bay Rays, who spent 1/5 as much as the Yankees, are.
We shouldn’t want to see no correlation between team payroll and success because the revenue partially serves as a reward for winning, motivating excellence. It’s also true that larger media market teams get more revenue without necessarily winning more games. But we should want larger market teams to have a better chance of having the resources to win. After all, those teams have more fans. We wouldn’t want to shut large market teams out of the post-season and turn-off the bulk of the nation’s fans. So, it is altogether fitting and proper (as A. Lincoln would say) that Los Angeles and Chicago each have two teams in the baseball playoffs even while NY has none. And small market teams like Tampa Bay and Milwaukee clearly still have a fighting chance.
Obviously, it wouldn’t be any fun to have a team that never had a hope of winning because its market was too small to generate the revenue for a competitive team. But if there were such a team the solution would be to move that team to larger market rather than to move revenue to the market that wasn’t viable.
So, this weekend I’ll be watching the baseball playoffs rather than the NFL. I’d rather watch excellence than a coin being flipped.
Leave a Comment » | economics | Tagged: Jay Greene, Jay P. Greene, revenue sharing | Permalink
Posted by Jay P. Greene
(Guest Post by Matthew Ladner)
Las Vegas (AP) Casino companies have entered into talks with the Ladner and Loftis LLP regarding a possible recapitalization of select Las Vegas Resorts.
Unable to resist economic gravity as in previous economic downturns, Las Vegas casinos have been laying off employees. “Las Vegas casinos are a great American institution,” noted James Loftis “the government got us into this mess, and the free market is going to have to get us out.”
“Vegas casinos face a short-term liquidity crunch. We will provide needed financial assistance,” noted Matthew Ladner. “We may even MAKE money on this deal!”
The precise assets to be purchased remain under negotiation, but are likely to include many hours at the tables, cigars, drinks out by the waterfall at the Wynn, multiple bets on college football games, and an umbrella drink or three by the pool.
L&L partners wouldn’t comment on ongoing negotiations, but rumors say that the bailout weekend may occur on the weekend of October 18th. The L&L partnership are raising funds from potential equity partners, or better yet, taxpayer funding.
“If we are going to subsidize real estate speculation, why not blackjack? It’s much more fun,” Ladner stated.
UPDATE: L&L officials confirmed the securing of a line credit from the newly formed Strategery Capital Management, LLC. An L&L official anonymously commented “Laissez Les Bon Temps Roulez!”
2 Comments | economics | Tagged: Bailout, Credit Crunch | Permalink
Posted by matthewladner
(Guest Post by Matthew Ladner)
If I live to be 120 years old, I won’t live to see a statement so brazenly and knowingly mistaken as the one uttered by Congressman Barney Frank (D-MA) regarding the current financial crisis: “The private sector got us into this mess. The government has to get us out of it.”
Say the statement out loud. Swish the sour taste in your mouth. This statement is the precise opposite of the truth. As chairman of the House Financial Services committee, Frank knows better.
It was in fact the public sector that got us into the subprime mess: specifically, government sponsored entities Fannie Mae and Freddie Mac. These “Government Sponsored Entities” engaged in social engineering in the housing market by buying up reckless mortgages. Perversely, lenders now had no incentive to consider the credit worthiness of borrowers, as they could quickly off-load even absurd mortgages to the GSE’s.
On September 30th, 1999 the New York Times reported on Congressional efforts to expand subprime lending. “Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain phenomenal growth in profits,” the Times reported.
“Fannie Mae has expanded home ownership for millions of families in the 1990s by reducing down payment requirements,” Franklin Raines, former Clinton administration official and Fannie Mae chairman told the Times. “Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”
Raines made this statement as a justification for Fannie Mae easing the credit requirements on loans purchased from lenders. In other words, Fannie blew even harder into the housing bubble. “By expanding the types of loans it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than stellar credit ratings,” the New York Times reported.
See video on unsuccessful efforts to rein in Freddie and Fannie from 2004-2005 here:
Sadly in all of this, the housing market social engineers were unable to suspend the law of unintended consequences. Bartenders became would be real estate moguls, and the lenders played along collecting fees secure in the knowledge that when it all went south, they wouldn’t be left holding the bag. Speculative bubbles thrive on someone making a quick buck, drawing others into trying to do the same. Freddie and Fannie fueled the bonfire of stupidity.
The ultimate blame lies not with the lenders, but rather with those who created the perverse incentives.
Sadly, similar economic myths have been promoted in the past, and still afflict us to this day. As a university student, I was fed the story of how the Great Depression proved the ultimate failure of free-markets, and how the administration of Franklin Roosevelt heroically saved the nation from crisis.
This version of history is also very much at odds with the truth. Research by Milton Friedman and others has firmly established that the Stock Market Crash of 1929 played only a limited role in creating and sustaining the Great Depression. Rather, a series of policy errors by Congress, the Hoover Administration (creating a global trade war), the Federal Reserve (tightening monetary policy during a contraction) and the Roosevelt Administration (too many errors to list) created a prolonged downturn.
The United States had suffered plenty of stock market crashes, and economic downturns. What stands out about the Great Depression is not that it happened, but rather that it lasted so long due to a series of tragic missteps.
This too provides a lesson for today: the main thing we should fear are not bank failures or stock market declines, but rather the rushed and foolish actions of politicians. The only thing we have to fear is not fear itself, but rather fear and reckless government mistakes.
Congressman Frank, who defended Freddie and Fannie from attempt to rein them in after scandals emerged, was even so brazen as to dismissively put this crisis “back to Ronald Reagan, when at his inauguration he said, ‘Government is not the answer to our problems; government is the problem.’”
Sorry Congressman: Reagan got it exactly right and you have it precisely wrong.
20 Comments | economics | Tagged: Barney Frank, Credit Crunch | Permalink
Posted by matthewladner
(Guest post by Greg Forster)
Since I’m on the subject of the lack of decent standards for public debate in America (see below), could supporters of the bailout please observe a moritorium on the following practices?
1. Attributing to opponents of the bailout, without citation, the position that a general economic crash or depression would be “no big deal,” or not as bad as the bailout. As far as I can see, the most common argument against the bailout seems to be that no general economic crash will occur. You may disagree; you may even have difficulty taking that position seriously. But to say that they’re cool with destroying the American economy is really a pretty obvious straw man. (Except, of course, in those rare cases where you actually do catch somebody saying that a depression would be no big deal, as here. But attributing that view to opponents of the bailout generally seems to me to be clearly false.)
2. Calling opponents of the bailout “irresponsible,” as several people did in The Corner last night. Of course, the position that a new Great Depression would be no big deal would indeed be irresponsible – if opponents of the bailout held it. But they don’t. As I understand it, they think financial markets will take a sizeable hit, as a natural result of bad investment decisions made by the major Wall Street firms under prompting from two decades of really bad housing policy in Washington, and then life will go back to normal. They further think (again, as I understand it) that the bad decisions made during the housing boom are going to have economic consequences regardless of what we do, and it’s better for those consequences to fall quickly on those who deserve them than to spread them out over all of society and have them take a long time to clear. (And that’s to say nothing of the opportunity the bailout bill offers for the authors of the old bad housing policies to enact new bad housing policies as part of the bailout.)
Let me be very clear that I have no opinion on the merits of the bailout itself, and I’m glad that it’s not my job to have one. It seems to me – and I’m no finance expert, so I welcome correction if I have this wrong – that the argument for the bailout goes roughly as follows:
1. We are in a financial panic.
2. During a financial panic, markets don’t price assets rationally in the short term (this is what I think is meant when people talk about assets being basically sound but having a “liquidity problem”).
3. If nothing is done to correct this irrationality, panics escalate into general economic crashes.
4. During a panic, the Treasury Department (or some other government entity) is able to price assets more rationally than the maket in the short term, and thus it can avert a general crash by buying the assets and then selling them off after the panic has subsided and markets are rational again.
Now, all of these are, at bottom, claims about empirical facts. And I lack the factual knowledge to say whether any of them is true or false. People whose opinion I respect are falling on both sides of the fence. And I have no pressing need to sort through all their arguments to figure it all out. So I’m content not to have an opinion.
But if I did have to choose, I’d start by looking at which side is treating the other side more fairly. It’s a pretty good rule of thumb (though not infallible) that the people who are in fact right are going to be more confident they have truth on their side, and you can tell who are really confident they have truth on their side by looking at who’s afraid of a fair exchange of ideas.
3 Comments | economics | Tagged: Credit Crunch, Greg Forster | Permalink
Posted by Greg Forster
If there really were a credit crunch requiring a massive government bailout (even via an insurance scheme), it shouldn’t be the case that people could currently obtain mortgages, auto loans , and consumer loans at reasonable rates. If credit were scarce, interest rates for these loans should be really high and/or impossible to get. Neither is the case, so the claims of a crunch are false.
6 Comments | economics | Tagged: Credit Crunch | Permalink
Posted by Jay P. Greene
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