Are we being "rescued" to death?

[Torqued pork]

http://www.smartmoney.com/Investing/Economy/The-Beginning-of-the-End-for-Investing/

[john c]

I have considerable faith in the market.  I also don't mind seeing the market go down in order to get "healed".  Although regulatory level is a political football, I've come to believe that too little is worse than too much.  That said, I distinguish between reasonable regulation (levels of which most of us would agree are proper) and political tomfoolery (which is what we are primarily seeing now).  I believe the latter is very detrimental except for one point, that being that, hopefully, voters (in both parties) will come to their senses.

[SpareRib]

Today from the WSJ

http://blogs.wsj.com/deals/2009/02/23/mean-street-obamas-dow-5000/?mod=yahoo_hs

At its core, the market is a measure of belief — the belief that investors can make money by buying a slice of America.

And a plummeting Dow means they really don't believe in the country. Or in you. 

You need to turn this around and fast. Here's some advice:

[SpareRib]

http://www.bostonherald.com/business/general/view/2009_02_25_Edward_Johnson_Slams_FDR_'New_Deal_II_:_Blames_feds_for_crisis__derides_U_S__spending/srvc=home&position=5

"We can only hope that the government's cure doesn't further sicken the patient," Johnson wrote in his annual update on Fidelity's performance over the past year.

"During the '30s, Congress - with guidance from the president and the same kind of good intentions - shifted the country's cash flow away from productive businesses to government make-work projects, which most likely prolonged the Great Depression," wrote Johnson, arguably Boston's most powerful business executive.

As for the financial-system crisis, Johnson also took a somewhat anti-government conservative view toward its causes, saying "this climate was caused by many well-intentioned policies - stimulated by individuals at high levels in government and sanctioned by regulatory structures."


and another high profile voice in the wilderness. ...

[Biggus Piggus]

"During the '30s, Congress - with guidance from the president and the same kind of good intentions - shifted the country's cash flow away from productive businesses to government make-work projects, which most likely prolonged the Great Depression," wrote Johnson, arguably Boston's most powerful business executive.

Claiming the New Deal "most likely prolonged the Great Depression" is pretty far from the consensus view.  I know it has been a popular Republican point of view for 70 years, but they have a vested interest in maintaining that position.  You can choose your economist du jour to support any particular point of view re: New Deal that you want.  As a group, the majority do not believe the New Deal worsened the Depression.

I know this much, though.  Most of the anti-New Deal arguments lean on the unemployment rate, and the unemployment rate they ALL use is erroneous.  They choose to regard everyone who was working in a government work program as unemployed, which was kinda sorta the point of the New Deal, to make work for people who didn't have any.

As it is, nobody's so-called stimulus or recovery plan has come close to trying to create as many make-work jobs as the New Deal did.

[Biggus Piggus]

Today from the WSJ

http://blogs.wsj.com/deals/2009/02/23/mean-street-obamas-dow-5000/?mod=yahoo_hs

At its core, the market is a measure of belief — the belief that investors can make money by buying a slice of America.

And a plummeting Dow means they really don’t believe in the country. Or in you. 

You need to turn this around and fast. Here’s some advice:

The attempts to politicize the stock market are getting pretty loopy.  It's not what's going on.  The frailty of giant banks is what's going on.

[SpareRib]

The attempts to politicize the stock market are getting pretty loopy.  It's not what's going on.  The frailty of giant banks is what's going on.

Biggus, I agree that the banks are at the very nexus of the dilemma, but I'm not sure if the condition of the banks is the problem or the result.  Lack of government oversight contributed to their present situation.  Public lack of faith in present plans coming out of Washington for the solution is evident in the market.  Further, Washington has indicated that the worst is yet to come ...  not confidence inspiring.  I find it hard to separate politics from finance in this regard.

[Niels Boar]

Claiming the New Deal "most likely prolonged the Great Depression" is pretty far from the consensus view.  I know it has been a popular Republican point of view for 70 years, but they have a vested interest in maintaining that position.  You can choose your economist du jour to support any particular point of view re: New Deal that you want.  As a group, the majority do not believe the New Deal worsened the Depression.

I know this much, though.  Most of the anti-New Deal arguments lean on the unemployment rate, and the unemployment rate they ALL use is erroneous.  They choose to regard everyone who was working in a government work program as unemployed, which was kinda sorta the point of the New Deal, to make work for people who didn't have any.

As it is, nobody's so-called stimulus or recovery plan has come close to trying to create as many make-work jobs as the New Deal did.

Several points.  The economy and employment got a lot worse in 1937(?) when FDR tried to balance the budget. Right?  Also, some of the federal stimulus of the New Deal got negated by the states severely reducing spending. If interest rates are essentially zero and the private sector isn't spending, I don't see how the government borrowing cheap and spending makes the economy worse.  It seems to me that the market arguments only make sense if government borrowing is crowding out private borrowing, which should result in a rise in interest rates.  Lastly, what eventually got us out of the Great Depression was the most massive government spending period in US history.  Most men had government jobs with bayonettes, and the deficit as a percentage of GDP during and shortly after WWII will still dwarf this year's.

[HotlantaHog]

The biggest cause of the Great Depression was bad monetary policy, according to Milton Friedman and Anna Schwartz, his co-author. The central bank kept interest rates too high too long because it was worried about speculation, among other things. That helped feed into a collapse of the banking system, falling prices, which led to more bank failures, and the process fed on itself. And another error was protectionist trade policy.

I think the stimulus package was problematic -- it was not designed nearly as well as it could have and should have been. But given where we are in the credit freeze, it was entirely responsible to try to stimulate the economy. I am very worried about deficits over the long term, but the time to have switched into deficit fighting was 2002 and not when the economy is on the verge of another depression.

As far as the banking system, I know I am in the minority but I am encouraged by the effective nationalization of Citigroup and the stress tests. Citi was near failure last year and had to be taken over by the government. While they could have done this through the FDIC route, I don't fault them for doing it through issuance of shares which does very much penalize Citi shareholders. (They should dump Citi's management too.) The stress tests are going to force some banks to raise more capital, from the government or other means (selling noncore assets.) There should be more confidence in the banks in another six months if this is successful. If the tests aren't rigorous enough -- and again the course of unemployment, GDP, and housing will be clearer in six months -- they can be done again. We seem on the path of a recovery.