read the entire essayPeople often ask me, "What do you think the government should do instead of QE inflation?" My stock answer is that the government should not try to fight the depression with government spending and cheap credit. Trying to stop the market from correcting the errors of the past only delays the consequences and makes them much worse.
Government should balance its budget. There should be no new credit expansion by the Federal Reserve. Most importantly, government should not meddle in markets to try to soften the consequences of the correction. Specifically, that means no bailouts, stimulus packages, or new public-works projects. Do not prop up wages. Allow competition to lower the prices of land, labor, and capital. The only positive steps for government to take are implementing tax cuts and spending cuts, eliminating regulations, and allowing free trade.
Now, I have a name for this policy. It's called the "Lehman Bros. plan," after Lehman Brothers, the large financial firm on Wall Street that was allowed to go bankrupt in September 2008. This plan relies on allowing big firms to fail. Had this policy been followed from the beginning, I have little doubt that the crisis would already be over and we would not have added to the debt problem.
Thursday, May 26, 2011
Free Market Solutions
Wednesday, October 8, 2008
Richard Fund: Knocked Out
Mr Fuld, who has been testifying on the financial crisis before the US House Oversight Committee, was attacked on a Sunday shortly after it was announced that the banking giant was bankrupt.
Following rumours that the incident had occurred, Vicki Ward, a US journalist, said "two very senior sources - one incredibly senior source" had confirmed it to her. "He went to the gym after ... Lehman was announced as going under," she told CNBC. "He was on a treadmill with a heart monitor on. Someone was in the corner, pumping iron and he walked over and he knocked him out cold.
"And frankly after having watched [Mr Fuld's testimony to the committee], I'd have done the same too."
"I thought he was shameless ... I thought it was appalling. He blamed everyone ... He blamed everybody but himself."
source
Tuesday, September 16, 2008
Monday, September 15, 2008
Lehman Brothers Bankrupt
Why did Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson change their tune?
Experts say the Fed's lack of action on Lehman wasn't as much a change in thinking as it was a change in circumstance. They say simply that the firms were very different - that Bear posed a greater risk - and that regulators were better prepared this time to deal with the consequences of a failure.
"The system wasn't ready for Bear to fail in March," said Jaret Seiberg, financial services analyst for policy research firm Stanford Group. "It couldn't have been unwound in an orderly fashion."
read the CNN storyWall Street Has a Bad Day
The Dow Jones industrial average lost 504 points, or 4.4%. It was the biggest one-day decline for the Dow on a point basis since Sept. 17, 2001, when the market reopened for trading after having been closed in the aftermath of 9/11 terrorist attacks. On a percentage basis, it was the biggest decline since July 19, 2002..."It was an ugly day," said James King, president and chief investment officer at National Penn Investors Trust Company. "Lehman's failure to find a suitor and Merrill deciding to cash in their chips before a similar fate could befall them really stoked the fears of the public."
AIG exacerbated those fears in the afternoon. And all the bad news isn't out there yet, King said. "Investor confidence is at the lowest point we've seen in a while."
He said that after the government bailout of Fannie Mae and Freddie Mac last week and all the other financial market bad news, this was just too much for investors...
Global markets tumbled as investors reeled after Lehman Brothers filed for bankruptcy, Merrill Lynch was forced to sell itself to Bank of America and investors awaited AIG's restructuring announcement.
read the CNN story