Since the Obama administration doesn't seem to have any good ideas for solving the financial crisis, let me put one of my old ones forward again.
We have two problems:
One, we're a lot poorer than we thought we were two years ago. Only years of hard, smart work are going to get us out of that problem. The most obvious ways government can help are too get off the backs of productive enterprises -- lift anti-discrimination regulations, the more extreme environmental regulations, and the like.
The other problem is something the government might possibly be able to help with. And that is that it's currently prudent to assume there is a high probability that any financial institution you might want to deal with could be broke because their books are black boxes, especially the mortgage-backed securities they own. So, you don't want to invest in them or lend them money because you don't understand their financial position. This uncertainty over the value of financial instruments linked to mortgages can make things even worse than they really are -- All we have to fear is fear itself, etc.
So, it's time for the government to open up the black boxes by requiring all parties to mortgages, mortgage-backed securities, and derivatives tied to mortgage-backed securities to post everything on line. Privacy be damned.
Then, let Wikipedia or something else like that start accumulating information pertaining to the value of each mortgaged property in America: connect to Google Maps street shots, Zillow price estimates, how much comparable homes in the neighborhood are renting for, Census data on local demographics, you name it. This info on each mortgage could then be linked to the mortgage-backed securities that hold slices of that mortgage. From that, informed market prices for mortgage-backed securities (and related derivatives) could emerge.
This process of wide-open public price discovery would no doubt lead to some pretty appalling discoveries about what prices for these financial assets ought to be, but so be it. It's better than not knowing how much gigantic assets are worth.
We have two problems:
One, we're a lot poorer than we thought we were two years ago. Only years of hard, smart work are going to get us out of that problem. The most obvious ways government can help are too get off the backs of productive enterprises -- lift anti-discrimination regulations, the more extreme environmental regulations, and the like.
The other problem is something the government might possibly be able to help with. And that is that it's currently prudent to assume there is a high probability that any financial institution you might want to deal with could be broke because their books are black boxes, especially the mortgage-backed securities they own. So, you don't want to invest in them or lend them money because you don't understand their financial position. This uncertainty over the value of financial instruments linked to mortgages can make things even worse than they really are -- All we have to fear is fear itself, etc.
So, it's time for the government to open up the black boxes by requiring all parties to mortgages, mortgage-backed securities, and derivatives tied to mortgage-backed securities to post everything on line. Privacy be damned.
Then, let Wikipedia or something else like that start accumulating information pertaining to the value of each mortgaged property in America: connect to Google Maps street shots, Zillow price estimates, how much comparable homes in the neighborhood are renting for, Census data on local demographics, you name it. This info on each mortgage could then be linked to the mortgage-backed securities that hold slices of that mortgage. From that, informed market prices for mortgage-backed securities (and related derivatives) could emerge.
This process of wide-open public price discovery would no doubt lead to some pretty appalling discoveries about what prices for these financial assets ought to be, but so be it. It's better than not knowing how much gigantic assets are worth.
My published articles are archived at iSteve.com -- Steve Sailer
This sounds like too much work and effort- can't we just throw several billion dollars at the problem? No? How about a trilion? Two? Is there no way that I can just write a check and then go back to pretending that everything is okay? I'm voting for the guy who tells me magic works.
ReplyDeleteToo sensible and straightforward to be adopted by bureaucrats and politicians
ReplyDeleteCome on, Steve! You're making too much sense. Stop it!
ReplyDeleteWhich environmental regulations do you want to dismantle? The ones which let you see the San Gabriel Mountains from the 405?
ReplyDeleteWhat makes you think politicians and banksters are interested in 'solving' the problems they profit from?
ReplyDeleteA central problem that Obama is ignoring is that the level of public debt is itself reducing demand. The fancy name for this is Richardian Equivalence.
ReplyDeleteCommonsensically the public is afraid of the ballooning deficit.
The solution I would propose is similar to Steves, but would apply to all regulation: Let’s fastrack a large share of projects the private and public sector have proposed the last (say) decade and that were stopped or sowed due to regulation, environmental or other. The most obvious example is offshore drilling. Another example is nuclear power and nuclear storage (fast-track is obviously relative).
You could easily get several hundred billions of stimulus over the next few years without any direct cost to the taxpayer.
A few other examples:
Temporarily Relax sale restriction of weapons systems.
Temporarily Relax forging embargos, such as Cuba. In order not to lose face we can call this tests of good will.
A comment and a modest* suggestion:
ReplyDelete(1) Things aren't bad enough to get the gov't to loosen productivity- destroying regulations. To a majority of the politically-active, those regulations are their prize, the reward they want from politics-- and those folk are quite willing to sacrifice national productivity on their regulatory altar.
(2) Perhaps something less than full disclosure could still be useful: the FDIC could certify banks having no exposure (or very little) to dubious structured securities. Most of those banks might be new ones, or ones which would emerge from some kind of horsetrading. Of course, the marketplace might prefer the "clean" banks, which would further weaken the "dirty" banks, which is precisely why the FDIC (and Fed, and all the rest) have refused to divide the sheep from the goats so far. Still, such a sorting might still be easier to get than "full disclosure" and might deliver a portion of the benefits which full disclosure would provide.
*No irony here, sorry.
Are you sure that lack of information is still the bottleneck here? We haven't had any banks go under in a while; some are INSOLVENT but that's a financial not an information problem.
ReplyDeleteSO how 'bout we return the 7-8 million illegal workers (and their dependents) back to where they belong? Fewer uninsured patients, fewer students in public schools, and 7-8 million jobs in need of filling that will compensate for the 4 million Americans who have lost theirs. Teenagers could go back to work doing the jobs they used to do and help pay their way with mom and dad, and save money for college.
ReplyDeleteOh - and the IQ of the average American would rise.
Which environmental regulations do you want to dismantle? The ones which let you see the San Gabriel Mountains from the 405?
ReplyDeleteA clean environment is nice, but it's also sometimes a luxury. One reason the air has gotten so much cleaner is that so much of our heavy industry has been offshored. That's partly cause, that's partly effect, but it's true all the same.
Full transparency? Geez, what are you, nuts? The whole system works on faith, hello!
ReplyDeleteFull transparency? Geez, what are you, nuts? The whole system works on faith, hello!
ReplyDeleteExactly.
If the books were such that a reasonable, intelligent person could look them over and not start thinking about canned goods ammo, there would never have been a credit crunch in the first place.
Speaking of the census:
ReplyDeleteThe Obama administration wants to control the 2010 census. This would be the first time in history where the white-house would control the census. The black and Hispanic caucuses are claiming that a Republican can't be trusted to "count minorities," so Obama wants the White house to take it over.
The real reason for this-in my opinion-is for a future plan that entails redistributing NAMs across white communities. Since the economy is shot Obama may try to use white communities as a dumping point for unproductive NAMs. Anyway, check out this very important article:
http://online.wsj.com/article/SB123423384887066377.html?mod=googlenews_wsj
The former Asst. Sec. of the Treasury Paul Craig Roberts suggests declaring null and void the trillions of dollars in credit default swaps (CDS). This would go far to produce some assurance that a bank's books are not loaded with toxic waste
ReplyDeletecheck out wikinvest.com.
ReplyDeleteI think it will end up replacing Morningstar, Moody's etc.
Here's another idea. Shiller says that confidence is critical.
ReplyDeleteIn our full-information society today, propaganda won't work.
Hence we must do something that rationally will raise confidence.
So spend a trillion or so, as fast as you can, on nuclear power plants.
That will mean that there will be lots of energy in the future, and folks will want to invest in the US now.
Probably also restrict immigration so that the energy won't be used up simply in heating homes, etc., but will be used in production of useful goods in the US.
The problem, Mr. Sailer, is that if the banks revealed their entire balance sheets, there is a large possibility of a bank run. Presumably, there is a reason why the banks want to keep their balance sheets secret, even with the damage it is causing them. I assume it is because revealing their balance sheets would cause even more damage.
ReplyDelete-Victor
Victoria said
ReplyDeleteif the banks revealed their entire balance sheets, there is a large possibility of a bank run. Presumably, there is a reason why the banks want to keep their balance sheets secret
Then these banks are crooked. If I knew the facts pertaining to my deposits, and any rational actor in my position would pull his deposits out, a bank that conceals the facts from me is stealing from me. He expects me to go down the drain blindfolded in order to furnish him with a stay of execution.
but don't you understand?? the bankers did it! all their fault!! no questions asked!!!
ReplyDelete"This process of wide-open public price discovery would no doubt lead to some pretty appalling discoveries about what prices for these financial assets ought to be, but so be it. It's better than not knowing how much gigantic assets are worth."
ReplyDeleteYour idea sounds great. But you know full well the elites would rather bust the US than let that come out. Most of them have enough dough stashed away in their Swiss mountain cottages, so money is not the central issue. But losing face is something they will not suffer at any price, except maybe their lives.
Steve, I used to think along these lines as well. But it misses the elephant in the china shop. The invisible hand in this is not so much the corrupt elite bankers, even though of course just want our money and for us to shut up. It’s that the governments have too much to lose. They have enormous debts but also assets tied up in these banks. If they fail the governments are broke (as immediately), and then the rioting begins. Pols could lose their heads (literally). This is the real reason.
ReplyDelete