Bear Market
(posted by Angelica)
It wasn’t so long ago that Alex Tabarrok was wondering out loud, “What credit crunch?”
I’ve been too slammed with work and stuff to blog, but over the weekend, the fifth largest investment bank in the US, Bear Stearns, went bye bye.
Instead of letting the bloated beast poison the well of the frozen financial market perched on the precipice of a meltdown (note: before you snark, it’s a joke, OK), Uncle Bernanke rode to the rescue, facilitating a takeover of Bear by JPMorgan, putting up $30bn of taxpayers’ money on the line to guarantee Bear’s “less liquid” assets.
There is not as much indignation in the liberal blogisphere about the Fed’s bailout of Bear’s creditors as I would have expected. I think it helps that Bear Stearns’ stockholders will truly have to suffer. Still, the howls for regulation so that this would not happen again are strong — people are not happy about how the profits have been private during the good times and now the losses are being socialized. Here’s Kevin Drum, Mr. Reasonable Liberal himself:
…we’ve seen the run on the pound; the Mexican collapse; the Asian collapse; the LTCM smashup; the dotcom bust; and now the subprime debacle. The next big argument, I assume, is going to be between people like Greenspan, who essentially say there’s nothing we can do about this, and others who think that reining in the wild west of global finance a bit might be a useful thing to do. Count me in the latter camp.
Quite. We are tasting the bitter fruits of deregulation. I know there are many on this blog who would argue that the it was government action in one form or another, say Greenspan’s depression of interest rates, that caused the housing bubble to inflate in the first place. I would tend to agree. Greenspan “solve[d] the problems of a collapsing bubble by blowing up another“, to quote Larry Elliott, the economics editor of the Guardian, who characterized Greenspan’s actions as “the most irresponsible behaviour of any central banker in living memory.”
The system we have is not a free market, and pretending that it is and letting the wolves of Wall Street run amok is nothing short of folly.
Tags: , central banking, deregulation, Wall street
March 18th, 2008 at 6:18 pm
As soon as Tabarrok familiarizes himself with the credit crunch, he should let Old Man Bush take him on a field trip to the supermarket to look at one of those newfangled cash registers with the bar code reader. Or get Monty Burns to introduce him to some of that “so-called ‘iced cream.’” There’s a whole world out there full of novel experiences.
As you say, Greenspan caused this by blowing up the consumer credit and housing bubbles immediately after the tech one went bust. And his record-breaking irresponsibility has led directly to what he himself admitted will likely be the biggest crisis of the postwar period.