Blame somebody for the financial crisis!

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I would not blame the FED - Greenspan did what the government asked to do: Keeping money cheap.

The FED is in its structure much more depend on Congress and Administration than e.g. the old Bundesbank or the current ECB. You had to look into the different wordings of the legal basis.

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The Federal Reserve Act states in Sec. 2a: "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

Cheap money ("moderate long-term interest rates" and "growth of the monetary and credit aggregates commensurate") is one of the objections Congress gave the FED. The FED did just what Congress asked the FED to do.

To see the difference, Art. 105 of the EC-Treaty defines the objetions of the ECB: "The primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 4."

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This is a different twist: The uppermost objection for the ECB is to keep the currency stable, all other objections are second in Line, even unemployment. This is a much different task. Only if the currency is stable, the ECB is allow to take care about other issues. The FED did only what Congress asked the FED to do - so: Blame Congress how approved Bush's budgets and blame Bush how asked for the money.

Damn I overlooked the 'everything' in the hope of finding a cure

On a more serious note have you read the article I posted earlier in the thread. It makes sense to me but then I am a bit one eyed on the subject, I am interested in your opinion of it,

http://www.wsws.org/media/nb-lecture-1208.pdf

My opinion? Annoyingly long.

While I can't see the last administration helping anything, please elucidate the mechanism by which they could be construed as responsible for the actual financial crisis.

By a stringent financial policy and vetoing the 114 Stat. 3028 in 2000 would restrict the grow the the amount of money (US-$) in a way that there would be less liquidity to fuel for this mad speculation. The amount of moneys which were created by the US-Government by issuing treasury bond needed any kind of investment - including speculative mortgage-serurities.

This speculation was fuelled by a spending and borrowing government. When Obama wants to do something reasonable than he shall raise taxes drastically and cut spending, bring the budget into significant surplus and store the money in the books. In the short run this will lead to a serious depression, but on the long run it will stabilize the system.

Mechanism? Do you mean one single process or policy? Or by mechanism - do you mean something similar to the Patriot Act - but with regards to money?

If you're looking for a history and pattern of bad processes and policies during the Bush Adminstration that MAY have led to our current WW financial crisis, then please refer to my prize-winning irrelevant rant. Mmmmmkay?

Last edited by MmeLePen on 12 Feb 2009, 10:09 pm, edited 1 time in total.

^ Umm. Something more like Dussel's explanation was what I was looking for. It isn't enough to say "Bush is incompetent". Now, if I'm reading Dussel correctly, though, we're looking at a situation in which loose money encouraged the growth of bubbles. The problem is that while on the one hand you can argue Bush's policies might have contributed to this, on the other hand you have the kind of looser money policies that got started in the Clinton administration as well as the poor strategies of the banks involved, so putting the blame squarely on the Bush administration requires rather a bit of explanation beyond an arbitrarily large list of things he did wrong.

Yup. Biting the stick while the live-on-borrowed-money-habit is amputated is the only real cure. But you know it won't happen. For this to come about the entire system must collapse.

ruveyhn

I can see this is popular here, but honestly, how many economists actually think that's a good idea?

It was YOUR polling question that asked us to lay it on one entity. And please quote me where I said "Bush is incompetent".

Jeepers...I guess you really ARE trying to blame it on one entity.

I don't mind if people want to blame it on one entity (it's more fun that way), just as long as they provide the pertinent information on why that entity is deserving of the blame.

I'm sorry if I offended you, but you're rant sounded more like a list of reasons why you dislike the former president rather than an explanation of why it was his fault.

[the usage of quotes is not intended as a word for word representation of anything you said; that's what the quote block is for]

The main problem was the way the money was spend: If a government spends borrowed money into investment of the infrastructure, education etc. than this money will raise the long term productivity of an economy. In real terms this productivity of the US is falling since decades: The numbers you can read are not real numbers, because they do not look for the competitor in other countries on the world market. Alone Germany exports more the US.

Spending money on war means creating liquidity without creating productivity or other goods. The US spend for the so-called "War on terror" about $1'200 Bio. - I do blame this money for a good part for the current crisis. Immanuel Kant wrote in 1795:

"This expedient of seeking aid within or without the state is above suspicion when the purpose is domestic economy (e.g., the improvement of roads, new settlements, establishment of stores against unfruitful years, etc.). But as an opposing machine in the antagonism of powers, a credit system which grows beyond sight and which is yet a safe debt for the present requirements--because all the creditors do not require payment at one time--constitutes a dangerous money power. This ingenious invention of a commercial people [England] in this century is dangerous because it is a war treasure which exceeds the treasures of all other states; it cannot be exhausted except by default of taxes (which is inevitable), though it can be long delayed by the stimulus to trade which occurs through the reaction of credit on industry and commerce. This facility in making war, together with the inclination to do so on the part of rulers--an inclination which seems inborn in human nature--is thus a great hindrance to perpetual peace. Therefore, to forbid this credit system must be a preliminary article of perpetual peace all the more because it must eventually entangle many innocent states in the inevitable bankruptcy and openly harm them. They are therefore justified in allying themselves against such a state and its measures."

I think he still right.

A significant minority of economists. But the governments will not listen to them, it is much more popular to spend money than to cut spendings.

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It is in this respect interesting that in Germany the "Commission for Reform of Federalism II", a commission composed of representatives of the states and the Federal Government finally agreed that the German states will not be allow to borrow any money at all and the Federal Government not more than 0.31% of the GDP from 2012 and that the constitution will be amend accordingly.

Of course its bloody long, its a complex issue needing a complex and in depth analysis. What did you expect; the typical banal and superficial rhetoric of the left wing radicals?

Well, ok. Do you want me to separate the 2 descriptions? Long & annoying?

Unfortunately some of radical left realized the Marx's Capital is big book with sometime very complex sentences, not always easy to understand, and with German professor style of footnotes (3/4 page as footnote is not rare) and now think that if they imitate this style they would also be automatically as in deep in the analysis as Marx was.

A problem with this particular text is more severe: They stuck with Marx' analysis made in 1860s. Although a lot of elements of Marx' Analysis are still true, he did deal with a state with a minimal influence on the economy. Modern capitalist states have state qoute between ~35% (USA) and more than 55% (Sweden) - Marx did not took this development into account, because it did not exist in his time. Marx neither had a developed theory of money. He switched between a metal theory (gold standard, the common money in his time) and a a theory in which money represented a certain amount of work. The text from this socialist webpage does mention this developments, and here is the weak point: It tries to explain the financial crisis within a economic framework as it existed in 1860 with a minimalist state. It does not work this way around.

The current crisis is not only product of markets going mad, but also of state intervention. Both have their fair share regarding the current trouble.