Ape Man

The Dow was up almost a 1,000 points today. Governments around the world have guaranteed with their lives that there will be no more problems. And I mean that in the most literal way possible. The sums that European Governments have thrown at the problem are out of this world. From Brad Setser….

The US and the major European central banks have effectively agreed to lend without limit to make good on their pledge to avoid a systemic bank failure. All major financial institutions in the G-10 ultimately now have access — through their national central bank — to the Fed. This isn’t quite a global lender of last resort (in dollars) but it is close. Banks are different than countries, so the analogy is imprecise — but back when emerging economies had trouble rolling over their short-term dollar debts during the crises of 97-98, the G-7 never pledged to lend “any amount” needed.

And as if that was not enough, consider this from Bloomberg…

France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders, racing to prevent the collapse of the financial system.

In case you have forgotten how to count, that is a lot of money.

There are a lot of similar stories around. I lost track of all the things that were being done to save the world. It doesn’t really matter. The long and the short of it is that there will be no big banks failing in America or Western Europe anytime in near future. If there are any future big crises in either of those two places, it will because governments have trouble raising money at prices they can afford to pay.

No prizes for guessing whether I think there will be any future big crises. But I can’t really take any pride in being a Doom and Gloomer anymore. Everyone is doing it these days.

But one thing I do find interesting is that most Doom and Gloomer’s think that current plans coming out of Europe are a good thing. They are pleased that the US jumping on the same bandwagon. It is considered the only realistic way to restore stability to the financial world.

I find this interesting because I remember people talking about how the integration of the world’s markets was going to make everything more stable. It was argued that it would be next to impossible for one thing to go down when everything was tied together.

Back then, it was the Doom and Gloomer types who argued that this was not so. They argued that the fact that everything was tied together was encouraging people to take more risk. They argued the fact that everyone was tied together meant that the financial system was losing critical redundancy. The Doom and Gloomers argued that if you took those two things together, it was clear that the whole system was in danger of going down.

Score one for the Doom and Gloomers.

But now we find the Doom and Gloomers arguing that the government should back stop the whole system. This is the only way that it is possible to make things even more integrated then they already are. This can only make sense if the problems are not serious and mostly due to panic. If the problems are serious, then we are just guaranteeing that everything will go down at the same time.

Put it another way, in a real emergency you have to perform triage. You can’t just run around saying “I am going to save everybody.” I mean, you can say it, but can’t actually try to do it or you will just make everything worse.

Look at Iceland, for example. They have to pick and choose their battles really carefully. The government simply can’t do everything it wants to do. But it took them a bit of time to face up to that fact. Their early attempts to pretend they could handle it all simply made things worse.

In bigger and more wealthy countries the idea that the government might not be able to save everything does not yet seemed to have sunk in yet.

Switching subjects….

The reaction to Paul Krugman getting a Noble prize in Economics has been bothering me way more then it should. Nothing can ruin a good healthy dislike like having other people share it.

Look, I don’t like the guy. There are some days when I really don’t like the guy. But seeing how other people who don’t like Krugman have reacted to him getting the prize has embarrassed me to no end. Nobody has any class in this country anymore.

As far back as I can remember, everyone has known that Krugman was going to get a Noble prize for economics. Like him or not, his work has been very influential in his field. And since economics is not really a hard science, that is all you can really go by when deciding whether someone deserves a prize or not. So by the rules of the game, Krugman deserved the prize.

Spewing out insults and carrying on just because someone got what everyone knew he had coming to him is just too pathetic for words.

Sure the Swedes might have given it to him this year as opposed to some other year just to insult Bush. But so what? Since when does any red blooded American care what the Europeans think? I will give Bush this much: he does not care what the Europeans think.

Admittedly, I am not a fan of Bush. But even if I was, hopefully I would not stoop so low as to rain on the parade of a guy who got what was coming to him even if was given for the wrong motives.

Look at it this way: if they had given the prize this year to a European (like I thought they were going to this year) the prize money would have stayed in Europe. By giving it to Krugman they have injected the money into the US financial system. Given our current problems, every bit helps. In fact, I only wished they had given him more money.

This world would be a better place if every time a group of Europeans decided to insult Bush they had to give money to some American. Heck, I would be rounding up liberals for them to give money to.

Don’t get me wrong. I still want to see Krugman punished for all of his sins. That is why I hope Obama makes him Treasury Secretary.

Not likely to happen. But I can dream.

This entry was posted on Monday, October 13th, 2008 at 7:43 pm and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.