Post at Naked Capitalism from yesterday where Yves takes exception to Sorkin's approach to look at how the government "made money" on the nationalization of the AIG insurance scheme.
Sorkin (and one has to assume the Administration) is now trying a new angle on “the TARP made money” canard by arguing that the way to look at the investment is by treating the Fed/Treasury “investment” jointly, as opposed to looking at the TARP (Treasury program) in isolation. That is just another exercise in three card monte. If you are going to include Fed actions, you need to look at them in aggregate, and not cherry pick the ones that suit your case. The Fed’s apparent recouping of its “investment” in garbage barges like Maiden Lane 2 and 3 results from its extraordinary interventions to goose the prices of financial assets, including the alphabet soup of special facilities during the crisis, ZIRP, and QE and QE2. These represent a considerable transfer of wealth away from savers to financial institutions, by design. The most colorful account of how this worked comes from Steve Waldman:....I interpret that what Yves is positing is that the government, through the monetary policy actions of liquidity provision, ZIRP, and QE somehow acted to increase the prices of certain real and financial assets to "false levels" and then sold them off at a breakeven or small profit. And she is playing a "gotcha" with Sorkin, and the govenment really would have "lost money", etc...
This reasoning at core is not dis-similar to what someone like Peter Schiff would also posit. Complete with the "goose the prices" phrase.
It misses the point that the government is NOT "like a business" and "has to make a profit". It is based on the false assertion that we should be concerned that the "the government might lose money". This is all absurd to begin with.
The whole spirit of this type of reasoning also elevates the importance and efficacy of monetary policy in general, and distracts public attention away from the current opportunity to expose the impotence of monetary policy.
The Fed providing liquidity provision against qualified collateral (that Mike has chronicled here often) is not unreasonable and indeed is a large part of their responsibility as lender of last resort to the depository institutions in the banking system. The record indicates that the effects of the Fed's QE2 program was to actually lower US Treasury financial asset prices, not raise them (ask Bill Gross's wallet). And ZIRP as MMT has for a long time, and now others are starting to make the case, actually results in fiscal drag as it reduces net interest payments from the government to the non-government sector.
None of this helps to raise asset prices to in effect "false levels", none of this really helps anything. It's just a huge moron-fest and waste of time.
Then she brings in a piece by Steve Waldman where he makes an analogy to drug use or something and again this is similar to your typical debt doomsday crowd argument that we're "addicted to debt" or "addicted to deficits" or some such nonsense and is not helpful. Please let's leave the "drug addiction" analogy to government policy to the debt morons Steve.
The problem I may have with the Sorkin piece is that he even is concerned at all about whether the government "makes money" to begin with and wastes time and diverts public attention to irrelevant issues.
Yves and Steve: Sorkin is leading you on a wild goose chase here... don't fall for it.
1 comment:
Matt -- I don't know if you will see this as I am behind in my reading. There is, I believe, some evidence that prices in asset classes such as stocks and commodities were increased by the QE, etc., actions of the Fed. The analysis goes something like this: Since the efforts of the Fed are pushing down interest rates to the zero bound, investors are forced to look elsewhere for yield, especially retirees, pension funds and insurance companies. The extra money flowing into these asset classes is pushing prices up artificially. And, of course, the vampire squids have developed all kinds of financialized products to make it easier for small investors to invest in commodities and other such illiquid assets and to give the squids another way to extract some rent.
Also, Yves is quite familiar with the MMT paradigm, but picks her battles carefully as she has a more diverse audience than MNE. She sets her arguments in the framework of those whom she is criticizing so she can debunk them on their own terms. I think there is an important role for this even though it leaves out the MMT analysis. We have got to get these so called experts brought down off their high horses so the public might be more receptive to the MMT framework.
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