{"id":192629,"date":"2009-03-11T17:53:00","date_gmt":"2009-03-11T22:53:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2009\/03\/11\/someone-who-gets-it\/"},"modified":"2009-03-11T17:53:00","modified_gmt":"2009-03-11T22:53:00","slug":"someone-who-gets-it","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2009\/03\/11\/someone-who-gets-it\/","title":{"rendered":"Someone Who Gets it"},"content":{"rendered":"

David Leonhardt, who notes in the New York Times<\/span> that the banks took outrageous and stupid risks because they expected<\/span> to be bailed out by the taxpayer<\/a>:<\/p>\n

….<\/p>\n

The economists were George Akerlof, who would later win a Nobel Prize, and Paul Romer, the renowned expert on economic growth. In the paper, they argued that several financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.<\/p>\n

In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer said, would have operated in a completely different manner. The investors displayed a \u201ctotal disregard for even the most basic principles of lending,\u201d failing to verify standard information about their borrowers or, in some cases, even to ask for that information.<\/p>\n

The investors \u201cacted as if future losses were somebody else\u2019s problem,\u201d the economists wrote. \u201cThey were right.\u201d<\/p>\n

On Tuesday morning in Washington, Ben Bernanke, the Federal Reserve chairman, gave a speech that read like a sad coda to the \u201cLooting\u201d paper. Because the government is unwilling to let big, interconnected financial firms fail \u2014 and because people at those firms knew it \u2014 they engaged in what Mr. Bernanke called \u201cexcessive risk-taking.\u201d To prevent such problems in the future, he called for tougher regulation.<\/p>\n

….<\/p>\n

Do you remember the mea culpa that Alan Greenspan, Mr. Bernanke\u2019s predecessor, delivered on Capitol Hill last fall? He said that he was \u201cin a state of shocked disbelief\u201d that \u201cthe self-interest\u201d of Wall Street bankers hadn\u2019t prevented this mess.<\/p>\n

He shouldn\u2019t have been. The looting theory explains why his laissez-faire theory didn\u2019t hold up. The bankers were acting in their self-interest, after all.<\/p>\n

….<\/p>\n

In effect, the bankers had siphoned off this bailout money in advance, years before the government had spent it.<\/p><\/blockquote>\n

About the only thing that I disagree about is that he does not suggest real and deliberate criminality.<\/p>\n

Go Read.<\/p>\n","protected":false},"excerpt":{"rendered":"

David Leonhardt, who notes in the New York Times that the banks took outrageous and stupid risks because they expected to be bailed out by the taxpayer: …. The economists were George Akerlof, who would later win a Nobel Prize, and Paul Romer, the renowned expert on economic growth. In the paper, they argued that …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[970,1004,1002,985],"tags":[],"class_list":["post-192629","post","type-post","status-publish","format-standard","hentry","category-corruption","category-finance","category-good-writing","category-regulation"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/192629"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=192629"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/192629\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=192629"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=192629"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=192629"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}