Dr. George Reisman
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In The Pipeline
Free Money Finance
After hearing that Caterpillar had to pay a lot to raise capital in a bond sale last week — paying 3.25% over the rate for U.S. Treasuries — I suspected there might be an opportunity in corporate bonds. The banks are illiquid, but I'm not, so maybe I can make some money here.
There are probably few things more dangerous than a novice bond investor wish cash in his pocket. Fortunately I won't have to learn this lesson the hard way. I started looking at bonds and discovered that the high yields among "investment-grade" bonds are all in the financial sector. And oh my, are they high! When I see bank bonds with double-digit yields rated as A1/A+, I know I'm looking at craziness. Nothing looked attractive at all. (And a company like Caterpillar isn't attractive either; it just got me interested in the idea.)
With savings account and CD rates so low, and with a bailout plan on the way that will devalue the dollar, I'm looking for someplace to go. My glimmer of hope in bonds got crushed, and both stocks and precious metals (except for gold) have behaved poorly this year. Something ought to be cheap right now. I'm just not sure what that is.
Maybe I should give up and buy expensive toys while my money is still worth something.
I am resolutely opposed to the proposed bailout. I do not want to invest in those rotten mortgage-backed securities, and I'm incensed that my government is going to force me to do it.
I remain deeply skeptical that any bailout of any kind is even useful, much less necessary. If anything is to be done at all, I would much prefer Kling's proposal to anything being considered by Congress.
My preferred outcome is for the government to do nothing at all. If these banks and investment companies are on the verge of collapse, we should let them die.
Everyone is worried — although few are willing to state it in such terms — that if we do nothing, the economy may collapse into a depression. I do think it's important to acknowledge that this is possible. The credit crunch we're in right now really is of historic proportions; a major change in the economy is inevitable. However — and this is where I break with common thought — I believe government intervention will slow the process of recovery.
Bankruptcies and liquidations would do us good. The bailout plan's raison d'être is to prevent bankruptcies and liquidations, deliberately prolonging the malinvestments currently in the system.
The Great Depression was not caused by the credit crunch. The Great Depression was caused by government policies (wage and price controls, National Industrial Recovery Act, public works programs) aimed at preventing price adjustments and the liquidation of failed businesses. At the present time the calls for intervention haven't spread beyond the financial sector… but if they do, we could indeed be witnessing the beginning of a Second Great Depression.
If we'd let the financial meltdown play out by itself, we could see a sharp but short recession. Think 1921, not the 1930s.
All Those Things I Meant To Say
I haven't been blogging very much in the past few months. Nothing's wrong; my relative silence has been for all the right reasons — I've acquired a girlfriend and we've been consuming each others' free time, plus a little more.
Here's a quick rundown of a few things I wanted to say, even though this is no longer timely.
So the judge doesn't think it was wrong to break the law. I guess he agreed with the defense's argument:
I see. It looks like we should elucidate the principles guiding this argument. Would the judge be so lenient if it were an on-call surgeon parking illegally? What if it was just someone with a sprained ankle who doesn't want to walk from a legal parking spot? What if it were the mayor or a congressman? If we think the law is bad, we should move quickly to fix the law. I, and all citizens, need to be able to know in advance what circumstances make it acceptable to ignore the ordinary rules.
Naturally, the job of the police is to enforce the law … without breaking it. It is not acceptable for them to ignore the law because it doesn't contain a loophole they wish it did. I couldn't get away with that. Neither should they.
I have a couple other examples of police misconduct. In Florida, an officer was fired after trying to shake down a coffee shop for free stuff, both on and off duty:
Taking for granted that the accusation is true, this disgrace of an officer has been serving for 15 years. I cringe at the thought of what other evil he has done. There's no way extortion for free coffee is the only thing he's done wrong.
In Tennessee, a man was illegally arrested after refusing to delete pictures he took of an officer during a traffic stop. Some followup posts go into additional detail. I find this argument completely convincing:
In counterintuitive health news, a research review has shown that breast self-exams are a bad idea. The researchers don't state it so bluntly, but I was gratified that they came close: "a rational choice would be not to do regular breast self-examination" and "We don't want to recommend against it but there's no evidence to recommend for it".
I'm still waiting patiently for politicians to admit mandating corn ethanol for gasoline was a bad idea. But that's politics, not science, so I'm not holding my breath.
Oh yeah, Fannie Mae and Freddie Mac got nationalized. Of course I think this is terrible, that there is no such thing as "too big to fail", and that these institutions should have been allowed to fail.
If I had time for blogging, I'd say more about that. But I don't. :(