Here's a recent Davey Stromism:
But it has become increasingly clear that the transformation of the credit problems of last year into the crisis of today has one main author-the federal government.
Sigmund Spot would really like to put Davey on the couch some time.
Let Spot put it as kindly as he can: No, Davey, you're a moron.
Aw, come on Spot; let Davey explain himself!
All right, grasshopper:
Looking back there's a pretty simple reason why these extraordinary measures [the bailouts and the $700 billion "rescue" package] failed to prevent the ongoing meltdown of the financial system: in the eyes of investors the federal government has replaced one systemic risk-the possible default of major financial institutions-with another-the sudden evaporation of their investment values through a government takeover of whatever financial institution they might choose to invest in.
Yes, Davey, Bear Stearns, Fannie and Freddie, and AIG were such great investments just before Uncle Sam stepped in! Why, Warren Buffet, George Soros (both Democrats, by the way), and the Saudi princes were just lined up waiting to invest in these outfits before the gummint intervened with deeds so foul they can scarce be contemplated without an attack of the vapors.
Let Spot explain something to you, Davey. Equity, or investors as you like to call them, are at the bottom of the heap, last in line, sucking the hind . . .
We get the idea, Spotty.
Okay. So when a company free markets itself into the ground, there is no "investment value" left. Davey, it may be helpful for you to think of the investment value as having been Raptured.
Poof! It's gone! Just dirty underwear left.
Private investors don't want to invest new money in a rotting corpse, or even loan money to one. It's called throwing good money after bad. How to attract new investors? By stopping the bleeding. How do you do that? Typically by bankruptcy or receivership. It is only after the bad stuff is cut out - and the equity holders and junior lenders, as the case may be, take the necessary haircut - that private investors take an interest in what's left.
Government intervention works the same way, in cases where it concludes that an insolvent institution cannot just be allowed to fail, because of the effect it will have on the economy.
But Davey come up with an economist, a classmate of King Banaian's no doubt, who posits the most ass-backward theory of providing the certainty that investors want:
By intervening so directly in the financial markets the federal government has caused what economist Robert Higgs of the Independent Institute called "regime uncertainty" in describing the perverse effects government interventions in the economy during the Great Depression.
Under conditions of regime uncertainty investors stay on the sidelines because they are don't know what the prevailing rules in the markets will be in the future. Changes in government policy-especially changes that seem to occur in a rapid fashion-erode the confidence that investors need in order to decide whether or where to deploy capital in the market.
Jeebus Christmas. Do you think, boys and girls, that J.P. Morgan Chase would have had any interest in that rat hole Bear Stearns without either a bankruptcy bath or financial assurances from the federal government? And investors, far from being afraid of government intervention, have hung on Henry Paulsen's every word and every vote out of the House of Representatives.
Regime Uncertainty® brand patent medicine is one of the bigger frauds ever peddled by the Minnesota Free Market Institute's traveling medicine show.
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