May 24, 2013
May 22, 2013
They launched the 'Arab Spring' but now yearn for the good old days of a strongman
May 20, 2013
Richard A. Serrano: Is Meir Kahane's assassin now a changed man?
Genetic copies of living people from embryos no longer science fiction
Jewz in the Newz by Nate Bloom :
The Kosher Gourmet by Cathy Pollak:
Jews Inducted into Rock Hall of Fame; Anton Yelchin co-stars in New "Trek" film; Kutcher (but not Kunis) visits Israel; Jewish TV Star Praises Jewish Rap Star
WARNING: This WALNUT CAKE WITH PRALINE FROSTING, perfect for afternoon coffee, is addicting
May 13, 2013
Rabbi Nathan Lopes Cardozo: Why the giving of the document that would permanently change the world could only be done in desolation
David G. Savage:
Church-state, literally? Supreme Court weighing public school graduation in a church
May 10, 2013
Rabbi Berel Wein: Be all that you should be
May 8, 2013
Peter Ford: Why China is welcoming both Israel's Netanyahu and Palestinians' Abbas
Obama administration quietly backs out of appeal over new contraceptive mandate
At Kerry-Putin meeting, US-Russia relations thaw --- a tad
The Kosher Gourmet by Leela Cyd Ross :
Almost too pretty to eat, this colorful salad with Sicilian inspiration will tickle the taste buds and delight your visual sensibility
May 6, 2013
May 3, 2013
Kids, kittens the Same?
With employee perks at struggling Internet pioneer Yahoo! it's hard to tell
Artificial kidney offers hope to patients tethered to a dialysis machine
April 29, 2013
Poland's new Jewish museum celebrates life, doesn't revisit Holocaust
Terrorism in America: Is US missing a chance to learn from failed plots?
Boston Bomber's 'Svengali' Revealed
Tiny satellites + cellphones = cheaper 'eyes in the sky' for NASA
April 26, 2013
Clifford D. May:
Defense in the Age of Jihadist Terrorism
Sharon Palmer, R.D.:
How to feel your best -- with plenty of energy, a healthy weight and optimal mental and physical function -- without driving yourself batty
April 24, 2013
Jewish World Review
August 16, 2007
/ 2 Elul, 5767
Folly and the Fed
Exactly a century ago, panic seized financial markets.
The collateral for perhaps half the bank loans in New York was securities whose values had been inflated by speculation. Then on Saturday night, Nov. 2, 1907, a 70-year-old man gathered some fellow financiers at his home at 36th and Madison in Manhattan. The next morning, a New York Times headline proclaimed:
"BANKERS CONFER WITH MR. MORGAN, Long Discussion in His Library Not Ended Until 4 O'Clock." Both the Times and The Washington Post ("BANKERS IN CONFERENCE: Money Stringency and Remedial Measures Discussed in Morgan's Library") noted that bankers shuttled between meetings at Morgan's mansion and the Waldorf-Astoria in a newfangled conveyance an automobile. Working 19 hours a day, and restricting himself on doctor's orders to 20 cigars a day, J.P. Morgan seemed so heroic that the president of Princeton University, Woodrow Wilson, said the financier should chair a panel of intellectuals who would advise the nation on its future.
Six years later, however, under Wilson as the nation's President, the Federal Reserve System was created, ending the era when a few titans of finance could be what central banks now are the economy's "lenders of last resort." Central banks have been performing that role during today's turmoil in the market for subprime mortgages those granted to the least creditworthy borrowers.
The ill wind blowing through that market has blown two goods: The public mind has been refreshed regarding the concept of moral hazard. And the electorate has been reminded of just how reliably liberal Hillary Clinton is.
|FREE SUBSCRIPTION TO INFLUENTIAL NEWSLETTER|
Every weekday NewsAndOpinion.com publishes what many in the media and Washington consider "must-reading". HUNDREDS of columnists and cartoonists regularly appear. Sign up for the daily update. It's free. Just click here.
Moral hazard exists when a policy produces incentives for perverse behavior. One such existing policy is farm price supports that reduce the cost to farmers of overproduction. Another is the policy of removing tens of millions of voters from the income tax rolls, thereby making government largesse a free good for them.
And this would be such a policy: the Federal Reserve lowering the cost of money whenever risky lending to a sector of the economy (e.g., housing) makes that sector desperate for lower interest rates. Many banks, hedge funds and other institutions have pocketed profits from their dealings in the subprime market. The losses are theirs, too.
Clinton leapt to explain the subprime problem in the terms of liberalism's master narrative the victimization of the many by the few.
In a speech favorably contrasting a "shared responsibility" society with an "on your own" society, she said, in effect, that distressed subprime borrowers are not responsible for their behavior. "Unsavory" lenders, she said, had used "unfair lending practices." Doubtless there are as many unsavory lenders as there are unsavory politicians. So, voters and borrowers: caveat emptor.
But this, too, is true: Every improvident loan requires an improvident borrower to seek and accept it. Furthermore, when there is no penalty for folly such as getting a variable-rate mortgage that will be ruinous if the rate varies upward folly proliferates. To get a mortgage is usually to commit capitalism; it is to make an investment in the hope of gain. And if lenders know that whenever they go too far and require inexpensive money the Federal Reserve will provide it with low interest rates, then going too far will not really be going too far.
In 2008, as voters assess their well-being, several million households with adjustable-rate home mortgages will have their housing costs increase.
Defaults, too, will increase. That will be a perverse incentive for the political class to be compassionate toward themselves in the name of compassion toward borrowers, with money to bail out borrowers. If elected politicians controlled the Federal Reserve, they would lower interest rates. Fortunately, we have insulated the Federal Reserve from democracy.
The Federal Reserve's proper mission is not to produce a particular rate of economic growth or unemployment, or to cure injuries to certain sectors of the economy. It is to preserve the currency as a store of value to contain inflation. The fact that inflation remains a worry is testimony to the fundamental soundness of the economy, in spite of turbulence in a small slice of one sector.
Ron Chernow, in his book "The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance" (1990), says Morgan's 1907 rescue was the last time private bankers "loomed so much larger than regulators in a crisis. Afterward, the pendulum would swing decidedly toward government financial management." Happily, Chairman Ben Bernanke's Federal Reserve remains committed to minimal management, which is what government does best.
Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.
George Will's latest book is "With a Happy Eye but: America and the World, 1997-2002" to purchase a copy, click here. Comment on this column by clicking here.
© 2006 WPWG
Richard Z. Chesnoff
Frank J. Gaffney
Victor Davis Hanson
A. Barton Hinkle
Judge A. Napolitano
Cokie & Steve Roberts
Debra J. Saunders
J. D. Crowe
Ask Doctor K