Sumner Severally Suprises Silas

(The title was going to be "Sumner Surprises Me Again", but I wanted it to be an alliteration.)

Once again, I let loose with another complaint about mainstream monetary economics, and once again Scott Sumner casually agrees that there's a dilemma.

I say,

... considering that dinosaur banks can borrow at 0% by only putting up toxic MBSes as collateral, ...

Why can’t *I* get secured loans from the Fed at 0%? Why should big banks have all the fun?

And Sumner replies

Silas, Good question.

Then, I get keyboard crease marks in my forehead.

Setting the future economy straight

Gennady Stolyarov II does it much better than I can in a guest post on Bob Murphy's blog.

My summary: young people are f'ed. New and existing laws, along with entrenched norms, make it effectively impossible for them to succeed through standard education and career paths. Success has become decoupled from merit, and the upcoming generation will be barred from home-ownership, even if they're responsible. A constellation of irresponsible financial policies by the government shifts most of the cost of government to these young people through ever-growing inflation, taxes, and one-size-fits-all laws. The only answer is for the new generation to break from traditional norms and bypass the standard dinosaur institutions, using new technologies -- mainly the internet -- to meet their economic needs, without the waste and inefficiency that has crept into the system over time.

Lots of thoughts I've had, but put together with rigor I have yet to match on the issue.

Government loan to Chrysler now a gift

So it turns out that all that money the government "loaned" to bankrupt Chrysler doesn't have to be paid back, making it a gift, a handout, a chunk of free money. (Incidentally, this is one of my complaints about the whole vocabulary of discussing the crisis. Companies whine about how they need "liquidity" or "credit" or "short-term working capital". No. They need free money. More on that some other time.)

It just gets worse with every passing day. First, it was, "Don't worry guys, we're just giving loans to troubled companies, they'll pay them back, it's not like we're favoring anyone here!"

And now they throw all that to the wind, making it a $7 billion gift to failing Chrysler to cover up its complete inability to meet its obligations, and draw in people who had nothing to do with the management of Chrysler. (A friend and I dubbed it the "bridge loan to nowhere".)

Gee, when do *I* get my $7 billion loan that I don't have to pay back. I'll make sure to pay taxes on it! (Anyone think Chrysler's going to do the same for their "lobbying income"?)

A version of this is cross-posted as a comment at Naked Capitalsim.

A Big-Three-Bailout argument that just might work...

When they couldn't convince anyone they had a clue what they were doing, the Big Three resorted to doom-and-gloom about all the spillover damage onto poor, innocent workers that would ensue if they failed. But even that isn't working. Maybe it's too abstract? Not enough emotional appeal?

Don't worry, Silas X to the rescue! In this video, I show them how to really win over the hearts and minds of our elected representatives!

"Cynical comment left elsewhere" of the day

I've been pretty fed up with the combined favoritism and outright stupidity in the financial system these days. This has led me to guess that any exchange involving a promise from a large, old (and therefore probably protected at all costs by our Overlords in Washington) corporation is going to, less and less often, be treated as something they have to *sigh* actually honor. With Sears and K-Mart reinstituting layaway (in which you make installment payments and then, after the last, receive the product), I figured this would be just another promise you can't trust anymore.

Well, a former happy customer of layaway services, calling herself "Princess of Swords", didn't seem to notice this trend and so disputed my prediction in a discussion on a Megan McArdle post. (UPDATE: previous link was to the wrong site.) Here, I post my response, in which you'll start to understand the basis for my pessimism:

******

Princess_of_Swords: Thanks for taking the time to detail your experience with the intricacies and standard practices prevailing with respect to layaway at the time you availed yourself of it.

Now I'm going to explain to you how it works in the real world.

In the real world, an obligation no longer means anything.

-GM was obligated to pay pensions. They didn't even bother to internally classify them on the same level as a bond, until forced to by law.

-Insurance companies are obligated to pay when disaster strikes. They fight as hard as they can to avoid paying, even for plain vanilla cases.

-Individual consumers buy things on credit, deferring the first payment for a long while. They are routinely caught not having saved for that big first payment.

-Securities brokers engage in naked short-selling of stocks, which obligates them to produce actual ownership of that stock at a later date. Yet as we've seen recently, they've ended up flooding the market with fake stocks and then casually aver that they "can't locate your stocks" and offer to reverse your purchase as if it were no big deal.

-Gift card issuers are unilaterally stealing money from gift card owners on the grounds that "they need it" because they're in financial trouble, despite having obligated themselves to treat the gift cards as equivalent to cash.

-AIG got a massive bailout from the Fed, but, we were assured, they would be obligated to pay a hefty penalty interest rate and start immediately and orderly unwinding their enterprise. Well, the Fed went back and cut their payments in exchange for nothing, thus debasing the Fed's assets (and thus the dollar). And AIG has done virtually nothing to liquidate its assets.

You get the point. I just don't care how you think things used to work back then. We are in a new world, where only us responsible commoners have to keep our word.

Yes I'm still around

And, inspired from a different context, I drew this comic about the current credit crisis corruption.