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Ever since the crash of 2008, I've found myself doing a lot of soul searching. At first, like most people, I had no idea what the crash was about. Who caused it? What political party is to blame? And for Pete's sake, what in the world is a credit default swap? I still have more questions than answers, but now that I've had some time to think, and after reading Jim Wallis' book Rediscovering Values, I'm reminded of a success seminar I attended a few years back in St. Louis, Missouri.

The stadium event was packed with wannabe millionaires. The line of speakers was nothing short of astounding. Colin Powell, Suze Orman, Steve Forbes, Zig Ziglar, George Foreman, a real estate mogul, a wealthy stock trader, and Peter Lowe -- the godfather of success. As impressive as the line of speakers was, it's the wealthy stock trader that I can't get out of my mind. To show how easy it is to get rich off the stock market, the man invited a woman from the audience to read a chart designed to aid the would-be investor to know when to buy and sell. Whenever there were three green arrows pointing upward, the woman would shout "buy!" When the same stock had three red arrows pointing downward, the woman would shout "sell!" According to the chart, the woman would have made a hefty profit in a short period of time if she had invested real money.

After the wealthy stock trader pitched his course on how to get rich off the stock market, Peter Lowe gave a power point gospel presentation designed to convince the audience of their need for a savior. The presentation showed clearly that all of us are sinners and no amount of good work or personal effort can reconcile sinful people before a holy and righteous God. It also showed that Jesus is the bridge between God and people. Since the event wasn't billed as a Christian event, there was no altar call that day. But the content of Lowe's message could have easily been given by Billy Graham. So why am I looking back at the event as something less than Christ-honoring? Ordinarily I'd be thrilled that so many people had a chance to hear the gospel in one sitting. Has my evangelistic zeal diminished over the past few years? I certainly hope not.

Here's what's bothering me. What does it say about the state of American Christianity, and the classic evangelical gospel that's been the standard for decades now, when the message of Jesus dying on the cross for our sins can be inserted into the middle of a how-to-get-rich seminar? K.P. Yohannan in his book, Revolution in World Missions, puts it this way: "Christian magazines, TV shows, and church services often put the spotlight on famous athletes, beauty queens, businessmen, and politicians who 'make it in this world and have Jesus too!'"

To be fair to Mr. Lowe, the day wasn't only about getting rich. There were many great speakers talking about worthy topics. Perhaps I'm a little bitter because I did attend the stock trader's seminar -- and paid handsomely for it. Not surprisingly, I didn't become a wealthy stock trader. I couldn't find the motivation. Looking back on it, I'm glad I didn't. At the time it didn't cross my mind that some of these companies that were mere numbers on a chart could have been either a) propping up dictators overseas b) harming the environment c) paying substandard wages to their employees or d) exploiting third-world farmers.

If there's anything that the economic crisis has taught us, it's that economies -- and I would add individuals -- that base their lifeblood on speculative financing (absent of actual labor) may gain the world in the short run, but a day of reckoning will eventually come. I wonder what Amos, Isaiah, and Micah would say about a gospel that promises eternal life in the world to come and a life of wealth and "success" in the here and now. More importantly, I wonder what Jesus would say about it.

portrait-aaron-taylorAaron D. Taylor is the author of Alone with A Jihadist: A Biblical Response to Holy War. To learn more about Aaron's ministry, go to www.aarondtaylor.com. To follow Aaron on Twitter, go to www.twitter.com/aarondtaylor. Aaron can be contacted at fromdeathtolife@gmail.com.

Sojourners relies on the support of readers like you to sustain our message and ministry.

by: fundamentalist

02-11-2010 @ 3:53pm

"If there's anything that the economic crisis has taught us, it's that economies - and I would add individuals - that base their lifeblood on speculative financing (absent of actual labor) may gain the world in the short run, but a day of reckoning will eventually come."

That's as close to the truth as I have read anyone on this blog come. For a more detailed explanation of the cause of the crisis, check out this article: "A Perfect Storm of Ignorance" at http://www.cato.org/pubs/policy_report/v32n1/cp...
Here is an excerpt:

You are familiar by now with the role of the Federal Reserve in stimulating the housing boom; the role of Fannie Mae and Freddie Mac in encouraging low-equity mortgages; and the role of the Community Reinvestment Act in mandating loans to "subprime" borrowers, meaning those who were poor credit risks. So you may think that the government caused the financial crisis. But you don't know the half of it. And neither does the government.

A full understanding of the crisis has to explain not just the housing and subprime bubbles, but why, when they popped, it should have had such disastrous worldwide effects on the financial system. The problem was that commercial banks had made a huge overinvestment in mortgage-backed bonds sold by investment banks such as Lehman Brothers."

PS, It's disgusting that a "Christian" meeting would have stock broker hucksters selling investment snake oil.

by: fundamentalist

02-11-2010 @ 4:46pm

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

Here's an excerpt:

"The results of the financial collapse that occurred in 2008 were not basically distributional in effect. Real value was apparently destroyed but should not be understood as the achievement of differential gains to some groups at the expense of others. It is not at all as if only one of two traders finds, after trade, that the good received is worthless. In the 2008 setting, everyone feels to have been somehow defrauded by the deflation of what had seemed to be real values. In the parlance of theoretical welfare economics, there occurred a Pareto inferior shift in which all persons in the nexus were made worse off by their own utility calculus. The utility functions seemed to have all shifted inward. What happened? It is as if all participants in the inclusive economic nexus were riding along on a donkey seated quite comfortably on a saddle of inflated air, until an unanticipated rupture collapsed the cushion.

"What seems noteworthy here is that the deflation of the 'hot air' in the banking-financial sector did not benefit any defined subset. The loss in utility seemed to be general over the whole and inclusive market economy. The events were such that they could have scarcely been generated by any identifiable group whose aim was to exploit others."

by: titopoet

02-11-2010 @ 5:37pm

Interesting article you posted. I read it but did not give it the attention it needs. I did notice that it did not mention Credit Default Swaps. The banks took on undo risk in the form of these unregulated time bombs, but then since CDSs would undercut the thesis of the article, only a cynic would think the authors avoided discussing it for fear that it undercut their ideology. I know it is a shock, CATO, Pravda for libertarianism, being ideological and spinning the failings of the markets.

by: fundamentalist

02-11-2010 @ 6:31pm

I think CDS's didn't fit in with the articles purpose. The author wanted to explain why banks gorged on mortgages. CDS's didn't have anything to do with morgages. They were insurance against bond defaults. Also, the CDS's didn't tank in value like the MBS's did, do partly to the bail out of AIG.

You can claim that banks took on undue risk all you want but you can't provide any evidence of it. The MBS's and CDS's were AAA and AA rated by the federally sanctioned ratings agencies. The ratings are for risk, AAA being the rating given to US government debt. You can't possibly get any less risky than that. They also strictly followed the Basel I and Basel II banking regulations which everyone in the world thought would reduce risk.

Because the author didn't write the article the way you think he should he is dishonest? That's pretty harsh judgment. Besides, if you search in Cato I'm certain you will find articles on CDS's.

by: fundamentalist

02-12-2010 @ 5:52pm

Mainstream econ agreed with Marx, not because they had found evidence that the unimpeded market is unstable; they hadn't. They did it because they believed Marx. But there are other reasons for believing mainstream econ is based on socialist principles. Mainstream econ is still essentially Keynesian. Keynes hated savings for the same reason that socialists do. Keynes did not like Soviet style socialism, but was every bit an English socialist, and as such he considered savings to be the world's greatest evil because 1) he thought it took money out of circulation (although he confused saving and hoarding) 2) he didn't like people earning money on their savings through interest and 3) he thought money ought to be available to everyone at zero interest loans. At the end of his "General Theory" he advocates for state control of all investment decisions.

Also, the monetary theory of business cycles dominated economics in the 1930's. Keynes dismissed it without criticism, so the economists who followed him ignored it as well. It still is the best theory of cycles, but mainstream economists won't even bother to criticize it. They ignored it in the 1930's because it contradicted Keynesian economics and threatened socialism.

"There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point."

I am conflating the two because there is little difference between them in the monetary theory of cycles. Sometimes banks fail during the business cycle, but the causes are still the same.

"lovely a theory though it may be in the abstract, it has severe problems in its real-world application."

How would you know? Have you read it?

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

by: Patricia

02-12-2010 @ 3:59pm

Just because a socialist made a statement that happens to agree with the position of mainstream economists does NOT mean that mainstream economists have founded their theories of economics on "socialist principles."

Marx said a lot of things that other people said - are all of them socialist, too?

And I take issue with your position that mainstream economists don't recognize business cycles. There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point.

Our agreement RE Salma Hayek notwithstanding :), I believe there is a reason the economic theory you subscribe to is a minority position - I believe that it's because, lovely a theory though it may be in the abstract, it has severe problems in its real-world application.

by: roseotter

02-11-2010 @ 7:38pm

And for a non-Cato Institute view of the causes of the current resession I invite you to visit these websites.

http://bigpicture.typepad.com/comments/2008/10/...
http://online.barrons.com/article/SB12224674299...
http://www.slate.com/id/2201641/
http://www.slate.com/id/2204583/

by: fundamentalist

02-11-2010 @ 8:31pm

I have to admit that the libertarian account of the crisis is in the minority. Politicians and the media blame greedy bankers. A few bankers are willing to go along and crucify themselves. Libertarians blame Alan Greenspan and the Federal Reserve.

Libertarians blame the fed because we hold to the monetary theory of business cycles as developed by FA Hayek. Mainstream economists don't blame anyone because they don't have a theory of business cycles. Business cycles to them are random events and as such no one causes them; they just happen. Markets are inherently unstable. It's the Fed's and government's job to clean up the mess. Politicians and the media have always blamed bankers since the first of such crises over 300 years ago; it's a Povlovian response.

Mainstream economists blame the market because their economics is founded on socialist principles. Marx said that markets are inherently stable so that has been the dogma of mainstream econ since the Keynesian revolution. Mainstream economists dismissed Hayek's monetary theory of business cycles for the same reason: it proved that markets aren't inherently unstable.

by: titopoet

02-11-2010 @ 10:15pm

My friend, if you fail mention CDSs then you miss most of the story. Malcom Galdwell's "The Sure Thing" (unfortunately not available online) documents how John Paulson used CDSs to make a fortune in Mortage back securities. Most of what was counted as mortgage loses were actually CDS taken out on bonds the busted. For every bond dollar, there was $30 dollars in bets using CDSs. So, people like Paulsen could lobby the ratings agency for AAA on bonds they were betting against with CDSs. here are some articles from the time of start of the recession http://www.bloomberg.com/apps/news?pid=20601087... http://www.bloomberg.com/apps/news?pid=20601087... http://in.reuters.com/article/rbssFinancialServ... http://www.nytimes.com/2008/12/10/business/worl...

I know many are trying to revise history, CDS were the major reason for the recession.

by: titopoet

02-11-2010 @ 10:45pm

here are more great quote from the pragmatic James M. Buchanan from the article above:

"The Glass-Stegall efforts to separate deposit and investment banking should presumably be updated and put in play. Some extension-application of the antitrust laws to the banking conglomerati- ons seems to be in order here."
Sounds like a call for regulation, maybe James M. Buchanan is now a socialist. (irony)

by: letjusticerolldown

02-12-2010 @ 1:22am

I'm thinking about a charitable donors fund. Investments are made in high quality church multiplication strategies. These are bundled together in Kingdom Securities and sold off to other Kingdom donors wanting high yield Kingdom investments. We multiply these kinds of transactions and fund the entire Kingdom enterprise through shuffling paper.

by: fundamentalist

02-12-2010 @ 12:29pm

Yeah, Buchanan does call for more regulation, which is odd considering the school of political economics he created. But that was a small part of his paper. The main point is the failure of mainstream economics before and after this crisis. Mainstream econ should be in crisis mode, but mainstream economists are completely oblivious to their amazing failure.

by: fundamentalist

02-12-2010 @ 12:35pm

CDS's were not "bets" against MBS's. They were insurance against default. And how many CDS's would have been written if MBS's didn't exist? As the Cato article demonstrates, the demand for MBS's was so great because the regulatory agencies and all mainstream economists considered them as instruments for reducing risk. And for the most part they were right. The values of CDS's would not have fallen had not the value of MBS's fallen, and the value of MBS's would not have fallen had the housing market not collapsed. Housing prices collapsed because the Fed had inflated them with cheap money.

by: titopoet

02-12-2010 @ 1:36pm

That is like saying "If the Colts would have won the superbowl, I would won my bet." CDSs are not like ordinary insurance; one does not have to own what you take out a CDS, major difference from insurance as we know it. Take for an example, if I know you are a bad driver and as a result I take out insurance on your car. Then imagine thirty other neighbors also take out insurance. If you crash, then the insurance company pays everyone. The only reason the neighbors would take out "insurance" on your car is to bet against your driving. This what CDS are, they are speculative gambling by big institutions. They bought and sold CDSs like drug addicts looking for their next fix, creating money out of thin air. CDS and the like (CDOs are in the same category) are Las Vegas writ large. If there were no CDS the loses in the MBS would have been in the same range of the S&L debacle in the early nineties. It would have hurt us, but it would have not nearly crashed the whole house of cards down as it almost did. CDS brought down Lehman, and would have brought down the whole system if the government had not had to step in.

One of the most famous illustration, and typical, is the Whitefish Bay School district loses, http://www.boston.com/news/nation/articles/2008...
They did even know they had invested in "insurance."

by: fundamentalist

02-11-2010 @ 3:53pm

"If there's anything that the economic crisis has taught us, it's that economies - and I would add individuals - that base their lifeblood on speculative financing (absent of actual labor) may gain the world in the short run, but a day of reckoning will eventually come."

That's as close to the truth as I have read anyone on this blog come. For a more detailed explanation of the cause of the crisis, check out this article: "A Perfect Storm of Ignorance" at http://www.cato.org/pubs/policy_report/v32n1/cp...
Here is an excerpt:

You are familiar by now with the role of the Federal Reserve in stimulating the housing boom; the role of Fannie Mae and Freddie Mac in encouraging low-equity mortgages; and the role of the Community Reinvestment Act in mandating loans to "subprime" borrowers, meaning those who were poor credit risks. So you may think that the government caused the financial crisis. But you don't know the half of it. And neither does the government.

A full understanding of the crisis has to explain not just the housing and subprime bubbles, but why, when they popped, it should have had such disastrous worldwide effects on the financial system. The problem was that commercial banks had made a huge overinvestment in mortgage-backed bonds sold by investment banks such as Lehman Brothers."

PS, It's disgusting that a "Christian" meeting would have stock broker hucksters selling investment snake oil.

by: Patricia

02-12-2010 @ 1:59pm

Just because a socialist made a statement that happens to agree with the position of mainstream economists does NOT mean that mainstream economists have founded their theories of economics on "socialist principles."

Marx said a lot of things that other people said - are all of them socialist, too?

by: fundamentalist

02-11-2010 @ 4:46pm

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

Here's an excerpt:

"The results of the financial collapse that occurred in 2008 were not basically distributional in effect. Real value was apparently destroyed but should not be understood as the achievement of differential gains to some groups at the expense of others. It is not at all as if only one of two traders finds, after trade, that the good received is worthless. In the 2008 setting, everyone feels to have been somehow defrauded by the deflation of what had seemed to be real values. In the parlance of theoretical welfare economics, there occurred a Pareto inferior shift in which all persons in the nexus were made worse off by their own utility calculus. The utility functions seemed to have all shifted inward. What happened? It is as if all participants in the inclusive economic nexus were riding along on a donkey seated quite comfortably on a saddle of inflated air, until an unanticipated rupture collapsed the cushion.

"What seems noteworthy here is that the deflation of the 'hot air' in the banking-financial sector did not benefit any defined subset. The loss in utility seemed to be general over the whole and inclusive market economy. The events were such that they could have scarcely been generated by any identifiable group whose aim was to exploit others."

by: fundamentalist

02-12-2010 @ 3:52pm

Mainstream econ agreed with Marx, not because they had found evidence that the unimpeded market is unstable; they hadn't. They did it because they believed Marx. But there are other reasons for believing mainstream econ is based on socialist principles. Mainstream econ is still essentially Keynesian. Keynes hated savings for the same reason that socialists do. Keynes did not like Soviet style socialism, but was every bit an English socialist, and as such he considered savings to be the world's greatest evil because 1) he thought it took money out of circulation (although he confused saving and hoarding) 2) he didn't like people earning money on their savings through interest and 3) he thought money ought to be available to everyone at zero interest loans. At the end of his "General Theory" he advocates for state control of all investment decisions.

Also, the monetary theory of business cycles dominated economics in the 1930's. Keynes dismissed it without criticism, so the economists who followed him ignored it as well. It still is the best theory of cycles, but mainstream economists won't even bother to criticize it. They ignored it in the 1930's because it contradicted Keynesian economics and threatened socialism.

"There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point."

I am conflating the two because there is little difference between them in the monetary theory of cycles. Sometimes banks fail during the business cycle, but the causes are still the same.

"lovely a theory though it may be in the abstract, it has severe problems in its real-world application."

How would you know? Have you read it?

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

by: titopoet

02-11-2010 @ 5:37pm

Interesting article you posted. I read it but did not give it the attention it needs. I did notice that it did not mention Credit Default Swaps. The banks took on undo risk in the form of these unregulated time bombs, but then since CDSs would undercut the thesis of the article, only a cynic would think the authors avoided discussing it for fear that it undercut their ideology. I know it is a shock, CATO, Pravda for libertarianism, being ideological and spinning the failings of the markets.

by: fundamentalist

02-11-2010 @ 6:31pm

I think CDS's didn't fit in with the articles purpose. The author wanted to explain why banks gorged on mortgages. CDS's didn't have anything to do with morgages. They were insurance against bond defaults. Also, the CDS's didn't tank in value like the MBS's did, do partly to the bail out of AIG.

You can claim that banks took on undue risk all you want but you can't provide any evidence of it. The MBS's and CDS's were AAA and AA rated by the federally sanctioned ratings agencies. The ratings are for risk, AAA being the rating given to US government debt. You can't possibly get any less risky than that. They also strictly followed the Basel I and Basel II banking regulations which everyone in the world thought would reduce risk.

Because the author didn't write the article the way you think he should he is dishonest? That's pretty harsh judgment. Besides, if you search in Cato I'm certain you will find articles on CDS's.

by: roseotter

02-11-2010 @ 7:38pm

And for a non-Cato Institute view of the causes of the current resession I invite you to visit these websites.

http://bigpicture.typepad.com/comments/2008/10/...
http://online.barrons.com/article/SB12224674299...
http://www.slate.com/id/2201641/
http://www.slate.com/id/2204583/

by: fundamentalist

02-11-2010 @ 8:31pm

I have to admit that the libertarian account of the crisis is in the minority. Politicians and the media blame greedy bankers. A few bankers are willing to go along and crucify themselves. Libertarians blame Alan Greenspan and the Federal Reserve.

Libertarians blame the fed because we hold to the monetary theory of business cycles as developed by FA Hayek. Mainstream economists don't blame anyone because they don't have a theory of business cycles. Business cycles to them are random events and as such no one causes them; they just happen. Markets are inherently unstable. It's the Fed's and government's job to clean up the mess. Politicians and the media have always blamed bankers since the first of such crises over 300 years ago; it's a Povlovian response.

Mainstream economists blame the market because their economics is founded on socialist principles. Marx said that markets are inherently stable so that has been the dogma of mainstream econ since the Keynesian revolution. Mainstream economists dismissed Hayek's monetary theory of business cycles for the same reason: it proved that markets aren't inherently unstable.

by: uberVU - social comments

02-12-2010 @ 12:07am

Social comments and analytics for this post...

This post was mentioned on Twitter by sojourners: What does it say about US Christianity, when the message of Jesus can be inserted into the middle of a get-rich seminar? http://su.pr/1qY28M...

by: titopoet

02-11-2010 @ 10:15pm

My friend, if you fail mention CDSs then you miss most of the story. Malcom Galdwell's "The Sure Thing" (unfortunately not available online) documents how John Paulson used CDSs to make a fortune in Mortage back securities. Most of what was counted as mortgage loses were actually CDS taken out on bonds the busted. For every bond dollar, there was $30 dollars in bets using CDSs. So, people like Paulsen could lobby the ratings agency for AAA on bonds they were betting against with CDSs. here are some articles from the time of start of the recession http://www.bloomberg.com/apps/news?pid=20601087... http://www.bloomberg.com/apps/news?pid=20601087... http://in.reuters.com/article/rbssFinancialServ... http://www.nytimes.com/2008/12/10/business/worl...

I know many are trying to revise history, CDS were the major reason for the recession.

by: titopoet

02-11-2010 @ 10:45pm

here are more great quote from the pragmatic James M. Buchanan from the article above:

"The Glass-Stegall efforts to separate deposit and investment banking should presumably be updated and put in play. Some extension-application of the antitrust laws to the banking conglomerati- ons seems to be in order here."
Sounds like a call for regulation, maybe James M. Buchanan is now a socialist. (irony)

by: letjusticerolldown

02-12-2010 @ 1:22am

I'm thinking about a charitable donors fund. Investments are made in high quality church multiplication strategies. These are bundled together in Kingdom Securities and sold off to other Kingdom donors wanting high yield Kingdom investments. We multiply these kinds of transactions and fund the entire Kingdom enterprise through shuffling paper.

by: fundamentalist

02-12-2010 @ 5:52pm

Mainstream econ agreed with Marx, not because they had found evidence that the unimpeded market is unstable; they hadn't. They did it because they believed Marx. But there are other reasons for believing mainstream econ is based on socialist principles. Mainstream econ is still essentially Keynesian. Keynes hated savings for the same reason that socialists do. Keynes did not like Soviet style socialism, but was every bit an English socialist, and as such he considered savings to be the world's greatest evil because 1) he thought it took money out of circulation (although he confused saving and hoarding) 2) he didn't like people earning money on their savings through interest and 3) he thought money ought to be available to everyone at zero interest loans. At the end of his "General Theory" he advocates for state control of all investment decisions.

Also, the monetary theory of business cycles dominated economics in the 1930's. Keynes dismissed it without criticism, so the economists who followed him ignored it as well. It still is the best theory of cycles, but mainstream economists won't even bother to criticize it. They ignored it in the 1930's because it contradicted Keynesian economics and threatened socialism.

"There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point."

I am conflating the two because there is little difference between them in the monetary theory of cycles. Sometimes banks fail during the business cycle, but the causes are still the same.

"lovely a theory though it may be in the abstract, it has severe problems in its real-world application."

How would you know? Have you read it?

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

by: Patricia

02-12-2010 @ 3:59pm

Just because a socialist made a statement that happens to agree with the position of mainstream economists does NOT mean that mainstream economists have founded their theories of economics on "socialist principles."

Marx said a lot of things that other people said - are all of them socialist, too?

And I take issue with your position that mainstream economists don't recognize business cycles. There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point.

Our agreement RE Salma Hayek notwithstanding :), I believe there is a reason the economic theory you subscribe to is a minority position - I believe that it's because, lovely a theory though it may be in the abstract, it has severe problems in its real-world application.

by: fundamentalist

02-12-2010 @ 12:29pm

Yeah, Buchanan does call for more regulation, which is odd considering the school of political economics he created. But that was a small part of his paper. The main point is the failure of mainstream economics before and after this crisis. Mainstream econ should be in crisis mode, but mainstream economists are completely oblivious to their amazing failure.

by: fundamentalist

02-12-2010 @ 12:35pm

CDS's were not "bets" against MBS's. They were insurance against default. And how many CDS's would have been written if MBS's didn't exist? As the Cato article demonstrates, the demand for MBS's was so great because the regulatory agencies and all mainstream economists considered them as instruments for reducing risk. And for the most part they were right. The values of CDS's would not have fallen had not the value of MBS's fallen, and the value of MBS's would not have fallen had the housing market not collapsed. Housing prices collapsed because the Fed had inflated them with cheap money.

by: titopoet

02-12-2010 @ 1:36pm

That is like saying "If the Colts would have won the superbowl, I would won my bet." CDSs are not like ordinary insurance; one does not have to own what you take out a CDS, major difference from insurance as we know it. Take for an example, if I know you are a bad driver and as a result I take out insurance on your car. Then imagine thirty other neighbors also take out insurance. If you crash, then the insurance company pays everyone. The only reason the neighbors would take out "insurance" on your car is to bet against your driving. This what CDS are, they are speculative gambling by big institutions. They bought and sold CDSs like drug addicts looking for their next fix, creating money out of thin air. CDS and the like (CDOs are in the same category) are Las Vegas writ large. If there were no CDS the loses in the MBS would have been in the same range of the S&L debacle in the early nineties. It would have hurt us, but it would have not nearly crashed the whole house of cards down as it almost did. CDS brought down Lehman, and would have brought down the whole system if the government had not had to step in.

One of the most famous illustration, and typical, is the Whitefish Bay School district loses, http://www.boston.com/news/nation/articles/2008...
They did even know they had invested in "insurance."

by: Patricia

02-12-2010 @ 1:59pm

Just because a socialist made a statement that happens to agree with the position of mainstream economists does NOT mean that mainstream economists have founded their theories of economics on "socialist principles."

Marx said a lot of things that other people said - are all of them socialist, too?

by: fundamentalist

02-12-2010 @ 3:52pm

Mainstream econ agreed with Marx, not because they had found evidence that the unimpeded market is unstable; they hadn't. They did it because they believed Marx. But there are other reasons for believing mainstream econ is based on socialist principles. Mainstream econ is still essentially Keynesian. Keynes hated savings for the same reason that socialists do. Keynes did not like Soviet style socialism, but was every bit an English socialist, and as such he considered savings to be the world's greatest evil because 1) he thought it took money out of circulation (although he confused saving and hoarding) 2) he didn't like people earning money on their savings through interest and 3) he thought money ought to be available to everyone at zero interest loans. At the end of his "General Theory" he advocates for state control of all investment decisions.

Also, the monetary theory of business cycles dominated economics in the 1930's. Keynes dismissed it without criticism, so the economists who followed him ignored it as well. It still is the best theory of cycles, but mainstream economists won't even bother to criticize it. They ignored it in the 1930's because it contradicted Keynesian economics and threatened socialism.

"There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point."

I am conflating the two because there is little difference between them in the monetary theory of cycles. Sometimes banks fail during the business cycle, but the causes are still the same.

"lovely a theory though it may be in the abstract, it has severe problems in its real-world application."

How would you know? Have you read it?

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

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by: fundamentalist

02-11-2010 @ 3:53pm

"If there's anything that the economic crisis has taught us, it's that economies - and I would add individuals - that base their lifeblood on speculative financing (absent of actual labor) may gain the world in the short run, but a day of reckoning will eventually come."

That's as close to the truth as I have read anyone on this blog come. For a more detailed explanation of the cause of the crisis, check out this article: "A Perfect Storm of Ignorance" at http://www.cato.org/pubs/policy_report/v32n1/cp...
Here is an excerpt:

You are familiar by now with the role of the Federal Reserve in stimulating the housing boom; the role of Fannie Mae and Freddie Mac in encouraging low-equity mortgages; and the role of the Community Reinvestment Act in mandating loans to "subprime" borrowers, meaning those who were poor credit risks. So you may think that the government caused the financial crisis. But you don't know the half of it. And neither does the government.

A full understanding of the crisis has to explain not just the housing and subprime bubbles, but why, when they popped, it should have had such disastrous worldwide effects on the financial system. The problem was that commercial banks had made a huge overinvestment in mortgage-backed bonds sold by investment banks such as Lehman Brothers."

PS, It's disgusting that a "Christian" meeting would have stock broker hucksters selling investment snake oil.

by: fundamentalist

02-11-2010 @ 3:53pm

"If there's anything that the economic crisis has taught us, it's that economies - and I would add individuals - that base their lifeblood on speculative financing (absent of actual labor) may gain the world in the short run, but a day of reckoning will eventually come."

That's as close to the truth as I have read anyone on this blog come. For a more detailed explanation of the cause of the crisis, check out this article: "A Perfect Storm of Ignorance" at http://www.cato.org/pubs/policy_report/v32n1/cp...
Here is an excerpt:

You are familiar by now with the role of the Federal Reserve in stimulating the housing boom; the role of Fannie Mae and Freddie Mac in encouraging low-equity mortgages; and the role of the Community Reinvestment Act in mandating loans to "subprime" borrowers, meaning those who were poor credit risks. So you may think that the government caused the financial crisis. But you don't know the half of it. And neither does the government.

A full understanding of the crisis has to explain not just the housing and subprime bubbles, but why, when they popped, it should have had such disastrous worldwide effects on the financial system. The problem was that commercial banks had made a huge overinvestment in mortgage-backed bonds sold by investment banks such as Lehman Brothers."

PS, It's disgusting that a "Christian" meeting would have stock broker hucksters selling investment snake oil.

by: fundamentalist

02-11-2010 @ 4:46pm

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

Here's an excerpt:

"The results of the financial collapse that occurred in 2008 were not basically distributional in effect. Real value was apparently destroyed but should not be understood as the achievement of differential gains to some groups at the expense of others. It is not at all as if only one of two traders finds, after trade, that the good received is worthless. In the 2008 setting, everyone feels to have been somehow defrauded by the deflation of what had seemed to be real values. In the parlance of theoretical welfare economics, there occurred a Pareto inferior shift in which all persons in the nexus were made worse off by their own utility calculus. The utility functions seemed to have all shifted inward. What happened? It is as if all participants in the inclusive economic nexus were riding along on a donkey seated quite comfortably on a saddle of inflated air, until an unanticipated rupture collapsed the cushion.

"What seems noteworthy here is that the deflation of the 'hot air' in the banking-financial sector did not benefit any defined subset. The loss in utility seemed to be general over the whole and inclusive market economy. The events were such that they could have scarcely been generated by any identifiable group whose aim was to exploit others."

by: fundamentalist

02-11-2010 @ 4:46pm

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

Here's an excerpt:

"The results of the financial collapse that occurred in 2008 were not basically distributional in effect. Real value was apparently destroyed but should not be understood as the achievement of differential gains to some groups at the expense of others. It is not at all as if only one of two traders finds, after trade, that the good received is worthless. In the 2008 setting, everyone feels to have been somehow defrauded by the deflation of what had seemed to be real values. In the parlance of theoretical welfare economics, there occurred a Pareto inferior shift in which all persons in the nexus were made worse off by their own utility calculus. The utility functions seemed to have all shifted inward. What happened? It is as if all participants in the inclusive economic nexus were riding along on a donkey seated quite comfortably on a saddle of inflated air, until an unanticipated rupture collapsed the cushion.

"What seems noteworthy here is that the deflation of the 'hot air' in the banking-financial sector did not benefit any defined subset. The loss in utility seemed to be general over the whole and inclusive market economy. The events were such that they could have scarcely been generated by any identifiable group whose aim was to exploit others."

by: titopoet

02-11-2010 @ 5:37pm

Interesting article you posted. I read it but did not give it the attention it needs. I did notice that it did not mention Credit Default Swaps. The banks took on undo risk in the form of these unregulated time bombs, but then since CDSs would undercut the thesis of the article, only a cynic would think the authors avoided discussing it for fear that it undercut their ideology. I know it is a shock, CATO, Pravda for libertarianism, being ideological and spinning the failings of the markets.

by: titopoet

02-11-2010 @ 5:37pm

Interesting article you posted. I read it but did not give it the attention it needs. I did notice that it did not mention Credit Default Swaps. The banks took on undo risk in the form of these unregulated time bombs, but then since CDSs would undercut the thesis of the article, only a cynic would think the authors avoided discussing it for fear that it undercut their ideology. I know it is a shock, CATO, Pravda for libertarianism, being ideological and spinning the failings of the markets.

by: fundamentalist

02-11-2010 @ 6:31pm

I think CDS's didn't fit in with the articles purpose. The author wanted to explain why banks gorged on mortgages. CDS's didn't have anything to do with morgages. They were insurance against bond defaults. Also, the CDS's didn't tank in value like the MBS's did, do partly to the bail out of AIG.

You can claim that banks took on undue risk all you want but you can't provide any evidence of it. The MBS's and CDS's were AAA and AA rated by the federally sanctioned ratings agencies. The ratings are for risk, AAA being the rating given to US government debt. You can't possibly get any less risky than that. They also strictly followed the Basel I and Basel II banking regulations which everyone in the world thought would reduce risk.

Because the author didn't write the article the way you think he should he is dishonest? That's pretty harsh judgment. Besides, if you search in Cato I'm certain you will find articles on CDS's.

by: fundamentalist

02-11-2010 @ 6:31pm

I think CDS's didn't fit in with the articles purpose. The author wanted to explain why banks gorged on mortgages. CDS's didn't have anything to do with morgages. They were insurance against bond defaults. Also, the CDS's didn't tank in value like the MBS's did, do partly to the bail out of AIG.

You can claim that banks took on undue risk all you want but you can't provide any evidence of it. The MBS's and CDS's were AAA and AA rated by the federally sanctioned ratings agencies. The ratings are for risk, AAA being the rating given to US government debt. You can't possibly get any less risky than that. They also strictly followed the Basel I and Basel II banking regulations which everyone in the world thought would reduce risk.

Because the author didn't write the article the way you think he should he is dishonest? That's pretty harsh judgment. Besides, if you search in Cato I'm certain you will find articles on CDS's.

by: roseotter

02-11-2010 @ 7:38pm

And for a non-Cato Institute view of the causes of the current resession I invite you to visit these websites.

http://bigpicture.typepad.com/comments/2008/10/...
http://online.barrons.com/article/SB12224674299...
http://www.slate.com/id/2201641/
http://www.slate.com/id/2204583/

by: roseotter

02-11-2010 @ 7:38pm

And for a non-Cato Institute view of the causes of the current resession I invite you to visit these websites.

http://bigpicture.typepad.com/comments/2008/10/...
http://online.barrons.com/article/SB12224674299...
http://www.slate.com/id/2201641/
http://www.slate.com/id/2204583/

by: fundamentalist

02-11-2010 @ 8:31pm

I have to admit that the libertarian account of the crisis is in the minority. Politicians and the media blame greedy bankers. A few bankers are willing to go along and crucify themselves. Libertarians blame Alan Greenspan and the Federal Reserve.

Libertarians blame the fed because we hold to the monetary theory of business cycles as developed by FA Hayek. Mainstream economists don't blame anyone because they don't have a theory of business cycles. Business cycles to them are random events and as such no one causes them; they just happen. Markets are inherently unstable. It's the Fed's and government's job to clean up the mess. Politicians and the media have always blamed bankers since the first of such crises over 300 years ago; it's a Povlovian response.

Mainstream economists blame the market because their economics is founded on socialist principles. Marx said that markets are inherently stable so that has been the dogma of mainstream econ since the Keynesian revolution. Mainstream economists dismissed Hayek's monetary theory of business cycles for the same reason: it proved that markets aren't inherently unstable.

by: fundamentalist

02-11-2010 @ 8:31pm

I have to admit that the libertarian account of the crisis is in the minority. Politicians and the media blame greedy bankers. A few bankers are willing to go along and crucify themselves. Libertarians blame Alan Greenspan and the Federal Reserve.

Libertarians blame the fed because we hold to the monetary theory of business cycles as developed by FA Hayek. Mainstream economists don't blame anyone because they don't have a theory of business cycles. Business cycles to them are random events and as such no one causes them; they just happen. Markets are inherently unstable. It's the Fed's and government's job to clean up the mess. Politicians and the media have always blamed bankers since the first of such crises over 300 years ago; it's a Povlovian response.

Mainstream economists blame the market because their economics is founded on socialist principles. Marx said that markets are inherently stable so that has been the dogma of mainstream econ since the Keynesian revolution. Mainstream economists dismissed Hayek's monetary theory of business cycles for the same reason: it proved that markets aren't inherently unstable.

by: titopoet

02-11-2010 @ 10:15pm

My friend, if you fail mention CDSs then you miss most of the story. Malcom Galdwell's "The Sure Thing" (unfortunately not available online) documents how John Paulson used CDSs to make a fortune in Mortage back securities. Most of what was counted as mortgage loses were actually CDS taken out on bonds the busted. For every bond dollar, there was $30 dollars in bets using CDSs. So, people like Paulsen could lobby the ratings agency for AAA on bonds they were betting against with CDSs. here are some articles from the time of start of the recession http://www.bloomberg.com/apps/news?pid=20601087... http://www.bloomberg.com/apps/news?pid=20601087... http://in.reuters.com/article/rbssFinancialServ... http://www.nytimes.com/2008/12/10/business/worl...

I know many are trying to revise history, CDS were the major reason for the recession.

by: titopoet

02-11-2010 @ 10:15pm

My friend, if you fail mention CDSs then you miss most of the story. Malcom Galdwell's "The Sure Thing" (unfortunately not available online) documents how John Paulson used CDSs to make a fortune in Mortage back securities. Most of what was counted as mortgage loses were actually CDS taken out on bonds the busted. For every bond dollar, there was $30 dollars in bets using CDSs. So, people like Paulsen could lobby the ratings agency for AAA on bonds they were betting against with CDSs. here are some articles from the time of start of the recession http://www.bloomberg.com/apps/news?pid=20601087... http://www.bloomberg.com/apps/news?pid=20601087... http://in.reuters.com/article/rbssFinancialServ... http://www.nytimes.com/2008/12/10/business/worl...

I know many are trying to revise history, CDS were the major reason for the recession.

by: titopoet

02-11-2010 @ 10:45pm

here are more great quote from the pragmatic James M. Buchanan from the article above:

"The Glass-Stegall efforts to separate deposit and investment banking should presumably be updated and put in play. Some extension-application of the antitrust laws to the banking conglomerati- ons seems to be in order here."
Sounds like a call for regulation, maybe James M. Buchanan is now a socialist. (irony)

by: titopoet

02-11-2010 @ 10:45pm

here are more great quote from the pragmatic James M. Buchanan from the article above:

"The Glass-Stegall efforts to separate deposit and investment banking should presumably be updated and put in play. Some extension-application of the antitrust laws to the banking conglomerati- ons seems to be in order here."
Sounds like a call for regulation, maybe James M. Buchanan is now a socialist. (irony)

by: uberVU - social comments

02-12-2010 @ 12:07am

Social comments and analytics for this post...

This post was mentioned on Twitter by sojourners: What does it say about US Christianity, when the message of Jesus can be inserted into the middle of a get-rich seminar? http://su.pr/1qY28M...

by: letjusticerolldown

02-12-2010 @ 1:22am

I'm thinking about a charitable donors fund. Investments are made in high quality church multiplication strategies. These are bundled together in Kingdom Securities and sold off to other Kingdom donors wanting high yield Kingdom investments. We multiply these kinds of transactions and fund the entire Kingdom enterprise through shuffling paper.

by: letjusticerolldown

02-12-2010 @ 1:22am

I'm thinking about a charitable donors fund. Investments are made in high quality church multiplication strategies. These are bundled together in Kingdom Securities and sold off to other Kingdom donors wanting high yield Kingdom investments. We multiply these kinds of transactions and fund the entire Kingdom enterprise through shuffling paper.

by: fundamentalist

02-12-2010 @ 12:29pm

Yeah, Buchanan does call for more regulation, which is odd considering the school of political economics he created. But that was a small part of his paper. The main point is the failure of mainstream economics before and after this crisis. Mainstream econ should be in crisis mode, but mainstream economists are completely oblivious to their amazing failure.

by: fundamentalist

02-12-2010 @ 12:29pm

Yeah, Buchanan does call for more regulation, which is odd considering the school of political economics he created. But that was a small part of his paper. The main point is the failure of mainstream economics before and after this crisis. Mainstream econ should be in crisis mode, but mainstream economists are completely oblivious to their amazing failure.

by: fundamentalist

02-12-2010 @ 12:35pm

CDS's were not "bets" against MBS's. They were insurance against default. And how many CDS's would have been written if MBS's didn't exist? As the Cato article demonstrates, the demand for MBS's was so great because the regulatory agencies and all mainstream economists considered them as instruments for reducing risk. And for the most part they were right. The values of CDS's would not have fallen had not the value of MBS's fallen, and the value of MBS's would not have fallen had the housing market not collapsed. Housing prices collapsed because the Fed had inflated them with cheap money.

by: fundamentalist

02-12-2010 @ 12:35pm

CDS's were not "bets" against MBS's. They were insurance against default. And how many CDS's would have been written if MBS's didn't exist? As the Cato article demonstrates, the demand for MBS's was so great because the regulatory agencies and all mainstream economists considered them as instruments for reducing risk. And for the most part they were right. The values of CDS's would not have fallen had not the value of MBS's fallen, and the value of MBS's would not have fallen had the housing market not collapsed. Housing prices collapsed because the Fed had inflated them with cheap money.

by: titopoet

02-12-2010 @ 1:36pm

That is like saying "If the Colts would have won the superbowl, I would won my bet." CDSs are not like ordinary insurance; one does not have to own what you take out a CDS, major difference from insurance as we know it. Take for an example, if I know you are a bad driver and as a result I take out insurance on your car. Then imagine thirty other neighbors also take out insurance. If you crash, then the insurance company pays everyone. The only reason the neighbors would take out "insurance" on your car is to bet against your driving. This what CDS are, they are speculative gambling by big institutions. They bought and sold CDSs like drug addicts looking for their next fix, creating money out of thin air. CDS and the like (CDOs are in the same category) are Las Vegas writ large. If there were no CDS the loses in the MBS would have been in the same range of the S&L debacle in the early nineties. It would have hurt us, but it would have not nearly crashed the whole house of cards down as it almost did. CDS brought down Lehman, and would have brought down the whole system if the government had not had to step in.

One of the most famous illustration, and typical, is the Whitefish Bay School district loses, http://www.boston.com/news/nation/articles/2008...
They did even know they had invested in "insurance."

by: titopoet

02-12-2010 @ 1:36pm

That is like saying "If the Colts would have won the superbowl, I would won my bet." CDSs are not like ordinary insurance; one does not have to own what you take out a CDS, major difference from insurance as we know it. Take for an example, if I know you are a bad driver and as a result I take out insurance on your car. Then imagine thirty other neighbors also take out insurance. If you crash, then the insurance company pays everyone. The only reason the neighbors would take out "insurance" on your car is to bet against your driving. This what CDS are, they are speculative gambling by big institutions. They bought and sold CDSs like drug addicts looking for their next fix, creating money out of thin air. CDS and the like (CDOs are in the same category) are Las Vegas writ large. If there were no CDS the loses in the MBS would have been in the same range of the S&L debacle in the early nineties. It would have hurt us, but it would have not nearly crashed the whole house of cards down as it almost did. CDS brought down Lehman, and would have brought down the whole system if the government had not had to step in.

One of the most famous illustration, and typical, is the Whitefish Bay School district loses, http://www.boston.com/news/nation/articles/2008...
They did even know they had invested in "insurance."

by: Patricia

02-12-2010 @ 1:59pm

Just because a socialist made a statement that happens to agree with the position of mainstream economists does NOT mean that mainstream economists have founded their theories of economics on "socialist principles."

Marx said a lot of things that other people said - are all of them socialist, too?

by: Patricia

02-12-2010 @ 1:59pm

Just because a socialist made a statement that happens to agree with the position of mainstream economists does NOT mean that mainstream economists have founded their theories of economics on "socialist principles."

Marx said a lot of things that other people said - are all of them socialist, too?

by: fundamentalist

02-12-2010 @ 3:52pm

Mainstream econ agreed with Marx, not because they had found evidence that the unimpeded market is unstable; they hadn't. They did it because they believed Marx. But there are other reasons for believing mainstream econ is based on socialist principles. Mainstream econ is still essentially Keynesian. Keynes hated savings for the same reason that socialists do. Keynes did not like Soviet style socialism, but was every bit an English socialist, and as such he considered savings to be the world's greatest evil because 1) he thought it took money out of circulation (although he confused saving and hoarding) 2) he didn't like people earning money on their savings through interest and 3) he thought money ought to be available to everyone at zero interest loans. At the end of his "General Theory" he advocates for state control of all investment decisions.

Also, the monetary theory of business cycles dominated economics in the 1930's. Keynes dismissed it without criticism, so the economists who followed him ignored it as well. It still is the best theory of cycles, but mainstream economists won't even bother to criticize it. They ignored it in the 1930's because it contradicted Keynesian economics and threatened socialism.

"There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point."

I am conflating the two because there is little difference between them in the monetary theory of cycles. Sometimes banks fail during the business cycle, but the causes are still the same.

"lovely a theory though it may be in the abstract, it has severe problems in its real-world application."

How would you know? Have you read it?

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

by: fundamentalist

02-12-2010 @ 3:52pm

Mainstream econ agreed with Marx, not because they had found evidence that the unimpeded market is unstable; they hadn't. They did it because they believed Marx. But there are other reasons for believing mainstream econ is based on socialist principles. Mainstream econ is still essentially Keynesian. Keynes hated savings for the same reason that socialists do. Keynes did not like Soviet style socialism, but was every bit an English socialist, and as such he considered savings to be the world's greatest evil because 1) he thought it took money out of circulation (although he confused saving and hoarding) 2) he didn't like people earning money on their savings through interest and 3) he thought money ought to be available to everyone at zero interest loans. At the end of his "General Theory" he advocates for state control of all investment decisions.

Also, the monetary theory of business cycles dominated economics in the 1930's. Keynes dismissed it without criticism, so the economists who followed him ignored it as well. It still is the best theory of cycles, but mainstream economists won't even bother to criticize it. They ignored it in the 1930's because it contradicted Keynesian economics and threatened socialism.

"There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point."

I am conflating the two because there is little difference between them in the monetary theory of cycles. Sometimes banks fail during the business cycle, but the causes are still the same.

"lovely a theory though it may be in the abstract, it has severe problems in its real-world application."

How would you know? Have you read it?

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

by: Patricia

02-12-2010 @ 3:59pm

Just because a socialist made a statement that happens to agree with the position of mainstream economists does NOT mean that mainstream economists have founded their theories of economics on "socialist principles."

Marx said a lot of things that other people said - are all of them socialist, too?

And I take issue with your position that mainstream economists don't recognize business cycles. There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point.

Our agreement RE Salma Hayek notwithstanding :), I believe there is a reason the economic theory you subscribe to is a minority position - I believe that it's because, lovely a theory though it may be in the abstract, it has severe problems in its real-world application.

by: Patricia

02-12-2010 @ 3:59pm

Just because a socialist made a statement that happens to agree with the position of mainstream economists does NOT mean that mainstream economists have founded their theories of economics on "socialist principles."

Marx said a lot of things that other people said - are all of them socialist, too?

And I take issue with your position that mainstream economists don't recognize business cycles. There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point.

Our agreement RE Salma Hayek notwithstanding :), I believe there is a reason the economic theory you subscribe to is a minority position - I believe that it's because, lovely a theory though it may be in the abstract, it has severe problems in its real-world application.

by: fundamentalist

02-12-2010 @ 5:52pm

Mainstream econ agreed with Marx, not because they had found evidence that the unimpeded market is unstable; they hadn't. They did it because they believed Marx. But there are other reasons for believing mainstream econ is based on socialist principles. Mainstream econ is still essentially Keynesian. Keynes hated savings for the same reason that socialists do. Keynes did not like Soviet style socialism, but was every bit an English socialist, and as such he considered savings to be the world's greatest evil because 1) he thought it took money out of circulation (although he confused saving and hoarding) 2) he didn't like people earning money on their savings through interest and 3) he thought money ought to be available to everyone at zero interest loans. At the end of his "General Theory" he advocates for state control of all investment decisions.

Also, the monetary theory of business cycles dominated economics in the 1930's. Keynes dismissed it without criticism, so the economists who followed him ignored it as well. It still is the best theory of cycles, but mainstream economists won't even bother to criticize it. They ignored it in the 1930's because it contradicted Keynesian economics and threatened socialism.

"There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point."

I am conflating the two because there is little difference between them in the monetary theory of cycles. Sometimes banks fail during the business cycle, but the causes are still the same.

"lovely a theory though it may be in the abstract, it has severe problems in its real-world application."

How would you know? Have you read it?

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....

by: fundamentalist

02-12-2010 @ 5:52pm

Mainstream econ agreed with Marx, not because they had found evidence that the unimpeded market is unstable; they hadn't. They did it because they believed Marx. But there are other reasons for believing mainstream econ is based on socialist principles. Mainstream econ is still essentially Keynesian. Keynes hated savings for the same reason that socialists do. Keynes did not like Soviet style socialism, but was every bit an English socialist, and as such he considered savings to be the world's greatest evil because 1) he thought it took money out of circulation (although he confused saving and hoarding) 2) he didn't like people earning money on their savings through interest and 3) he thought money ought to be available to everyone at zero interest loans. At the end of his "General Theory" he advocates for state control of all investment decisions.

Also, the monetary theory of business cycles dominated economics in the 1930's. Keynes dismissed it without criticism, so the economists who followed him ignored it as well. It still is the best theory of cycles, but mainstream economists won't even bother to criticize it. They ignored it in the 1930's because it contradicted Keynesian economics and threatened socialism.

"There is a difference between a "business cycle" and a structural financial crisis. You seem to be conflating the two to make your point."

I am conflating the two because there is little difference between them in the monetary theory of cycles. Sometimes banks fail during the business cycle, but the causes are still the same.

"lovely a theory though it may be in the abstract, it has severe problems in its real-world application."

How would you know? Have you read it?

Also, check out this article by James M. Buchanan (the Nobelist), "Economists Have No Clothes" at
http://www.rmm-journal.de/downloads/010_buchana....