Whiner of First Resort
Harvard's Ricardo Hausmann has some tough comments for the US politicians and Fed: Stop whining and take your medicine like a man:
"The same voices that supported tough macroeconomic policies to deal with the excesses of spending and borrowing in east Asia, Russia and Latin America are today pushing for a significant relaxation in the US to deal with the so-called subprime crisis. Interest rates should be slashed quickly and $150bn put into taxpayers’ pockets by April at the latest, they say. The Fed cut by another half-point on Wednesday.
The goal seems to be to avoid a 2008 recession at all costs. As Larry Summers, former Treasury secretary, put it, failure to act would make Main Street pay for the sins of Wall Street.
It is easy to lose sight of the overall picture. Main Street consumers have overspent and over-borrowed and are unable to meet their obligations. The fact that households may have so behaved because they were enticed by “teaser loans” does not change the facts; it only assigns blame. Consumption has been above sustainable levels and needs to adjust down, whatever view one has about the responsibility of adults over their financial decisions . . .
Hence, macroeconomic policy should not be based on a panicky attempt to avoid a 2008 recession at all costs but on a forward-looking strategy that achieves the needed reduction in consumption at the lowest cost in terms of the stable growth. This is not achieved by giving US households a $1,000 cheque by April, a trick that no macro economic textbook would argue is particularly effective. If there is fiscal room – a big if, given the weak structural position of the US government and its likely cyclical worsening – it would be better spent in accelerating investments in plant and equipment via accelerated depreciation schemes, to improve the capacity of the economy to keep on growing after the crisis."
Go read the entire piece . . .
Stop behaving as whiner of first resort
Financial Times, January 30 2008 19:36
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Am I missing something? Isn't Wall Street paying for "this" through the nose? Almost every bond insurer is facing insolvency, brokerages are firing thousands and some are fleeing all but core businesses, banks are paying much lower dividends thus sending their stocks into the toilet, and Ferrari dealerships now sell at half price. When all is said and done the hedge fund business will be radically different (regulated), securitizing debt will be much more difficult because people will actually examine the contents of the security, and it could come to pass that the public recognizes that there ain't much profit in owning stocks unless you continually monitor them and trade out of losers quickly. In other words, stock investing is at least a full time job.
Posted by: Howard Veit | Jan 31, 2008 4:14:01 AM
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