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David Warren comments on Wall Street’s problems.
… Lehman Brothers went down over the weekend; A.I.G. is falling as I write. Their assets get dumped, the value of other companies’ similar assets is reduced accordingly, and this in turn erodes the capital base under the entire banking system. The collapse of Lehman has, moreover, just kicked away the argument that some firms are, by nature, too tall to fall. And all because of a few million dicey consumer loans, that no one thought twice about at the time.
The problem must be solved, or so everyone says, by increasing government regulation. Am I perhaps alone in observing that this regulation is already as dense and complex as the industry, and that it might well make more sense to make the regulations not denser and more complex, but rather, simpler, more transparent and effective. For to my mind, we ought to have learned by now that the more complex a system grows, and the farther removed from the hard facts of nature, the more susceptible it becomes to catastrophic failure.
Over several generations we have rebuilt an economy that once rested on goods, services, and tangible assets. It now depends also on kiting, with wonderfully sophisticated credit instruments — like a postmodern building, supported as much from above as below. In the longer view, it is well that gravity asserts itself the sooner, and we reacquire the benefit of a solid foundation.
In the meanwhile, consider Matthew 5:45. The sun rises alike on the evil and the good, and the rain falls on the just and the unjust. To which we might add, that it is usually the unjust who are whining.
Robert Samuelson columns on Wall Street’s unraveling.
… How Wall Street restructures itself is as yet unclear. Companies need more capital. Merrill went to Bank of America because commercial banks have lower leverage (about 10 to 1). It seems likely that many thinly capitalized hedge funds will be forced to reduce leverage. Ditto for “private equity” firms. In time, all this may prove beneficial. Financial firms may take fewer stupid and wasteful risks — at least for a while. Talented and ambitious people may move from finance, where they were attracted by exorbitant pay, into more productive industries.
But the immediate effect may be to damage the rest of the economy. People have already lost their jobs. States and localities, particularly New York City and New Jersey, that depend on Wall Street’s profits and payrolls will face further spending cuts. Banks and investment banks may tighten lending standards again and impede any economic recovery. The stock market’s swoon may deepen consumers’ pessimism, fear and reluctance to spend. There may be more failures of financial firms. It’s hard to know, because financial crises resemble wars in one crucial respect: They result from miscalculation.
John Stossel writes on racism and privilege.
Complaints about racism still dominate media discussion of the disparity between black and white success. Comedian Chris Rock tells white audiences, “None of ya would change places with me! And I’m rich! That’s how good it is to be white!”
I assumed that the success of Barack Obama, as well as thousands of other black Americans and dark-skinned immigrants — many of whom thrive despite language problems — demonstrates that America today is largely a colorblind meritocracy. But a white campus lecturer, Tim Wise, gets tremendous applause from students by saying things like, “[W]hite supremacy and privilege continue to skew opportunities hundreds of years after they were set in place” and in America, “meritocracy is as close to a lie as you can come.” His message is in demand — he is invited to more than 80 speaking engagements a year.
But black writer Shelby Steele argues that whites do blacks no favors wringing their hands about white privilege.
“I grew up in segregation,” Steele told me. “So I really know what racism is. I went to segregated school. I bow to no one in my knowledge of racism, which is one of the reasons why I say white privilege is not a problem.”
Steele claims, “the real problem is black irresponsibility. … Racism is about 18th on a list of problems that black America faces.” …
von Mises Institute asks if hurricanes cause shortages.
The Huntsville Times reported on September 12 that, in response to the looming threat from Hurricane Ike, Alabama Governor Bob Riley declared a formal state of emergency. The governor’s declaration of emergency activated the state’s price-gouging law, which makes “unconscionable pricing” illegal during times of emergency. The Times quoted Riley as saying that he thinks “a threat to public health is a strong possibility due to the shortage of fuels.”
Hurricanes don’t cause shortages, however.
Price controls do. …
WSJ editors destroy other economic nonsense.
It was said to be the year of speculators gone wild. Seemingly everyone in Washington, including Barack Obama and John McCain, decided that oil prices were soaring because profiteers and middlemen were manipulating the futures markets. “Speculators” were spotted everywhere this side of the grassy knoll.
The only problem is that there’s no evidence to support the conspiracy theories — and sure enough, federal regulators dismantled this Beltway consensus late last week. In one of the broadest and most authoritative studies to date, the Commodity Futures Trading Commission has offered hard statistical data that financial trading hasn’t been driving price moves. The CFTC conducted an unprecedented Wall Street data sweep and scrutinized millions of transactions worth billions of dollars between January and June of this year. …
The American reports on trends in micro-finance.
Over the past two decades, “microfinance”—the extension of small loans and other financial services to individuals in poor countries—has become a darling of the international development community. The movement’s founding father, Muhammad Yunus, was awarded the Nobel Peace Prize in 2006; the United Nations says that microfinance can help countries achieve the Millennium Development Goals.
Given the newness of the industry and the informal nature of many microfinance institutions (MFIs), relatively little is known about the size and quantity of the lenders, the kinds of loans that are disbursed, or the conditions under which clients are served—but the available data tell an impressive story. According to the most recent figures from the nonprofit Microfinance Information Exchange, more than 2,200 MFIs are currently lending to around 77 million borrowers worldwide. The Microcredit Summit Campaign reckons that the numbers are even higher: it counts more than 3,300 MFIs serving 133 million clients, including 92.9 million of the world’s poorest people (representing an increase of over 700 percent from 1992). In 2006, capital investment in MFIs eclipsed $4 billion, more than triple the level in 2004. The global MFI industry has also attracted hefty amounts of U.S. aid, including $245 million in 2008. …
LA Times editors think the sun should shine on CA bar results.
Americans have been debating the fairness and efficacy of racial preferences in college and graduate school admissions for more than 30 years. Now a UCLA professor is seeking to test his hypothesis that affirmative action programs actually hurt the career prospects of minority law school graduates. But he has been hampered in his research by the indefensible failure of the State Bar of California to provide the statistics he needs. …