I have watched the recent bailouts of first Bear Stearns and then Freddie Mac and Fannie Mae
with keen interest.

I see it as a vindication of the much vilified Keynes and his demand-side economics. An ideological
pariah in the 1970's, the recent events in America are the clearest evidence yet the world is run
on Keynesian lines.

But it is also an indictment of the Republicans with their hackneyed phrases of tax cuts, less interventionist
governments etc.

Not only that, one can only see this bailout of privileged individuals on Wall Street as bordering on immoral if
not categorically so.

The subprime mess has affected ordinary Americans at the bottom as well as the balance sheets of prominent
American Wall Street banks. It is an indication of the priorities of the Republican Administration, that those ordinary
Americans have lost their homes, while the Big Banks on Wall Street have been deemed too big to fail.

This is akin to giving rich bankers a free bet. They simply cannot lose, because they know the government whether
Democrat or Republican will not allow them to fold. But the Democrats would at least pay lip service to those poor
'subprime' mortgages and their owners.

The fact is there is hardly anything distinctive about Republicans and their economics in the real world where it
is subservient to political pragmatism. What it does do is justify the enrichment of those at the top, while little
Americans at the bottom worry over healthcare, education of their children and their homes, the latter the physical
embodiment of the increasingly elusive 'American Dream'

You make some good points and some bad points. All sensible Governments employ both strategies during periods of slow growth by reducing taxes (supply-side for high-income) and by reducing interest rates (demand-side). One thing is clear though - reducing corporate taxes during an economic downturn makes perfect sense. Supply increases demand because suppliers must buy in order to produce. Supply also employs labour which stimulates demand. However, demand-side economics cannot be ignored. At some point between the two, society achieves maximum utility. Governments must ensure that they have saved enough during boom periods to pursue both strategies.

Your critique of the Republican strategy would be that they tend to favour supply-side economics regardless of the economic cycle. At this present moment though, it is exactly what is needed.

The systematic risk posed by Frannie Mae, Freddie Mac and Washington Mutual were such that they had to be bailed out. Any argument against state intervention is a condonement of laissez faire economics which has been proven to fail time and time again. During the dot com implosion, there wasn't much Government intervention. Many of the companies that suffered were not 'old economic institutions' and they presented no systematic risk. On the other hand Frannie Mae and Freddie Mac are the American dream and are still largely viewed as a Government enterprise although they were privatised in 1968. All confidence will be sucked from the market if they are allowed to fail. Money is in short supply simply because of lack of confidence. Everybody suspects that the other person has more debts than they claim to have and so they will not lend to them. There is more than enough demand for credit but not enough supply and the only way Government can fix that is to open credit lines - inducing Banks to supply money to one another and guaranteeing their debts to any potential creditors. That is why Government must bail out certain institutions. It will cost more to bring supply back up in the event of a bank failure than it will to actually bail the bank out. Therefore, you can say that the main commodity the Feds are trading right now is 'Confidence' - and though 'Confidence' is a very expensive good, it is still cheaper than 'Fear'. That is why supply side economics is the most effective way of combating the current crisis and I think both Republicans and Democrats recognise this.

On the other hand, like you say, Government bailouts can lead to fiscal irresponsibility in the long run. On a political level, you can argue that Governments lassie faire attitude to regulation contributed to the current crisis, although how much is hard to measure. Markets always control their own cycles. I also doubt that Government has the capability to properly regulate the market nowadays. It is a wild wild west out there. People are trading such complex financial instruments nowadays, it would take an army to regulate. What we see now is derivatives upon derivatives of derivatives.

Like I said in the other thread, Governments should always lower taxes during recessions and raise them back up during boom periods. This promotes fiscal responsibility and absorbs the shock to the economy. Republican fiscal policies tend to promote big booms followed by big busts whilsts Democratic policies would tend to promote medium booms followed by medium busts. Don't quote me on that sha before partizan gra-gra start here.

Off topic - On a side note, Republicans tendencies to promote market-induced social responsibility is a total failure. Profit margins and social responsibility do not belong in the same sentence. It may work for sometime but it will always go bust as greed and fear weave their inevitable patterns. Republicans should understand that social utilities should not be held subject to market volatility. (Hmmmm. . . . I shall put that in my sig). . . .It can only work under strong regulation - and I mean really strong. This was the main point of difference between Obama and McCain during the 9/11 forum when they were discussing their plans for volunteering.

Personally I am not against bailouts. No. I am a Keynesian, so it is only natural
that I support such measures as carried out by the fed.

It is Republican hypocrisy that grates me more than anything.

It flies in the face of their philosophical foundations for taxpayers funds to
be used in such a manner. I repeat, it is akin to giving investment bankers
and their ilk a free bet on the market.

It also dismisses their arguments against other interventions in the economy
whether it be for health care or food stamps. Or more pertinently in the context of the present crisis,
active aid in helping homeowners pay off those awful loans.

doyin13:

I have watched the recent bailouts of first Bear Stearns and then Freddie Mac and Fannie Mae
with keen interest.

I see it as a vindication of the much vilified Keynes and his demand-side economics. An ideological
pariah in the 1970's, the recent events in America are the clearest evidence yet the world is run
on Keynesian lines.

But it is also an indictment of the Republicans with their hackneyed phrases of tax cuts, less interventionist
governments etc.

Does less intervention necessarily mean none ever?

doyin13:

The subprime mess has affected ordinary Americans at the bottom as well as the balance sheets of prominent
American Wall Street banks. It is an indication of the priorities of the Republican Administration, that those ordinary
Americans have lost their homes, while the Big Banks on Wall Street have been deemed too big to fail.

Millions of ordinary americans share blame in the subprime mess we have today. What of the recent bill to bailout ordinary home owners? The recent bailout of Fanny mae would have impacted millions of ordinary americans.

A close look at the legislation and the arcane criteria for qualification,
will reveal a significant proportion of the people facing foreclosure
will be left out.

The 300 or so billion dollars pales in comparison with the blank cheque
which Paulson asked for in order to bolster Fannie and Freddie.

A blank cheque with a potential five trillion dollar value.

And besides, my point still stands. Their economics is shoddy and fundamentally unrealistic
especially when faced with a crisis.

They simply cannot lose, because they know the government whether Democrat or Republican will not allow them to fold.

You are doggone right man, no doubt. There is a template.

An old man ate a loaf of bread that he bought at a neighborhood store. The coroner found out the bread was poisoned. So they went to the storekeeper, who pointed finger at the bakery. They asked the baker, who said it probably came from the flour. So they went asked the miller, he said they should check with the wheat farmer. Before that day ended, police had arrested the man's wife. Next day and the one after that and the one next to that, the coroner was busy like he never had been before, men, women, children dying from bread poisoning. The police cells were getting crowded too; husbands, wives, parents.

This is the template of American politics. The Enterprise is generous and compassionate in the delivery of service and products to the consumer. If there is a problem somewhere along the supply chain, it must be that the consumer is getting cunny and therefore some laws need to be enacted that will protect the Enterprise from the consumer greed.

It is Republican hypocrisy that grates me more than anything.

What Republicans lack in public administration they have in political manuevering. They don't know how to apply political principles to win elections but they have mastered the tactic of elimination. They are damn good at eliminating their opponent at whatever cost, including convincing the opponent to lose faith in his own ability and credentials for the job position and thereby self-defeating his/her own chances.

They know how to deliver tangibles where it matters most, sometimes those tangibles can be very bad. You can see this in Nixon ending negatively and then Ford also ending negatively but then Reagan and Bush I did very well but look at Bush II, . .