The Wall Street Examiner Sat 2010-05-22 19:56 EDT

Imagine There's No Credit Market: Another Look At German Controls

...Thus, when people speak of "rescuing the credit markets" they really mean to say rescuing the liquidity providers who failed to assess lending risks so profoundly they can't make required payments. When people talk of German restrictions killing the credit markets, they really mean killing the middle-men (which may or may not have a deleterious effect on government borrowing). German restrictions on certain types of equity and credit transactions are not aimed at reduced government borrowing. They are aimed at reducing the amount (and means of capture) of profit "earned" by middle-men in the transaction- profits, mind you, as per our model, in the case of government borrowing, come either as a result of the money's original owner getting less interest than a direct deal would generate, the government paying more interest (which only comes from higher tax revenues) than a direct deal would generate, or some combination thereof. ...liquidity providing actions of "credit market" middle-men has run amok. As per J.S. Mill, that credit markets are exerting a distinct and independent influence of their own means they are out of order. With increasing frequency, credit is mispriced or unwisely extended and liquidity, the raison d'être of these people, dries up when it is needed most. Yet the middle-men who fail in their tasks expect to be rescued from their failures, and given even more ways to profit from lending other people's money, while the pool of available savings shrinks. ...In one sense I'm quite happy about all of the financial sector bail-outs governments have provided these credit-market middle-men. Before the bail-outs, one had to argue that finance was like a tax on monetary exchange, now this point is clear, finance is, in fact, a tax- and a growing one at that.

credit markets; German-Controlled; imagine; looking; s; Wall Street Examiner.

Willem Buiter's Maverecon Thu 2009-10-15 16:51 EDT

Kornai on Soft Budget Constraints, Bail-Outs and the Financial Crisis

Nobel Prize winning economist J��nos Kornai

...Spreading of the SBC syndrome is at once a cause and an effect of the crisis. I will not say it is the only cause: the situation that led to the crisis was brought about by a complex of factors. But I will say firmly that softening of the budget constraint is one of the main causes of the crisis. The general softening tendency has been reinforced in the United States and several other countries by successive bailouts over the last ten or twenty years. Some economists, such as Professor Chenggang Xu, have been pointing for years at a close link between the crisis in East Asia and earlier bailouts. [moral hazard generalized]

bail-outs; Financial Crisis; Kornai; Soft Budget Constraints; Willem Buiter's Maverecon.

Tue 2008-03-18 00:00 EDT

Winter (Economic & Market) Watch >> Sharks in Suits Black Box Crony Capitalism

Winter (Economic & Market) Watch >> Sharks in Suits Black Box Crony Capitalism; Bear Stearns death watch; "These are not bail outs...These are systematic looting operations."

economic; Market; Sharks; Suits Black Box Crony Capitalism; watch; winter.