Conversations with History - Barry Eichengreen

[boing3887]

@tigerhop.

If you want me to see your comments, make sure there's a "@boing3887" right at the beginning of the comment, or else i probably won't see your comment.

[tigerhop]

We shouldn't blame the Chinese for the US government's willingness to take CHinese money to fund the housing program that created the economic crisis. The Democrat's ideological program of "housing for all" encouraged investment in the housing market, with the Federal REserve telling banks that we will be your buyer of last resort, giving them incentives to take exhorbitant risks!

[boing3887]

@tigerhop

there's no "willingness" of the US govt. to take China's money - China is buying Fannie/Freddie & Treasury bonds/securities, and pretty much anyone with money can buy it (you can think of it as having a "free market" in govt. bonds). the US govt. isn't begging China for money, but China is trying to keep its currency weak in comparison to the dollar to stimulate its exports. the US' strong-dollar policy (which means RELATIVE to other currencies) doesn't help

[tigerhop]

@boing3887 The US government needs the Chinese like fish need water to fund it's spending binge. But as the Fed prints more money, the value of the dollar goes down. We are essentially exporting our inflation to china. As soon as China decides to stop buying our debt, and depegs it's currency, it will send the inflation back to us. And then we will be in deep trouble. what strong dollar policy? We haven't had a policy like that for years. Every problem has been answered with Kensyian solution.

[boing3887]

@tigerhop

democrats' policy was to encourage increased housing ownership for lower-income folk, and this was a bipartisan view - in fact, the American Enterprise Institute, Cato, and Heritage Foundation were all calling for deregulating mortgage and financial regulations in order to allow increased lending to lower-income households. the problem ideology is the very American notion that owning a house is essential to economic security, when in fact that's not true

[tigerhop]

@boing3887 The Heritage/Cato were calling for deregulation because of their belief in free markets. But the democrats (Frank,Dodd) actually regulated the market even more, as Janet Reno strong-armed banks, forcing them to dole out loans to ethnic minorities. The banks then simply washed their hands of it and sold them as mortgage-backed securities to Fannie and Freddie, who eagerly sold them to Wall Street, starting the downward spiral. Fact is, the government SHOULDN'T be in housing.

[boing3887]

@tigerhop

Even if we were to accept the "Reno/Frank/Dodd did it" story, we would then have to conclude that Heritage, Cato and AEI were cheering them along - those three repeatedly called for govt., policy that would encourage lending to lower-income people through relaxed regulations. As for the claim that that policy lead to the crisis, you have to explain how it is that there was a global housing boom and bust. Did CRA/Fannie/Freddie also affect housing prices in other countries? explain

[tigerhop]

@boing3887 I agree with you that owning a house is part of the American dream, but it is not brought by government. Government policies tried to circumvent the laws of nature and give those people something for free. This was entirely because of the democrats in congress who came up with the idea of pressuring banks to lend to "poor ethnic minorities",regardless of credit, so they could buy votes. Cato/heritage has always pushed for LESS regulation, not MORE, which is what dems did.

[boing3887]

@tigerhop

Your analysis depends way too much on a "he said, she said" type logic. You put forth a story which sounds more or less plausible if you ignore the data. The data shows that there was a sustained increased in housing prices all across the globe which basically followed from massive, massive capital flows from poor countries into rich countries.

[boing3887]

@tigerhop If you're going to say that macroeconomic phenomena like multi-trillion capital flows from third-world to first-world countries is a lesser factor than the supposed effects of limited domestic regulation in the US, then I really have to wonder whether you believe that there is a world outside of the U.S.

You really have to give an explanation of the global housing bubble if you want people to take you seriously

[tigerhop]

@boing3887 The global housing bubble was caused by the mortgage-wrapped securities sold to Wall street by Fannie and Freddie, which in turn sold them to banks all over the world, which followed suit with American bank policy, since they thought US government would never let a collapse happen. But it did. And the Fed is part of the current recession we are in, because they are the buyer of last resort, and pay off their corporate cronies on WS with devalued american dollars. 

[boing3887]

@tigerhop

you have your history completely wrong. Fannie/Freddie followed the private sector into those securities, and in any case, housing prices WOULD NOT have risen without all the chinese and other foreign capital flowing into the US. you can look up barry ritholtz on this - this doesn't even have to be he said/she said, you can look up fannie/freddie's market share of mortgage securities and the like compared to private sector firms

[tigerhop]

@boing3887 Have you read "Reckless Endangerment"? It proves how big government's push to provide housing for the uncreditworthy led to a financial disaster. F&F was a private company! It had government backing though, basically a billion dollar line of credit. It was the nation's second largest debt issuer, behind the TREASURY itself!The company IGNORED reasonable standards of underwriting , piling up HUGE profits on the backs of taxpayers that would inevitably bail them out!

[boing3887]

@tigerhop

Also, the idea that the CRA and/or Fannie/Freddie was responsible for the housing bubble just doesn't stand up to the facts. For one thing, the CRA was created in the 70's and yet somehow had no effect on housing prices until the 2000's. Second of all, there was a GLOBAL housing boom and bust - did CRA & Fannie/Freddie somehow cause global housing bubble? sounds far-fetched. also, most of the countries with housing bubbles had no comparable program similar to CRA/Fannie/Freddie

[tigerhop]

@boing3887 It is CRONY capitalism at it's worst!Johnson, the corrupt executive that also sat on the board of Goldman Sachs, (who got bailed out of COURSE!) set up a situaiton in which he earned ASTRONOMICAL BONUSES while his balance sheet began was FILLED with accounting regularities! And they paid off lobbysists and politicians to protect them in order to keep the bonuses coming, while they USED the POOREST Americans to line their pockets! DESPICABLE !

[tigerhop]

Respond to this video... And so Fannie and Freddie, (rahm emanuel was on the board of Freddie and worked for Obama) sold these derivatives to WS, and WS gobbled them up, knowing they would be BAILED OUT by their corrupt political cronies in government! Talk about conflicts of interest! This is criminal, and we should be rioting in the streets to hang them all! And I have looked up F&F's market share of mortgage securities, and they sold over HALF of the mortgages in the country!

[boing3887]

@tigerhop

One of the requirements of establishing causation is that the alleged cause must come before the effect. If you look at Fannie/Freddie market share of mortgages over time, you see that in the beginning when all those financial products were created they actually LOST market share to the private sector. As the bubble grew their share grew as well as they played catchup. After the crisis they possessed most of the products since many private owners of the products went bellyup

[boing3887]

@tigerhop

And once again, you have not answered how the global housing boom and bust relates to the one we had here in America. What does the fact that housing prices many places in the world dramaticlaly increased at the same time in the US and also crashed at the same time tell us? How does this fact figure into your analysis? What does CRA/Fannie/Freddie have to do with it? Please explain

[tigerhop]

@boing3887 You obviously have not researched this thoroughly enough. I suggest you look into how the fed printed 16 trillion dollars in paper and secretly flushed banks around the WORLD in cash. Foreign banks bought mortgage backed securities too, following suit because they thought US government was too big to fail. The crisis started in America by corrupt politicians and their wall street cronies. Are u saying that Fannie/Freddie , the Fed, and government policy had nothing to do with it?

[tigerhop]

Respond to this video... Please tell me what you are trying to prove. That it was all the bank's fault? Well, you should have done more research and stopped following leftist propaganda. The banks were forced as far back as 1993 under Clinton to start selling loans to uncredit worthy folk. It seems that all you are doing is defending Fanni and Freddi- do you actually believe that government getting involved in housing was a good thing? You must either be a lefty, or work for the UN.

[boing3887]

@tigerhop

No, sorry - I don't think in simple black and white terms buddy. There was a climate in which credit was flowing from poor to rich countries (mainly the US) in the form of Chinese (and also other Asian &Latin American) dollar purchases. All this easy credit in the system led to a search for a use for the credit by the banks. You need to look up DATA rather than op-eds my man

[tigerhop]

@boing3887 please, why don't you tell me YOUR reasons as to why the financial crisis occured, besides the same old liberal diatribe you hear in the lamestream media? I've already told you what happened, you can't swallow it! Tell me, who created this environment of easy credit? It was the US government by the inflation they created by massively devaluing the dollar, going all the way back to 1913 and the creation of the FED!The government and their WS cronies created the crisis, read the data.

[boing3887]

@tigerhop

The account from the top experts is: countries like China, Korea and Japan, as well as Middle Eastern and Latin American (especially Latin American countries) started buying up massive amounts of dollar reserves in response to the financial crises in Latin American and Asia. The reason was that they had all experienced debt crises caused by rapid inflows then rapid outflows of foreign credit that was extremely destabilizing. They bought up dollar reserves to guard against that.

[boing3887]

@tigerhop

This huge flow of capital from poor to rich (when economists thought that credit would flow from rich to poor with intl. financial deregulation) lowered real long-term interest rates as well as kept inflation low. In this environment the Fed could afford to keep short-term rates (which are the rates it has direct control over) low since there was no inflation and also to compensate for the stagnant levels of growth we've had since the 80's.

[boing3887]

@tigerhop

This massive flow of capital from poor to rich countries basically set the stage for the climate that would lead to a bubble of some sort - the worldwide housing bubbles were the actual avenues through which the crisis came, but something bad was bound to happen with all that capital sloshing into American & European markets.

[boing3887]

@tigerhop

Your turn. I gave you my account - which is more or less the picture given by Martin Wolf at the Financial Times and Nouriel Roubini. Is the story about low interest rates and the Fed the explanation for the worldwide housing bubble? The dollar is actually overvalued relative to where it should be - Chinese and other countries' purchases of T-bills are keeping the dollar high to make exporting easier for China and those other countries...

[boing3887]

@tigerhop

PLEASE just answer this one question: giv eme your explanation of the global housing boom and bust. Give me your explanation of the global housing boom and bust. I keep on saying "your story about CRA/Fannie/Freddie doesn't do much to explain the global housing bubble" and you say "Fannie and Freddie! Fannie and Freddie!" and then I say "what about the global housing bubble?" PLEASE, just answer my question!

[tigerhop]

@boing3887 First of all, I agree with your account on how our debtors have kept our dollar from sinking by buying our debt, so we could continue to flush their markets with our currency and up their exports. Unfortunately, it's only exported our inflation over to China. China is being forced to eventually have to pin their currency to the dollar instead of consistently devaluing it in order to increase exports. Wehn this happens, it will catastrophic for western countries.

[boing3887]

@tigerhop

inflation here is very weak. The chinese use the same measures for inflation that we do, and theirs is rising (but still not all that high) while ours is about 2%. But a little bit of inflation is what you get when the economy recovers. Right now the US is facing deflation because we can't recover - China passed a huge stimulus and recovered and so now is facing inflation. thus, they're raising interest rates, as they should

[tigerhop]

Respond to this video... Tell me, are you saying that NONE of the financial crisis had to do with the government's housing policy and the subsequent suicidal loans it pushed on banks? Are you saying it all had to do with the easy credit created in the rich countries by poorer countries buying our debt? If so, you are simplifying the issue. 

[boing3887]

@tigerhop

It's not that "none" of it had to do with govt. policy, but that govt. policy would not be at the top of the list. I never say that govt. is not to blame - you can look through my posts and you'll never see me say that. my emphasis is that there are global imbalances. if anything, the one with a blind spot is you - you can't seem to admit that investors can't be stupid

[tigerhop]

It is a much messier narrative than you make it out to be: it was BOTH global economic forces and failures in U.S. policy and supervision. The CATALYST was the government's housing policy. As soon as people started defaulting on their mortgages, it set off a chain of events that rippled throughout the globe. It all started with the housing bubble created by the Fed and the US government in the 1990's through lowered interest rates, liquidity, and non-traditional mortgage products.

[boing3887]

@tigerhop

the housing bubble in the 90's didn't have that big of an effect on the economy like now. your point about US policy still fails to account for global housing bubble. If the catalyst is solely govt. and not stupid investors, then that implies that all countries with housing bubbles had similar policies on housing and credit. That is patently untrue. Policy on these fronts was very diverse across the world and yet they all had housing bubbles

[tigerhop]

Respond to this video... These non-traditional mortgage products were allowed by government as the Clinton administration bought votes by creating a LIE that every American has a RIGHT to a home. Failures in credit-rating and securitization transformed bad mortgages into toxic financial assets, which were sold around the world. The mountain of gov. programs supporting the housing market produced distorted investment incentives, and the gov's implicit support of Fannie&Freddie was EVIL.

[boing3887]

@tigerhop

that's kinda wrong...conservative think tanks like Heritage Foundation and AEI also pushed very hard to increase credit to lower-income families in order to encourage home ownership among them. Clinton never said that home ownership was a right...

[boing3887]

@tigerhop

There isn't some ideology among Democrats that home ownership is a right. more accurately, there is a view shared by both parties that the key to financial prosperity is through homeownership - you'll find both Republican and Democrat politicians praising the value of homeownership. Well, homeownership is not all it's made out to be.

[boing3887]

@tigerhop

The banks that came up with these non-traditional mortgages were not under the supervisioin of the CRA or Fannie/Freddie - you can look that up. And if you're going to say that non-traditional mortgages were "allowed" by govt., then you're saying that the govt. let private firms come up with these "inovations" - so you're saying that this is a failure of regulation. If that's what you mean, then I agree

[boing3887]

@tigerhop

So last call - just give me the exact mechanism through which you think the global housing bubble happened, and some actual data would be nice as well.

[tigerhop]

@boing3887 You have a simplistic mindset to blame it on just one thing. It's easy to point fingers, but your refusal to blame government subsidies to the housing market is erroneous and narrow-minded.

[boing3887]

@tigerhop

when you can't make good arguments or find good evidence, start calling names. i never said that govt. subsidies weren't problematic - what i'm saying is that they're not the main factor by a long shot. to say that govt. subsidies caused the worldwide housing bubble looks pretty funny to those of us who aren't austrians.

[beancube2008]

Why we can sell stuffs to China? Are we really producing stuffs they want? Don't fool ourselves by our brand names. Chinese are smart. They know what is real.

[beancube2008]

Money is a technology. If we can't evolve it, it will be abused by our rigid psychology. Economy is not a public agreement but an effort of its population. We need to flag problems of measuring or counting our own or other people's efforts using currency as an abstract. Money must be distributed to places where people need them; otherwise, even ourselves will also be possessed by those abstract abusers who capitalize on those short fall of designs of the money.

[ourearthhome]

Prevention of speculation in housing by imposition of heavy taxes on land values (the only value that goes up as real estate is invested in speculatively) would have required excess Chinese and Fed money to be invested elsewhere. Perhaps it would have been forced to be invested more in the direction of the real economy. At least this would have prevented the debacle of boom and bust in the arena where we lay our head to rest at night a simple common necessity that never should be gambled with.

[peebeebaynut]

20:03 - "Coming out of WWII ... everything ... was heavily regulated ... gradually ... we began to deregulate our financial markets ... this goes back to the early 1970's" which coincidently is when the US hit Peak Oil production rates--not that there could possibly be a relationship between those events.

[bloke003]

but the institution should not be dominated by the only superpower, which is the US, and its follower, which is the UK, because both two countries have two records of creating and deteriorating a world economic crisis. It is not the matter whether globalisation is right or wrong. What is wrong is globalising laissez-faire and correct is globalising legal systems that regulate markets and market players.

[bloke003]

3) There is another point that I find misleading when you talk about globalisation. This time, I agree with you to establishing a regulator like the WFO that you advocate (55:38),

[fillosofert]

Sorry for being a fool in the comment below. This interview series is great, since it in everyday language explains how some of the greatest minds view the world and the challenges ahead.

[hildoc]

Thank you for putting those conversations on the Internet. It is so fantastic to be at home in the Netherlands and listening to the Berkeley conversations or lectures. Very interesting and thanks again!

[8data]

great program for eternity

[Enedre]

ww1 fought in early 1944??? americans seem to have problem with fixing events to dates hehehe

[Telcontar1962]

He might possibly have been referring to the fact that WWI was never fought to a satisfactory conclusion and WWII was merely a continuance of that war.