Quotes of the day

... it’s hard to escape the conclusion that the only thing Congressional Republicans find more abhorrent than Keynesian economics is austerity for programs they like.--Brian Beutler

Only by reducing the growth of government can we increase the growth of the economy.--Ronald Reagan

During the first 10 months of this year President Obama declared 89 major disasters, more than the record 81 declarations that he made in all of 2010. And Obama has declared more disasters — 229 — in the first three years of his presidency than almost any other president signed in their full four-year terms. Only President George W. Bush declared more, having signed 238 disaster declarations in his second term, from 2005 to 2009.--Amy Bingham

There will be great earthquakes, famines and pestilences in various places, and fearful events and great signs from heaven.--Jesus Christ

The nonfinancial sector wants to issue risky, long-term liabilities and to hold riskless, short-term assets. The financial sector accomodates this by doing the reverse. One question is, how much of this financial intermediation is optimal? Up to a point, financial institutions can use specialized knowledge, monitoring arrangements, and diversification to perform their function relatively safely. However, beyond that point, they are relying more and more on signaling and confidence. This is true for governments as well as for financial intermediaries. Since 2008, my reading has been that the amount of financial intermediation needs to decrease, with whatever painful consequences that follow. This includes a reduction in government-backed intermediation, rather than a new form of government backing of the sort that Caballero is suggesting. The Austrian perspective would be that government support for financial intermediation is the disease, not the cure. In this case, I believe that is correct.--Arnold Kling

Occupy Wall Street is denouncing banks and Wall Street for "selling toxic mortgages" while "screwing investors and homeowners." And the federal government recently announced it will be suing mortgage originators whose low-quality underwriting standards produced ballooning losses for Fannie Mae and Freddie Mac. Have they fingered the right culprits? There is no doubt that reductions in mortgage-underwriting standards were at the heart of the subprime crisis, and Fannie and Freddie's losses reflect those declining standards. Yet the decline in underwriting standards was largely a response to mandates, beginning in the Clinton administration, that required Fannie Mae and Freddie Mac to steadily increase their mortgages or mortgage-backed securities that targeted low-income or minority borrowers and "underserved" locations. The turning point was the spring and summer of 2004. Fannie and Freddie had kept their exposures low to loans made with little or no documentation (no-doc and low-doc loans), owing to their internal risk-management guidelines that limited such lending. In early 2004, however, senior management realized that the only way to meet the political mandates was to massively cut underwriting standards.
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Taxpayer losses at Fannie and Freddie alone may exceed $300 billion. The costs of the financial collapse and recession brought on by the mortgage bust are immeasurably higher. Unfortunately, the Obama administration has perpetuated the low underwriting standards that gave us the crisis and encouraged the postponement of foreclosures by lending support to various states' efforts to sue originators for robo-signing violations. Now they are trying to deflect blame from Fannie and Freddie by suing the originators who fulfilled the politically motivated demands of the government-sponsored agencies that drove the mortgage crisis. If successful, all of those efforts will further postpone the ability of banks to grow the supply of credit, and they will sow the seeds of the next mortgage bust.--CHARLES W. CALOMIRIS

I agree with Nietzsche that duty is not obvious, and often some self-serving platitude for some powerful interest, so it isn't helpful to state that something that is a duty is best. Further, it makes no sense to ignore context when applying a universal law, as when you should lie to keep Nazis from finding Jews in your basement, or when you kill a dangerous burglar, and so universal law is not obvious. Lastly, as Ayn Rand noted, ignoring the consequences of actions, and just focusing on the duty, is irrational, because we act to make things in a real world that we might as well believe really is real. Finally, I should note it is rather circular in practice, because in the end the 'universal law' is defended on utilitarian grounds anyway (eg, it will make society happier).--Eric Falkenstein

Limited learning on college campuses is not a crisis because the institutional actors implicated in the system are receiving the organizational outcomes they seek, and therefore neither the institutions themselves nor the system as a whole is in any way challenged or threatened.--Richard Arum, Josipa Roksa

On the cosmic justice front, there might be something to be said for a "clawback" of past earnings of professors and administrators at colleges. But I don't see anyone clamoring for that. Of course, cosmic justice is always served by taxing people with high incomes. Make them pay off everyone else's student loans, bad mortgages, free health care for all, etc. After all, it is the fault of high-income people that students borrowed all that money. Isn't it?--Arnold Kling

The liberal fairness of Occupy Wall Street diverges from conservative and libertarian fairness [of the Tea Party] in that liberals often think that equality of outcomes is evidence of fairness.--Jonthan Haidt