Former CEI Warren Brookes Journalism Fellow Neil Hrab has an interesting take on Russia’s offer to help out Iceland with its own personal portion of the current global financial meltdown.
The West’s list of grievances against Russia is long…
But one can hear no peep of opposition today from any western country following Moscow’s offer to lend 4 billion euros to Iceland. Full Comment reported on that tiny nation’s current financial difficulties yesterday. Of all the countries affected by the crisis, Iceland may be hurting the worst.
Western elected officials, academics, professional diplomats and military high commands have spend the years since the USSR’s breakup laughing at the very idea that Russia might ever again be a great power. They might have to start stifling that laughter. In Iceland, at least a few people are openly wondering why it is that their old foe of the Warsaw Pact era (Iceland is a NATO member) is solvent enough to afford to advance them a loan in their hour of need — while no other western democracy was willing or able to do so. One Icelandic newspaper editor is even referring to Russia’s loan as a major “PR coup” for the Kremlin.
If the Russian government wants to drop some assistance on the Icelanders that’s fine with me, but I’d advise them that such gifts rarely arrive string-free. If Putin and his Kremlin lieutenants are confident enough to play hardball with nearby major powers, I doubt they’ll be subtle about dropping the other shoe on their newest NATO friends.
Arnold Kling hits the creation of the secondary market for mortgage loans as the major factor — 50 percent — causing the current financial crisis. As Kling wrote:
In hindsight, I think that the crisis was caused by
a) creation of the secondary mortgage market (50 percent)
b) low down payment mortgages (30 percent)
c) the “suits vs. geeks” divide (15 percent)
d) other (5 percent)
The more I think about the secondary mortgage market, the less I like it. Any widespread benefits, such as lower mortgage interest rates, are microscopic. On the other hand, several times (not just recently), the market has been used to create or enhance regulatory loopholes that undermined the safety of the financial system as a whole.
I am surprised that Kling so lightly dismisses the benefits as “microscopic” of one of the most positive innovations in the mortgage market. Just think about it. Financial institutions — primarily savings and loans — prior to the creation of the secondary market, took in short-term deposits and made long-term, fixed-rate loans (30 years). Until the early 1980s, Regulation Q set the limit on the interest rates that could be paid on deposits.
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Oh, Happy Day! And it certainly is for all those who value freedom, responsibility and the true free market in which individuals are free to profit from their risks on the condition that they don’t stick the rest of us with their losses.
It’s not hyperbole to say the Republican and Democratic backbenchers who defied both parties’ leadership to defeat this $700 billion package of Wall Street socialism literally saved America. Whatever their reasons, this defeat (or rather victory for freedom), means that America is much less likely to turn into France, Venezuela, or the old Soviet Union, as this bailout/nationalization package would have set us on the road to becoming.
Several great speeches on the Right and Left were given. Democrats Brad Sherman of California and Earl Blumenauer of Oregon gave powerful speeches against corporate giveaways. And conservative leaders of the Republican Study Committee — such as Jeb Hensarling, Jeff Flake, Mike Pence, and of course Ron Paul — spoke about how government intervention was largely the cause of this predicament, but the bailout would doom arguments for the free market form here on out. The idea of the government making this kind of outlay to high-flying risk takers just didn’t jibe with members, and certainly not with the American people.
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Unfettered greed is the suspect many point at to explain the current economic crisis. To some extent, they are right, but it isn’t irrational greed on the part of bank managers or fat cat CEOs. It is the unwieldy bank regulations that forced the entire industry to walk the proverbial plank and then blame it for drowning.
Critics have alternately claimed that over-regulation and under-regulation are the causes for the current crisis. I believe one specific regulation, the Community Reinvestment Act (CRA), should shoulder a lot of the blame for creating an environment where a lending institution’s short-term survival hinged on it making the decisions that in the long-term would likely cause its demise.
As I noted in my paper The Community Reinvestment Act’s Harmful Legacy, one of the effects of the CRA was the creation of a weapon that has been effectively utilized to extort money from lenders. When lending institutions wish to open a new branch, expand, or merge, they must apply for permission from one of the four governing bodies (Federal Reserve, Office of Comptroller of the Currency, Federal Deposit Insurance Corporation, and Office of Thrift Supervision). Their request can be postponed or outright denied if any community group files a CRA protest. Lending institutions can of course fight these protests, but CRA investigations can take months and cost large sums of money.
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