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AmSpecBlog
We *all* know the private sector is the problem
So says Gail Collins:
As to the banks — and the automakers — so far our problem has been too little faith in government rather than too much. We got into this mess by presuming that the private sector was inherently smarter than pointy-headed bureaucrats. But over and over during the past eight years, from Iraq to prescription-drug pricing, we’ve seen that the private sector is frequently both dumber and less efficient than government.
Collins manages to name the most government heavy "private" sector items imaginable. Private contractors in Iraq? Government spending without the oversight. Drug research? Heavily government subsidized.
The point Collins misses is that the market may have just as many inefficiencies as government, but when private enterprises *are* inefficient, they fail. Then smarter competitors learn a lesson and have a success. Government isn't allowed to fail, because it is a monopoly. This means more failures, rather than more learning. It gets worse when government bails out failing industries. The auto industry, the airlines, healthcare, all of these have been insulated from market pressure to the point that the "market" is completely distorted.
It's not about "pointy-headed bureaucrats" versus the profit-seeking businessman. It's about government getting in the way of innovation.
Anyway, dear commenters, let's have a little competition. The first person to nail what's wrong with this next sentence gets a free March issue:
The private sector got us into the savings and loan crisis during the ’80s, and who got us out of it? Was it … the government?
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thirteen28| 2.18.09 @ 1:38PM
Didn't the 1986 Tax Reform remove a lot of deductions for real estate investments, thereby causing a lot of loans on said investments to tank? That's the govt. action I can think of that precipitated the crisis.
bz| 2.18.09 @ 3:59PM
deposit insurance is the government program that insulated depositors from reckless lending decisions of S&L;owners and managers. depositors were free to chase high-paying accounts, certain that they would get their money back regardless of quality of assets on S&L;balance sheet. S&L;owners used these funds to finance real estate development projects, often retaining an equity interest. many S&L;'s in essence became real estate development enterprises, not home lending institutions, with predictable results.
Dave Hanson| 2.18.09 @ 8:31PM
Exactly backwards! *Congress* caused the S&L;fiasco, in two steps. 1) In 1980 Congress grossly expanded so-called 'deposit insurance'. (Read: taxpayer bailout guarantee against losses, via a dead body then called the Federal Savings & Loan Insurance Corporation.) "Protection" shot up from the traditional $4,000 all the way to the FDIC's then current $100,000--because the S&Ls;wanted to play on traditional commercial-bank turf. Then 2) in 1986 the Tax Reform Act greatly extended the recognition period for income-tax deduction for real estate depreciation--up to 30+ years from a much shorter period (which I now forget). In what asset did (do?) S&Ls;primarily invest??? **Real Estate**mortgages. S&L;*crisis*. Duh. Congress destroyed the value of S&L;'s primary asset. Funny thing--we had no wave of S&L;failures until....1987!! The first tax year to which the 1986 TRA applied. Then, because of that silly 'FSLIC guarantee' (to 'assure depositor confidence,' downcha noe) we taxpayers had to foot the 150-0r-so billion dollar bill for wiping all the blood off the floor.
By the bye, did anyone notice last fall's offhand and foolish doubling-&-a-half of that 198os' $100,000 FDIC 'deposit guarantee'? Now it's $250,000 per person per bank. "To restore depositor confidence, downcha noe!"
I prefer God's financial position, about the soundness of money:
"You must have accurate and honest weights and measures, so that you may live long in the land the LORD your God is giving you." Deuteronomy 25:15
"Differing weights and differing measures--the LORD detests them both." Proverbs 20:10.
"Government" is made of men. "It is better to trust in the LORD than to put confidence in man." Psalm 118:8 Sorry Miss Collins--of course I don't 'trust' your beloved government.
Matthew Bishop| 2.19.09 @ 9:59AM
I'll take a stab at this one, J.P. The reason the S&L;institutions wound up in trouble was because their money was tied up in low-interest, fixed-rate loans as inflation ballooned. As a consequence of making those low-yield, non-adjustable loans, the S&L;industry couldn't match the inflation of the mid-80s or compete with new high-yield money market accounts. As their assets were devalued and depositors tried to move their money elsewhere, the S&L;industry became insolvent.
The question is this: why did the S&L;industry (i.e. the private sector) make these low-interest, fixed-rate loans? That was what ultimately got them into hot water.
The answer is (ta-daaa!) that tight government regulations during the 1970s had capped the interest rates S&L;instutions could charge and dictated the types of loans they could and couldn't make.
Thus, it was government--not the private sector--that created the problem. Q.E.D.
Matthew Bishop| 2.19.09 @ 10:01AM
Correction: the inflation of the late-70s! Was a little off on the timeline.