Tuesday, 28 March 2023

"Trans folk have exactly the same legal rights as everyone else. Their cry is for extra ones..."

"The shouting turnouts in Auckland, Wellington and Christchurch were obsessed in their cries and placards with 'rights.' The indisputable fact is that trans folk have exactly the same legal rights as everyone else. Their cry is for extra ones..."
~ Bob Jones, from his post 'Trans-Rights Mob Not Just Sexually Confused'

'Any alleged 'right' of one person, which necessitates the violation of the rights of another, is not and cannot be a right.'

"Any alleged 'right' of one man [or woman, or trans-man or -woman], which necessitates the violation of the rights of another, is not and cannot be a right.
    "No man [or woman, or trans-man or -woman] can have a right to impose an unchosen obligation, an unrewarded duty or an involuntary servitude on another man [or woman, or trans-man or -woman]....
    "A right does not include the material implementation of that right by other men; it includes only the freedom to earn that implementation by one’s own effort."
~ Ayn Rand, from her article 'Man's Rights'

Good advice

"My father always said, 'Never argue with someone whose TV is bigger than their bookshelf.'"
~ attrib. to actress Emilia Clarke [hat tip Paul L.]

Monday, 27 March 2023

Don't feed the grifters


In a world in which people make money from "clicks," there will always be grifters who are happy to be live clickbait. 

On Saturday, down in Queen St, we had Profit Brian Tamaki and his mob of followers bravely telling passersby not to allow poofters, paedophiles and "child groomers" to be out in public (by which, I think, they mean transgender folk). But his chief message was: "Click on Me!"

Up the hill in Albert Park, we had a mob full of "tolerance" and "love" summoned by trans activist Shaheed Lal, there to fight Nazis, howl down the main event, and to get people to "Click on Me!"

And the Main Event there at Albert Park -- or at least the woman who had come halfway across the planet to be "The Main Event" -- was a woman who calls herself The Posie Parker (it's a pun, you see), who has made her living in recent years ("Click on Me!" "Click on Me!") by telling people who like to hear it that penises shouldn't be in women's spaces.

Yes, that really is what she came here to say, as she tried to tell Kim Hill last week. (And as you'll hear, she didn't make a very good job if it.) But she didn't get to say it at all, not at least in Albert Park or Wellington, where she was due to say it next, because the mostly peaceful mob summoned by Shaheed Lal (who makes his living, it seems, by advising govt ministers on "rainbow issues" and writing columns about those issues for the Herald) fought off the twenty or so old people who had hobbled there to hear her. Fought them off bravely with their fistfuls of love. (Shaheed's mob had come there to "fight Nazis" they said -- "so ready to fight Nazis"! -- but of jackboots and German helmets there were none. Just a few old folk who never got to hear their speaker.)

"We won!" said the mob, in a self-described "victory for free speech," when The Posie Parker scuttled off with a headful of tomato sauce, heading for the nearest international airport.

But at the same time, The Posie Parker herself was tweeting her supporters, telling them the fight is clearly bigger than they all thought, for which she will need more cash -- and lots of it.

And meanwhile, down in Queen St, Brian Tamaki was sending around the collection plate to pay for his next Harley.

There are grifters everywhere, on every loud and voluble side. Making a living by making themselves live clickbait.

This is all very exciting to the protagonists, I'm sure and to the newscasters who need them, because it fills up their news broadcasts and column inches with colourful but undemanding fare. Because it's issues played out simply for live clickbait. Activism theatre. "Activists" observing an issue out there, and discovering how to make clickbait out of it. 

There's a certain genius to this kind of activism. To make an important stand and to discuss the issues in order to come to a reasonable and rational conclusion about them? No, not at all: in order to attract more followers. And more clicks.

So instead of discussing the issues, on Saturday we saw lots of people shouting and throwing fists, but nobody listening. Lots of heat, but no light. 'Cos mostly what they were all shouting anyway, effectively, was not much more than just: "Click on Me!"

Cancel Culture meets Clickbait Culture. Everyone's a Winner!

These people all need each other. They are part of a mutually reliant ecosystem. Without each of them shouting out their bumpersticker slogans, none of them would be making any kind of living at all. But without any of them, we might be able to have a decent chat about the issues they all say they stand for (or against).


Bryce Edwards: The Ugly stoking of a culture war in election year
Saturday’s clash of cultures is a sign of where politics is heading in New Zealand – towards a fully-fledged culture war. This is something normally more associated with American politics – but also increasingly in places like the UK.
    There was an element of pantomime on both sides over the last week. Posie Parker thrives on controversy. She might be complaining now about her treatment in New Zealand, but by holding her rally in a public place like Albert Park she was provoking opposition and stoking tensions, hoping to become something of a martyr.
    She won. She made global news, fuelling publicity in the UK and US markets where she carries out her main fundraising....
    Likewise, those opposing Parker were rather opportunistic in arguing that she is a fascist and that her beliefs were such a danger to the public that she had to be banned from the country.
    They must have known they were giving the previously-unknown visitor huge amounts of free publicity and therefore helping get her views out to a wider audience. As broadcaster Heather du Plessis-Allan argued yesterday, “Parker’s opponents made sure that she was in the news most of the week”, and “They helped her spread her message. They played right into her hands.”
    The Greens represent one side of the polarised divide. MP Golriz Ghahraman tweeted on her way to the rally: “So ready to fight Nazis”. Co-leader and Government Minister Marama Davidson put out a video to say that she was “so proud” of the protesters. And obviously wearing her hat of Minister for Prevention of Family and Sexual Violence she used the event to declare that only “white cis men” commit violence. Such messages will go down very well amongst the party’s support base, which is increasingly sensitive to the need to make progress on gender issues. 


Saturday, 25 March 2023

"When Children's Independence Goes Down, Their Mental Health Issues Go Up"

"A wide swathe of evidence showing that a major (but not sole) cause of the increase in anxiety, depression, and suicidal thoughts among young people over recent decades has been the continuous decline in opportunities for them to play and roam independent of adults...
    "Reversing this trend — stat! — is key, as 'children who have more opportunities for independent activities are not only happier in the short run, because the activities engender happiness and a sense of competence, but also happier in the long run, because independent activities promote the growth of capacities for coping with life’s inevitable stressors.'
    "Why are trust, responsibility, and independence so crucial to children's mental health?
    "Because that’s how you get a sense of what you can handle, and of who you are in the world: A competent, growing person — not a baby or a bonsai tree....
    "The 'Journal of Pediatrics' article talks about how important it is to have an 'internal locus of control' — a sense that you can make things happen, and deal with problems that arise. An 'external locus of control' — as I think you can guess — is the feeling that someone or something else is in the driver’s seat. (And you’re in a 5-point harness.)
    "Our culture accidentally has swapped out childhood freedom and responsibility for adult-run activities. We thought we were eliminating risk, and making them happy.
    "We went too far."

~ Lenore Skenazy, from her post 'When Childrens’ Independence Goes Down, Their Mental Health Issues Go Up: 'Journal of Pediatrics''


Friday, 24 March 2023

"Words are not weapons"

"Of course, words can hurt, but they do not hurt in the same way or to the same extent as sticks, stones, fists, knives or guns.
    "Words are not weapons. Words are what we use instead of weapons, to express disagreement and assert our claims as we negotiate how to live together despite our differences, under the rule of law and without recourse to violence.
    "If we equate words with weapons, we risk weapons being seen as no worse than words."

~ Dr David Brommell, senior associate of the Institute for Governance and Policy Studies at Victoria University of Wellington, from his op-ed 'Words are not weapons and disagreement is not hate'

Is it an LOLR? No, It’s a Trap. And you should be mad.

Pic from AIER

Banking regulators set a trap for bankers, depositors and taxpayers back in 2008 into which they're all falling, explains
Michael Munger in this guest post. And now the trap is sprung, we're up to our pocket-books in moral hazard and "too big to fail." What those regulators failed to fully understand is the proper role for the Lender of Last Resort (LOLR) ...

Is it an LOLR? No, It’s a Trap

by Michael Munger

In the 1983 film Return of the Jedi, Admiral Ackbar turns to the officers on the bridge and says what everyone already knew: “It’s a trap!” It had seemed a little too easy to be able to destroy the main threat, permanently and with no risk. Of course that turned out badly for the Alliance; they shouldn’t have been fooled.

Dodd-Frank and other post-2008 banking regulations were supposed to have fixed the banking system, permanently and without risk. But once again that was too good to be true. Turns out that all that new regulation did was to set another trap, Not intentionally (although the benefits to large firms are at least partly intentional). The solution to effective banking regulation however is to understand the role of the “Lender of Last Resort,” and to commit to doing nothing more, no matter what. As Richard Salsman and I argued more than a decade ago, the alternative, “Too Big to Fail,” has proven disastrous.

The Way to Regulate Banks: The Lender of Last Resort

Banks, and many other financial institutions, are brokers, mediating transactions between people who have money — depositors — and people who want to secure loans to do things with the money — borrowers. Brokers generally don’t hold on to the money that is deposited with them; the value of brokerage is connecting that money with an investment. In fact, the banking business was long described as a sleepy-but-safe activity, one that followed the “3-6-3 rule”:
  • 3 percent — the interest you pay on deposits
  • 6 percent — the rate you charge on loans
  • 3 pm — your daily tee time on the golf course, because this business runs itself
Banks package and sell a product called “liquidity.” Liquidity is a measure of how quickly and cheaply an asset can be used to buy something else. Importantly, liquidity is not money, but a measure of the demand to hold cash balances, rather than holding wealth in some other form. Still, cash is liquid. It is easy to agree on a price, and transferring ownership is cheap. Loans are (usually) illiquid. Loans (such as mortgages) are contracts that bind one party to another, requiring payments that are secured by an asset. In the case of a mortgage, for example, the loan is secured by the value of a home, meaning that it is possible to negotiate a much-lower interest rate than on an unsecured personal loan, because the risk to the lender is smaller.

It is possible to buy and sell loans, or stocks, or other equities, but it is much more expensive than paying cash. (This illiquidity was part of the reason that mortgage-backed securities seemed like such a good idea back pre-2008, because in theory at least those were liquid; in fact, it appears that mortgage-backed securities were pretty liquid, and held their value better than is sometimes described). Another form of loan is called a “bond,” which is a promise to make periodic payments for a term of time, and then repay the full amount of the loan, the principal, at the end of that term. Ten-year US Treasury bonds, for example, have a face value and an implied interest rate paid to the buyer of the bond.

As I said earlier, banks are brokers. They take in deposits, and then use those deposits to “buy” loans. The bank might be the originator of a loan, as in the case of many mortgages. Or the bank might literally buy bonds or other securities, financial instruments that generate a higher rate of return than just holding money.

The problem is obvious. There can be a mismatch in liquidity between the bank’s liabilities (depositors put in cash, and they want to be able to take cash out) and assets (loans, bonds, other securities of various kinds). It is easy to imagine situations where a bank will be technically solvent — i.e., the total value of all its assets exceeds the value of all its liabilities — but the bank can’t convert enough of those valuable assets into cash fast enough to let everyone pull out their money right now. And when everyone does want their cash, right now, that’s called a bank run.

A bank run is dramatic, and has been used in movies from It’s a Wonderful Life to Mary Poppins. (It can be fun to use these movies in class, as illustrations!) The reason folks hurry to get their money is that there isn’t enough, and if you snooze you lose. The policy problem is that there is enough value, there just isn’t enough cash, today. That’s why the Lender of Last Resort (LOLR) function is so crucial. All that is required is a short-term loan so that there is enough cash today.

The cool thing about the Lender-of-Last-Resort solution (and note that the Lender of Last Resort could be either a private central clearinghouse, or a store of cash that maintains value in liquid form for immediate disbursal) is that if people believe the Lender of Last Resort will act immediately and effectively, then the Lender of Last Resort entity never has to act at all. If I know that I can get my money out, today, or for that matter tomorrow or the next day because the bank won’t run out of money — it cannot run out of money — then I don’t try to get my money out in the first place.

Walter Bagehot (Lombard Street, 1873) made the very sensible argument that many financial crises are not problems of insolvency, but only of illiquidity. And illiquidity is only a problem if literally everyone wants to take their money out of the bank at the same time. That problem is that “everyone wants to pull their money out at the same time” is literally the definition of a bank run, where depositors rush to get their cash while there is still some cash left.

Bagehot (pronounced “BADGE-uht”) claimed that the Lender of Last Resort must be fully committed to do three things, and never to do more than these three things:
  1. Lend as much money as necessary directly to troubled (temporarily illiquid) banks; 
  2. At a penalty rate (far above the market interest rate) 
  3. But only against good collateral, as offered by a technically solvent bank.

Since there is immediate, unlimited cash available, there will be no bank runs. 

Since the interest rate is high, loans that are made will be very short-term. 

And since the bank has sufficient assets to cover its liabilities, there is no problem securing longer-term loans if that is necessary. Loaning to provide liquidity is cheap and effective, but it is not a bailout, because the bank has equity, it just lacks liquidity.

The Way NOT to Regulate Banks: Become the Insurer of Last Resort

The drawback with relying solely on Bagehot’s Lender-of-Last-Resort solution is that it does nothing to address “financial contagion,” when problem banks suffer not just from a liquidity shortage but from full-on insolvency. I learned about “contagion” as part of my professor Hyman P. Minsky’s theory of “fragility” in a financial system, so I tend toward his definition of contagion as a cascade of failures, animated by one or more financial institutions failing to make good on its commitments. When these assets become worthless, other banks immediately become technically insolvent also, though they were solvent an hour ago. The failures propagate like falling dominoes, quickly causing massive financial failures.

The reader will likely notice that the US has abandoned the Bagehot rules in favour of trying to limit contagion. Our present-day Lender of Last Resort, a composite of the Federal Reserve and the Treasury Department, routinely and wilfully misuses the discretion afforded central bankers. In their defence, though, the Bagehot criteria are not politically viable, because failing banks that lack good collateral are just as contagious, and maybe more contagious, than banks that have good collateral.

If the job of the Lender of Last Resort is to prevent contagion — and that is how the regulatory authorities describe their job — then it is logically impossible to hold to Bagehot’s third rule, lending only to banks that are solvent but need liquidity. But that changes everything. Without the constraint of requiring good collateral, the Lender of Last Resort becomes instead an insurer of last resort — a backstop for depositors who have no reason to consider risk when deciding where to place their funds. This problem has been massively exacerbated by the “deposit insurance” guarantees, which have now been extended far beyond the statutory $250,000 limit for despite protection, to have become essentially unlimited.

And that’s what happened for the depositors of Silicon Valley Bank, and Signature Bank (and, by the time this appears, possibly more banks). All of the deposits were guaranteed by taxpayers, even though the banks were insolvent, not illiquid. The usual story has been that the deposits were guaranteed by “the government,” but that’s nonsense. Money is being taken from taxpayers and used to support depositors who made a bad bet about where to put their money.

Since our regulatory practice has gone beyond making loans to illiquid-but-solvent banks, to paying back all the deposits of insolvent banks, the result is that there is no reason for depositors to care about whether their bank is taking excessive risks. This is called “moral hazard,” because it encourages the very risk-taking that regulators are later asking taxpayers to pay for.

The problem of moral hazard sounds arcane, but it’s a trap. In the case of Silicon Valley Bank, the risks in the bank weren’t even intentional, but revealed an astonishing lack of knowledge of basic financial principles regarding the capital value of bonds in times of inflation. To be fair, the stockholders of the bank itself have been punished by market forces (maybe, unless the Treasury loses its nerve, and succumbs to political pressure from union and state pension funds. Stay tuned!), because their equity is worthless. But the depositors should have been more careful. And they would have been more careful, except that deposits are insured by taxpayers who have no say in rewarding foolish risks. Worse, the fact that deposits of greater than the $250,000 statutory limit are now being covered by taxpayers means that the signal to all other depositors is that they need not look at their own banks, because taxpayers will cover those deposits, too.

The reason this is infuriating is that we are being told that taxpayers should be willing to double down, to reimburse even-more-careless depositors for their negligent inattention to risk. And I suppose you can see why, given that this dangerous assumption is now baked into expectations about how regulators will behave.

As Obi-Wan said to Luke, also in Return of the Jedi: “What I told you was true, from a certain point of view.” But Luke was mad that he had been lied to, and you should be mad, too.

Michael Munger is a Professor of Political Science, Economics, and Public Policy at Duke University and Senior Fellow of the American Institute for Economic Research.
His degrees are from Davidson College, Washingon University in St. Louis, and Washington University.
His research interests include regulation, political institutions, and political economy. he is the author of the 2021 book Is Capitalism Sustainable?
His post first appeared at the blog for the American Institute for Economic Research.

Thursday, 23 March 2023

'Meaningful school choice would elicit shrieks of anger from upper middle-class homeowners. Too bad.'

"There are ... unwise government interventions that I would wish to eliminate, but that I would also not willingly push a button to eliminate immediately.... I’m ... sufficiently influenced by the works of Adam Smith, Edmund Burke, Lord Acton, and F.A. Hayek to understand that large, sudden changes to an economy or society can be dangerously disruptive, even when such changes involve reversing policies that should never have existed in the first place....
    "But there are buttons I would push. [One] button that I would push is one that would greatly enhance school choice. Starting with the 2023-2024 school year, I would, if I could, use a combination of tax credits and vouchers, paid for out of current government-school revenues, to end everywhere ... the monopoly grip that ... government schools and teachers’ unions have on low- and moderate-income families. This move would, in my ideal world, be a first step toward a complete separation of school and state. The squeals of the unionised teachers would be loud, as would the wailing of government-school administrators. But the pain suffered by these long-time coddled interest groups would be far surpassed by the immediately heightened incentives to improve their teaching and to tamp down their efforts at indoctrination.
    "Perhaps this sudden move toward meaningful school choice would elicit a few shrieks of anger also from upper middle-class homeowners, whose suburban property values currently reflect the superiority of the government schools in their neighbourhoods relative to the abysmally poor schools in other neighborhoods. Too bad. These property-value premia are no more just than they would be if they were instead caused by upscale areas having, say, better government-run supermarkets compared to the government-run stores in poorer neighbourhoods. If the fall in middle- and upper-income people’s property values caused by improving poor people’s access to food would be no reason to keep poor people stuck with incompetent supermarkets, the fall in middle- and upper-income people’s property values caused by improving poor people’s access to education is no reason to keep poor people stuck with incompetent schools."

~ Don Boudreax, from his post 'Some Buttons That I’d Not Push, and Some That I Would Push'

"I wouldn't mind Trump having legal troubles, if he actually deserves them, but would be very disturbed to see America taking yet another step towards Banana Republic if it turned out they were all politically motivated."

"I wouldn't mind Trump having legal troubles, if he actually deserves them, but would be very disturbed to see America taking yet another step towards Banana Republic if it turned out they were all politically motivated.
    "I have not followed these investigations much at all, but I am inclined to believe that if anything is of the undeserved (but politically motivated) variety, it's the one in New York. (On the other hand, the one in Georgia looks far worse for Trump, given that Trump's pressuring Georgia Secretary of State Brad Raffensperger to 'find' votes over the phone in 2020 is public knowledge)....
    "In any event, I would hope that the otherwise soft-on-crime prosecutor, Alvin Bragg, either has a real case or decides not to prosecute. Any case will help Trump play the victim -- as his incitement so far -- and reports to the effect that he wants to make the possible court appearance in New York into a 'spectacle' -- would seem to indicate.
    "Any criminal trial of Donald Trump had better be solid, because he will try to use it to stir up trouble."

What kind of 'Aotearoa' is emerging from 'New Zealand'?

"An extraordinary pre-figuring of the 'Aotearoa' that could emerge from 'New Zealand' occurred at last month’s opening of Te Matatini.
    "During the powhiri [at Orakei] to the nationwide kapa haka competition held at Eden Park, the tribe claiming mana whenua status in Auckland, Ngati Whatua, clashed with the sizeable contingent representing the people of Tainui – the Waikato tribal confederation still advancing historical claims to much of the Auckland region.
    "The degree of animosity on display was astonishing... The excellent coverage of the Ngati Whatua/Tainui stand-off provided by Moana Maniapoto for Maori Television’s Te Ao with Moana captured not only the injured dignity of the participants – and their rage – but the ... consternation at the naked hostility on display....
    "Astonished observers from the many other Iwi Maori participating in Te Matatini were united in their verdict: 'This isn’t over.'
    "Is this to be the way of things in these islands once the Crown has been transformed into the passive helpmeet of the independent tribes of Aotearoa, and such Pakeha as remain have learned to keep their mouths firmly shut? ...
    "Should Maori [tribal leaders] succeed in 'taking their country back' (which, in spite of all the promises of 'partnership and 'equity,' remains their unshakeable intention), it will not be as a unified people, but as a group of tribes no longer held together by their fierce antagonism to colonisation and all its works. In the 183 years since the signing of the Treaty, the claims of whanau, hapu and iwi have remained central to what it means to be Maori. Strike off the colonial fetters – cultural, economic and political – and what remains will be what was always there – long before James Cook’s Endeavour sailed out of the morning sun.
    "Proud tribes. Strong tribes. Deadly Tribes."
~ Chris Trotter, from his post 'The Tribal Stand-Off at Eden Park'

Wednesday, 22 March 2023

“Deposit insurance is a cancer at the heart of the capitalist system..." [updated]

“Deposit insurance is a cancer at the heart of the capitalist system, destroying its ethical foundations. Rich depositors should not be able to secure returns, in the good times, for investing in fundamentally riskbearing activities (which fractional reserve deposits are, by their nature) but then be bailed out by the government when times are tougher. And banks are the largest allocators of capital in the economy – so this fundamental injustice gets spread across the entire economic system.”
Andrew Lilico, from his post 'The post-2008 banking reforms are now being tested – and they are failing'
Hat tip Johnathan Pearce and readers at Samizdata, who point out both the moral hard here -- and that a further large problem here is that  investors and depositors being bailed out, such as those who were via Silicon Valley Bank, or Credit Suisse, etc, is that they tend to be politically connected. Essentially creating three tiers of banks: 
  • those "too big to fail"; 
  • those too politically connected to fail; and 
  • those about whom no-one in power cares if they fail.
"[US Treasury Secretary Janet] Yellen, in the meantime, continues today to reassure everyone that the US banking system is sound — because she has to. Her reassurance claims the present situation is nothing like the banking bust in ’08 on the basis that 2008 was all about solvency in banks due to their taking on low-quality mortgage-backed securities, whereas the present crisis is merely due to “contagious bank runs” ... the [same] kind of thing that plunged the world into the Great Depression...
    "We ALL already know that the runs at these banks were created by a completely systemic bond-value-reduction that was caused by the Fed for all banks. We all know this bond devaluation by Fed policy effectively rendered those 'safe-haven' instruments  [i..e. long-term Treasury bonds] just as un-tradable for banks as junk mortgage-backed securities were in ’08. While they are a different kind of supposedly safer instrument, they have been substantially devalued all the same. Because that imperils the reserves of all banks, the Fed had to create a new loan programme available to all banks. Now, we appear to have, additionally, another systemic bank-run issue percolating beneath the surface being caused by the rescue programme because it gave sweeping depositor insurance to ONLY the top-tier banks."
~ David Maggith, from his post 'Janet Yellen: Creature of Chaos'
Describing Yellen's haphazard defence of the bailout political preference programme to Congress, blogger El Gato Malo describes it as "Too Big to Flail," aka "Yellen Into the Void."


Scientists deliver final ‘final warning’ on 'climate crisis'

"UN climate warnings are like the village communist predicting the imminent demise of capitalism every week – and about as likely to happen.... 
    "In 2021 it was a 'Code Red for Humanity'...
    "2020 it was Yale’s turn to issue the ... ‘final warning’ on climate: ‘It’s all on us, here, now,’ says reviewer....
    "You can find final warnings and last chances stretching all the way back to 1989 if you can find them using one of our woke search engines:
U.N. Predicts Disaster if Global Warming Not Checked
UNITED NATIONS (AP) _ A senior U.N. environmental official says entire nations could be wiped off the face of the Earth by rising sea levels if the global warming trend is not reversed by the year 2000....
"Before anyone tries to claim the 1989 claim was not a real UN warning, even Snopes's fact checkers admit this was a real UN warning;...
    "My only concern in this ridiculous charade, is for the naive younger people who take these warnings seriously, and feel distressed that older people are not acting, are not showing any sense of urgency about preventing the imminent end of the world.
    "But for some people at least, that distress doesn’t last forever. As you get older, you get wiser, at least in terms of learning how to judge the credibility of others. How many times can a rational person watch the UN and other alleged authority figures get it dead wrong, and still give unquestioning acceptance to their latest wild predictions of imminent disaster."

~ Eric Worrall, from his post 'IPCC Issues their Annual Final Climate Warning'

Tuesday, 21 March 2023

INFLATION: "We are] still at risk of really bad macro forecasting errors, and central banks unable to live up to their rhetoric."

"[F]inance minister Grant] Robertson has been both an active and passive party in the serious decline in the quality of our central bank over recent years, and ... only the Minister of Finance – current or future – can make a start on fixing the institution. Institutional decline – and it isn’t just the Reserve Bank – has been a growing problem in New Zealand, and the current government’s indifference has only seen the situation worsen...
    "But, for better or worse, when most people think of a 'monetary mess' at present they probably primarily have in mind inflation.... [and] there simply isn’t any compelling evidence ... that any or all of the many things one can criticise Robertson for really go anywhere towards explaining how badly things have gone with inflation ...
    "[T]o me the evidence very strongly suggests that what happened over the last two to three years was that (a) central banks badly misunderstood what was going on around the macroeconomics of Covid, (b) so did almost all other forecasters, here and abroad, and (c) there isn’t much sign that central banks with better qualified more focused people or more open and contested policy processes did even slightly discernibly better than the others. I wish it wasn’t so.... 

The Survey of Professional Forecasters , published by the Philadelphia Fed, shows a clear 'hedgehog' – one that systematically overestimates the Fed’s willingness to hike interest rates, up until the time of the first hike in 2015, at which point SPFs estimations have underestimated the speed of hikes.

    "[I]t is remarkable how the [central banks'] forecasting errors are so uniformly wrong in one direction at a time. But they make for pretty hedgehogs.... If hedgehogging is unintentional, as Jonathan Newman observed on Mises.org a few years ago, 'their models are junk.' If the tendency is intentional, they are just trying to project unwarranted optimism – which is indeed the suggested explanation among those who’ve studied the Fed’s forecasting failures.
    "[W]e – and other countries – [are] still ... at risk of really bad macro forecasting errors, and central banks unable to live up to their rhetoric."
~ composite quote from Michael Reddell, from his post 'New Zealand’s monetary policy mess,' and Jokaim Book, from his post 'Central Banks' Forecasts Are Basically Garbage'

Monday, 20 March 2023

20 Years On: "The case for removing the worst of the Arab prison states looks more justifiable than ever, even as the blunders involved in its execution look even more unpardonable...."

"The case for removing the worst of the Arab prison states looks more justifiable than ever, even as the blunders involved in its execution look even more unpardonable....
    "[The] account [must begin] with the singular figure of Saddam Hussein. The decision to employ force cannot be understood without taking stock of the dictator’s perverse 'role and agency,' and no amount of revisionism can efface his incessant malice, aggression, and volatility.
    "The regime of absolute control and capricious terror in Baghdad established what the Iraqi exile Kanan Makiya called a 'republic of fear, or what the country’s first post-war president, Jalal Talabani, once described as 'a concentration camp above ground and a mass grave beneath it.' 
    "Before the arrival of coalition forces, Iraq was an abattoir of repression at home, and a font of menace and violence abroad. Although the rule of the Ba’ath Party has seldom been omitted from retrospective evaluations of the causes of the war, it has generally been given short shrift. It’s therefore not especially surprising that Saddam Hussein is now widely regarded as a phantom threat, and that the war has come to be perceived as the outcome of a conspiracy.
    "[We should not overlook] the moral and strategic challenges posed to American power by Iraq’s ancien régime. Perhaps one anecdote will illuminate the character of the modern totalitarian state the Ba’athists modeled on those of Hitler and Stalin. On July 22nd, 1979, just days after he assumed the presidency of Iraq, Saddam Hussein convened an urgent assembly of the Ba’ath Party leadership. One of his lieutenants opened the meeting by announcing a treasonous plot in which the conspirators were said to be present, and an old party rival bearing the signs of torture was produced to identify the 68 supposed collaborators. As the names were haltingly recited and the accused were detained, panic swept the room. Desperate to assure the new leader of their loyalty, some of the remaining delegates broke into hysterical chants of 'Long live Saddam!'
    "A few days later, 22 of the 68 accused were brought to the courtyard of the same building for execution. The penalty would be meted out by the delegates themselves, to whom Hussein personally handed pistols, thereby ensuring their complicity with the new order.
    "The bloody origins of Saddam Hussein’s dictatorship were indicative of the means of his rule. For decades, he would pursue forcible domination of the Middle East, and vast quantities of Iraq’s petroleum revenue were devoted to purchasing the instruments of war and genocide. The ambition to lay his hands on weapons of mass destruction persisted even in the face of daunting obstacles. In 1975, four years before he became president, the Iraqi Ba’athists inked a deal with French prime minister Jacques Chirac to acquire a nuclear reactor. The facility was later destroyed by an Israeli airstrike, but not even this brush with foreign power on Iraqi soil caused a rethink of the country’s nuclear aspirations. As Saddam later confessed to his American interrogators, these aspirations never ceased and were judged a necessary insurance policy for a regime dedicated to expansionism. As Saddam himself later put it, 'the boundaries of our aims and ambitions … extend through the whole Arab homeland.'...
    "The unintended consequence [however] of destroying Iraq’s Ba’athist tyranny without securing the institutions of free government was to release forces of barbarism straight out of [Conrad's] Heart of Darkness. But whatever may be said of this Rousseauian failure of imagination on the part of the American government, it scarcely undermined the casus belli. In fact, the vicious forces empowered by Saddam Hussein that swarmed into the power vacuum after his fall were part of the case for war to begin with. The evisceration of Iraqi civil society and the increasingly Islamist character of Ba’athist rule prefigured the descent into mayhem after he was swept from power. Had his reign been permitted to continue, the most plausible scenario would have been the eventual implosion of the regime under its own weight, turning a rogue state into a failed state.
    ... Advocates of a more humble foreign policy are always ready to explain the risks of using power, and seldom address the risks of not doing so. In the case of Saddam Hussein, this is a colossal mistake. It is perfectly possible to argue that the manifold blunders involved in the policy of ushering Iraq into a new era pale in comparison to the failure of refusing to confront its insane regime for so long.
    "To put the matter another way: Whatever the costs of the US military engagement in Iraq, Saddam Hussein’s nightmarish tyranny was never going to be anything approaching a compliant partner in the international order. In all likelihood, it was going to enlarge its own power at the expense of every decent movement and state in its orbit until it was removed by force or collapsed into mayhem. By 2003, invading forces encountered a country already in an advanced state of disarray. Even more than other autocracies that abound in the Arab world, Ba’athist Iraq had kept society under a lid of oppression, stultifying the social, political, and economic development of the country. In due course, its implosion—whether by internal revolt or fratricide between the despot’s sons—would have unleashed a hideous orgy of violence. Absent the helping hand of international security forces, post-Saddam Iraq would have made the bloodletting of the Lebanese civil war look tame by comparison.
    "The experiment in participatory politics in postwar Iraq has been a messy and sometimes nasty arena of sectarian rivalry and confessional jostling.... The Ba’athist-Bin Ladenist forces arrayed against the new Iraq were eventually routed, but not before inflicting grievous wounds, both in Iraq and on the American psyche. The costs and failures of the war stimulated a remarkable coincidence of view between cynical conservatives and soft-headed progressives across the West that remains largely intact to this day. The public lost faith in the traditional mission of US foreign policy to shore up the international system. Despite America’s robust material support for Ukraine, it’s clear that the cause of American activism has not quite recovered from the war in Iraq.
    "Some two decades after the Iraq War was launched, its hold on America’s imagination has not slipped. But if it’s to be a determining influence over Americans’ view of the world and their role in it, a more sober consideration of its lessons is needed. Greater accuracy in our hindsight will sharpen our foresight. It therefore remains a relevant question whether the world would be better off were Saddam Hussein and his psychopathic sons still in power in Baghdad. Years after the demise of the Arab awakening, the case for removing the worst of the Arab prison states looks more justifiable than ever, even as the blunders involved in its execution look even more unpardonable."
~ Brian Stewart, from his post 'Chronicle of a WAR, 20 Years On'
* * * *
"... most worryingly of all, the West has forgotten how to set up a successful civil government in an occupied area. In the long run this last concern is the most serious, and it might mean that the brutality becomes more visible, and [the conquered country] more bloodstained.
    "And it is serious for another reason. What about the other terrorist-supporting governments that should be in George W. Bush's sights? If terrorism is to be toppled then the governments of Libya, Sudan, Jordan, Syria, Iran and Iraq must be toppled and replaced - and NOT with the fascist-leaning puppets that the US has supported in the past...
    "If Bush can't set up successful civil governments in these countries, then he may have to call off the War Against Terrorism early, just as his father called off the Gulf War early for the self-same reason.
    "As you may recall, the Gulf War ended in 1991 with the US reluctant to finish the war as they should have - with the toppling of Saddam Hussein. When Bush senior stopped the turkey shoot on the road to Baghdad, it wasn't just a loss of courage - it was also the realisation that they had no end-game, that they wouldn't know what to do when they got there."
~ me, from my 2001 post 'The Roots of Peace'

* * * * 
"[T]he notion that the Bush administration deceived the American people has become the accepted narrative of how we went to war.
    "Yet in spite of all the accusations of White House 'manipulation' -- that it pressured intelligence analysts into connecting Hussein and Al Qaeda and concocted evidence about weapons of mass destruction -- administration critics continually demonstrate an inability to distinguish making claims based on flawed intelligence from knowingly propagating falsehoods.
    "In 2004, the Senate Intelligence Committee unanimously approved a report acknowledging that it “did not find any evidence that administration officials attempted to coerce, influence or pressure analysts to change their judgments.” The following year, the bipartisan Robb-Silberman report similarly found 'no indication that the intelligence community distorted the evidence regarding Iraq’s weapons of mass destruction'....
    "Iraq-Al Qaeda links were 'substantiated by intelligence information.' The same goes for claims about Hussein’s possession of biological and chemical weapons, as well as his alleged operation of a nuclear weapons programme.
    "Four years on from the first Senate Intelligence Committee report, war critics, old and newfangled, still don’t get that a lie is an act of deliberate, not unwitting, deception. If Democrats [and others who] wish to contend they were 'misled' into war, they should vent their spleen at the CIA....
    "This may sound like ancient history, but it matters. After Sept. 11, President Bush did not want to risk allowing Hussein, who had twice invaded neighbouring nations, murdered more than 1 million Iraqis and stood in violation of 16 U.N. Security Council resolutions, to remain in possession of what he believed were stocks of chemical and biological warheads and a nuclear weapons program. By glossing over this history, the ... lies-led-to-war narrative provides false comfort in a world of significant dangers."

~ Los Angeles Times, from their 2008 op-ed 'The White House Didn't Lie About Iraq'

* * * * 
"While mistakes were made by both the Bush administration and the Obama administration, those mistakes were of different kinds and of different magnitudes in their consequences, though both sets of mistakes are worth thinking about, so that so much tragic waste of blood and treasure does not happen again.

    "Whether it was a mistake to invade Iraq in the first place is something that will no doubt be debated by historians and others for years to come. But, despite things that could have been done differently in Iraq during the Bush administration, in the end President Bush listened to his generals and launched the military 'surge' that crushed the terrorist insurgents and made Iraq a viable country.
    "The most solid confirmations of the military success in Iraq were the intercepted messages from Al Qaeda operatives in Iraq to their leaders in Pakistan that there was no point sending more insurgents, because they now had no chance of prevailing against American forces. This was the situation that Barack Obama inherited — and lost.
    "Going back to square one, what lessons might we learn from the whole experience of the Iraq war? If nothing else, we should never again imagine that we can engage in 'nation-building' in the sweeping sense that term acquired in Iraq — least of all building a democratic Arab nation in a region of the world that has never had such a thing in a history that goes back thousands of years.
    "Human beings are not inert building blocks, and democracy has prerequisites that Western nations took centuries to develop. Perhaps the reshaping of German society and Japanese society under American occupation after World War II made such a project seem doable in Iraq.
    "Had the Bush administration pulled it off, such an achievement in the Middle East could have been a magnificent gift to the entire world, bringing peace to a region that has been the spearhead of war and international terrorism....
    "Despite the mistakes that were made in Iraq, it was still a viable country until Barack Obama made the headstrong decision to pull out all the troops, ignoring his own military advisers, just so he could claim to have restored 'peace,' when in fact he invited chaos and defeat.."
~ Thomas Sowell, from his 2015 post 'Who Lost Iraq?'
"As always there are lessons both to avoid and to emulate from history, and a lesson too from this capitulation: 
  • Subduing and modifying Japan and putting it on a path to peace and prosperity after WWII: Six years and the destruction of Shintoism as an ethical code.
  • Reconstructing Germany and setting it on a path to peace and prosperity after WWII: Seven years, and the destruction of Nazism as an ideology.
  • Reconstructing Iraq (including hunting down and killing the killers and those who supply them) and setting Iraq on a path to peace and prosperity: Too difficult. 
"Setting both Germany and Japan on the path to peace and prosperity -- making havens of peace and prosperity at the heart of Europe and at the door to Asia, and putting down the twin bacilli of Shinto nationalism and German national socialism -- this was selfishly important to anyone who valued a peaceful world ravaged by decades of strife and war, and was done by people who knew what they were doing. Just as selfishly important now would [have been] a haven of secular peace in the ravaged Middle East.
    "Now I grant you that the knowledge of how to set up a country from the rubble has clearly been lost (just another symptom of the modern-day philosophical collapse), and German and Japanese reconstruction did not have sworn enemies in the country next door supplying arms, money and training to brainwashed killers (that this continues so brazenly is another symptom of the timidity brought to the war against Islamic totalitarianism), but surely there should be recognition that setting up a post-war country ravaged by tribal and religious conflict takes years, not months, and that making a haven in the Middle East for peace and prosperity is of selfish importance to everyone in the west."
~ me, from my 2007 post 'Democrats Vote for Cut and Run'
"In 1945, the knowledge existed to successfully rebuild countries after they'd been liberated from savagery. But by 1991's Gulf War, even the victors had realised that knowledge had gone. Disappeared. Gone with the wind. So they didn't drive to Baghdad, because they knew enough to know they wouldn't know what to do when they got there.
    "They still don't."
~ me from my 2021 post, 'Kabul'


"The degree of freedom possessed by those having the least power and influence is the true measure of freedom in a nation.
    "The powerful, having a false sense of freedom through the exercise of power over others, can too easily and inadvertently give up a free nation's foundation of freedom and thus almost unknowingly give up their own basis of power."
~ John V. Westberg, quoted in The Freeman, Jan. 1995

Sunday, 19 March 2023

Reason --> Morality

"Being a passionate moralist is a good thing. Being a rational thinker is a good thing. But only the second is morally justified in being the first."
~ James Valliant

Saturday, 18 March 2023

"When it comes to rights, *deserve* has got nothing to do with it."

"When it comes to rights, deserve’s got nothing to do with it....
    "Rights protect awful totalitarian people all the time. There are many philosophical reasons for this; one is the recognition that we can’t be trusted to decide who should or shouldn’t get rights, and that arrogating such power to ourselves will inevitably favor the powerful and popular over the powerless and unpopular.
    "That’s why the whole notion of 'free speech heroes' is dicey. Plenty of people who stand up for their own free speech rights would cheerfully infringe on the rights of others given a chance....
    "We all constantly struggle against the tide of the instinctual human position “speech I like should be protected and speech I hate should be punished.” But we like simple stories, and we like heroes, so when someone’s speech is wrongly suppressed, we battle a cultural inclination to make them into noble, admirable victims.
    "Usually they’re not, and wanting them to be heroic clouds our thinking."

~ Ken White from his post 'Hating Everyone Everywhere All At Once At Stanford'

"Rights based on group identity is the formula for tribalism, tribal warfare, and injustice.... "

"Providing rights based on group identity is the formula for tribalism, tribal warfare, and injustice....
    "Conflict and wars between tribal collectives are part of world history, and we do not have to look far to be reminded how tribalism has played out over time....
    "If certain collectives are to be favoured, which ones will get priority? Black, White, Hispanic, and Asian are not the only possible collectives. And what of mixed races? What percentage of each racial DNA puts a person in a favoured or disfavoured group? Is the government to be the arbiter of the correct racial mixtures? What about non-racial collectives, such as the overweight, the weak and the uncoordinated in sports, the tone-deaf in music, the dyslexic in reading, and so on. What about the seven definitions of gender that are formally recognised by some organisations?
    "The fact is, when rights are given based on a collective or group identity, rights are also taken away based on a collective or group identity. How would this work? Obviously, it would have to be based on which collective has the most political pull at a given time.
    "As I noted, all this pushes us in the direction of tribalism, tribal warfare, racism, and injustice."

~ Edwin Locke, from his post 'Rights Belong to Individuals, Not Groups' [emphasis in the original]

Friday, 17 March 2023

ECONOMICS: The Physical Fallacy

"Many of the products which create a modern standard of living are only the physical incorporation of ideas – not only the ideas of an Edison or Ford, but the ideas of innumerable anonymous people who figure out the design of supermarkets, the location of gasoline stations, and the million mundane things on which our material well-being depends. It is those ideas that are crucial, not the physical act of carrying them out. Societies which have more people carrying out physical acts and fewer people supplying ideas do not have higher standards of living. Quite the contrary. Yet the physical fallacy continues on, undaunted by this or any other evidence."
~ Thomas Sowell, from his 1980 book Knowledge and Decisions -- commented on here by Don Boudreaux

Thursday, 16 March 2023

"Moral hazard played no role with Silicon Valley Bank"? Nonsense.

"I am continually amazed at the amount of nonsense that I’ve been reading on the subject of moral hazard. Here are a few examples:
1. Moral hazard played no role with Silicon Valley Bank because the shareholders and bondholders were wiped out. (nonsense)
2. Moral hazard isn’t an issue because average people don’t think about the safety of a bank when making deposits. (nonsense)
3. Moral hazard isn’t an issue because average people are unable to evaluate the risk of various banks. (wrong)
4. A run on bank deposits could cause a recession. (wrong)
"If you see anyone making the first two arguments above, just stop reading. They literally do not know what moral hazard is....
    "Some other misconceptions:
“Federal Deposit Insurance Corporation (FDIC) fees are not a tax on the public.” Yes, they are.
“We aren’t bailing out bank executives.” No, [they] are not bailing out Silicon Valley Bank executives, but [they] are (implicitly) bailing out their competitors."
~ Scott Sumner, from his post 'The Wrong Way to Think About Moral Hazard'

"Many young people had suddenly—around 2013—embraced three great untruths"

"There are at least two ways to explain why liberal girls became depressed faster than other groups at the exact time (around 2012) when teens traded in their flip phones for smartphones and the girls joined Instagram en masse. The first and simplest explanation is that liberal girls simply used social media more than any other group.... But I think there’s more going on here ... there’s something about the messages liberal girls consume that is more damaging to mental health than those consumed by other groups.
   ""[T]een mental health is not and must not become a partisan issue... [but we can't ignore that] 'progressive institutional leaders have specifically taught young progressives that catastrophising is a good way to get what they want'.... on the other side of the political spectrum, there was 'the most insensitive culture imaginable, which was the culture of 4chan.' The communities involved in gender activism on Tumblr were mostly young progressive women while 4Chan was mostly used by right-leaning young men ... The two communities supercharged each other with their mutual hatred ...
    "The young identity activists on Tumblr embraced their new notions of identity, fragility, and trauma all the more tightly, increasingly saying that words are a form of violence, while the young men on 4chan moved in the opposite direction: they brandished a rough and rude masculinity in which status was gained by using words more insensitively than the next guy..
   "... I think the messages young, liberal women are hearing (every day, around the clock) are doing them no good.
    "Seemingly learning to view every single interaction through an intersectionalist lens, while searching for the ways in which you're being victimised by everyone on the planet who disagrees with you, makes you depressed. Crazy.
    "The 4Chan backlash was always inevitable (and is equally self-pitying and responsibility-denying).
I really feel for kids today. Instinctively I know the answer is to retreat from it all and engage with the world in a more physical, productive way, but opportunities to do that are dwindling'....

    "Thinking of ourselves as oppressed or infirm may inadvertently cultivate what psychologists call an external locus of control. Locus of control is a psychological concept articulated in the 1950s by Julian Rotter. Those with an internal locus of control experience themselves as able to influence outcomes that affect them. Those with an external locus of control feel that most of what happens to them is beyond their ability to affect.

    "Though both external and internal loci of control confer advantages and disadvantages, research has shown that having an internal locus of control is associated with less stress and better health, whereas having an external locus of control is correlated with anxiety disorders. Importantly, an internal locus of control appears to be a decisive factor in determining whether one will be psychologically resilient. As a society, therefore, it is in our interest to cultivate an internal locus of control, and indeed, the popular notions of grit and mindset are undergirded by locus of control theory. However, some [online and educational] environments [have been] fostering its opposite.....

    "In conclusion, I believe that Greg Lukianoff was exactly right in the diagnosis he shared with me in 2014. Many young people had suddenly—around 2013—embraced three great untruths:
    "They came to believe that they were fragile and would be harmed by books, speakers, and words, which they learned were forms of violence (Great Untruth #1).
    "They came to believe that their emotions—especially their anxieties—were reliable guides to reality (Great Untruth #2).
    "They came to see society as comprised of victims and oppressors—good people and bad people (Great Untruth #3)....

     "[And yet c]reating a society in which we are encouraged to confront anxiety and face difficult realities matters not just for the mental health of individuals, but also for our collective well-being. In the world that soon awaits us, humankind will desperately need those individuals willing to rise from their beds. The challenges that loom ahead will require us to set aside timidity, weakness, and victimhood and claim instead agency and boldness, no matter how grim the odds."

~ composite quote from Lisa Marchiano and her article 'Collision with Reality: What Depth Psychology Can Tell us About Victimhood Culture,' Jonathan Haidt, from his article 'Why the Mental Health of Liberal Girls Sank First and Fastest,' and comment by Ria Parkinson [hat tip Paul Litterick and Ria Parkinson]

Wednesday, 15 March 2023

A Bank Crisis Was Predictable. Was the Fed Lying or Blind?

The triumvirate of fools at the US Federal Reserve Bank, US Treasury and Federal Deposit Insurance Corporation (FDIC) have abandoned any idea of a limited bailout for depositors in the two recently failed  banks, explains Thos Bishop in this Guest Post. Apparently there is now a new standard just made up by the banking bureaucrats: Too Mid-Size to Fail.
Welcome to the new economic paradigm where laws are broken, the rules are made up and the dollars don’t matter....

A Bank Crisis Was Predictable. Was the Fed Lying or Blind?

by Thos Bishop

Welcome to Whose Economy Is It, Anyway?, where the rules are made up and the dollars don’t matter. Or at least that seems to be the view of the Yellen/Powell regime.

As Doug French noted last week, Silicon Valley Bank (SVB) was the canary in the coal mine. Over the weekend, Signature Bank became the third-largest bank failure in modern history, just weeks after both firms were given a stamp of approval by KPMG, one of the Big Four auditing firms.

While some in the crypto community are suggesting that the closure of Signature Bank has more to do with a larger war on crypto, the regulatory action was enough to push coordinated action from the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Treasury to do what they do best, ignore clearly established rules to flood a financial crisis with liquidity.

Out: FDIC insurance limits on bank deposits lower than $250,000, haircuts for the largest bank depositors, and Walter Bagehot’s golden rule to lenders of last resort, “Lend freely, at a high rate of interest, against good collateral.” In: emergency financing to secure all deposits, accepting collateral at face value (rather than its current diminished market value) with no fee.

Don’t worry, the government promises this is only a year-long programme. It definitely won’t become a standing policy. They promise.

It is poetic that Barney Frank was serving as the director of Signature Bank at the time of its capture. This emergency action from the feds signals the failure of Frank’s key legislative accomplishment, the 2010 Dodd-Frank Act. The bill designated large financial institutions as “systemically important financial institutions,” with an additional layer of regulatory scrutiny as a means to end “too big to fail.”

Instead, the bill consolidated community banks into larger regional banks and empowered financial regulators that have now proven to be blind to the underlying risks of the banks. After all, it was state bank regulators, not the feds, that raised the flag on both SVB and Signature. Meanwhile, the hyper-fragile environment of the post-2008 financial crisis has created an environment where most financial institutions are treated as too big to fail, with no one too small to bear the costs.

Federal bank regulators and KPMG auditors aren’t the only ones blind to the underlying problems facing these large regional banking institutions. Just last week, Jerome Powell said that he saw no systemic risk in the banking sector from the Fed’s aggressive rise in interest rates and signaled confidence that they would continue in the near future. Less than a week later, few buy Powell’s projection.

While Powell deserves a level of credit for his willingness to take inflation risks more seriously than many of his peers, the instability we’re witnessing was predictable. As is repeated regularly on the Mises Wire, the decade-plus reign of low interest rates didn’t only incentivize financial risk but necessitated it. The benefactors were tech firms, the real estate market, and a variety of other financial markets. The consequence has been corporate consolidation and the creation of numerous overly leveraged, unprofitable zombie companies that depend upon refinancing at low interest rates to function. The Fed’s rising interest rates have always been a threat to these parts of the economy.

In defense of Powell, lying about the state of the economy is a necessary part of the modern financial system. Regardless of one’s opinion about the virtues of free banking, state intervention has created a fractional reserve banking system saturated with risk and moral hazard. Since no bank is equipped to deal with a significant increase in demand for deposits, even relatively conservative banks can be brought down by a confidence crisis fueled by the instantaneous communication of social media.

The Feds have signalled a bailout for all because everyone is at risk.

It doesn’t have to be this way. Caitlin Long has been fighting the financial regime for years in her quest to create Custodia Bank, a full-reserve bitcoin bank in Wyoming. There has been a coordinated attempt to stop her efforts, ironically including voicing concerns that Custodia could fuel “systemic risk.” Honk honk. [And despite all the interest-rate chicanery and money-printing Keith Weiner continues his efforts at Monetary Metals to remind everyone that the ultimate money is still a precious metal.]

The short-term question is whether the efforts of the Fed and the Treasury are enough to prop up confidence and prevent escalating pressure on financial institutions. However, these are not solutions to the underlying systemic problems that these bodies have created.

Unfortunately, the consequence of the complete politicisation of the economy is that financial policies are necessarily focused on the short term at the expense of the long term.

There is no serious solution until there is the political will to deal with our monetary hedonism.

Author: Tho Bishop
Tho is an assistant editor for the Mises Wire, and can assist with questions from the press. Prior to working for the Mises Institute, he served as Deputy Communications Director for the House Financial Services Committee. His articles have been featured in 'The Federalist,' the 'Daily Caller,' and 'Business Insider.'
His post first appeared at the Mises Wire.

Tuesday, 14 March 2023

How the Central Bank's Easy Money Killed Silicon Valley Bank [updated]


The second-largest collapse of a bank in recent history would not have existed if not for ultra-loose monetary policy, as Daniel Lacalle explains in this Guest Post. SVB made one big mistake: follow exactly the incentives created by the central bank's loose monetary policy and banking regulations: its lending and asset base read like the clearest example of the old mantra “Don’t fight the Fed.”
[Since this piece was written, of course, we've had the disgraceful announcement by the dumbarse in the White House and from the former Fed chair who helped blow up the tech bubble, of what is effectively a bailout-to-infinity for depositors. UPDATE: David Stockman, Reagan's former Budget Director, calls it A Bailout Most Crooked"They have done it again [he comments], and in a way that makes a flaming mockery of both honest market economics and the so-called rule of law. In effect, the triumvirate of fools at the Fed, Treasury and FDIC have essentially guaranteed $9 trillion of uninsured bank deposits with no legislative mandate and no capital."]

How the Central Bank's Easy Money Killed Silicon Valley Bank

by Daniel Lacalle

THE SECOND-LARGEST COLLAPSE of a bank in recent history (after Lehman Brothers in 2008)  could have been prevented. Now the impact is too large, and the contagion risk is difficult to measure.

The demise of the Silicon Valley Bank (SVB) is a classic bank run driven by a liquidity event, but the important lesson for everyone is that the enormity of the unrealised losses and the financial hole in the bank’s accounts would not have existed if not for ultra-loose monetary policy. Let me explain why.

According to their public accounts, as of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. Their top shareholders are Vanguard Group (11.3 percent), BlackRock (8.1 percent), StateStreet (5.2 percent) and the Swedish pension fund Alecta (4.5 percent).

The incredible growth and success of SVB could not have happened without negative rates, ultra-loose monetary policy, and the tech bubble that burst in 2022. Furthermore, the bank’s liquidity event could not have happened without the regulatory and monetary policy incentives to accumulate sovereign debt and mortgage-backed securities (MBS).

Silicon Valley Bank’s asset base read like the clearest example of the old mantra “Don’t fight the Fed.” Silicon Valley Bank made one big mistake: follow exactly the incentives created by loose monetary policy and regulation.

WHAT HAPPENED IN 2021? Massive success that, unfortunately, was also the first step to demise. The bank’s deposits nearly doubled with the tech boom. Everyone wanted a piece of the unstoppable new tech paradigm. Silicon Valley Bank’s assets also rose and almost doubled.

The bank’s assets rose in value. More than 40 percent were long-dated Treasuries and Mortage-Backed Securities. The rest were seemingly world-conquering new tech and venture capital investments.

Most of those “low risk” bonds and securities were held to maturity. Silicon Valley Bank was following the mainstream rulebook: low-risk assets to balance the risk in venture capital investments. When the Federal Reserve raised interest rates, Silicon Valley Bank must have been shocked.

Its entire asset base was a single bet: low rates and quantitative easing for longer. Tech valuations soared in the period of loose monetary policy, and the best way to “hedge” that risk was with Treasuries and Mortage-Backed Securities. Why bet on anything else? This is what the Fed was buying in billions every month. These were the lowest-risk assets according to all regulations, and, according to the Fed and all mainstream economists, inflation was purely “transitory,” a base-effect anecdote. What could go wrong?

Inflation was not transitory, and easy money was not endless.

Rate hikes happened. And they caught the bank suffering massive losses everywhere. Goodbye, bonds' and Mortage-Backed Securities' prices. Goodbye, “new paradigm” tech valuations. And hello, panic. A good old bank run, despite the strong recovery of Silicon Valley Bank shares in January. Mark-to-market unrealised losses of $15 billion were almost 100 percent of the bank’s market capitalisation. Wipeout.

As the bank manager said in the famous South Park episode: “Aaaaand it’s gone.” Silicon Valley Bank showed how quickly the capital of a bank can dissolve in front of our eyes.

The Federal Deposit Insurance Corporation (FDIC) will step in [and has - Ed.], but that is not enough because only 3 percent of Silicon Valley Bank deposits were under $250,000. ['So what,' said Janet Yellen, the former Fed Chair ho helped blow up this bubble- Ed.]  According to Time magazine, more than 85 percent of Silicon Valley Bank’s deposits were not insured. [But this has not bothered Yellen, who has now ignored her rules, rewarded this failure, and further ignited the financial industry's glaring moral hazard - Ed.]

It gets worse. One-third of US deposits are in small banks, and around half are uninsured, according to Bloomberg. Depositors at Silicon Valley Bank will likely lose most of their money [or should have - Ed.], and this will also create significant uncertainty in other entities [or should have - Ed.].

SILICON VALLEY BANK WAS the poster boy of banking management by the book. They followed a conservative policy of acquiring the safest assets—long-dated Treasury bills—as deposits soared.

Silicon Valley Bank did exactly what those that blamed the 2008 crisis on “deregulation” recommended. Silicon Valley Bank was a boring, conservative bank that invested its rising deposits in sovereign bonds and mortgage-backed securities, believing that inflation was transitory, as everyone except us, the crazy minority, repeated.

Silicon Valley Bank did nothing but follow regulation, monetary policy incentives, and Keynesian economists’ recommendations point by point. It was the epitome of mainstream economic thinking. And mainstream killed the tech star.

Many will now blame greed, capitalism, and lack of regulation, but guess what? More regulation would have done nothing because regulation and policy incentivise buying these “low risk” assets. Furthermore, regulation and monetary policy are directly responsible for the tech bubble. The increasingly elevated valuations of unprofitable tech and the allegedly unstoppable flow of capital to fund innovation and green investments would never have happened without negative real rates and massive liquidity injections. In the case of Silicon Valley Bank, its phenomenal growth in 2021 was a direct consequence of the insane monetary policy implemented in 2020, when the major central banks increased their balance sheet to $20 trillion as if nothing would happen.

Silicon Valley Bank is a casualty of the narrative that money printing does not cause inflation and can continue forever. They embraced it wholeheartedly, and now they are gone. [Or should be.]

Silicon Valley Bank invested in the entire bubble of everything: Sovereign bonds, Mortage-Backed Securities, and tech. Did they do it because they were stupid or reckless? No. They did it because they perceived that there was very little to no risk in those assets. No bank accumulates risk in an asset it believes is high risk. The only way in which banks accumulate risk is if they perceive that there is none. Why do they perceive no risk? Because the government, regulators, central banks, and the experts tell them there is none. Who will be next?

Many will blame everything except the perverse incentives and bubbles created by monetary policy and regulation, and they will demand rate cuts and quantitative easing to solve the problem. It will only worsen. You do not solve the consequences of a bubble with more bubbles.

The demise of Silicon Valley Bank highlights the enormity of the problem of risk accumulation by political design. Silicon Valley Bank did not collapse due to reckless management, but because they did exactly what Keynesians and monetary interventionists wanted them to do. Congratulations.

Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020), Escape from the Central Bank Trap (2017), The Energy World Is Flat (2015), and Life in the Financial Markets (2014).
He is a professor of global economy at IE Business School in Madrid.
His post first appeared at the Mises Economics Blog.