All This Stuff About Bailouts Preventing The Second Great Depression Is Just Propaganda

[girl gone mad]

All This Stuff About Bailouts Preventing The Second Great Depression Is Just Propaganda

(snip)

Not to worry. Now we know (if there were ever any doubt), that TARP and the “stimulus” and all the various bailouts helped prevent a "Second Great Depression." According to an article from the NY Times, Alan Blinder of Princeton and Mark Zandi, Chief Economist at Moody’s, have proven “empirically” that the bailouts worked. Even though the bailouts were politically unpopular, and even though there is still a great deal of “populist” anger about them, Blinder and Zandi have shown us the “wisdom” of the bailouts, and proved conclusively that our rulers saved us all from financial and economic armageddon. Of course, there’s just one little problem with this narrative: Blinder and Zandi have done no such thing. For all their charts, appendices and footnotes, they’ve proven nothing whatsoever. Nada. Zip. What they have done, however, is puke up a pretty little piece of bailout propaganda when the ruling class needed it most.

All the more galling, the Blinder-Zandi paper was originally titled "How We Ended the Great Recession." Given such hubris, I was fully prepared to delve deep into their methodology, examine carefully all their assumptions, and offer a full critique of the arguments implicit therein. Alas, no such critique will be forthcoming. I've read the "paper" from beginning to end, from cover page to footnotes to appendices. Everything. But I still have no idea how they arrived at any of the results laid out ever so neatly in their ostentatiously detailed charts. That's because their model, and the assumptions they used, are nowhere to be found. If these were third graders, they'd get a zero for not showing their work.

(snip)

In a nutshell, the Blinder-Zandi model assumes that:

* interest-rate spreads have large, significant effects on economic activity;
* financial interventions (such as TARP) are best modeled in terms of credit spreads;
* these financial interventions, in fact, significantly reduced the various credit spreads;
* (and finally) without financial interventions like TARP these spreads would have remained elevated for a much longer period of time.

Is it any wonder then, that the model shows a massive difference between the bailout scenario and the non-bailout scenario? After all, that’s what the model has been designed to do. Based on the assumptions Blinder and Zandi made at the very start, there could be no other possible outcome than one that shows a large, significant deviation between the bailout scenario and the non-bailout scenario. It's already baked in. The precise “results” are just numerical icing on the bailout cake.

Read more: http://www.businessinsider.com/propaganda-second-great-depression-2010-8#ixzz0vUImENo1

[jtuck004]

1. K&R The line I really liked in this article was

"Their paper represents nothing more than a high-level guessing game which has been given a veneer of empiricism and mathematical rigour."

Ironic. Reading about "The Quants" one could easily come to the conclusion that the models they used to underlie their hedge fund bets were nothing more than a "high-level guessing game with a veneer of empiricism and mathematical rigour"

Seems like a lot of this going around...

(I don't know why, but the link to the story on Business Insider is coming up blank, as if the site is not redering properly at the moment. I went to the original here...).

(btw, I recc'd this one as well. Still 0. Yours must start at -1.4 Well, at least they're noticed. <G>)

[westerebus]

3. must be at -2.2.

Mine didn't take either. May be some folks can come by and it a whack.

I conclude the thought police are getting trigger happy.

[On the Road]

2. If You Think the Big Four Financial Firms

would have stayed in business, you were not in touch with what was going on in October 08. Likewise, if you think that the recession would have been unaffected by three of those firms going under, you do not understand the role of credit in the economy.

Look at the effect of the banks and mortgage companies tightening up on lending. Now multipy that to include the effects of much of that lending not even existing. And, since business deposits are not government insured, include the effect of all the small businesses with payroll accounts in those institutions not being able pay their employees and very possibly not be able to stay in business.

Blinder and Zandi may have overstated their conclusions. One of the reasons I suspect they might have done so is that their basic assumptions on interest-rate spreads are pretty common knowledge. I don't know if "financial interventions (such as TARP) are best modeled in terms of credit spreads" is their wording or understanding, but it's at least part of the picture. The part beyond the limits of their woud seem to support their point even more strongly.

[FBaggins]

5. At least two of the four would have gone under.

But that doesn't mean that the economy overall would be worse off today had that been allowed to happen.

[Murray_R]

10. unaffected?

"Likewise, if you think that the recession would have been unaffected by three of those firms going under, you do not understand the role of credit in the economy."

I don't think it would have been unaffected, I think it would have been much shorter than the rewarding of failure will make it. You don't understand the role of credit in the economy if you think Ben Bernanke can create some with a printing press.

[Warpy]

4. One hallmark of the Depression was the enormous number

of bank failures. Today, thanks to TARP, only small banks are failing and so far the FDIC has kept them running and people from panicking. In that sense, and that sense alone, Depression II has been prevented, or at least delayed.

The author cited in the OP is being exceptionally myopic if he thinks the TARP bailout has prevented a depression in the rest of the economy. It's here and it's due in a large part to banks and other corporations expecting a deflationary cycle and being unwilling to lend or borrow now.

[area51]

7. +1 (n/t)

[fasttense]

8. And yet if we had covered all those underlying bad mortgages

that those bailout mega-banks (yet most of them only became banks after the crisis was identified) had built their ponzi schemes upon. We would have had better results. Money never trickles down it always trickles up from labor, which is why we are in such an economic mess right now.

[pscot]

6. The true test of a perfect beaurocratic functionary

is the ability to puke up a hairball on command.

[sendero]

9. Which brings us to...

....

" The most confused of any putative authorities are the academic economists, lost in the wilderness of their models and equations and their quaint expectations of the way things ought to go if you can tweak numbers. These are the people who believe with the faith of little children that if you can measure anything you can control it. They will go down in history as the greatest convocation of clowns ever assembled, surpassing all the collected alchemists, priests, and vizeers employed in the 1500 years following the fall of Rome."

http://kunstler.com/blog/2010/07/what-is-it.html

Nothing amazes me more than the idea that anyone should give two shits what 99% of "economists" say. They were WRONG WRONG AND WRONG in 2005, 2006, 2007 and even 2008 and 2009 when many of us rank amateurs could see very clearly what was happening. They are worse than useless.