Thanks Paddy! I've been subscribing to your white board and marketplace channel for awhile. You make some of my CFA studying material a lot easier to digest. Great talk!
I do not disagree with you that government subsidizing failure is a huge problem, but it was not that which caused the market to fail. They did that 'after' the market failed. What caused the market to fail was the central bank (the Federal Reserve) offering new money to banks (including investment banks) at below inflation rate interest (effectively paying them to take new money) while the government simultaneously did everything it could to engender a massive housing bubble.
Note too that the current strategy for getting the economy out of it's doldrums is for the Federal Reserve to offer massive amounts of new money to banks at below inflation rate interest, while government does everything it can to boost the housing market.
Always find Paddy to be illustrative and practical in his finance "speak"-- and what about those whiteboard drawings?! This audience was not his forte, lol! Ryan Toncheff
Certainly their misfeasance was greatly encouraged by the moral hazard of that implicit guarantee of government bailout. I wish to god there was no such impetus on the part of government.
Maybe they understood, correctly I might add, that the government wouldn't allow these major financial institutions to go under? I've even heard that it was common knowledge that this would happen, look up "the greenspan put" or something to that effect. I agree with the rest of your comment though. Fannie and Freddie were major players in this absurdity, both government or pseudo-governmental entities.
Paddy makes reference to "disastrous deflation", failing to discern between the two possible causes of deflation, an error all Keynesians make. A monetary deflation where the money supply actually goes down is indeed a potential disaster. But a price deflation caused by increases in productivity is all upside. Keynesians treat the two as if they were the same thing, inflating the money supply in order to stop it, with horrible consequence to the economy and people's lives.
This guy is pretty opinionated. Spending does not drive the economy, investments do. What he said is kind of like saying "if there isn't enough food you have to start eating more and then people will produce more food" but that makes no sense because you have produce before you can consume. Hayekians: 1 Keynesians: 0
