I have repeatedly pointed out that the government's rescue of the too big to fails didn't just include $700 billion or so in Tarp, but also massive guarantees.
Elizabeth Warren and the Tarp oversight panel now say taxpayer money guaranteed assets worth $4.3 trillion at the height of the financial crisis, in a bid to help banks ride out the panic.
In addition, the Oversight panel's report notes that the guarantees are still providing invisible government subsidies even to healthy banks, even though many of the programs have now expired.
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From the linked article- "For example, when a major money market mutual fund threatened to "break the buck" last year, the Treasury Department temporarily guaranteed its assets to reassure investors that their money was safe. The actions spared investors the downside of their risk while allowing them to earn better returns than they would have in a normal deposit account."
ReplyDeleteOne has to understand about the depth of moral hazard to fathom it well. But in order to understand that depth, one must also know what is moral.
It's a tall order.
This is where these jackasses let the world down.
They have portrayed -and in fact- measure moral hazard as if it were equivalent to public outrage. Well, there's plenty of public outrage.
One could round up any sampling of the public, and not want to walk on the same side of the road as those swine.
This is leadership? Perhaps it is, -though it's certainly leading us toward hell in a hand-basket. The depression has gotten quite measurably worse since the bailout programs began. And now these bailout hazards seem to be going critical-mass nuclear.
Moral leadership is not what these people are about. Nope. These people in the best tradition of empirical science, are only trying to keep from looking the fool.
All their predecessors got up on the stage and did their silly-little-dance, while these young upstarts stood on the sidelines saying they could do a better one, more convincing, and, more authentic.
Well, now is their chance. They are not worried about moral hazard in the least.
They are instead astonished how foolish they feel up on the stage in their own empirical tutus.
And rightly so -too.
Bill Mitchell comments on the phrase "tax-payer funded" in light of modern monetary theory, which is based on Abba Lerner's functional finance principles and national accounting identities instead of the neoliberal "fiscal responsibility" mythology that has become the established narrative, even through that's not how things actually work.
ReplyDelete"Words we need to expunge from our vocabulary:
"This is a new series (which I just thought of). I am compiling a list of words that we should expunge from our nomenclature.
"Today’s word: taxpayer-funded. It is used every day by commentators, politicians and all of us. It is a gold standard-fixed exchange rate concept and has no applicability to a fiat monetary system. It is now being used at a greater frequency by neo-liberal deficit-haters to personalise the deficits back to our own bank accounts.
"The reality is that taxpayers do not fund anything. When we pay taxes to the government they do not get any extra capacity to spend. The transaction is accounted for and our legal liability is relinquished and we have less purchasing power but that makes no difference to the government’s capacity to purchase goods and services now or later. Changes to tax rates are used by governments to modify aggregate demand – to allow households etc to have more or less purchasing power – but that has nothing to do with funding government spending. A sovereign government “funds” its own spending as it is the monopoly issuer of the currency. In that sense, the term “funding” is a non sequiter and should also be banned from our vocabulary when used in relation to government spending."
[This is excerpted from Bill's blog post When a country is wrecked by neo-liberalism