Wednesday, March 18, 2009

Taking issue with IBD

I wouldn't normally disagree with an IBD editorial, particularly one criticizing government action, but I have a nit to pick there.

IBD:
Don't look now, but the economy is starting to turn. Recent data suggest it may start making up lost ground as early as the third quarter. A triumph of government policy? Hardly.

I think they're right that the stimulus and a lot of the profligate spending is going to hurt the economy. But the blanket statements about the bank bailouts are wrong, and the idea that the economy is recovering sans government is mistaken. Where do they think the positive yield curve and the M1 and M2 increases came from? The Fed, that's where. Is the Fed "government"? Depends on your definition. It is distinct from the Obama administration, but it isn't exactly a private actor either.

IBD points to nascent signs of bank profitability as a leading indicator... but at least two of the three banks they mention would likely be out of business if not for the TARP bank capital program.

The most constructive thing the Obama administration could do is to fix the banking system, or at least put out a scheme for the banking system that would bring some level of clarity on which investment plans can be built. (Has Obama been delaying this needed action in order to cram through his other "necessary" policies?)

Fix the banks and you're most of the way there. Fix the banks and the economy will recover without further government central planning.

2 comments:

Samay said...

"The most constructive thing the Obama administration could do is to fix the banking system, or at least put out a scheme for the banking system that would bring some level of clarity on which investment plans can be built."

Oh my god, are you talking about restoring financial regulations?
Dude.

Sockless Joe said...

"restoring financial regulations" will not fix their capital situations. Regulatory change of some variety is probably warranted, but in and of itself - even if done properly - won't "fix" them.

I actually don't think that Gramm-Leach-Bliley needs much, if any change even though GLB is a favored target of the "deregulation is bad" people.