It has been said that the stock market is not an actuarial table. The same can be said of the bond market. Rather than an infallible guide to the future, the bond market embodies the best guesses, hopes, dreams, and fears of many investors. Hence, the bond market can be fallible and, in fact, has been so—in spectacular fashion—in the past.
The mortgage markets of America are on the verge of nationalization. Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System (all government-sponsored enterprises, or GSEs) have become giants in the mortgage markets. The Big Three have grown at such a rapid rate over recent years that at the end of 2000, they collectively held $2.9 trillion of mortgage debt, which was equivalent to nearly 56 percent of all US household mortgage debt. Combined, they account for 90 percent of the total federal agency debt, and federally sponsored agency debt outstanding at the end of 2000. In 2001, the growth of GSEs did not abate.
On May Day 1971, the National Railroad Passenger Corporation, later known as Amtrak, took over a group of overregulated bankrupt private railroads. Officials of Amtrak, which is a blending of the words American and track, announced that the government would make money on these bankrupt railroads. The public sector, they said, was going to do what the private sector couldn’t.
As with all economic calamities, pundits will find some way to blame the meltdown and collapse of Argentina on capitalism, deregulation, or the private sector generally. Such nonsense. This crisis is a product of government incompetence, made to order by the IMF, the Argentine political leadership, and the US. As a reminder that the choice of economic policy isn’t politically trivial, the government’s errors ended in hunger, bloodshed, and the resignation (and narrow escape) of the country’s president.
Sometimes government agencies make mistakes and foist a project on us that does more harm than good. In the South, one doesn’t have to go far to see evidence of one of the more pervasive and persistent errors of the Soil Conservation Service—kudzu.
With Greenspan’s widely reported "rate cuts" this fall, most people would probably be surprised to find out that the federal funds rate is not set by Greenspan. It would also probably surprise these same people to learn that only weeks after short-term rates hit rock bottom, longer-term rates rose steadily.
Shortly after the September 11 attacks on the World Trade Center and the Pentagon, President Bush created an Office of Homeland Security. How many of us have stopped to ponder the meaning of that action? For more than fifty years, the United States has maintained an active—some might say hyperactive—Department of Defense. If it does not defend our homeland, what does it defend?
Consumer protection regulation is the consumer’s worst nightmare. In fact, it is not protective at all. It is merely another one of those regulatory rackets that has the appearance of providing necessary security for a collective group in an entirely positive sense while encompassing no negatives. After all, how can anything entitled "protection" have a downside?
Economists are fond of writing open letters to politicians in attempts to lead them down "proper" policy paths. In 1930, a thousand economists signed an open letter to President Herbert Hoover asking him not to sign the infamous Smoot-Hawley Tariff. Hoover signed it anyway, creating one more disastrous policy mistake that ultimately created the Great Depression.
With the Microsoft antitrust suit near a final settlement, it is a good time to take an entirely new direction in antitrust. That new direction ought to be its complete elimination. Its underlying concepts in economics and political philosophy need to be thoroughly discredited, and the legislation on which antitrust rests in practice needs to be repealed.
