Don’t Discount the Fed Discount Window

Though many have dismissed the Federal Reserve’s decision to drop the discount rate from 6.25% to 5.75% as mere window dressing, there are reasons to think otherwise. Citigroup, JPMorgan Chase, Bank of America and Wachovia each borrowed $500 million from the Federal Reserve discount window last week. Average end-of-day Fed credit outstanding for the week ending September 5 measured $1.1 billion, the largest balance loaned out via the discount window since September 2001 and the most since the discount window was reformed in 2003. Of interest too are the sorts of collateral the Fed accepts nowadays from banks in return for loans. The list reads like a Who’s Who of the investment world. The regulars turn up: US treasuries, government agency debt, and foreign government debt. But the Fed can accept far more than that.

Antitrust Policy Is Both Harmful and Useless

The United States has had antitrust legislation at the federal and state level for more than 100 years. (The Sherman Antitrust Act [1890] and the Federal Trade Commission Act [1914] are the basic federal statutes.) The laws make illegal “every contract, combination … or conspiracy in restraint of trade” and any attempt to “monopolize” through merger or acquisition; in addition, “unfair … and deceptive practices” are also forbidden. Given this broad regulatory mandate, antitrust law is arguably this nation’s oldest ad hoc “industrial policy.” But whether any of this regulation has ever made economic sense is entirely debatable. Despite the dismal enforcement experience, the antitrust establishment generally still supports vigorous enforcement of the antitrust laws. In antitrust, the more things change the more they seem to stay the same.

A Political Theory of Geeks and Wonks

Lots of people get interested in political ideas through political campaigns. Maybe this is because politics forces you to decide who you are and what you believe. I can vaguely recall when I was very young, perhaps 7 years old, that I discovered that my best friend’s family considered themselves Democratic whereas I was pretty sure that my family was Republican. I asked someone what that meant and only received hazy answers that concerned seemingly big issues about government. I didn’t think much about it but nonetheless, they were my first thoughts on the thing that would consume my life.

So it is for lots of people: politics is the entry way into taking political ideas seriously. If your interest intensifies, you tend to go one of two ways: wonk or geek. These are terms that applies in many categories of life—Wikipedia gives serviceable definitions of both wonk and geek—but the terms take on new meaning in politics.

The Great Capitalist Novel

Garrett portrays Wall Street at the time of this monetary crisis as a place filled with people who had lost faith in what they were doing with no plan of how to renew their faith. Into the breach steps Henry M. Galt. Galt had been quietly buying devalued shares of the struggling Great Midwestern railroad and making himself a general nuisance to the complacent and hopeless board of directors. Privately Galt had been studying everything about the railroad business in general and in particular the potential of the Great Midwestern line. When, like every other major government-subsidized railroad at the time, the Great Midwestern went into bankruptcy, Galt was the only major shareholder with a plan to make the Great Midwestern profitable again.

The Dazzling James Grant

James Grant writes in the New York Times today, on cue as the housing sector bust continues. He seems to be the guy that the editors call whenever there is a downturn in the market. And every time he writes a variation on the Austrian theme that it all comes down to credit cycles generated by the central bank, which is forever attempting to gin up prosperity out the printing — an attempt, he points out, that is ill-fated in every way.

A Policy of Unrelenting Force

George Bush, famous for outlandish claims that have no bearing on reality, has outdone himself by claiming that the problem with Vietnam was that the U.S. withdrew its troops rather than fighting harder and longer.

In a speech to the Veterans of Foreign Wars, he didn’t say how long the U.S. should have stayed, but he did claim that the reason for the bloodshed in Cambodia, and the prison camps in Vietnam following withdrawal, was not the war itself, but the failure to continue the war without end.

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