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Volume 14, Issue 2: January 10, 2012
- New Book Examines the History and Folly of Bank Bailouts
- Iraq: More Trouble Ahead
- U.S.-Iran Hostilities Risk New War
- Resolutions for 2012—and Life
- New Blog Posts
No issue during the recent financial crisis aroused more passion than the bailouts of large banks and other financial institutions. Polls conducted during the peak of the crisis in September 2008 revealed that the American public overwhelmingly objected to the bailouts. Yet, although numerous books and articles have reported on the crisis, few have looked closely at the government agencies responsible for deciding whether or not a financial institution gets bailed out. Independent Institute Research Fellow Vern McKinley remedies this shortcoming in his penetrating new book, Financing Failure: A Century of Bailouts.
Financing Failure shows that to make sense of the bailouts—to understand why banking regulators have invoked this controversial policy option—we must examine several decades of banking legislation and institutional change. A veteran regulatory expert who has worked for several financial regulatory agencies, McKinley shows how the latest crisis eerily resembles those of the 1930s and 1980s, and how with each passing crisis, government interventions have become broader and more entrenched, with a growing segment of the financial industry receiving bailouts and a growing number of regulatory agencies taking part in the process. Alarmingly, those agencies have often worked at cross-purposes, making mistakes that have undermined public confidence and economic recovery. Moreover, the regulatory agencies have often impeded independent investigations of the bailout process, as McKinley learned first-hand while researching his book. One reason for their lack of transparency may be that the case for bailouts is surprisingly weak: no clear evidence has been presented that substantiates claims that the failure of a bailed out institution would have jeopardized the entire financial system. Thus, the policy of bailing out banks deemed “Too Big To Fail” seems to be based on bureaucratic imperative, not on a calculated estimation of the threat of “systemic risk.”
“The usual pattern is that [the government bailout agencies] overreact in the midst of a financial crisis because they feel they have to ‘do something,’” McKinley writes in his concluding chapter. “Most of these actions make matters worse in both the short term, as the panic spreads more broadly, and in the long term, as unintended consequences flow from their initial reaction.” Financing Failure can be read profitably by a general audience, but readers well versed in banking, finance, or government affairs will especially appreciate its thorough account of the rise of massive bailouts and of the bureaucratic decision-making process that has sought to rationalize them.
Purchase Financing Failure: A Century of Bailouts, by Vern McKinley.
Read a detailed book summary.
Is post-occupation Iraq headed for a bloody civil war? The risk is palpable. Recent arrests of Sunnis conducted by the predominately Shi’ite regime of Prime Minister Nouri al-Maliki, and a purge of Sunnis high up in the administration, do not bode well for the war-ravaged country. Iraqis who wish to avoid a resurgence of sectarian violence should consider pressing for a summit to decentralize the Iraqi state, and thereby reduce the threat of a central government strong enough to oppress opposition groups, according to Independent Institute Research Fellow Ivan Eland.
“Devolving power in Iraq would reduce and probably eliminate sectarian violence, which is usually associated with nervousness about who controls the central government,” Eland writes in his latest op-ed.
Although U.S. Vice President Joseph Biden advocated the decentralization of Iraq when he chaired the Senate Foreign Relations Committee, he seems to have lost interest in pushing that proposal—perhaps because he could not counter common objections to the notion of carving up Iraq along sectarian lines. But Eland argues that those objections are easily answered. For example, it is not necessary for all of the residents of a particular enclave to belong to the same ethnic or religious group: if 10 percent or fewer residents belong to a minority group—such as Kurds in a Sunni Arab enclave or Sunnis in a Shi’ite enclave—those in the majority group will not feel threatened by the minority and peaceful coexistence will likely reign. “That doesn’t mean that the United States should tell the Iraqis how to organize themselves,” Eland continues, “but it could mediate any Iraqi-initiated peacefully negotiated devolution.”
How to Avoid a Return to Iraq, by Ivan Eland (1/3/12)
Partitioning for Peace: An Exit Strategy for Iraq, by Ivan Eland
No War for Oil: U.S. Dependence and the Middle East, by Ivan Eland. Available in paperback, cloth, or ebook.
Saber rattling has returned to the Strait of Hormuz, the narrow waterway at the mouth of the Persian Gulf through which one sixth of the world’s oil supply flows. In response to the reported progress of Iran’s nuclear program, the United Nations, the European Union, and the United States imposed stiff economic sanctions on Iran, prompting the Iranian navy last week to test-fire a new radar-evading missile over the Strait, a move that suggests Tehran’s readiness to shut down the Gulf to oil tanker traffic. Although fears of Iran’s nuclear programs lie at the heart of the conflict, too many in the West have made false assumptions about the likely consequences of an Iran armed with nuclear weapons—assumptions that make them more likely to advocate an out-and-out war with Iran, according to Independent Institute Senior Fellow Charles V. Peña.
The chief mistake committed by anti-Iran hawks, Peña argues, is their assumption that the Iranian leadership would be foolish enough to launch nuclear weapons at Israel or the United States. Doing so would be suicidal.
“It is hard to imagine that the Israelis would sit idly by and not retaliate with their nuclear arsenal (which is likely enough to wipe Iran off the map),” Peña writes. “Ditto for any concerns about Iran lobbing a nuke at the United States (with an even larger and more capable nuclear arsenal that could wipe Iran off the map several times over—not to mention the minor detail that the Iranians don’t have a delivery platform capable of reaching the United States).”
Keystone Cops Logic, by Charles V. Peña (1/6/12)
No War for Oil: U.S. Dependence and the Middle East, by Ivan Eland. Available in paperback, cloth, or ebook.
Overwhelmed by too many New Year’s Resolutions? In his first Forbes.com piece of 2012, Independent Institute Research Fellow Art Carden suggests trimming your list to three basic guidelines.
Carden’s Big Three include the following: Stop wasting your time with meaningless or unfulfilling activities. Collaborate more with friends, family members, and co-workers. And listen more carefully, lest you make mistakes that could have been easily avoided.
One wonders how some of the biggest news stories of 2011 might have turned out differently had newsmakers adhered to those principles. Read Carden’s op-eds, and let us know what you think.
Let Vanilla Ice Help You Have a Great 2012, by Art Carden (Forbes, 1/2/12)
It’s the End of the Year As We Know It, by Art Carden (Forbes, 12/30/11)
From The Beacon:
Hating Bankers or Hating Washington?
William Shughart (1/7/12)
Why Your Dog Doesn't Own Your Entire House, and the Government Doesn't, Either
Robert Higgs (1/6/12)
The Dystopian Bungling and Brutality of Immigration Enforcement
Anthony Gregory (1/4/12)
From MyGovCost News & Blog:
Why More Federal Spending Isn’t the Answer for Fixing the Economy
Craig Eyermann (1/6/12)
The Costs of War
Emily Skarbek (1/6/12)
How Would You Cut Defense Spending?
Emily Skarbek (1/5/12)
The Independent Institute’s Spanish-language blog has surpassed 3 million page views! You can find it here.
