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An Inside Look at an Inside Job

by Michael Shermer, Nov 30 2010

A review of Inside Job, produced, written, and directed by Charles Ferguson, produced by Audry Marrs, 108 minutes, narrated by Matt Damon.

detail of movie poster

In this disturbing and often infuriating look at the financial meltdown, the Academy Award-nominated (No End in Sight) documentary filmmaker Charles Ferguson promises viewers an inside look into the “inside job” (use intended to convey criminality) that he believes explains the financial meltdown and subsequent recession. Inside Job is a well produced, artfully edited, and dramatic reconstruction of the rise and fall (and rise) of the Wall Street financial industry. Most of us are painfully aware of what happened to the economy, so this film packs into less than two hours what took two years to unfold, and so the emotional impact is commensurate with the eye-blurring number of events tightly repackaged in cinematic gravitas.

With Inside Job I expected a Michael Moore-like liberal attack on all things free market, but that is not the case here. Instead, there is what is said and what is not said. In other words, there were no lies of commission, but there were some lies of omission. What is said in Inside Job (that I found to be accurate although Ferguson does not phrase it this way) is that, in fact, we do not practice free market capitalism because the government (both Bush and Obama administrations are indicted in the film) are in bed with Wall Street tycoons, reducing risk taking through the moral hazard of promised bailouts. The whole point of capitalism is to make a profit by taking risks. Low risk taking typically results in slow and steady growth, whereas high risk taking historically produces both high profits and steep losses. By entering the business of risk protection, the government is sending a clear signal to the market: don’t worry about taking big risks with your own and investors’ money; we’ll bail you out. In profits we’re capitalists, in losses we’re socialists. This is what Ralph Nader would call corporate welfare, and in the case of the financial meltdown and subsequent bailout he would be right.

What infuriates in particular in the film is just how much of an old-boys club Wall Street is (and what little chance any of us little guys have in competing fairly), and how much of the club roster includes prominent politicians and members of the Federal Reserve. It reminded me of my research on doping in sports, in which it has become abundantly clear that nearly everyone seems to turn a blind eye to the problem and former athletes are now running the sanctioning bodies and doping agencies are in the pay of said sanctioning bodies. When Ferguson reminds us that Obama left in place all the major players in the game—Bernanke, Geithner, Paulson, Sumners, et al.—it made me think of what would happen if Major League Baseball put Barry Bonds in charge of ending steroid use, or Marion Jones was the executive director of the World Anti-Doping Association.

The greed of Wall Street bankers and financiers is the leitmotif throughout Inside Job, and there is certainly no shortage of it on Wall Street. As one trader noted, there is no point of going anywhere near that part of Manhattan if your primary goal is not to make a pile of money. But Wall Street greed is only half the story; the other half is Main Street greed. Those greedy bankers were giving questionable loans to greedy buyers, and everyone was hoping to cash in through escalating risk taking in financial and real estate markets.

Now, behavioral economists have demonstrated that humans are normally very risk averse. Specifically, the research shows that losses hurt twice as much as gains feel good. That is, in order to get someone to invest their hard-earned money you have to convince them that the potential gains are twice as much as the possible losses. So why weren’t all these Wall Street bankers and Main Street buyers risk averse? Two reasons: short term thinking and reduced risk signals. First, potential home buyers and investors mistakenly assumed that the increasing trend line in housing prices would continue unabated indefinitely. Two, loan officers and their financial institutions intentionally and deceptively reduced the normal risk signals sent to potential customers in hopes that the artificial bubble would not burst. It did, and here we are.

Since corporations and financial institutions are run by people, they should show the same risk aversion that individuals do when investing money and granting loans. Normally they do, but over the past decade something happened to remove or delay the risk. That something was a combination of government intervention into the financial marketplace and private repackaging and selling of loans to organizations too distant from the risk to feel averse to the potential loss. For example, in the spring of 1999 a pilot program was launched by Fannie Mae and Freddie Mac. Recall that Fannie and Freddie are government-run organizations that do not make loans directly to customers—they buy loans from banks, which make those loans directly. So, here already the risk was removed a step from the brains of the risk assessors, but risk aversion was further attenuated by government interference with the pricing mechanism that normally adjusts for risk.

In that pilot program the nation’s largest underwriter of home mortgages came under pressure from the Clinton administration in its desire to achieve an “ownership society,” along with insistence from the Department of Housing and Urban Development (HUD) that Fannie and Freddie increase their portfolio of loans made to lower and moderate-income borrowers from 44 percent to 50 percent by 2001. That meant granting loans to higher risk customers.

There’s nothing wrong with corporations and institutions taking higher risks, as long as they adjust for it by charging more. The higher price acts as a risk signal to both buyers and sellers, thereby dialing up their emotion of risk aversion. This is what Fannie Mae was already doing by only purchasing loans that banks made charging three to four percentage points higher than conventional loans. But under the new program implemented in 1999, higher-risk people with lower incomes, negligible savings, and poorer credit ratings could now qualify for a mortgage that was only one point above a conventional 30-year fixed rate mortgage (and that added point was dropped after two years of steady payments).

In other words, the normal risk signal sent to high risk customers—you can have the loan but it’s going to cost you a lot more—was removed. Lower the risk signal and you lower risk aversion.

None of this is part of Inside Job, and that’s a shame because it misses an opportunity for a deeper look into the well of human nature that can lead any of us down a greedy path of blind profit seeking through rent seeking—the term used by economists to describe actions of individuals or firms to seek profits through political manipulation instead of economic competition. The problem is not greed per se, since that is part of our nature that when channeled properly through clearly defined and strictly enforced rules can result in much human progress. The problem is the attenuation or elimination of risk signals that keep greed in check.

144 Responses to “An Inside Look at an Inside Job”

  1. Lukas says:

    “With Inside Job I expected a Michael Moore-like liberal attack on all things free market, but that is not the case here. Instead, there is what is said and what is not said. In other words, there were no lies of commission, but there were some lies of omission.”

    The implication here seems to be that Moore actually tells outright lies in his movies. I’m pretty sure that’s almost entirely false. In fact, the “lies of omission” line explains Moore’s approach to movie making quite well.

    • Jeremy Anderson says:

      I don’t know where you got that from, Lukas. The implication here (as I read it) is that Michael Moore would blame the free market, whilst Charles Ferguson blamed people for lying by omission, rather than commission.

      • tmac57 says:

        I interpreted Shermer as accusing Ferguson of omissions in his movie. “Instead, there is what is said and what is not said. In other words, there were no lies of commission, but there were some lies of omission.”(referring to the narrative of the movie)

    • Bill Chapman says:

      In “Capitalism: A Love Story” Moore gives a quote that airline pilots make about $20K. That’s the quote for pilots flying little puddle jumpers short distances, but he gives the impression that the 747 you fly from NY to LA is being flown by a pilot who is selling his blood to make ends meet. In actuality, 747 pilots make over $200K a year. The impression Moore gives on this subject was such a wild distortion it was basically a lie.

    • Patrick says:

      More stretches the truth in most cases, and substitutes a strong personal bias in the other. Rarely does he lie – he’s too much of a true believer in socialism to be a liar.

      • tmac57 says:

        By that definition he could be a Libertarian (except for the socialism part,for which I would substitute ‘anarchist’).

    • So, in Galt-like fashion, Shermer says our capitalism isn’t pure enough. He cites one throwaway finding from behavorial economics to “prove” a point about government meddling, all while ignoring that the bulk of behavioral economics shows we can’t have such a thing as the “pure capitalism” Shermer lusts over like a syphilis-infected wet dream.

      A further false paean to the free market:

      There’s nothing wrong with corporations and institutions taking higher risks, as long as they adjust for it by charging more.

      Hey, Shermer: Corporations don’t adjust for risks on their own. Even if Big Banksters knew the government would bail them out of moral hazard, although that helps.

      Shermer adds to his clear political bias in citing two presidents by name as “blameworthy”: Clinton and Obama.

      I guess George W. Bush is buried up Shermer’s a** at the same time Shermer is up Bush’s on this issue. That would be called Kilkenny economics!

      Patrick can’t even spell Moore’s name right, let alone tell the truth about him. (Moore has explicitly disavowed supporting true socialist measures.)

      • Besides, Shermer the skeptic should know that Adam Smith’s invisible hand was based on an Enlightenment Deism that’s been empirically undermined by two world wars, the Holocaust, quantum mechanics and much more.

        Any atheist who puts Smith’s economic ideas on a pedestal is either clueless about his background or else is deceiving both himself and others. Which one is it, Shermer?

      • Patrick says:

        Actually both World Wars were preceded by a drop in global trade as nations engaged in trade wars by throwing up trade barriers – elements of state socialism was also heavy and growing just before the onset of both wars.

        Militarism and imperialism were also growing and as Richard Cobden showed in the 19th century, neither were part of free trade capitalism.

        So who is really clueless here? (This is why you don’t act like an asshole about stuff you don’t know anything about).

  2. Somite says:

    And here we go. The initial insinuation that it is government intervention followed by blaming Fannie Mae. You have one thing right. The perception of risk was reduced, but it was criminally reduced by ratings firm and further amplified by creating derivatives on those risk-reduced CDOs. What made this a crisis and a meltdown were not the owners that defaulted on their mortgages, the system is very resilient in that aspect. It was the side-betting of CDOs that the supposed financial experts were doing. I guess they are experts because they themselves got rich on commission and on the back of defaulted home owners.

    In fact the lack of regulation is what allowed the meltdown to happen. Regulations that prohibited the creation of CDOs by the financial institutions and banks that held mortgages were repealed by the republican congress and house in 1999. Reading about the Glass-Steagall act would be helpful:

    The argument for preserving Glass–Steagall (as written in 1987):
    1. Conflicts of interest characterize the granting of credit (that is to say, lending) and the use of credit (that is to say, investing) by the same entity, which led to abuses that originally produced the Act.
    2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.
    3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.
    4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).
    The argument against preserving the Act (as written in 1987):
    1. Depository institutions will now operate in “deregulated” financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated, and to foreign financial institutions operating without much restriction from the Act.
    2. Conflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms.
    3. The securities activities that depository institutions are seeking are both low-risk by their very nature, and would reduce the total risk of organizations offering them – by diversification.
    4. In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experience can be applied to our national financial structure and regulation.

    • Bill says:

      But this tells us nothing about why the mania occurred in the residential housing market. Why did a bubble emerge in that specific area? What Shermer is saying is that the FMs had a part to play in this process. We can also look at regulations such as Basel II that encouraged financial institutions to meet capital requirements by holding securities (such as CDOs) instead of actual mortgages (this is, of course, where the ratings agencies had a big part to play as well).

      Glass-Steagall was not the panacea that many are trying to sell it as. Parts of it were repealed by the Carter Administration because it was crippling the banking industry in a time of high inflation. The final repeal in 1999 was just an after the fact acknowledgement of what was evolving in the industry already.

      Claiming that the repeal of G-S caused the financial meltdown is as simplistic as saying that it was just the FMs. Just like the inflation of the 1970s showed the problems with 1930s-style regulation, this crisis shows us that political goals to encourage housing may manifest themselves in ways we don’t anticipate.

      • Bill, I think you’re understating what Gramm-Leach-Bliley was. It was far more than just “an after the fact acknowledgement.” If that were the case, every GOPer, instead of a few doubters, would have voted yes. More than the half of Democrats who voted yes would have done so. Clinton would have had less resistance in pushing it.

        That said, you also have to take GLB as part of the whole climate of neoliberalism’s ascendancy in the Democratic Party, and Rubin et al fighting vociferously against derivatives regulation. (That’s another anti-libertarian angle that Invisible Hand Shermer ignores, too.)

    • Somite says:

      The point is that without derivatives and their inaccurate ratings there wouldn’t have been a catastrophic financial collapse. The system has built-in methods of handling mortage defaults even on a widespread scale. However, this was subverted by the potential gain of derivatives creation.

      In the end it is the financial sector, including the banks, the ones responsible for sustaining their sector, not the consumer. Banks are responsible for screening prospective mortgages and loans.

      • Bill says:

        I agree that the system has built-in methods to handle defaults, but the incentive structure that was set up due to other regulatory mechanisms and political pressure encouraged risky behavior. And as Shermer discusses, the risk was mitigated by the prospect of bailouts.

        The other thing is that there was a consumer aspect to this mess. The housing market was in a bubble. Something was feeding that bubble. Derivatives don’t tell the whole story as to why so many people were encouraged to get into the housing market. Political pressure on the FMs and artificially low interest rates give us some clues as to why it was the housing market and not some other market that got inflated.

        We have to ask the question, why did so many people (consumers and financial experts) make so many errors in one particular area?

      • Somite says:

        The consumers are not experts and the financial “experts” fleeced everyone. Individuals in the financial sector profited nicely on a transaction basis regardless of the outcome.

        The reason consumers bought houses was the lack of due diligence by their banks because the more mortgages the more derivatives. Again, widespread defaults can occur without resulting in a disaster. It took the derivatives and negligent ratings to turn a downturn into a disaster.

      • tmac57 says:

        I agree,especially about the due diligence.My wife worked in the mortgage loan industry (one of the biggest banks,not Fanny or Freddie) for 22 years,and she became increasingly frustrated and alarmed at the erosion of credit requirements from the late 90’s on.We could never figure out what was driving the crazy lending practices until we heard the NPR This American Life podcast called “The Giant Pool of Money”.Everyone should have a listen to that,along with the one on Magnetar,it will open your eyes.The Planet Money podcast and website are also very good for the average person to get a hold of what is going on in the financial world.

      • Bill says:

        You are still only looking at a symptom of the problem. Derivatives can play an important role in the market process. So, we have to try to understand the institutional framework that created the incentives for such a cluster of errors in this particular market. Claiming that it was a plot by bankers to dupe ignorant consumers into buying houses so that more derivatives can be created is not a serious answer.

        There are other areas that need to be examined. Such as

        1) Liquidity that was provided to the market by institutions such as the Federal Reserve and the FMs; this gave banks the ability to create more mortgages.

        2) Regulations that allowed capital requirements to be more easily met by holding mortgage-backed securities (instead of mortgages themselves); this encouraged financial institutions to offload mortgages and drive up the market for derivatives.

        3) Political pressure to encourage home ownership and shift the risk burden (moral hazard of bailouts)

        4) Yes, ratings agencies were part of the problem. But why were there only three approved agencies?

        Consumers wanted housing values to increase, politicians encouraged it, and the financial industry exploited it. No one is blameless.

    • Paul Parker says:

      The idea that Glass-Steigal would have prevented the housing bubble is preposterous. The companies requiring the biggest bailouts were not banks at all – Fannie Mae, Freddie Mac, and AIG. Michael is dead-on right when he diagnoses this as an issue of too much government meddling vs. a lack of regulation. Risk is by far the best regulation – by removing it, the government created the moral risk necessary to inflate the housing bubble. The other major factor related to Government policy is the lowering of interest rates to near zero after Sept. 11, which created a massive demand for mortgage backed securities – you could borrow at 1% and get 7% back from a Fannie Mae insured security!

    • Patrick says:

      Derivatives were a market response to reduce risk, not create risk. The risk was created by the government continually bailing out corporations in the past and the alleged obligations of other government institutions including the Fed, Frannie and Freddie.

      Derivatives are the boogyman for the leftwing. The problem was not the repeal of Glass Stegal – for one the repeal was used to prevent a total collapse (if it caused the crisis, how can it be used to save us from a deeper crisis) Second the repeal of Glass Stegal does not explain other financial meltdowns while the creation of moral hazards does.

      • tmac57 says:

        Are you a conspiracy theorist Patrick? What evidence do you possess that the banks knew AHEAD of time that they would be bailed out? The moral hazard was allowing the financial industry the ability to circumvent safe lending practices,and the ability to negotiate and trade derivatives without any oversight (i.e. regulation).Greedy bankers and Wall Street traders made millions regardless of the outcome of the value of the instruments that they were trading,yet the fate of those investments were directly tied to the investment portfolios of investors who knew nothing of the reckless dealings that went into creating them. So tell me Patrick,how will less control in the financial market place be safer than what existed before this grand fiasco?

      • No, he’s not a conspiracy theorist; he’s a libertarian troll grasping at straws.

      • Patrick says:

        Its called moral hazard. We saw a bank bailout in the 1980s, we saw more bailouts with Russia and Mexico (yes, they were really bailing out banks and lenders – if you knew anything about economics you’d know this).

        Pretty much anyone who knows anything about economics understands that moral hazards were created and existed.

        Its no conspiracy theory its just basic economics.

    • About half of Democrats voted for it, too. And, it was pushed by Clinton. Please don’t even approach Shermer in blaming only one half of the two-party duopoly for the past 15 years of financial sellouts.

  3. tmac57 says:

    “But Wall Street greed is only half the story; the other half is Main Street greed. Those greedy bankers were giving questionable loans to greedy buyers, and everyone was hoping to cash in through escalating risk taking in financial and real estate markets.”
    A child chases a pretty ball into the path of a speeding SUV with a drunk driver,who is texting and simultaneously getting serviced by a prostitute.Half of the fault is with the driver,half with the child.Makes sense to me.

    • Somite says:

      Right. But to complete the analogy the SUV would have to be rigged with explosives that were going to be payment to the hooker.

    • “A child chases a pretty ball into the path of a speeding SUV with a drunk driver,who is texting and simultaneously getting serviced by a prostitute.Half of the fault is with the driver,half with the child.Makes sense to me.”

      So you’re a child who can’t make his own financial choices? Good to know, I have a mortgage for you…

    • Rakiah says:

      Half the fault is with the child!!!?? How on earth do you get that? We are talking about completely different levels of responsibility here. A child doesn’t have the same capacity to discern dangers, to think ahead, to weigh options. An driver takes upon herself certain responsibilities and obligations: not to drink, to be cognizant of what is happening on the road. It is 99% the drivers fault and perhaps one percent the fault of the parents, but not the child’s fault at all.

      I think the different responsibilities also translates to the lending market.

      • tmac57 says:

        It’s called sarcasm.My point was to show the uneven amount of power and information between the bankers/Wall Street,and the average home buyer.

    • abreauj says:

      “A child chases a pretty ball into the path of a speeding SUV with a drunk driver,who is texting and simultaneously getting serviced by a prostitute.”

      You left out the part where the path of the speeding SUV was actually through the child’s backyard, as the drunk driver was unable to keep it on the road.

  4. grung0r says:

    The problem is the attenuation or elimination of risk signals that keep greed in check.

    No. The problem is libertarians like you, who, to extend your baseball analogy, were born on third base but think they hit a triple.

    The magical, invisible hand of the market is every bit the myth that Astrology or dictoral sky fairies are. Taxes, Public works, Tariffs, Police, military etc. all effect and manipulate the market. Pretending that a free market exists(or could) where everyone is on the same playing field or even playing the same sport is absurd.

    If a government exists, then any market under that government will be deeply manipulated as a matter of course. We need to make it so that the market is manipulated in favor of average people, instead of favoring the super rich and multinational conglomerates, as to appease your repugnant, objectivist dogma.

    As an aside, “ownership society” was a Bush administration term. Clinton Never used it. That you, as one of the world’s most prominent skeptics would report he did is pathetic, but given your libertarian leanings, completely unsurprising. I guess dogma comes before truth, eh?

  5. itzac says:

    Canada has an institution similar in purpose to the FMs. The CMHC doesn’t buy mortgages, however. Instead it insures them and, oddly enough redirects most of the risk right back on the person buying the mortgage. As I understand it, and IANAL, CMHC has access to remedies that aren’t available to a bank in the case of a defaulted mortgage. The only defense is bankruptcy.

    So if you default on an insured mortgage, the bank can only take and resell your house to recoup its costs, but CHMC covers the loss for them and then sues you for that amount plus any additional expenses. As a result, banks are quite comfortable giving out mortgages with 5% down and then obliterating most of that equity to pay the CMHC premium. You end up buying insurance on the banks behalf. If you bought a house with 5% down, and assume you paid the market price of it, you typically end up with only 1.5% equity and a 35-year mortgage.

  6. Clem Viking says:

    Skeptiblog? mmm Skeptical blog?? mmm Not any more. Yet another movie review. However not just a movie review, but a commentary with a political/libertarian motive? I for one have removed this from my regular reading list.

  7. Chris Howard says:

    So, Michael, are you claiming that people took fewer risks, back in the good old days, before government regulation of the market? Seems dubious at best. Basically, it’s risk averse via a fear of loss, no? I suppose that would make sense if it were a level playing field. For a large corporation, or billionare to lose millions is less damaging than a mom and pop business to lose 10k. Seems like, if you want to encourage risk taking in the market, from the petite bourgeoise, and Joe Sixpack, it would be more beneficial to provide some safety net, to help eliminate the very real fear, thateome could lose it all, over a single bad investment. This is probably the very reason why there is more upward mobility from poor, to middle-class, in western european, socialist countries, as opposed to the increasing gap between rich and poor in the good old U.S.

    • RaySquirrel says:

      “Seems like, if you want to encourage risk taking in the market, from the petite bourgeoise, and Joe Sixpack, it would be more beneficial to provide some safety net, to help eliminate the very real fear, thateome could lose it all, over a single bad investment. This is probably the very reason why there is more upward mobility from poor, to middle-class, in western european, socialist countries, as opposed to the increasing gap between rich and poor in the good old U.S.”

      But that leaves the question of how long that safety net can be sustained. As bad as that the deficit in the US is it is not as bad as the deficits in many western European countries, some of which are over 50% of their nations GDP. Spain and Greece’s debt is now considered worthless and will most likely threaten their much heralded social welfare programs.

      Recently I posted a short summary on my ideas on how to improve the welfare system in America. The site is a film forum site named which I regularly contribute. The post was on the topic of a documentary on the Welfare system in American so I felt it was relevant to the topic. My idea combines data recently mentioned in Sam Harris’s ‘The Moral Landscape’ and methods that are used by successful micro-finance organizations such as Grameen and Kiva:

    • Paul Parker says:

      I don’t think he is saying that. People were taking FEWER risks during the real estate bubble, because the government removed most of the risks. Let’s see- housing prices going up 30% a year in some markets. You can buy with nothing down. You are told that prices don’t go down. Even when they do go down, you get to live in your house for several years for free and then walk away after trashing the place and stealing everything that is not nailed down. Where is the risk? The government has succeeded in turning a home loan into a call option on the price of the house, with the taxpayer on the hook for the loss.

  8. RaySquirrel says:

    I think I should oppose all of these negative comments and say Micheal Shermer is probably the only reason I read Skepticblog. Whether you agree with him or not you got to say at least he brings up something new outside of dousing, homeopathy, ghost-hunting and what not. And you have to agree that his posts make for the most interesting comments.

  9. rob says:

    I still don’t understand why Shermer’s economic religion has a place on a skeptic’s website.

    Every economic theory has its disciples who believe that, if only their particular program could be implemented in its pure form, everything would be perfect. Never happens, of course, because people are, well, complicated. Libertarians and Marxists have so much more in common than they realize!

    It’s one thing to fact-check a movie, or to critique it according to artistic or technical considerations, but measuring it against one’s own capitalist Utopian fantasy is plain silly.

    There’s no science here, only woo.

    • J.F.Soti says:

      Stop being so obtuse. There is a reason why the Index of Economic Freedom works. More freedom equals more prosperity.

      • John Greg says:

        Stop being so obtuse. More freedom only sometimes equals more prosperity, and then usually only for the chosen few.

      • Patrick says:

        Only for a chosen few? Give me a break. Economic prosperity in economically free nations has been for the vast majority of the people.

        Economic freedom is strongly correlated with low poverty rates, high income, access to clean drinking water, longer life expectancies, low mortality rates, low childhood mortality rates etc, etc, etc.


        To me, the belief in constant government interference is more of a religion – government is your god. Meanwhile, free market libertarianism is more of an atheism – spontaneous order and evolution.

      • Oldskool says:

        I call BS on that list- Australia has more “economic freedon” than the U.S? and New Zealand- they are more socialist than us Aussies! It looks suspiciously to me like right wing propaganda, from- hey, look a right wing think tank!

    • tmac57 says:

      Well said,Rob.What seems to be missing in the Libertarian world view (and any ideology),is that humans don’t always behave in predictable ways,and the segments of society that do behave predictably,are open to manipulation by forces that don’t necessarily have their best interest in mind.There is a need for checks and balances in market forces,just like in every other aspect of human behavior.

      • Patrick says:

        It isn’t fully predictable because no one knows what someone’s own personal self-interest is. Which also happens to be the reason why free markets work better than government directed markets.

        Who creates what, with what, for whom at what price is best left to free individuals, not the government.

        A governments role can be reduced to enforcing information disclosure, punishing fraud, and operating a fair court system and defending the nation.

    • Bill says:

      Where is the woo here? Shermer is trying to examine the market effects of political policies.

  10. Bill Morgan says:

    Michael says little about the crediting agencies like Moody’s and Standard and Poor’s, that were rating junk mortgages that the Banksters new would go into default as AAA. Banksters then sold Investment Contracts to IRA, 401K and pension funds with these “AAA investments” which implies Low Risk. The Banksters then took out insurance betting against those investments. Conflict of customer interest here just a little? Then in the financial meltdown of 2008/2009, those accounts fell in value by 30% to 50%. Reason enough to put the Banksters in jail. Of course with people like Bush and Obama in the Whitehouse, that will never happen.

    In the end, Capitalism will always beat Socialism, because when Capitalism screws up, it will use Socialism to bail it out with tax payer dollars!

    • Bill says:

      “because when Capitalism screws up, it will use Socialism to bail it out with tax payer dollars!”

      Then it’s not capitalism.

      • Patrick says:

        It is corporatism, which is what American had before, during and after the recession. Corporatism is a form of socialism.

  11. Bill Morgan says:

    Sorry, knew not new.

  12. robin says:

    People, if you wan’t to learn economics go to

    Let’s compare!

    • John Greg says: Home to woowoo ideologues, fanatics of circular reasoning, and the sociopathic Libertarian fundy-faithful.

      • robin says:

        Have you even read anything by Mises?

      • John Greg says:

        Yes, I have. Many hours worth actually.

      • robin says:

        Interesting, so what kind of economic school, economist and/or, dare I ask, ideology do you adhere to at the moment?

      • John Greg says:

        (Reply to robin): I don’t “adhere” to any one single economic theory or ideology because although I’m 53 I am still learning, and I have yet to be satisfied with any one ideology et al.

        And frankly, whenever I read folks pontificating some singular ideology as ultimate and “right” (as with Shermer and his beloved faith in Libertarianism), it scares me because it sounds and feels like the first step toward fanaticism.

      • Patrick says:

        Why do you assume libertarianism is a faith?

        We’ve already seen how powerful free markets, capitalism, and property rights can be in a host of issues.

        Sure there are market externalities but we also see many attempts by government to correct market failure only to create larger more devastating government failure.

        If people have empirical evidence for the belief in something – it isn’t faith.

        Reasonable people can disagree on issues, and even argue about the facts, but you don’t have to be a dick about it.

  13. sunny says:

    100% of the fault for the housing bubble and the collapse belongs to congress that mandated that Fannie Mae and Freddie Mac make subprime loans and sell these loans on the open market. Right now there is a scramble to cover their asses and place blame elsewhere and Wall Street is an easy target. Do not forget that 100% of subprime loans are fully insured by government regualtion and semi-government entities such that investors are fully covered. THAT is what collapsed when TSHTF not Wall Street or anything Wall Street did. The mortgage insurance was underfunded and over taxed and could not pay off the losses. That is why they had the first bailout NOT to bailout Wall Street but to make good on that insurance. You will not get the truth from the MSM or politicians because they are all running for cover. This was a mistake OF government regulation (i.e. forcing companies to make mortgages for peple who couldn’t afford to pay them) and NOT a mistake of lack of regulation. Do not be fooled by the ” Glass–Steagall ” bait and switch arguement.

    • Somite says:

      This is not true. As has been documented by Planet Money, Frontline and this documentary what caused the meltdown was the existence of derivatives coupled with fraudulent ratings. Without derivatives the system could have absorbed all defaulted sub-loans creating a downturn but not a meltdown.

      • sunny says:

        I don’t think you understand derivatives. This claim that derivatives “caused” the problem is part of the coverup. They realize that since few people understand what they are perhaps they will blindly buy the big lie. You proved them correct. A derivative is nothing more then a bundled sale of assets. It is no better and no worse then the assets inside it. It could not, even under the wildest scenario, cause a housing bubble.

      • Somite says:

        Yes it can because you need mortgages to create derivatives in the first place. The financial sector did everything it could unethically and probably illegally to gain more and more mortgages including as documented bogus rating, suspending due diligence and creating loans like ARMs that only displace the risk to the near future. Not only that but as the magnetar case shows they bet against the derivatives they created themselves.

        Read that again: there was an incentive to create bad mortgages that would have negative consequences to mortgage owners and customers of the institutions because if defaulted they could claim insurance for the institution.

        The financial meltdown was caused only by the pure unregulated greed of the financial sector.

      • Patrick says:

        Derivatives did not cause the crisis. The crisis was already begun. Derivatives were a response to everything that was already in motion at the time.

      • Patrick says:

        PS, greed didn’t cause the crisis either. Greed is around ALL the time. Greed was here when things were great and it is here when things are bad.

        The markets were also highly regulated. We had the Federal Reserve, FDIC, SEC, Office of Thrift Supervision – over 100 agencies in all overseeing Wall Street and the banks.

        But you actually said, unregulated greed. How do you regulate a human desire?

        Do you also plan on regulated lust? Gluttony?

        How far are you willing to go to take the humanity out of other humans?

      • Somite says:

        Do you have a reference for this notion?

      • Patrick says:

        Which notion?

        The notion (fact) that the US government has 100 regulatory agencies for the financial market or that greed (self interest) is everywhere in every human being?

        On the second, name 1 person or 1 country where greed (self interest) is not present.

      • sunny says:

        There are derivatives that do not include mortgages so to claim they needed mortgages to create derivatives is nonsense.
        There is nothing wrong with an ARM the problem occurs when someone gets an ARM but knows that when the rate adjusts they cannot pay the new rate. They are effectively gambling at that point. Whose fault is that? Certainly not the bank.

      • tmac57 says:

        To see how CDO’s and CDS’s perverted the market starting in 2005 listen to this story about Magnetar on This American Life called ‘Inside Job’.

    • Bill Morgan says:

      You are 50% wrong. Freddie and Fannie don’t make mortgage loans. They buy mortgages made by banks. They get the money to buy the mortgages by selling bonds. The Gov. is guaranteeing the bonds for now. That could change.

    • Somite says:

      How does that make me 50% wrong?

  14. Don Crawford says:

    Yes, people took fewer risks in mortgages not that long ago. When I started out in home buying you had to put ten to twenty percent down and payments plus other obligations could be no more than 33% of your verified income. Nobody defaulted because they had too much skin in the game. By the early 2000’s the rules had changed so much that you could buy house with no money down and without verifying your income. You were “underwater” from the day you moved in if the house was not rapidly appreciating. And Fannie and Freddie sold these loans as if they were just as good as the old 20% down loans. The government was driving this activity and thereby guaranteeing it. So money was easy to get, and it drove house prices up and up. The bubble had to burst eventually. And sure enough the government took taxpayer money and covered it. If the government would stop trying to “help” in the marketplace, and stop promoting and guaranteeing mortgage loans the old risk averse rules would prevail. Housing prices would drop until prices were back where they reflected the much smaller demand among people who had saved enough to make a down payment. Too many voters expect the government to take care of them and prevent housing prices from declining (not part of the Constitution!) and so the problem will not be fixed for a long time.

    • Somite says:

      Also consider that Fannie and Freddie was just one of the subprime lenders. Many other banks and institutions that have nothing to do with the federal government also offered sub-prime lending. Mostly because the more loans of any quality the more commissions could be earned and derivatives could be devised.

      Sub-prime lending was unwise and would have resulted in a downturn anyway. Derivatives and their insurance made it a global catastrophe. If derivatives and ratings were better regulated at worst there would have been a downturn but more ownership.

      • Bill says:

        But what was so special about derivatives in the housing market? What drove the money to this sector? Artificially low interest rates? Implicit guarantees to the FMs? Inconsistent regulatory regimes?

        Just saying derivatives need to be better regulated is the nirvana fallacy. The political process has its own internal logic which does not produce predictable outcomes.

      • Paul Parker says:

        Derivatives are just a symptom. The real problem is the massive amount of debt. Wall Street just got good at packaging and selling that debt, which it had to do because it has become our biggest export.

      • tmac57 says:

        “But what was so special about derivatives in the housing market? What drove the money to this sector? Artificially low interest rates? Implicit guarantees to the FMs? Inconsistent regulatory regimes?”

        Listen here to answer all of your questions.

      • Bill says:

        A Giant Pool of Money provided by artificially low interest rates steered to the mortgage industry, in part, by inconsistent regulatory regimes (mortgage-back securities could be held to meet capital requirements).

      • Somite says:

        The drive was the personal income gained by everyone in the financial sector irrespective of outcome. As long as mortgages were packaged into derivatives and sold to investors the management made money. Just look at the bonuses management awarded and continues to award itself.

      • tmac57 says:

        Bill,you continue to ignore the fact that the entire mortgage and banking industry (not just the FMs)decided to abandon their fiduciary responsibility in a hedonistic orgy of greed,knowing full well that at some point it would not be sustainable and would come crashing down.It was a game of musical chairs where the guilty parties knew that they could get their chair BEFORE the music stopped because they got their money either way (see Somite’s comment).Regardless of how low interest rates were,those lending the money had a responsibility to their investors to make sound loans,and they DID NOT DO THAT!

      • Bill says:

        I agree with this, but you have to understand that typical market signals were being muted by the cheap money policy. All of that demand should have been pushing interest rates upward as money became more and more scarce due to that higher demand. Higher interest rates would have put a damper on the the frenzy. As the Fed started raising interest rates later in the decade (to late of course) things started to unravel (as the person in the NPR interview said, he started noticing strange things around Halloween of 2006).

        I am not claiming that the market process is perfect or that its participants are saints. But when the signals that typically govern the market process are muted or distorted then ugly things can happen.

      • tmac57 says:

        Bill,it wasn’t the Fed raising interest rates that triggered the fall in prices.It was that the prices finally exceeded what the average buyer could afford(3 to 4 times the average salary).At that point new loans started to default almost as soon as they were written,which changed the view of risk of the mortgage backed securities.The value of those securities began to plunge (the music stopped),and the rest is history.

      • Bill says:

        tmac, I can agree with that in part – at some point the “greater fool” cannot be found to drive prices higher. But some of that is because the liquidity injection is slowing down.

      • sunny says:

        You missed the point. The sub-prime loan was pushed by congress. It makes no difference WHO made the loan because all lenders were pressured into making then by congress.

      • tmac57 says:

        Wrong.The pressure was unprecedented windfalls for the mortgage bankers and Wall street speculators.The lure of greed was too much for them to resist.

      • Patrick says:

        Wasn’t greed. Greed is always around. Its here when times are good and its here when times are bad.

        If you say greed caused the collapse then you haven’t thought hard about the issue (or failed your lessons in the scientific method).

      • sunny says:

        Wrong! There was actual pressure applied by congress onto the banks and mortgage companies to make these loans. The alledged purpose was to allow more people especially poorer people to get mortgages. But regardless of the reasons congress was responsible for it.

      • Max says:

        Or there was pressure from Congress AND from unprecedented windfalls for the mortgage bankers and Wall Street speculators, and the latter was much bigger and would’ve existed even without pressure from Congress.

  15. Somite says:

    See my response above.

  16. Max says:

    Nassim Taleb criticized the use of Value at Risk (VaR) among other things. Was he right?

    Speaking of economics and bad statistics, the Freakonomics blog recently had an uncritical post about psi research at Cornell :-)

  17. Robert Neary says:

    Those two videos were remarkable! Thank your for sharing.

    • Max says:

      It’s fun and educational to see how past predictions pan out.
      But even a broken clock is right twice a day.

      “Peter Schiff predicted a collapse of the U.S. financial system. The bust-up he didn’t foresee was the one that made mincemeat of investors who took his advice in 2008.
      Mr. Schiff’s Darien, Conn., broker-dealer firm, Euro Pacific Capital Inc., advised its clients to bet that the dollar would weaken significantly and that foreign stocks would outpace their U.S. peers. Instead, the dollar advanced against most currencies, magnifying the losses from foreign stocks Mr. Schiff steered his investors into.”

      • Max says:

        Schiff conceded, “Throughout my career, I have never claimed great ability to time markets. I was against tech stocks in 1998, and homebuilders and financials in 2004.”

        Which is why I compared him to a broken clock that’s right twice a day. If you give the same stock advice all the time, you’ll be right part of the time and wrong part of the time. If he says he’s all about the long term and doesn’t take credit for being wrong in the short term, then he shouldn’t take credit for being right in the short term either.

      • robin says:

        But after all my purpose was to show the difference between an Austrian Economist like Peter Schiff and a keynesian like Ben Bernanke. Not talking about investing. You can be good at investing but bad on macroeconomics and vice versa.

  18. Beelzebud says:

    I’m not even going to bother addressing anything to Shermer, because I still have not seen him engage in the comments section at all. He just hit and run posts crap that he knows will cause flame wars.

    All I’ll say is that once again he’s misusing this website for his own economic bullshit.

    • John Greg says:

      I agree completely with Beelzebud. Shermer really should stop all this ugly propoganda for Libertarianism. It is just too unpleasant and inappropriate for this site. He has many other faith-based Web sites he can (and does) proselytize on.

      • Paul Parker says:

        Although macro-economics is not a science like Physics, we can deduce things at a high level. One of them is that free markets lead to prosperity – and in general, the freer the markets the more prosperous the country. Show me one prosperous country that does not have free and healthy capital markets! The idea that government meddling can create more prosperity is faith based, and in fact there is a very strong inverse correlation between government control of markets and poverty. Michael is right here.

      • Patrick says:

        Um, its people like you who flame libertarian minded people by substituting your own personal biases for facts. All I see are constant attacks on libertarians and not even an attempt at discussion – just follow ups with straw men and other logical fallacies.

      • John Greg says:

        Actually, in the post above I have neither flamed anyone nor posited any strawmen or logical fallacies.

        If you would be so good as to review the mandate of this blog, you will see that Shermer’s Libertarian proselytization is, at least to the letter of the “law”, inappropriate and out of place.

        But yes, I find it hard to treat Libertarians with much respect, in part because they seem so unable to come to a consensus on what they are.

        For my money, Massimo Pigliucci puits it best:

      • Patrick says:

        What are Democrats?

        Clinton was a neoliberal. Howard Dean on the far economic left.

        Give me a break.

        As complex as the world is, why would people agree on every issue?

      • Patrick says:

        Pigliucci, needs to get his Chilean history right. The bulk of the deaths under Penochet were done before the Chicago Boys (not exactly libertarian btw) even got put into positions of power.

        1) Pinochet didn’t come to power to pursue free market capitalism
        2) Free market capitalism did not kill those people, a powermad dictator did
        3) free market capitalism rebuilt the country, saved it from destructive hyper inflation and helped pave the wave for Democracy.

        I stopped reading after he screwed that up. Up to that point he had said nothing other than there are lots of forms of libertarianism.

        Btw, the word liberal means something different in every country other than the U.S. as well.

    • DogBreath says:

      It’s pathetic you bothered to write that you would not bother addressing anything to Shermer and then bothered to address something to Shermer.

      • Beelzebud says:

        Once upon a time myself and others would pose questions to these types of posts. I’ve never seen him address one question in the comments, so I’m not going to bother to directly ask him a question, or directly make a statement to him. And if you read my statement, it was not addressed to Shermer.

      • Patrick says:

        PS, this also really pisses me off. Gays and atheists within the Republican party are greeted with more respect and civility than libertarians are amongst so called open-minded skeptics here and at JREF. Yes, I said that, Republicans are more open minded and civil than most of you – and I’m not even a Republican!

      • John Greg says:

        While it is indeed satire, the site linked to below gives as good an explication of Libertarianism as anything I’ve read elsewhere — and it at least does not take itself so very, very seriously:

      • Patrick says:

        Explains why you have a penchant for building strawmen on this topic.

      • Beelzebud says:

        It’s good to be open minded, but not so open minded that your brains fall out!

        Give the persecution act a rest. If you think you’re being treated worse than gays or atheists in the Republican party, you’re fooling yourself.

        This is the thing that pisses me off about you libertarians. You think your political beliefs are proven fact, and then expect skeptical people to buy in to your bullshit, because you do not see the faults in any of it.

  19. William says:

    I think it’s sad that this site seems to have less and less to do with skepticism. It’s no longer one that I suggest to fledgling skeptics.

  20. The Saint says:

    I’d much rather listen to, say, Matt Taibbi’s commentary on this particular issue than Shermer’s. Besides that he’s done loads of research and written numerous stories about this exact issue, he’s funnier and more fiery writer.

  21. Patrick says:

    Milton Friedman talking about Greed –

    The world runs on it – its a human emotion, you cannot get rid of it, you cannot regulate it, but you can provide it the necessary incentives so that human greed results in improving the human condition – that is done through markets.

  22. Bill says:

    Economist Lawrence White said it best: “One can’t explain an unusual cluster of errors by citing greed, which is always around, just as one can’t explain a cluster of airplane crashes by citing gravity.”

  23. Somite says:

    Greed is not a problem as long as it doesn’t result in harm to others. Regulations are necessary for people to act on their greed within the bounds of safety and preferably for the benefit of society. This in my opinion maximizes everyone’s well being.

    • Patrick says:

      Sure, some regulations are a good thing. You need regulations to enforce peoples right to live and to own property. That is prevent murder and theft.

      Not all regulations are good, many make the situation worse.

      For example, regulations that required licensing of electrictions in Oklahoma was done to reduce the number of deaths by electrocution. Politicians thought that by requiring more education for these professionals they could reduce deaths. But deaths went up.


      The licensing requirement forced prices up as the electricians had to charge more to cover their license – (their competition also disappeared so they could charge more just because). So amateurs took to fixing their own problems at home and….

      Look, there are thousands of stupid regulations across America – job licensing is one of them. Small class sizes is another. Banning toys in Happy meals, smoking in private places, preventing transport companies from charging lower prices to haul goods long distances than short hauls…

      • tmac57 says:

        Really Patrick? You can’t think of ANY profession that it might be a good idea to license? That is a spectacular failure of imagination. That failure is why I view Libertarians as ideologues.

      • Patrick says:

        Licensing is completly unnecessary, especially if their is proper information about the competence of the professional.

        Teacher licensing, for example, has proven to be completely useless. There is no statistical difference between a licensed teacher and unlicensed teacher when it comes to student outcomes. Worse still, Harvard professor Paul Peterson found that states with alternative pathways to the teaching profession increased the number of minority teachers. In effect, the teaching licensing requirement kept out high quality applicants and kept minorities from teaching.

        In the end, licensing does more harm than good.

      • tmac57 says:

        So you would be OK having brain surgery by someone who is unlicensed,or flying in an airliner by an unlicensed pilot?
        “especially if their(sic) is proper information about the competence of the professional.” What constitutes ‘proper’ information? Who is the authority that sorts out what is ‘proper’?

      • Patrick says:

        Would I be ok with having someone untrained fly a plane or do surgery on me?

        No. Do you think I’m an idiot? Of course you do. You think everyone is an idiot and they will always go to the untrained professional for service.

        You do realize you don’t need licensing requirements for people to hire the best service provider?

        Its called information disclosure….

        Ever read consumer reports?

        Maybe all the government does is verify the claimed information – do you really have x years experience, were you really trained at x institute. Punish and fine the fraud. Licensing today is merely an economic tool to weed out competition and create monopoly powers among the insiders.

      • tmac57 says:

        Reading comprehension fail Patrick.I wrote “So you would be OK having brain surgery by someone who is unlicensed,or flying in an airliner by an unlicensed pilot?” ‘Unlicensed’ not ‘untrained’,but it is interesting that you made the cognitive leap to untrained,because we have become used to equating ‘licensed’ with ‘trained’,and for good reason,because licensing is a form of vetting of some minimum level of competency in most situations.I am sure that counter examples can be found,but I think doing away with licensing for critically important job functions,would be a mistake,and a very hard sell to the general public.And by the way,don’t be such a dick. OK?

      • Patrick says:

        Not a comprehension fail – you don’t distinguish between the two. You automatically assume that someone who is unlicensed must also always be untrained. Otherwise you would not have asked such a stupid and loaded question to begin with.

      • Somite says:

        I’ll take the small and stupid regulations if they are necessary for the important ones to be upheld. You have to understand most management knows very little about the industry they manage. If revenue is the prime goal of an industry and their activities may be harmful it must be regulated.

      • Patrick says:

        Revenue is the prime goal of every industry. That does not mean it must be regulated by some bureaucrat.

        Why do you all TARMAC5769QR47 included, have faith that unelected and unaccountable bureaucrats will keep you safe. It boils down to – IF WE ONLY HAVE THE RIGHT PEOPLE IN CHARGE EVERYTHING WILL BE AOK!

        If anything, that requires far more faith than suggesting the market will correct most mistakes through the price and profits information system which it operates on (and don’t forget, companies can be sued on top of losing all their customers if they really screw up).

      • Patrick says:

        PS, if management doesn’t understand what they manage, what makes you thinks a bureaucrat regulating hundreds of businesses will?

    • Bill says:

      The disagreement, in part, is where that regulation comes from. Regulation can emerge through the market process. For instance, consumers can change preferences or start boycotts, competing institutions can arise, private agencies can provide needed information to consumers and business, etc. (Work by the Elinor Ostrom – the 2009 co-Nobel Laureate – showed how private solutions can emerge to problems for which most thought only government had solutions.) But this all falls apart when signals are distorted and incentives get screwed up or when feedback mechanism are hampered.

      Saying that the market fails therefore the government must regulate is the nirvana fallacy. Humans aren’t purified by the electoral process. It also ignores Public Choice findings like regulatory capture and Hayek’s knowledge problem … oh wait… that’s “libertarian” religion and can be ignored outright. Sorry, I forgot.

      We don’t disagree on how humans can mess things up. We disagree on how that can be mitigated. Unlike some, I am skeptical of giving more power to centralized authorities who suffer from the same human failings as those in private institutions.

      • Somite says:

        As long as the incentive for an activity that may cause harm is revenue, there must be regulation of the activity. It’s as easy as that. Best example is drug development where a strict and relatively large regulatory agency ensures that efficacy and safety are the primary concern of pharmaceutical companies.

      • Patrick says:

        The FDA regulations kill more people than the pharmaceutical companies.

      • Somite says:

        Deep end detected.

      • Patrick says:

        “Unlike some, I am skeptical of giving more power to centralized authorities who suffer from the same human failings as those in private institutions.”

        Exactly right!

        For some reason the political left skeptics here (and elsewhere) thinks serving government magically removes all human desires of greed and self-interest as if government service is noble and self sacrificing. They also seem to believe that government service imbues the individual government servant with god-like omniscience to solve all the problems we face each day. In the end they find themselves with Captain Hindsight powers – if only we had regulated X more… Every problem is then solved with another layer of bureaucracy and another dozen pages of regulations.

        And they call libertarianism a dogmatic ideology? ha!

      • J.F.Soti says:

        Patrick, my hat’s off to you for having the time, patience, and energy to educate these lefties.

      • Somite says:

        You really have to differentiate what you believe from what is observed in actual practice.

      • John Greg says:

        /rolls eyes

        If that’s education, give me that old time religion instead, please and thank you.

        Spewing ideologies, of any faith, is not education, it is proselytizing and/or propagandizing. Pity you cannot see the difference.

        Like any Libertarian rhetoric I’ve read, Patrick’s is a perfect example of careful cherry picking, historical revisionism, a heavily skewed and manufactured perspective, and the blindness born of faith in a system that has no particular credibility other than that insisted upon by the faitful.

        Call Mises a prophet and you’ve got yourselves a lovely premade religion all ready for tax-free exemption, and off you go into your happyland of “government free”, yippee ki-yay pardner.

      • Patrick says:

        Enough with the faith crap. I provide emperical evidence and logical reasoning to support my claims and all you guys can do is say “faith”

        If anything its you who has all the faith – “If ONLY WE HAVE THE RIGHT LEADERS TO MAKE LAWS EVERYTHING WILL BE OK”

        Give me a break.

        And if you’re going to accuse someone of cherry picking at least have the intellectual decency to prove it. Most of you attacking libertarians seem to lazy to provide in actually good counterpoints.

        Lazy and logically fallacious.

      • Alan says:

        Offering us mindless black and white strawmen like — “The left thinks government is absolutely perfect, blah blah blah…” — only encourages the rest of us to think you really are just a libertarian fanatic dogmatically pushing his creed.

        Thus (and ironically), your complaints are self-defeating as they only supports the very accusations others are making against you.

        Sadly, Shermer tends to be the exact same way (if more polite) — he typically just repeats the usually “libertarianism is great” sort of bromides you see all the time from devotees. Such statments only serve to make clear he has never really examined his own beliefs in any real detail or with any amount of self-criticism.

      • Patrick says:

        Without evidence and with only your own straw men you determine that libertarianism must be a dogmatic faith.

        Then when someone shows your own political persuasion to be AT LEAST as silly you still conclude the opposition must be a fanatic?

        You know, this is exactly the way I’d expect a true believer to behave.

  24. cosimdm says:

    The basic issue is that people who should not have been given mortgages were given mortgages they couldn’t afford. If I ran a bank, and Freddie and Fannie told me they would buy these loans from me, of course I would have made the loans. What business does the bank have upholding tighter credit standards when the politicians of both parties are telling me I can make those loans at no risk to myself? (or in the immortal words of Barney Frank: “If the system isn’t broken, don’t try to fix it!”) Would I not be accused of “lack of compassion”?
    All the derivative stuff and greedy Wall Street types merely fed off the policies of the government. Btw, the financial industry is one of the most tightly regulated part of the economy.

  25. Max says:


    What, if not greed, caused Bernie Madoff’s pyramid scheme?

    It’s interesting to hear Libertarians compare greed to a force of nature like gravity. What happened to personal responsibility? Who was responsible for the Muslim riots in response to the Mohammed cartoons? The rioters or the cartoonists?

    • Patrick says:

      “What, if not greed, caused Bernie Madoff’s pyramid scheme?”

      So the Bernie maddoff scheme caused the meltdown or are you just agreeing with me but failing to realize it when I said greed is around all the time?

      “Who was responsible for the Muslim riots in response to the Mohammed cartoons? The rioters or the cartoonists?”

      The Muslims they’re being assholes by threatening violence against not violent actions. What does this have to do with the market meltdown?

      • Max says:

        You don’t blame greed for the meltdown, so I want to know if you blame greed for Madoff’s scheme.

        Muslim discontent is around all the time too, like greed and gravity. You don’t blame gravity for airplane crashes, or greed for the financial meltdown, so why blame Muslim discontent for riots?

      • Patrick says:

        You don’t get what I said. I said greed can’t be blamed for the meltdown because greed is everywhere. It is here when times are good and when times are bad. Bad would include the Madoff scheme.

        Muslim attitudes are unrelated and you are making a large logical step. A) Violent Behavior to threaten and kill people that results in death and behavior changes in others (those threatened) is different than B) greed which can result in tons of wealth and happiness for many or lost jobs and destroyed wealth for many.

        You fail to realize that violence = coercion but under the right circumstances greed can be harnessed and controlled under voluntary relationships. Voluntary being the opposite of coercion.

        Thus greed and Muslim violence are two unrelated incidents.

      • Max says:

        This is starting to resemble the endless discussions of whether religion is a force for good or bad.

        So ok, there are three equally greedy brothers. One makes FDA approved drugs, another makes magnetic bracelets, and another robs a bank. The difference isn’t greed but morals, I guess.

      • Patrick says:

        At one time the FDA (and what came before it) only used science to prove whether or not the product could do what it claimed. This would be a legitimate use of government power.

        As it stands it wields tremendous power to decide the fate of new drugs but its based more in political incentives than scientific ones.

        So lets start over (throwing in the FDA was kinda sill – an FDA approved drug can kill and non-FDA approved drugs can – and do – save lives)

        1. Brother makes bracelets because they look good 2) one brother makes bracelets and claim they give you superpowers 3) one brother steals bracelets and sells them back on the black market.

        They are all greedy and self interested but brother 1 is the only truly moral one. He sells bracelets to help people look good and does not commit fraud by suggesting the bracelets will do anything else but help decorate yourself.

        Brother 2 commits fraud by suggesting his product can do something it can’t. Here is where a legitimate use of government power may come in handy. Of course, there are also private sector solutions – skeptic blog is one of them (and you read Skepticblog…evil greedy private sector skepticblog!!!!) :)

        Brother three, steals. Taking someone’s property without just and mutually agreed upon compensation is morally wrong. So of course there is a reason to use government power.

  26. Francisco says:

    Libertarians and Marxists: diametrically opposed antipodes trying to rationalize their own sociopathy.

    It’s like religion.

    • tmac57 says:

      There are only two kinds of people in the world:Those who put everyone into two categories, and those who don’t ;)

  27. jjfg45 says:

    When did “big gubmint bad” and “we need a more pure form of capitalism” become skeptical thought? Lets leave economics to political blogs.

  28. Dr. Mike says:

    Excellent discussion. It’s given me a lot of new ideas to consider and think about. In 1964, Justice Potter Stewart tried to explain “hard-core” pornography, and said something to the effect that he couldn’t define it, but that he knew it when he saw it. I think that’s what a lot of what this discussion is all about. We may not be able to explain it perfectly yet, but we knew it when we saw it.

    The warning signs were all around us. Banks loaning money to people who obviously had no means to pay it back, hyper inflation of real estate, outrageous amounts of money flowing on wall street, the Bush Administration’s exaggerated “laissez faire” approach to the markets, half a century of trade deficits, two wars that were given blank checks, billions of dollars just vanishing into thin air… The directive seemed to be, “laissez les bons temps rouler.”

    After spending the better part of a day reading all of your comments, I still feel like I’m only just beginning to get an idea of the complexity of this disaster. I have a Ph.D. in Business Adminstration, and I recognized the signs, but still didn’t understand. How much harder is it for the ordinary citizen?

    There were a lot of voices calling out warnings, but the din of the party drowned them out. Now the party is over, and there’s nothing left but to clean up the mess the revelers left behind. What I fear most is, that even though measures will be taken to prevent this kind of abuse in the future, another Alec Litowitz will come along with a new scheme, and history will repeat itself.