Because I so often write letters — which are not always published — I thought I’d share them here.
Here’s one to the WSJ regarding an editorial this week:
Holman Jenkins concludes his editorial regarding the Financial Crisis Inquiry Commission’s new report as nonoffensive, nonexplanatory, and “soft-hitting” (“What Caused the Bubble?” Business World, Jan. 29). While Mr. Jenkins correctly characterizes the report as chiefly political — rather than useful — in nature, FCIC’s account of what caused the crisis is very communicative.
The FCIC quite clearly communicated that the government is still unwilling to stop shifting baselines under investors’ feet. The report did not “say nothing,” as Jenkins suggests. Instead, the report urged investors to maintain their stranglehold on their purse strings.
Investors anticipated that the report would indicate how the government is approaching finance and regulation in this recession era. The Federal Reserve exists for the sole purpose of preventing bubbles. Businessmen want to know: Will leadership confess that the Fed failed utterly to perform its only job, and will the government finally stop subsidizing the boom/bust cycle surrounding that failure?
Bubbles are caused when investors hoard assets in response to government subsidies and bailouts obscuring risk. In times when government action is frequent, costly, and uncertain, investors cannot possibly predict what will come next, which will result in more bubbles.
All information from on high conveys that the period of uncertainty is far from over. As long as no one will admit that the government plays a role in economic risk and incentives, investors cannot trust the government to stop.