The case was Rehberg v. Paulk. We had discussed that case before.
Cops and prosecutors are essentially a law unto themselves at this point, as far as the SCOTUS is concerned.
(h/t Radley Balko)
Quite a debate going on over the last week or so between Nobel Laureate Paul Krugman, resident New York Times economics luminary, and the relatively more obscure Steve Keen from Australia, who is not a Nobel Laureate or a New York Times luminary. Keen just should be.
Of course I like Steve Keen in the whole thing – he’s on the blogroll, and I’ve had correspondence with him, and despite all the charts and graphs obsession and, you know, high intelligence, he is a normal person (probably unlike Krugman) and very, very decent. But talk about making a simple thing complicated. If you dare, read the summary of the whole Krugman-Keen face-off here and follow the links.
The question boils down to: is bank lending “constrained” by deposits, reserves, capital, or the monetary base? This is related to another issue known among economists as “exogenous” v. “endogenous” money, two opposing theories that have their various adherents.
Keen, of course, arrives at the correct answer, but not in the right way. Krugman, it turns out, is completely out to lunch and understands virtually nothing about money and banking as it really is. He may understand something about a theory of money and banking with which I am insufficiently familiar, but then why become familiar with fantasies when what is pressing upon us is an increasingly exigent reality?
Briefly, though: bank lending is “constrained” by none of the above. The “exogenous” v. “endogenous” money debate is completely beside the point and irrelevant.
Does this mean that bank lending is unconstrained by anything at all? Of course not. It is constrained by the expectations of the lending bank(s) that their lending will produce a profit for the bank. How does lending produce a profit for the bank? The borrower repays the loan, with interest.
Ay, there’s the rub. Let’s presume virtue in all this. The borrower takes the borrowed funds, produces value with them, which is then rewarded by others who justly pay him for the value produced. Everyone works hard, becomes better off, the loan is repaid with interest, value is added to the economy, we congratulate each other for a job well done and take a vacation in the Bahamas. This is indeed the “virtuous cycle”.
On the other hand, let’s presume vice and low character rather than virtue. The lending bank is completely unconcerned about the true nature of the borrower’s plans with the loaned funds so long as it’s technically “legal” and he’s a good risk to get a profit for the bank. For his part the borrower is not necessarily adept at anything, except extracting money from others, whether by fraud and trickery or simple force. System wide, then, loans – even though on the surface a “success” when they are paid back – don’t produce anything except misery, bitterness, a large pool of losers and a few “winners”, who far from being productive and contributing members of society are actually destructive leeches.
Run the string of reasoning out. As Bill Black says, where fraud and dishonesty flourish true productivity and contribution are driven out of the market. So pretty soon there are only a few borrowers that a bank wants to lend to, but they’re all fraudsters and criminals, even if they haven’t gone to jail yet. Though any of them could at any time, because you never know when the increasingly arbitrary whim of the government is going to focus on this or that person. Like Bernie Madoff already was, but only after operating for 20 years or more. Like Jon Corzine could be tomorrow. Or Lloyd Blankfein.
So bank lending screeches to a halt. Everyone’s waiting for the other shoe to drop.
Which scenario describes the “financial crisis” we are in – which of course as I always say is really a “rule of law crisis” – better? The question answers itself. Indeed this little post, right here, is a lot more relevant to what is actually happening in the economy than discussions about bank reserves or capital or deposits or “exogenous” this or that.
This is a fundamental social moral problem. It cannot be charted or graphed or muted with intellectual pretensions.
Economists are not just clueless. They are frustrating.
Update: Look what they do. Let me explain the most important point of this article in one sentence. Jon Corzine needed to use his personal authority to transfer funds illegally, because everyone in the organization would follow his orders, but the email containing his orders that went out was ostensibly from an underling named Edith O’Brien, who is thus set up to take the fall when Corzine later claims he never issued any such orders, if he has to. He “has to” when it might be his head on the chopping block, which has come to pass, and so he follows the pre-written script perfectly:
“I never gave any instructions to misuse customer money, never intended to give any instructions or authority to misuse customer funds, and I find it very hard to understand how anyone could misconstrue what I’ve said as a way to misuse customer money.”
These people are slimy scum who will feed innocents to the lions to save their own skins, or even for entertainment. The fair interpretation of the objective facts – that is, pre-spin/pre-perjury – is that Corzine ordered it, O’Brien voiced concerns and Corzine browbeat her into sending that email. Her “disloyalty” in even objecting at all justifies, in his mind, pushing off as much responsibility as possible onto her, and he has probably already convinced himself that he was “misunderstood” in some way, so why not spin it in the way that is most advantageous to him, and if that gets Edith in trouble, well, why is that his fault?
This is how they think, and act. These are our leaders. The man was governor and US Senator from New Jersey.