Many have noted that the banks and financiers have learned a few big lessons from the Government bailout – that it’s good to be “too big to fail,” and that it pays to privatize profit and socialize risk.

The bailout has also taught a broader lesson to the American populace, well articulated by Seth Klaman, a legendary investor:

“We didn’t get the value out of this crisis that we should have. For our parents or grandparents, it was awful to have had a Great Depression. But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions.” He added: “All we got out of this crisis was a Really Bad Couple of Weeks mentality.”

Klaman is VERY VERY worried:

“I am more worried about the world, more broadly, than I ever have been in my career…. The government is now in the business of giving bad advice. By holding interest rates at zero, the government is basically tricking the population into going long on just about every kind of security except cash, at the price of almost certainly not getting an adequate return for the risks they are running. People can’t stand earning 0% on their money, so the government is forcing everyone in the investing public to speculate.”

His advice – don’t get fooled again. Read the whole thing – and be very worried.

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6 COMMENTS

  1. You’d think economists, who have known (since 300 AD!) the bad consequences of price controls, would have noticed the bad consequences of controlling the price of money. It’s classic: shortages, black markets, rationing.

    We also have another implicit price control: by encouraging businesses to use Chinese slave labor, we have rigidly controlled the price of American labor.

    There’s no point in saving and no point in working under such conditions. Might as well get on the dole.

  3. Polistra, nice short-hand description, indeed, a reader’s digest version of the past 60 years. It could even go further, by comparing it to the 75 years before Roosevelt; those who are “nostalgic” for the pre-Roosevelt economy ought to at least look at that period. What we are experiencing today would be fairly normal for those times.

  4. Granted its unpleasant but not something unheard-of:
    C.S. Lewis’ imagination depicted a trickery of similar dimensions in The Great Divorce, as Daniel Hewitt over at Mises’ reminds us:
    What’s the trouble about this place?
    Not that people are quarrelsome-that’s only human nature and was always the same even on earth. The trouble is they have no Needs. You get everything you want (not very good quality, of course) by just imagining it. That’s why it never costs any trouble to move to another street or build another house. In other words, there’s no proper economic basis for any community life. If they needed real shops, chaps would have to stay near where the real shops were. If they needed real houses, they’d have to stay near where builders were. It’s scarcity that enables a society to exist.
    H/T http://blog.mises.org/12857/the-people-who-borrow/#comment-692136

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