It is a little odd that Schmidt seems to be channeling Andrew Jackson, who refused to renew the charter of the Second Bank of the United States (emphasis mine):
"I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, (bringing his fist down on the table) I will rout you out."
While Jackson had a point (let's ignore that he himself was a major land speculator) and a particular bit of corruption of the above nature destroyed the 2nd Bank politically, the resulting denouncement (including requiring specie (i.e. gold) for payments of I forget) was as I recall one of the (if not the) longest recession/depressions in American history.
Yeah, the speculative excesses had to be wrung out of the system, and the sooner the better as Jackson points out, but if you destroy or allow the failure of the banking system in the process (that one had some of both) the result is horrible. See also: the Great Depression in the US.
That was the argument for the TARP, and we can't falsify it and never could have. Continuing the TARP sort of thing (note this reply is made without the benefit of reading the fine article), though, risks one or more Lost Decades as we've seen in Japan.
If you're lucky; we don't yet know the denouncement of what's happening over there (didn't Great Britian require a century to recover from the South Seas Bubble (due to many factors)?) and the US is in a different position than Japan was and is.
On the other hand, resumption of specie payments following the greenback period during the Civil War was accompanied by economic growth (see Friedman's "Monetary History of the United States", one of these days I'll finish that book). There is no essential causal link between gold and depressions; if there were there wouldn't be so many goldbug economists.
Agreed, although I'm not at all familiar with that era (not really much before the bus at the end of the 19th century, I too need to read Friedman's tome, right after I finish Human Action and 15 other good economic books :-) but I know this is very complicated.
For the Jackson bust I just cite the specie payment requirement because it was a shock to the system of a bad sort. Jackson intended to pop a bubble but I'm not sure he thought the result would be as bad or as long as it turned out to be.
The only gold "causal link" I (currently) believe in is that it is good to have during a deflation, since it's "The only liquidity that doesn't depend on anyone else's liquidity," to quote an essay in the newsletter of William Rees-Mogg and James Davidson (although it's probably not unique in having that property).
he's full of schmidt. the private sector responds to the shitty incentives the government provides. the private mortgage market had no incentive to act responsibly because the government backed fannie and freddie were buying responsible and irresponsible loans indiscriminately. if banks had actually been holding the loans themselves they wouldn't have made such crappy investments.
This is not true. Fannie Mae has outperformed the rest of the private sector in terms of loan performance (non-delinquencies). The organization also lost market share throughout the bubble to private sector lenders, not the other way around.
Your link provides no data supporting the contents of your post. There is a graph which ends in 2003, from which the blogger draws the same conclusion as you (Fannie has better non-delinquency rate). The graph does not show delinquencies at all, so I'm not sure where he is drawing this conclusion from.
You seem to be making the assumption that the private sector isn't perfectly capable of manufacturing its own shitty incentives without the government's help.
People aren't rational and decision makers don't automatically have incentives that align with the organizations they control.
i'm not going to get into a long discussion about this as I'm sick to death of it. read some history. the joint-stock corporation has the best record of anything in human history of providing a better standard of living through voluntary means.
There's a bit of irony in the CEO of an advertising company complaining that people overspent their means. A man who profited from promoting consumption thinks there was too much consumption.
Wait, if we're going to play the blame game with your rules - don't we also have to blame every single company that sells or manufactures consumer goods or services?
Downvote me all you want, but the bubble was caused by the desire of the people to consume outstripping their ability to create value. Advertising aims to increase the desire to consume.
"Advertising aims to increase the desire to consume."
That statement is false (or more correctly, not necessarily true). Take toilet paper for example, you see a lot of marketing for toilet paper, but I seriously doubt the total market size for toilet paper is really being increased dramatically via marketing.
No, the advertising isn't meant to make people wipe their asses more, it's to steal market share from competitors. Consumption in this case has not risen, only redirected to another producer.
So no, not all advertising aims to increase the desire to consume in general, it simply increases the desire to consume a particular product, very possibly at the expense of other consumption.
Furthermore, there is substitutability of goods - if Bob's Toilet Paper works as well as Joe's Toilet Paper, and costs 30% less, consumers are reducing overall consumption (by dollar value) thanks to Bob's shrewd marketing. Not all advertising results in a net loss for the consumer.
It is patently false to claim that all marketing acts explicitly against the interest of those it advertises to.
You're claiming that Google/Schmidt is being a hypocrite for condemning over-spending, while being in the marketing business himself... as if his work naturally leads to consumers overextending their finances.
I'm telling you here that marketing does not at all necessarily encourage spending beyond one's means - and in fact in many cases saves consumer money. What Schmidt does is really morally very neutral, I do not see the need to single him out for it.
"I want to be clear here that the blame, to the degree that there was, is largely in the United States, not in Europe, not in Britain."
Because the American branch of the Illuminati run Iceland, Northern Rock, those German manufacturers who were having to finance their customers because banking disappeared, and so forth?
"And it was fundamentally because a low-interest policy created too much money. It was an easy-money policy and eventually an easy-money policy catches up with you."
Most of the bubble money supply came from leverage (massive fraud with a sprinkling of "deregulation"), not interest rates.
NRK collapsed due to buying US sub-prime mortgage deals. Buying them was a bad idea, and putting all its eggs in one basket was worse, but I think Schmidt is getting at the fact that these deals were available in the first place and no-one thought they were a bad idea. NRK is also small fry compared to Mae and Mac.
As for leverage/deregulation,
"So the banks are busy creating money and making a lot of money on that creation of money and the regulators were either, depending on your point of view, asleep at the wheel or did not have the tools to understand what was going on"
At least a few people thought they were a bad idea, but Bush and his style of Republicans wanted an "ownership society" and Barney Frank and company wanted to "roll the dice". A nice bipartisan mess they've made ... although it should be pointed out that there were many housing bubbles and then busts (e.g. Ireland, Eastern Europe, Germany had to do some nasty real estate company rescues but I can't remember how much they were residential; heck, not counting basket cases like Japan, wasn't Canada about the only country to avoid a bank mess???).
Which suggests to me that there was an underlying problem (e.g. too much cheap money) and real estate was just where that happened to bubble up. And it's a particularly destructive area, the dot.com (actually mostly telecom) bubble was much less worse for the nation at large, bad though it was for us.
Bottom lin: there would have been a bubble somewhere.
The whole point is that leveraging (i.e. investing with borrowed money) becomes much more feasible when interest rates are close to zero, as they were in the early years of the boom.
"I want to be clear here that the blame, to the degree that there was, is largely in the United States, not in Europe, not in Britain," Schmidt said.
... Right. I would be more concerned if this remark wasn't coming from a man who is little more than the world's best-paid babysitter. I am sure he would be delivering a different line if he were talking to the New York Times.
"I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, (bringing his fist down on the table) I will rout you out."