

Google's Eric Schmidt on why bankers deserve little sympathy and Obama does - berrow
http://www.telegraph.co.uk/finance/financetopics/davos/6953842/Googles-Eric-Schmidt-on-why-bankers-deserve-little-sympathy-and-Obama-does.html

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patrickgzill
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."

~~~
hga
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.

~~~
jacoblyles
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.

~~~
hga
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).

------
nazgulnarsil
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.

~~~
trevelyan
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.

[http://real-estate-and-urban.blogspot.com/2008/09/charles-ca...](http://real-
estate-and-urban.blogspot.com/2008/09/charles-calomiris-and-peter-wallis.html)

~~~
yummyfajitas
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.

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michaelcampbell
Eric's been hitting all the high notes lately. I'm waiting for his
pronouncement on climate change.

------
waterlesscloud
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.

~~~
tumult
Please grind that axe elsewhere

~~~
waterlesscloud
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.

Which of those statements is false?

~~~
potatolicious
_"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.

~~~
waterlesscloud
>It is patently false to claim that all marketing acts explicitly against the
interest of those it advertises to.

So it's a good thing no one has claimed that here.

~~~
potatolicious
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.

~~~
waterlesscloud
I am saying that encouraging consumption does tend to lead to over-
consumption. Equilibriums exist in textbooks, but in the real world there's a
clear tendency for oscillation in economic markets. If you're pushing one way,
yeah, you're a part of the problem when things go over the line in that
direction.

Advertising is nowhere near neutral in its effects on consumption. Sure, it
may have some minor effect that reduces consumption, but taken as a whole
that's not what it does at all.

Note here this is different from what you're reading into my position. I'm not
saying marketing is inherently bad. But I am saying that it does push in a
direction, and too far in that direction is bad.

------
Daniel_Newby
Clueless.

"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.

~~~
teamonkey
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"

~~~
hga
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_.

------
DanielBMarkham
What the hell?

~~~
camccann
Sounds about right, but it'd be nice if you elaborated on that reaction.

------
master
_"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.

