James K. Galbraith in The Nation: ‘The Simpson-Bowles Commission, just established by the president, will no doubt deliver an attack on Social Security and Medicare dressed up in the sanctimonious rhetoric of deficit reduction. (Back in his salad days, former Senator Alan Simpson was a regular schemer to cut Social Security.) The Obama spending freeze is another symbolic sacrifice to the deficit gods. Most observers believe neither will amount to much, and one can hope that they are right. But what would be the economic consequences if they did? The answer is that a big deficit-reduction program would destroy the economy, or what remains of it, two years into the Great Crisis.
For this reason, the deficit phobia of Wall Street, the press, some economists and practically all politicians is one of the deepest dangers that we face. It’s not just the old and the sick who are threatened; we all are.’
Jacob Weisberg: “In trying to explain why our political paralysis seems to have gotten so much worse over the past year, analysts have rounded up a plausible collection of reasons including: President Obama’s tactical missteps, the obstinacy of congressional Republicans, rising partisanship in Washington, the blustering idiocracy of the cable-news stations, and the Senate filibuster, which has devolved into a super-majority threshold for any important legislation. These are all large factors, to be sure, but that list neglects what may be the biggest culprit in our current predicament: the childishness, ignorance, and growing incoherence of the public at large.” Slate Magazine
Cocksure: did overconfidence bring down Wall Street? — Malcolm Gladwell (The New Yorker)
An interactive map of vanishing employment across the country, county by county, from Jan., 2007 to the present. (Slate)
“A month after Louisiana Gov. Bobby Jindal complained about wasteful spending in President Obama’s economic stimulus package, including money for “something called ‘volcano monitoring,'” Alaska pilots were grateful for such expenditures. The Alaska Volcano Observatory was ready with warnings to flight officials when Alaska’s Mount Redoubt blew five times Sunday night and Monday morning, sending potentially deadly ash clouds north of Anchorage.” via The Associated Press.
What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother Nature and the market both said: “No more.” ‘ (New York Times op-ed)
- Who’s Advising Tom Friedman? I Have a Guess (Connie Loizos/PE Hub Blog) (techmeme.com)
- Flat N All That (nypress.com)
- Attacking the Financial Crisis with Green Cards, Not Just Greenbacks (takepart.com)
- Quote of Note: Tom Friedman (isen.com)
Stave off your foreclosure by asking the bank to produce the original mortgage note. Often, it can no longer be found.
‘During the real estate frenzy of the past decade, mortgages were sold and resold, bundled into securities and peddled to investors. In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse or destroyed.
Persuading a judge to compel production of hard-to-find or nonexistent documents can, at the very least, delay foreclosure, buying the homeowner some time and turning up the pressure on the lender to renegotiate the mortgage.’ via The Associated Press.
“More evidence of the abominable ad market: Wired’s February issue is so thin, its binding is thicker than its actual pages. It feels startlingly flimsy to the touch. The issue numbers just 113 pages in total. Wired’s January issue contained 128 pages; the December issue, 231 pages.
Of those 113 pages, only 31.5 are ad pages. That’s miserable. The usual ratio between editorial and advertising hovers around 1:1.
31.5 ad pages is a 27% decline from the January 2009 issue, which itself was a 47% decline from January 2007.” via Silicon Alley Insider.
What is even more remarkable is the way in which the alleged fleecing of wealthy people and charities – investors who should have known better or employed people who did – of many billions of dollars serves as a mirror for the broader culture. It shows how we went wrong and where we are left, now that we realize our errors.
The main difference really is that the purported victims, or enablers, or co-fantasists of the trader Bernard Madoff say they found out their wealth was illusory all of a sudden, whereas for most people in the English-speaking world, this is happening little by little.
My only quibble is putting the speculation in the past tense. The economy will continue to be a Ponzi scheme, and the bailout program is intended to ensure that.
Josh Marshall observes in Talking Points Memo:
“Since the story broke a few days ago, I’ve been extremely interested in the arrest of Bernard Madoff, former Nasdaq chief, whose investment business has been revealed as a massive scam with loses of as much as $50 billion. Since I’m in the news business a lurid story with gargantuan bad acts and fabulously wealthy people claiming they’re on the way to the poor house is irresistible at some level. But that’s not the root of my interest. What we’re hearing is that this was a classic, if vast, Ponzi scheme. So in the annals of the great financial sector collapse of 2008, unlike the various Wall Street firms and high flyers who were ruined because of the Real Estate Bubble, illiquid mortgage-backed derivatives and generalized speculative euphoria, Madoff’s operation was just a scam, an old-fashioned fraud, that a lot of big players got suckered into.
But put me down as suspicious — suspicious that the difference between Madoff’s and the other investment implosions we’ve seen over recent months will turn out to be so clearly one of kind rather than degree.
Did Madoff start his operation as a consciously fraudulent enterprise? Or was he another operator who was massively over-leveraged, made a bunch of bad calls (you don’t have to make many if your leverage is high enough), lost virtually everything but then was able to keep operating and taking in money and claiming high returns because he had such insanely tight control over his books? In other words, did he start legit, get into trouble and then evolve, for lack of a better word, into a Ponzi scheme?”
I have been waiting for someone to ask if this was really so different from the credit collapse, but I would go even further. The entire economy has been built upon a pyramid scheme in which the losers — the poor suckers who are late investors — are the working poor whose real earnings have consistently eroded and whose debt burdens have steadily grown while the rich get richer. And the bailout is just an effort to prop up the scam so it can continue unabated.
Krugman interviewed by Andrew Leonard:
“The revised and expanded edition of Paul Krugman’s The Return of Depression Economics, originally published in 1999 but back in bookstores last week, features, in a reasonably large font on the front cover, the mini-bio: “Winner of the Nobel Prize in Economics.” The choice of the (re)publication date couldn’t be better. Not only are Krugman’s predictions of economic doom, first made in the wake of the Asian financial crisis of 1997, even more relevant as 2008 comes to a close, but he is also accepting his award in Stockholm, Sweden, this week. When I reviewed The Conscience of a Liberal a year ago, I wrote, “Now is a good time to be Paul Krugman.” I spoke too soon. Now is an even better time to be Paul Krugman.
You write that some economists (and this certainly goes for many Salon readers) believe that recessions and even depressions are necessary mechanisms for purging economies that have gotten out of control. There’s even a moralistic aspect to it: In the U.S., all those greedy investment bankers and housing speculators and overconsuming Americans are getting their comeuppance. But you seem to be suggesting something different: that the government can kick-start the economic machine back into motion, that we don’t have to be subjected to the torture of a severe recession. What do you say to those critics who claim that stimulating the economy out of this recession will just lead to bigger problems down the road?
My favorite Keynes essay is “The Great Slump of 1930,” in which he says “We have magneto [alternator] trouble.” If you’ve got electrical problems with your engine, that doesn’t mean you should junk the whole car. If part of your financial system has gone haywire, that doesn’t mean that millions of workers have to be unemployed.
There’s kind of a weird double-think involved in arguments that the slump should be allowed to follow its natural course. It’s true that classical economics says that we should let market forces do their work; but classical economics also says that severe recessions can’t happen. This idea that we must not intervene is based on a worldview that is refuted by the very fact that the economy is in the mess it’s in.”
Michael Lewis: “The kids … who thought they were going to be financiers are having to rethink the premise, and that’s a very good thing.”
“If we are going to bail out Detroit, the deal has to be based on meeting the new fuel economy standards of 35 mpg by 2020, and meeting them increasingly with hybrids. The deal has to be for multiple plug-in hybrid car models. And most important, the deal has to include a management team that is wholly committed to that inevitable transition, a team that will not waste a penny of the taxpayer-funded bailout lobbying against the even tougher standards and regulations that will be needed to avoid the harsh consequences of global warming and peak oil.
This isn’t socialism. And it isn’t nationalization of the auto industry. It is immunization of the auto industry against the seemingly fatal disease of mental decay. And it is immunization of the nation against far graver threats. Indeed, the potential risks the bankruptcy of Detroit poses pale in comparison with the all-but-certain risks of continuing on our path of ever greater oil consumption and ever greater greenhouse gas emissions.” — Joseph Romm (Salon )