By PAUL KRUGMAN
Published: October 9, 2008
Last month, when the U.S. Treasury Department allowed Lehman Brothers to fail, I wrote that Henry Paulson, the Treasury secretary, was playing financial Russian roulette. Sure enough, there was a bullet in that chamber: Lehman's failure caused the world financial crisis, already severe, to get much, much worse.
Paul Krugman's Blog is called "Conscience of a Liberal"
The consequences of Lehman's fall were apparent within days, yet key policy players have largely wasted the past four weeks. Now they've reached a moment of truth: They'd better do something soon." in fact, they'd better announce a coordinated rescue plan this weekend," or the world economy may well experience its worst slump since the Great Depression.
Let's talk about where we are right now.
The current crisis started with a burst housing bubble, which led to widespread mortgage defaults, and hence to large losses at many financial institutions. That initial shock was compounded by secondary effects, as lack of capital forced banks to pull back, leading to further declines in the prices of assets, leading to more losses, and so on," a vicious circle of deleveraging. Pervasive loss of trust in banks, including on the part of other banks, reinforced the vicious circle.
The downward spiral accelerated post-Lehman. Money markets, already troubled, effectively shut down. one line currently making the rounds is that the only things anyone wants to buy right now are Treasury bills and bottled water.
The response to this downward spiral on the part of the world's two great monetary powers: the United States, on one side, and the 15 nations that use the euro, on the other , has been woefully inadequate.
Europe, lacking a common government, has literally been unable to get its act together; each country has been making up its own policy, with little coordination, and proposals for a unified response have gone nowhere.
The United States should have been in a much stronger position. And when Mr. Paulson announced his plan for a huge bailout, there was a temporary surge of optimism. But it soon became clear that the plan suffered from a fatal lack of intellectual clarity. Mr. Paulson proposed buying $700 billion worth of troubled assets, toxic mortgage-related securities, from banks, but he was never able to explain why this would resolve the crisis.
What he should have proposed instead, many economists agree, was direct injection of capital into financial firms: The U.S. government would provide financial institutions with the capital they need to do business, thereby halting the downward spiral, in return for partial ownership. When Congress modified the Paulson plan, it introduced provisions that made such a capital injection possible, but not mandatory. And until two days ago, Mr. Paulson remained resolutely opposed to doing the right thing.
But on Wednesday the British government, showing the kind of clear thinking that has been all too scarce on this side of the pond, announced a plan to provide banks with �£50 billion in new capital: the equivalent, relative to the size of the economy, of a $500 billion program here, together with extensive guarantees for financial transactions between banks. And U.S. Treasury officials now say that they plan to do something similar, using the authority they didn't want but Congress gave them anyway.
The question now is whether these moves are too little, too late. I don't think so, but it will be very alarming if this weekend rolls by without a credible announcement of a new financial rescue plan, involving not just the United States but all the major players.
Why do we need international cooperation? Because we have a globalized financial system in which a crisis that began with a bubble in Florida condos and California McMansions has caused monetary catastrophe in Iceland. We're all in this together, and need a shared solution.
Why this weekend? Because there happen to be two big meetings taking place in Washington: a meeting of top financial officials from the major advanced nations on Friday, then the annual International Monetary Fund/World Bank meeting Saturday and Sunday. If these meetings end without at least an agreement in principle on a global rescue plan; if everyone goes home with nothing more than vague assertions that they intend to stay on top of the situation, a golden opportunity will have been missed, and the downward spiral could easily get even worse.
What should be done? The United States and Europe should just say, "Yes, prime minister." The British plan isn't perfect, but there's widespread agreement among economists that it offers by far the best available template for a broader rescue effort.
And the time to act is now. You may think that things can't get any worse, but they can, and if nothing is done in the next few days, they will.
But the housing crisis hit partly because housing prices
had gotten to high in relation to people's real incomes.
Don't wages have to come up?
I know, I know: "Employers can't afford to raise wages."
It seems like they'll never do it, and the last wage-increase
in Congress took NINE years!
How odd that no one even mentions that aspect
of the bailout and recovery.
Opinion Journal wouldn't print my methodical tearing apart of this article:
So here it is for you to puzzle over(my answers below):
[Bill] Clinton vs. Barack on Banks
http://online.wsj.com/article/SB122282635048992995.html
"A running cliché of the political left and the press corps these days is that our current financial problems all flow from Congress's 1999 decision to repeal the Glass-Steagall Act of 1933 that separated commercial and investment banking.
Barack Obama has been selling this line every day. Bill Clinton signed that "deregulation" bill into law, and he knows better. AP In BusinessWeek.com, Maria Bartiromo reports that she asked the former President last week whether he regretted signing that legislation.
Mr. Clinton's reply: "No, because it wasn't a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter. "But I have really thought about this a lot. I don't see that signing that bill had anything to do with the current crisis.
Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill."
One of the writers of that legislation was then-Senator Phil Gramm, who is now advising John McCain, and who Mr. Obama described last week as "the architect in the United States Senate of the deregulatory steps that helped cause this mess."
Ms. Bartiromo asked Mr. Clinton if he felt Mr. Gramm had sold him "a bill of goods"? Mr. Clinton: "Not on this bill I don't think he did. You know, Phil Gramm and I disagreed on a lot of things, but he can't possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence. "But I can't blame [the Republicans]. This wasn't something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [commercial banks] to go into the investment banking business as Continental European investment banks could always do, that it might give us a more stable source of long-term investment."
We agree that Mr. Clinton isn't wrong about everything. The Gramm-Leach-Bliley Act passed the Senate on a 90-8 vote, including 38 Democrats and such notable Obama supporters as Chuck Schumer, John Kerry, Chris Dodd, John Edwards, Dick Durbin, Tom Daschle -- oh, and Joe Biden. Mr. Schumer was especially fulsome in his endorsement.
As for the sins of "deregulation" more broadly, this is a political fairy tale. The least regulated of our financial institutions -- hedge funds -- have posed the least systemic risks in the current panic. The big investment banks that got into the most trouble could have made the same mortgage investments before 1999 as they did afterwards.
One of their problems was that Lehman Brothers and Bear Stearns weren't diversified enough. They prospered for years through direct lending and high leverage via the likes of asset-backed securities without accepting commercial deposits. But when the panic hit, this meant they lacked an adequate capital cushion to absorb losses. Meanwhile, commercial banks that had heavier capital requirements were struggling to compete with the Wall Street giants throughout the 1990s. Some of the deposit-taking banks that were allowed to diversify after 1999, such as J.P. Morgan and Bank of America, are now in a stronger position to withstand the current turmoil. They have been able to help stabilize the financial system through acquisitions of Bear Stearns, Washington Mutual, Merrill Lynch and Countrywide Financial.
Mr. Obama's "deregulation" trope may be good politics, but it's bad history and is dangerous if he really believes it. The U.S. is going to need a stable, innovative financial system after this panic ends, and we won't get that if Mr. Obama and his media chorus think the answer is to return to Depression-era rules amid global financial competition. Perhaps the Senator should ask the former President for a briefing."
[I didn't remember to copy my comment, and they conveniently disappeared it.]
The part about Clinton is instructive. Credit where credit is due. And there are some points
they can argue, like diversification of banks being a good thing; but it doesn't tell the whole story.
Here's my point re: the paragraph where they call democratic criticisms of deregulation a fairy tale:
1) Just because big investment banks could have made the same investments after 1999 as they did before, doesn't mean that they weren't indeed a systemic threat after '99. 2) Let's suppose hedge-funds being the least regulated, were the least threatening systemically. I don't take their word for it but since I don't know, I'll posit that they were, just to entertain their argument:
Well, guess what, mortgages are not the same things as hedge funds. I can't believe I even have to point this out!
Suffice it to say of the editorial:
Some very clever brain-washing we must watch out for. Republican leaders read/believe this, and drive the country into a ditch, on a regular basis.
http://blogs.wsj.com/washwire/2008/09/29/house-republicans-blame-pelosis-speech/
Pelosi definitely lost her temper and it wasn't pretty, especially at a moment when people were trying to work together(What up, Nancy!?), I agree. But that's no excuse to plunge the nation into horrific failure is it?
How many tranks will it take the no-voters to sleep tonight(Some of those who voted "no" were also pressured by constituents at home)?
Unfortunately it may have seemed like "crying wolf" when Bush spoke, as well. People can't recognize when he's right, despite progress in Iraq & the great donotcall.gov
Here's what we get for McCarthyism and all sorts of present-day whipping up of fears of socialism with Russia and China (and hard to believe, France!) as the big bad bears. It's the obverse of: "If cops are pigs, next time you need one, call a hippie!"
Permalink | Trackback URL: http://blogs.wsj.com/washwire/2008/09/29/house-republicans-blame-pelosis-speech/trackback/
It's 3 a.m., a few months into 2009, and the phone in the White House rings. Several big hedge funds are about to fail, says the voice on the line, and there's likely to be chaos when the market opens. Whom do you trust to take that call?
I am not being melodramatic. The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out, sufficiently so to be worth passing. But it's not what you'd actually call a good plan, and it won't end the crisis. The odds are that the next president will have to deal with some major financial emergencies.
So what do we know about the readiness of the two men most likely to end up taking that call? Well, Barack Obama seems well informed and sensible about matters economic and financial. John McCain, on the other hand, scares me.
About Mr. Obama: it's a shame that he didn't show more leadership in the debate over the bailout bill, choosing instead to leave the issue in the hands of Congressional Democrats, especially Chris Dodd and Barney Frank. But both Mr. Obama and the Congressional Democrats are surrounded by very knowledgeable, clear-headed advisers, with experienced crisis managers like Paul Volcker and Robert Rubin always close at hand.
Then there's the frightening Mr. McCain, more frightening now than he was a few weeks ago.
We've known for a long time, of course, that Mr. McCain doesn't know much about economics as he's said so himself, although he's also denied having said it. That wouldn't matter too much if he had good taste in advisers but he doesn't.
Remember, his chief mentor on economics is Phil Gramm, the arch-deregulator, who took special care in his Senate days to prevent oversight of financial derivatives the very instruments that sank Lehman and A.I.G., and brought the credit markets to the edge of collapse. Mr. Gramm hasn't had an official role in the McCain campaign since he pronounced America a nation of whiners, but he's still considered a likely choice as Treasury secretary.
And last year, when the McCain campaign announced that the candidate had assembled an impressive collection of economists, professors, and prominent conservative policy leaders to advise him on economic policy, who was prominently featured? Kevin Hassett, the co-author of Dow 36,000. Enough said.
Now, to a large extent the poor quality of Mr. McCain's advisers reflects the tattered intellectual state of his party. Has there ever been a more pathetic economic proposal than the suggestion of House Republicans that we try to solve the financial crisis by eliminating capital gains taxes? (Troubled financial institutions, by definition, don't have capital gains to tax.)
But even President Bush has, in the twilight of his administration, turned to relatively sensible people to make economic decisions: I am not a fan of Mr. Paulson, but he's a vast improvement over his predecessor. At this point, one has the suspicion that a McCain administration would have us longing for Bush-era competence.
The real revelation of the last few weeks, however, has been just how erratic Mr. McCain's views on economics are. At any given moment, he seems to have very strong opinions, but a few days later, he goes off in a completely different direction.
Thus on Sept. 15 he declared for at least the 18th time this year that the fundamentals of our economy are strong. This was the day after Lehman failed and Merrill Lynch was taken over, and the financial crisis entered a new, even more dangerous stage.
But three days later he declared that America's financial markets have become a casino, and said that he'd fire the head of the Securities and Exchange Commission, which, by the way, isn't in the president's power.
And then he found a new set of villains in Fannie Mae and Freddie Mac, the government-sponsored lenders. (Despite some real scandals at Fannie and Freddie, they played little role in causing the crisis: most of the really bad lending came from private loan originators.) And he moralistically accused other politicians, including Mr. Obama, of being under Fannie's and Freddie's financial influence; it turns out that a firm owned by his own campaign manager was being paid by Freddie until just last month.
Then Mr. Paulson released his plan, and Mr. McCain weighed vehemently into the debate. But he admitted, several days after the Paulson plan was released, that he hadn't actually read the plan, which was only three pages long.
O.K., I think you get the picture.
The modern economy, it turns out, is a dangerous place and it's not the kind of danger you can deal with by talking tough and denouncing evildoers. Does Mr. McCain have the judgment and temperament to deal with that part of the job he seeks?
PS: If anyone can explain to me the proper way to do links here I'm all ears but I think
there may be a technical problem that it's not as self-explanatory, at least for me,
as it once was here.
http://www.nytimes.com/2008/09/22/opinion/22krugman.html?_r=1&ref=opinion&pagewanted=print&oref=slogin
Untested Machines
Might Be Factors
By CHRISTOPHER COOPER
"...A second law allows citizens to challenge the legitimacy of fellow voters. Challengers need not prove their accusations. Instead, the challenged voter has two days to justify his right to cast a ballot."
http://online.wsj.com/article/SB122185985239258235.html
Any voter can challenge any other voter's right to vote and the burden of proof that
he/she can vote is on the challenged voter!
It's the ugliest thing I've heard yet--except of course for the biggest republican campaign donors quietly hacking the vote through touch-screen voting or if they're forced to
provide a paper-trail, then extremely unprofessional foot-dragging and slow-downs
to sabotage the paper-trail. Everyone have a lovely election.
But credit where credit is due: This admission of the existence of vote-fraud is a first for the Wall Street Journal.
"Hey folks,
Here is a very disturbing portrayal of McCain. Many of the snips in it seem taken out of context, and it plays to our worst fears, but I thought I'd pass it along anyway.
http://www.youtube.com/v/PdJUCU1UH2w&hl=en&fs=1&rel=0&color1=0x3a3a3a&color2=0x999999&border=1
NOTE: there are scenes of extreme violence."
It's true McCain is steeped in war. His grad school was The Naval War College.
It's a foregone conclusion with him that we're always at war. And though
he was a heroic POW, he shows over and over again that he learned nothing
positive from the experience.--Why would anyone vote for the ticket that would be even further right of Bush 43?
Our article criticized anonymous e-mail falsehoods and bogus claims about Palin posted around the Internet. We have no evidence that any of the claims we found to be false came from the Obama campaign.
The McCain-Palin ad also twists a quote from a Wall Street Journal columnist. He said the Obama camp had sent a team to Alaska to "dig into her record and background." The ad quotes the WSJ as saying the team was sent to "dig dirt."
Note: This is a summary only. The full article with analysis, images and citations may be viewed on our Web site:
II) Off Base on Sex Ed
September 10, 2008
A McCain campaign ad claims Obama's "one accomplishment" was a bill to teach sex ed to kindergarten kids. Don't believe it, on several fronts.
Summary
A McCain-Palin campaign ad claims Obama's "one accomplishment" in the area of education was "legislation to teach 'comprehensive sex education' to kindergarteners." But the claim is simply false, and it dates back to Alan Keyes' failed race against Obama for an open Senate seat in 2004.
Obama, contrary to the ad's insinuation, does not support explicit sex education for kindergarteners. And the bill, which would have allowed only "age appropriate" material and a no-questions-asked opt-out policy for parents, was not his accomplishment to claim in any case, since he was not even a cosponsor â€" and the bill never left the state Senate.
In addition, the ad quotes unflattering assessments of the Illinois senator's record on education but leaves out sometimes equally harsh criticism directed at McCain in the same forums.
September 5, 2008
Summary
We checked the accuracy of McCain�s speech accepting the Republican nomination and noted the following:
McCain claimed that Obama�s health care plan would "force small businesses to cut jobs" and would put "a bureaucrat ... between you and your doctor." In fact, the plan exempts small businesses, and those who have insurance now could keep the coverage they have.
McCain attacked Obama for voting for "corporate welfare" for oil companies. In fact, the bill Obama voted for raised taxes on oil companies by $300 million over 11 years while providing $5.8 billion in subsidies for renewable energy, energy efficiency and alternative fuels.
McCain said oil imports send "$700 billion a year to countries that don't like us very much." But the U.S. is on track to import a total of only $536 billion worth of oil at current prices, and close to a third of that comes from Canada, Mexico and the United Kingdom.
He promised to increase use of "wind, tide [and] solar" energy, though his actual energy plan contains no new money for renewable energy. He has said elsewhere that renewable sources won�t produce as much as people think.
He called for "reducing government spending and getting rid of failed programs," but as in the past failed to cite a single program that he would eliminate or reduce.
He said Obama would "close" markets to trade. In fact, Obama, though he once said he wanted to "renegotiate" the North American Free Trade Agreement, now says he simply wants to try to strengthen environmental and labor provisions in it.
Note: This is a summary only. The full article with analysis, images and citations may be viewed on our Web site:
http://www.factcheck.org
http://www.thedailyshow.com/video/index.jhtml?videoId=184086&title=sarah-palin-gender-card
Hello, He's gonna raise YOUR taxes; not HIS!
But even with the rich, we don't know whether Obama will get his entire program through Congress. This is a scare tactic. Thank you, FactCheck.org for reclaiming the obvious because that's what women and minorities have to do to get a fair hearing:
Read More »
http://www.youtube.com/watch?v=PyUIWpd9ecc
Here's a whole host of articles on problems with voting machines.
http://topics.nytimes.com/top/reference/timestopics/subjects/v/voting_machines/index.html?scp=1-spot&sq=voting%20machines&st=cse
stories that sell papers any more. What do you think this is, an informed society?
The truth is, the vote-fraud story is too complex to tell in eight seconds and it is
work to report it as well as work to read it. Research doesn't pay for itself. Who will report on this, if anyone? Reviewed below, a digest of articles:
http://www.truthout.org/article/election-fraud-and-tyranny-part-2
But it does seem to be coming in under the rug:
SATURDAY, AUGUST 2
An Emergency Call to Action.
Actions in more than 50 cities - see growing list of activities.
Congress will soon be voting on House Resolution 362, which calls on
the President to initiate a land, sea, and air blockade of Iran. Such
a blockade is considered an act of war under international law and is
clearly meant to escalate tensions and pave the way for an attack on
Iran.
President George W Bush has given Israel a go-ahead to begin
preparations for a military attack on Iran, in case talks over the
country's controversial nuclear programme fail to yield results, a
media report has said.
The Bush administration is said to have informed Jerusalemthat he
would back an Israeli plan to strike Iran's main nuclear sites with
long-range aerial weapons if diplomatic talks over Tehran's nuclear
programme broke down, the Sunday Times said quoting a Pentagon
official.
Add your Peace Vigil to the list, or go a protest near you.
For details goto http://stopwaroniran.org/
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