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Zombie Economics From Zombie Banksters on Zombie Op-Ed Pages

1:31 pm in Class war by masaccio

“How could we be expected to learn anything from this?”, said all economists. Photo from San Diego Air and Space Museum Archive via Flickr.

Andy Rosenthal (@andyrNYT), editor of the editorial page of The New York Times, subjected subscribers to yet another screed from the Neoliberal Thought Collective, the term used by Philip Mirowski in his excellent book Never Let a Serious Crisis Go To Waste. This one is by Stephen King, who is the Chief Economist at HSBC. There is no mention of HSBC’s corrupt history, for example its willingness to launder money for drug dealers, arms traffickers, and other scum of the earth. Mr. King learned absolutely nothing from the Great Crash or his employer’s nasty doings that led to it.

King says that rosy projections of growth in the economy have not come true. He doesn’t ask who made those projections, how they were made, what changes in the models might be necessary to account for the impact of the Great Crash, or any other technical issues. There is no discussion of the inaccuracy of almost all economic projections. And King certainly doesn’t ask whether any of this might have been ameliorated by better government and central bank policies. He simply announces that there will be no more growth, and that the poor need to get over it.

King claims that there were five crucial trends that led to rapid economic growth in the 20th century: global trade, financial innovations like consumer borrowing, widespread social safety nets, employment of women, and improvements in education. “These five factors induced, if not complacency, an assumption that economies could expand forever.” He says that everyone assumed this could continue forever, which is utterly untrue.

Thoughtful people knew that global trade is a mixed blessing, good for some but harmful in the middle term for the working class. No one thought consumer borrowing was an acceptable substitute for well-paying jobs. Social safety nets never replaced the need for savings, but his larger point, that savings are the engine of investment, is wrong, as Modern Money Theory shows. Obviously there is a finite number of women who can work. Education is available, but the number of people who can benefit is always about the same, and once you reach that number, you won’t get more out of it. In short, no reasonable person ever believed that growth could go on forever based on any one or more of these factors.

Looking at his arguments more closely, we see that he doesn’t mention all of the financial innovations: unstable credit default swaps, fraudulent real estate mortgage backed securities, and cash boxes for drug dealers built to fit under teller windows. He doesn’t say that the social safety nets are fraying because of the huge numbers of people who need help, and the tax avoiding skills HSBC and many other banks practice and sell to the hyper-rich and their corporations, and creepy right-wing billionaires blaming the victims and demanding that they be beaten to encourage them to work for slave wages. He doesn’t say that part of the social safety net was public support of education, and that the labor share of income is historically low, or that banks aren’t in the lending business any more. In other words, this argument only works because King ignores the crowd of thugs engineering the economy.

It’s sad when growth stops, says King, but there is nothing to be done except “…to recognize that promises made during good times can no longer be easily kept.” His prescriptions follow, straight from the unrepentant Chicago School of Loathing for the Middle Class:

That means a higher retirement age, more immigration to increase the working-age population, less borrowing from abroad, less reliance on monetary policy that creates unsustainable financial bubbles, a new social compact that doesn’t cannibalize the young to feed the boomers, a tougher stance toward banks, a further opening of world trade and, over the medium term, a commitment to sustained deficit reduction.

No, nothing has changed. Business can save us, and government needs to get out of the way.

In the aftermath of the Great Crash, normal people saw that the assertions of economists about dangers of regulation of the financial sector and of business in general, the efficiency of markets, the horrors of high taxes and the inability of government to do anything about anything had failed. King and the rest of his economist colleagues didn’t learn anything. They continue to offer the same destructive ideas, but now with a dose of “ we won, get used to it”.

Look at the first comment in the NYT picks for good comments. Apparently @andyrNYT, hasn’t learned anything from the Great Crash either.

The Democratic Platform’s Nonsense on Banks

11:46 am in Financial Crisis by masaccio

Photo by Redwin Law via Flickr


The Democratic Platform seems to have missed the central point of the banking mess: the Obama administration did not investigate the disaster, and didn’t indict anyone for the crimes that led to the Great Crash. In fact, the administration specifically refused to follow up on criminal referrals from the Financial Crisis Inquiry Commission regarding one of the Goldman Sachs mortgage deals, saying as it always does, that it stinks, but isn’t a crime.

The Platform admits that

For too long, we’ve had a financial system that stacked the deck against ordinary Americans. Banks on Wall Street played by different rules than businesses on Main Street and community banks. Without strong enough regulations, families were enticed, and sometimes tricked, into buying homes they couldn’t afford. Banks and investors were allowed to package and sell risky mortgages. Huge reckless bets were made with other people’s money on the line. That behavior not only nearly destroyed the financial system, it cost our economy millions of jobs, hurt middle class and poor families, and left taxpayers holding the bill.

Then we find out the solution offered by the party in power:

The path to restoring middle class security is through the basic values that made our country great. We are a nation that says anyone can make it if you try – no matter who you are, where you come from, or what you look like. We know that America is strongest when everybody has a seat at the table and when the same rules apply to everyone, from Main Street to Wall Street.

The only reason the banks were allowed to play by different rules is that the Obama administration mulishly refused to enforce the law against them. There is no doubt that the law was broken, over and over. But the candy-ass prosecutors at the Justice Department won’t act, and the craven time-servers at the SEC are so worried about their careers that they fall all over themselves in admiration of the thugs who stole all the money and kept it, while millions of Americans lost their life savings and their houses.

The platform ignores the reality that the bankers got away with theft, wire fraud, bank fraud, loan fraud, securities fraud, and commodities fraud. There are two causes for this, both the responsibility of the President and Democrats in the legislature. First, the President hired a bunch of known bank sympathizers and fellow travelers to head up every part of the financial sector. At the head of the list are Attorney General Holder and Treasury Secretary Geithner. Holder hired a slew of white collar defense lawyers from Covington and Burling, and he and they will all return to their civilian jobs with their hands unsoiled by something so ugly as criminal prosecutions of their former and future clients. Geithner is a product of the inbred financial sector, a man unable to conceptualize the possibility that any of his trainers was a common thief.

Second, the investigative arm of every financial regulator is full of time-servers. The first responsibility of every incoming administration is to get rid of the moles left from the prior administration, the wreckers, the foot-draggers, the bureaucratic sludge, the people waiting their turn at the revolving door. Obama failed to do that, and he failed to instruct the head of agencies to do it either.

The platform asserts that Dodd-Frank is a common sense solution to the problem, and will prevent future problems. Nonsense. The agencies have been so thoroughly captured by the financial sector that they can’t even get their regulations into effect. The biggest banks are much bigger than they were, and even more dangerous.

The platform says that Democrats are “… holding Wall Street accountable, bringing new transparency to financial markets, and ending taxpayer-funded bank bailouts and the era of “too big to fail” and by “… by requiring them to provide relief for homeowners still struggling to pay their mortgages and to change practices that took advantage of homeowners.

So holding people accountable means a) we told the banks not to do that again, and b) we asked banks to help some of the people damaged by the banks get a few bucks out of the stolen hundreds of billions.

That is not the rule of law applicable to all. That is just a load of garbage dumped on our heads as if to say: you people get what you deserve.

The Bad Faith of the Elites

9:29 am in Economy by masaccio

The New York Times allowed Matthew Bishop to write its review of Paul Krugman’s new book, End This Depression Now! Mr. Bishop is The US Business Editor and New York Bureau Chief of the Economist, a very serious paper. Mr. Bishop himself is a Very Serious Person, although he doesn’t seem to understand the point of that term, and he takes umbrage:

Yet no opportunity to preach to the choir is missed by the populist Mr. Krugman, nor any chance to mock those he calls the “Very Serious People” who disagree with him.

To this Moderately Serious Reviewer, Krugman’s habit of bashing anyone who does not share his conclusions is not merely stylistically irritating; it is flawed in substance.

Mr. Bishop noticed that Krugman doesn’t give any credence to the economic theory created by public relations flacks for the billionaire consensus, that the problem is lazy overpaid over-pensioned incompetent US workers who immorally refuse to pay their debts to their betters. Certainly the problem isn’t the lazy writers hired by the pretend meritocracy, who faithfully reproduce that nonsense in dressy faux-British prose to justify the self-satisfaction of the 1%.

The few substantive comments put forward by Mr. Bishop are thoroughly trashed by Jared Bernstein, among others; so let’s move on to Mr. Bishop’s other big problem with the book:

Maybe his case for stimulating the economy in the short run would be taken more seriously by those in power if it were offered along with a Bowles-¬Simpson-style plan for improving America’s finances in the medium or long term.

Mr. Bishop thinks that Krugman is solving the wrong problem: it isn’t massive unemployment that is wrecking the country, it’s the long-term possibility that increased national debt might lead to increased inflation or taxes on the rich. It’s the mere possibility that some of the loss from the Great Crash might fall on the guilty elites instead of the rest of us.

Mr. Bishop can’t stomach Krugman’s mocking tone, his insolence towards his wealthy betters. Krugman is betraying his social class, appealing over their heads to the “informed public” (scare quotes are Mr. Bishop’s). Well, Mr. Bishop, democracy is not just another piece of pretense from the oligarchy, which the insider Krugman should pretend to accept while making his case to his superiors in one of those quiet rooms they approve.

Even Jared Bernstein thinks Krugman should do something else:

Instead, I’d urge [Krugman and Joseph Stiglitz] to think more about real politics and how to get out of this mess given the stark realities of political dysfunction.

Meaning no disrespect, I ask Bernstein how that worked out for him? Or for Christy Romer? They both failed at insider politics. Politics is not a meritocratic game, where the best argument and the best evidence lead to the best conclusions and actions anymore, if it ever was.

People who say this out loud are generally ignored by the likes of Mr. Bishop, and if they have enough clout to get that view out in the public sphere, Mr. Bishop inspects his bank balance and lets fly with all the supercilious disdain he learned at the feet of the Economist editors.

Krugman played their game. He spent the first years of the Obama administration putting his ideas into his economic papers and conference presentations in measured, professorial terms, and using his column to call attention to those ideas. His results are no better than Bernstein’s, though the fact that they are public at all is an affront to Mr. Bishop.

Suck on this, Mr. Bishop. You are arguing in bad faith, and your weekly rag is too. Neither of you are interested in the evidence or the logic of the argument. You aren’t even interested in the favorite of conservatives, the argument from authority: Krugman is a Nobel Prize winner and has big space in for the New York Times, and he was right and you and your clients were wrong about everything. You don’t care that he is an independent writer and professor while you work for the interests of the rich.

Your reporting conceals the real problem facing this country: the dominance of the rich, the elite, the lords of finance, the owners of dressage horses and Brawny Paper Towels. They don’t want to eat their losses. They want the middle class to pay those losses. What’s your solution to that problem?

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Edited to delete incorrect reference to date of Krugman’s Nobel Prize.

What Did You Think Would Happen?

9:46 am in Economy by masaccio

Middletown was the title of two sociological studies of the transition from an agrarian economy to an industrial economy in Muncie, Indiana, published in 1929 and 1937, so Ron Fournier trotted off to find out the current state of things in the Heartland. Fournier is a student of the Thomas Friedman cab driver school of journalism: he visited for a few days, and published the results of his fly-by in an article titled In Nothing We Trust.

Muncie Historic Monuments, photo by Jimmy Emerson

Fournier is a member of the Village Media. He was with the AP for years, leaving to attend the Harvard Insititute of Politics, and writing a book, Applebee America. He became the chief of the AP Washington Bureau after considering and rejecting a role with John McCain’s presidential campaign. It’s hard to imagine a worse person to carry on the tradition of the Middletown studies, except, of course, David Brooks.

The article is the familiar story of collapse in the wake of the Great Crash. The protagonist is a decent guy named Jerry Whitmire, a construction worker. In 2000 he and his wife, a state employee, bought a $40,000 house for no money down and a mortgage payment of $620. He was current until 2010, when his wife was fired and he was laid off. He got a trial mod that lowered his payment, but the bank dumped him for no apparent reason, and they filed bankruptcy. His lawyer correctly advised them to stay in the house until the bank foreclosed, but Whitmire left the keys on the table and moved out, explaining “I don’t believe in a free lunch.” Then the city fined him $300 for weeds in the yard. It turns out the bank didn’t foreclose, so he still owns the house. Fournier tells us Whitmire is angry, betrayed and fuming.

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The Central Question Posed by the Great Crash

11:53 am in Economy, Financial Crisis by masaccio

The Great Crash posed one question for this country: who would bear the losses? Would it be the banks that caused the problems? The officers, directors and shareholders of those banks? Their careless counterparties? The investors who bought the fraudulent real estate mortgage-backed securities and the complex spin-offs? The owners of capital who threw money into hedge funds and other exotic investments expecting a geyser of money in return?

No. That group doesn’t lose money. They used their control over the government and the Fed to make sure that the losses would be passed on to the rest of us, pushing millions into or near poverty. The savers were trashed by the Fed’s zero interest rate policies. The national debt run up by tax cuts and wars gave the rich an opportunity to end the safety net and focus all of the efforts of government on protecting them and their interests. The rich are safe. The rest of us are in deep trouble.

The government threw money at banks with abandon, leaving incompetent failed executives in place. When it turned out that banks lied about the quality of the notes and mortgages transferred to the RMBS Trusts, the SEC and the Department of Justice refused to investigate, let alone prosecute.

Banks didn’t complete the transfer of those worthless notes and mortgages into the Trusts, so the IRS announced it wouldn’t enforce the requirements for pass-through non-taxable status. The servicing arms of those banks cheated and lied to courts around the nation about ownership, and when they got caught, they talked the government into a sleazy settlement that gives nothing to the people damaged by the frauds and allows the banks to continue to lie and cheat, if at lower levels.

This list could be expanded indefinitely, with the same outcome: the Fed, Congress and the White House have only done those things that protected the money of the rich, whether or not the settlement was consistent with the law or not.

It didn’t have to be this way. From the outset, there were things that could have been done that would have placed the losses where they belonged: on Wall Street and its criminal denizens and its careless clients. The bailouts could have come with constraints and requirements, firings, lawsuits, and indictments. The entire rotten structure could have been pushed into a form that would not threaten the lives and incomes of the middle class, a group whose responsibility for the problems was minimal in contrast to that of crooked lenders and swindlers.

No. Not in this country. Not in a nation ruled by oligarchs and a government in thrall to economic theories years after those theories revealed themselves as nonsense, or to the rich who endow those irrational theories with sanctity of revealed truth, or both. There was never a day when the primary or even subsidiary consideration was the middle class, or the rule of law, or even the pretend values of the free market. The only consideration from the outset was the protection of the rich.

Even two years later, the government showed no interest in raising taxes on the richest Americans. Both parties explained that they couldn’t raise taxes even on the rich in a recession, and that the only solution was cutting out unemployment benefits, lowering the minimum wage, slashing Social Security and Medicare, and removing people from Medicare and the shredded remnants of help for the worst off.

The current lousy economy is a result of deliberately chosen policies. The government could have chosen policies that would have protected the middle class at the expense of rich criminals and their clients and their hedge funds and their off-shore trusts and their tax-avoidance schemes, the people and entities that wrecked the economy. It didn’t.

It’s not that we don’t know what to do to make the economy work for the middle class. We do. The government and the elites and the rich won’t allow it. They go house to house, from Bangor to Bakersfield, saying to the inhabitants, What part of this sentence don’t you understand? You think we’re going to eat our losses? You think we don’t care about our money? Well. Suck. On. This.