Paul Krugman notes that not only is John McCain going to be an absolute nightmare on the need to reimpose some kind of regulation on our financial system, but both Hillary Clinton and Barack Obama are maintaining an eerie silence on these issues and one has to suspect that the generous contributions the scions of high finance have made to both Democrats is playing a role here. It's not directly on point, but the relevance of my old boss Bob Kuttner's book on Squandering of America is clear; or see Noam Scheiber's review.
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What If They Gave a Financial Crisis
24 Mar 2008 10:45 am
Comments (14)
You, the taxpayer, will help make or keep a great many people rich and happy. So what's new?
You're right--nothing new in that regard. The larger issue, as noted above by Matt, is if any legislative action will be taken to prevent this from happening again.
http://www.huffingtonpost.com/2008/03/24/clinton-calls-for-panel-o_n_93039.html
PHILADELPHIA — Democrat Hillary Rodham Clinton called on President Bush on Monday to appoint "an emergency working group on foreclosures" to recommend new ways to confront the nation's housing finance troubles. The New York senator said the panel should be led by financial experts such as Robert Rubin, who was treasury secretary in her husband's administration, and former Federal Reserve chairmen Alan Greenspan and Paul Volcker.
Brilliant Senator Clinton! Who better to handle the crisis than Greenspan, who (according to Krugman at least) enabled this crisis in the first place, trumpeting the Bush tax cuts even as we steamed towards another costly war overseas, and who played down the risks of the growing mortgage crisis, and sub prime lending.
Greenspan was wrong in 2004, when he sang the praises of adjustable-rate mortgages. He was wrong in 2005, when he dismissed the idea that there was a national housing bubble, suggesting that at most there was some "froth" in the market. He was wrong last fall, when he suggested that the worst of the housing slump was behind us. (Housing starts have fallen 30 percent since then.)-- Krugman @ azstarnet 10/23/07
So conservative intellectuals proposed a bait-and-switch strategy: First, advocate tax cuts, using whatever tactics you think may work - supply-side economics, inflated budget projections, whatever. Then use the resulting deficits to argue for slashing government spending. And that's the story of the last four years. In 2001, President Bush and Mr. Greenspan justified tax cuts with sunny predictions that the budget would remain comfortably in surplus. But Mr. Bush's advisers knew that the tax cuts would probably cause budget problems, and welcomed the prospect.-- Krugman @ NYTimes 08/29/05
Until then Mr. Greenspan had presented himself as the voice of fiscal responsibility, warning the Clinton administration not to endanger its hard-won budget surpluses. But now Republicans held the White House, and the Greenspan who appeared before the Budget Committee was a very different man. Suddenly, his greatest concern — the “emerging key fiscal policy need,” he told Congress — was to avert the threat that the federal government might actually pay off all its debt. To avoid this awful outcome, he advocated tax cuts. And the floodgates were opened. As it turns out, Mr. Greenspan’s fears that the federal government would quickly pay off its debt were, shall we say, exaggerated. And Mr. Greenspan has just published a book in which he castigates the Bush administration for its fiscal irresponsibility. Well, I’m sorry, but that criticism comes six years late and a trillion dollars short.-- Krugman @ NYTimes 09/17/07
Here's hoping Obama's plan is more sensible, and free from campaign politicization like Clinton's faux-bipartisan appointment of Greenspan as our last great hope in crisis, despite his abysmal record in recent years.
You say eerie silence; I say the political press corps sucks. NPR (which is supposed to be different) had interviews with both Clinton and Obama two weeks ago - a week during which Barney Frank and Chris Dodd both issued introduced proposals on the mortgage mess. Did NPR ask the candidates anything about this? No. It was all Florida/Michigan and other sideshows.
The larger issue, as noted above by Matt, is if any legislative action will be taken to prevent this from happening again.
Posted by James Gary | March 24, 2008 11:12 AM
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I'm sure legislation will be written and maybe even passed. I'm going to get a job selling trucks. Trucks? Sure, you know, the ones players in the financial service sector will drive through all the loopholes.
A question. Sen Clinton is based in New York - obviously the center of the financial industry - and has raised somewhere around $200M since 2000, notoriously a lot of it from large donors who are currently maxed-out for the primary. But Sen Obama has an unprecedented 1M+ individual contributors: just how much of Obama's campaign cash has come from finance industry insiders, both in absolute terms and as a proportion of the total ?
I think this is one of those issues where there are various shades of gray, and while we can't expect perfect integrity from any candidate in this money-driven system, I would expect Obama's wider base of donors to give him a little more independence.
And there's a deep problem with talking about this financial crisis during a campaign: hardly anyone knows what's going on. And having a graduate-level seminar on CDO's would tend to take a campaign far off-message. Alternatively, a simplistic bash-the-fat-cats populist message - appropriate as that might be under the circumstances - would probably turn off the swing voters that Obama has been carefully courting.
A question. Sen Clinton is based in New York - obviously the center of the financial industry - and has raised somewhere around $200M since 2000, notoriously a lot of it from large donors who are currently maxed-out for the primary. But Sen Obama has an unprecedented 1M+ individual contributors: just how much of Obama's campaign cash has come from finance industry insiders, both in absolute terms and as a proportion of the total ?
I think this is one of those issues where there are various shades of gray, and while we can't expect perfect integrity from any candidate in this money-driven system, I would expect Obama's wider base of donors to give him a little more independence.
And there's a deep problem with talking about this financial crisis during a campaign: hardly anyone knows what's going on. And having a graduate-level seminar on CDO's would tend to take a campaign far off-message. Alternatively, a simplistic bash-the-fat-cats populist message - appropriate as that might be under the circumstances - would probably turn off the swing voters that Obama has been carefully courting.
Even if Obama or Hillary wins the Presidency, this is the sort of issue which would seem to require an awful lot of popular pressure for high government officials to do anything other than what the financial chieftains want them to do.
From today's Washington Post:
Gene Sperling for Clinton
Austan Goolsbee for Obama
and
Douglas Holtz-Eakin for McCain.
Isnt' Krugman a former Enron advisor who lauded their stock way back when?
One way or another the U.S Treasury is going to buy up, assume, back or otherwise make go away a bunch of bad debt, bad mortgages and bad investments in the private sector. The flippers get to keep their plunder.
When the Treasury does this sort of thing, the question is "Is the Treasury propping up the financial system, or is the financial system sucking down the Treasury?"
In the near term, it is the Treasury that is doing the propping up but things get less and less clear. Given all of the various deficits, a point will come when it will be the Treasury itself that will need to be propped up.
Once again: keep in mind that our flexibility to regulate is bound by London's willingness to play along. They've discovered they can pretty much fund the whole city on the financial services industry, and with it, the better chunk of the country. And they've not been hesitant to play up regulatory advantage to poach from New York.
"Isnt' Krugman a former Enron advisor who lauded their stock way back when?"
Posted by Kevin
Please don't take your news from Sullivan and Kaus.
More precisely, Krugman was on an "advisory board" where he provided background briefings, but had no investment in the well-being of the company.
Comments closed April 07, 2008.
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Heads in the Sand
One way or another the U.S Treasury is going to buy up, assume, back or otherwise make go away a bunch of bad debt, bad mortgages and bad investments in the private sector. The flippers get to keep their plunder. The brokers and investment people will keep all their years of bonuses, salaries and commissions, as will individual real estate agents and speculators. The taxpayer will be told (as you can read in many places already) that it must be done or the nation will plunge into a severe recession. Taking a bullet for the team if you will. Some will say the capacity to do this isn't there, or printing all the money needed to do it will render the bailout moot. Whatever, it's going to happen. You, the taxpayer, will help make or keep a great many people rich and happy. So what's new?
Posted by steve duncan | March 24, 2008 11:02 AM