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2010-08-03 Economy

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Posted by BrerRabbit 2010-08-03 05:14|| || Front Page|| [11128 views ] Top

#1 This article begs the question of whether or not banks require regulation by governments. They most certainly do. Krugman himself lost his credibility before the current crisis by his failure to predict it (I did, and I am no candidate for the Nobel Prize in anything.)

Posted by Anguper Hupomosing9418 2010-08-03 09:13|| 2010-08-03 09:13|| Front Page Top

#2 Banks definitely don't need regulation about who they lend to (regulation made this a problem).

Regulators need to regulate their currency monopoly and that means altering reserve ratios in response to credit inflation.

High ratios of house price to earnings are a sign of economic failure.

Posted by Bright Pebbles 2010-08-03 09:25|| 2010-08-03 09:25|| Front Page Top

#3 High ratios of house price to earnings are a sign of economic failure.
Keeping housing prices high (=maintaining a high ratio of house prices to earnings) has been the official goal of the White House & Congress going back several administrations. Apparently they are bent on economic failure.

Posted by Anguper Hupomosing9418 2010-08-03 10:02|| 2010-08-03 10:02|| Front Page Top

#4 The credit bubble was the response by BOTH parties to 1) the increase in inequality that attends a winner-take-all information technology economy, and 2) the extreme increase in economic insecurity affecting American families that are now vulnerable to highly volatile jobs, housing and stock markets.

U Chicago prof. Raghuram Rajan deserves to be much better known. In Christopher Caldwell's excellent Weekly Standard profile, he nails it:

Rajan offers a bold and convincing diagnosis of how a screw-up in the regulation of poor peoples mortgages in one country has brought the world to the brink of economic disaster, where it teeters still. He goes beyond the proximate causes of the problemthe subprimes and derivatives and trade imbalances and the like. The ultimate cause, Rajan convincingly argues, is a widening of economic inequality that American politicians of both parties found politically intolerable, and chose to fix by turning the credit market into an under-the-table welfare state.

...as Rajan puts it with some understatement, "the United States is singularly unprepared for jobless recoveries." This is only partly because the United States has a weaker welfare state than other industrialized countries. It is also because the American safety netin which government provides fewer health and retirement benefits but incentivizes employers to fill the gapwinds up placing all of a persons eggs in the basket of his job. Lose your job and you lose not only your income but also your (and your childrens) health insurance and possibly (as in several scandalous recent cases) your pension.

Under such circumstances, any recession with the slightest perceptible effect on the public will end political careers by the score. And recessions are, alas, inevitable. The result, under both Democratic and Republican leadership, has been reckless government extension of credit.

As a remedy for downturns, this has two political advantages. First, it does not bother conservatives as much as handouts do. Second, "easy credit has large, positive, immediate, and widely distributed benefits, whereas the costs all lie in the future. It has a payoff structure that is precisely the one desired by politicians, which is why so many countries have succumbed to its lure."

Posted by lex 2010-08-03 10:11|| 2010-08-03 10:11|| Front Page Top

#5 a screw-up in the regulation of poor people's mortgages in one country has brought the world to the brink of economic disaster

If it was just the poor people's mortgages we would have a minor problem. It was the whole mindset of 'can't lose at real estate' buyers and 'bad loans won't be MY problem' lenders. And the dishonesty of the entire system that allowed - encouraged - them.

Posted by Glenmore 2010-08-03 11:51|| 2010-08-03 11:51|| Front Page Top

#6 Also, they thought they could move entire physical industries overseas but that they'll still be able to make money in the finance industry _anyway_. They think that even though everyone else will be unable to pay their bills, they'll still be able to get blood from the turnip, after all, they wrote the "blood from the turnip" clause in the contract. Never mind that it doesn't mean you'll _actually be able to get blood from the turnip_ when the government shuts down drilling in the Gulf, or irrigation in the Central Valley. Turnips themselves may be in short supply.

Posted by Thing From Snowy Mountain 2010-08-03 12:00|| 2010-08-03 12:00|| Front Page Top

#7 #1 This article begs the question of whether or not banks require regulation by governments. They most certainly do.

Regulation should serve to protect individuals and organizations either from direct criminal action, or those actions/inactions that indirectly cause harm (ie. negligence on the part of the responsible party). This applies to all entities regulated by government (be it a bank, a coal company, a t-shirt vendor, etc.). Regulation should not exist to control the marketplace through theoretical models, or to pick winners and losers based on ideology, preference, or political gain. It is not the role of government to decide who will be successful; it is their role to protect the citizenry and sovereignty of this country. Do banks require regulation? Of course they do. The question is to what end are they being regulated?

Posted by Keenster 2010-08-03 13:48|| 2010-08-03 13:48|| Front Page Top

#8 A bigger question regarding bank regulation is, what are you going to do about regulatory capture, so that the regulations are going to achieve something instead of making it worse?

All the storm we went through in 2007 and 2008, remember, was after Sarbannes/Oxley went through so we wouldn't have this sort of stuff happen anymore. It cost a lot, but we still have these sorts of accidents anyway.

Posted by Thing From Snowy Mountain 2010-08-03 16:02|| 2010-08-03 16:02|| Front Page Top

#9 we still have these sorts of accidents anyway
Snow Thing, are you sure they're accidents? Seems like a lot of connected people got quite wealthy from them.

Posted by Glenmore 2010-08-03 16:05|| 2010-08-03 16:05|| Front Page Top

#10 "Paul Krugman Gives Up"

Works for me - I gave up on him years ago....

Posted by Barbara Skolaut 2010-08-03 16:26|| 2010-08-03 16:26|| Front Page Top

#11 This article begs the question of whether or not banks require regulation by governments. They most certainly do.

Not. It was regulation by government that exacerbated this mess. The investment banks should never have been allowed to lever their capital 30-40 x whcih they were by the Fed. It is regulation by the government that allows people to ignore the risks their bank takes by insuring deposits. It was regulation by the government that allowed ratings to be paid for by the seller rather than the purchaser of securities. And it was regulation by the government that killed the IPO market and technology innovation. Regulation initially promises to remove risk and provide security. But this is only a charade. Regulation hides risk until it reveals the emperor has no clothes. With catastrophic consequences for all. Because there is risk in the world and it cannot be regulated.

Posted by Nimble Spemble 2010-08-03 16:45|| 2010-08-03 16:45|| Front Page Top

#12 Snow Thing, are you sure they're accidents? Seems like a lot of connected people got quite wealthy from them.

I don't know, and I doubt we'll find the answer to that question on wikileaks anytime soon.

Posted by Thing From Snowy Mountain 2010-08-03 21:10|| 2010-08-03 21:10|| Front Page Top

#13 Woah. Roasted...

By July, Krugman had lost his "Battle of the Blog." On July 23, Latrina commented, "Who is this Sean from Florida? He takes everything that [the] Professor [says] and shreds it, piece by piece. He shouldn't be allowed to post his comments on this blog since he seems to be winning all the debates. We progressives need to stick together and embellish our talking points without someone from the outside pointing out fallacies in our ideology."

I assume that's sarcasm, but it's the Times, so who knows.

Posted by tu3031 2010-08-03 21:38|| 2010-08-03 21:38|| Front Page Top

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