City slicker birds shun their country bumpkin cousins, claim scientists Telegraph
Illness, medical bills linked to nearly two-thirds of bankruptcies EurekaAlert (hat tip Mark Thoma). And many of them were insured…
United Plans Huge Jet Order Wall Street Journal. Dunno how it works in airlines, but in the paper business, Union Camp got massive discounts by contracting for paper machines (hugely expensive, trust me) during downturns, when everyone else paid top dollar to expand close to the peak.
Anything But Academic John Hussman (hat tip reader Lee S)
The fate of nations (graphs to contemplate) Animal Spirits
Road to Ruin: Online Lenders Fight Regulation American News Project
Krugman Gets His History Wrong William Greider (hat tip reader Joe C)
The Chicago School is eclipsed Brad DeLong, The Week (hat tip reader Andrew). A very good piece.
AIG Charity Grab: Bids to Claw Back Grants to Pay Bonuses New York Post (hat tip reader Diane)
How Satyam Supported PwC’s Schizophrenic Strategy To Reenter The Systems Integration Business Francine McKenna
Holes in the China Recovery Story Michael Panzner, Huffington Post
Not so Loonie BreakingViews
Big business ‘failing to disclose climate risks’ to investors Guardian
Banks should pay for their own bailouts Telegraph
Antidote du jour:
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Re Greider's piece:
While "the gipper" certainly deserves no apology, it's good to have the bipartisn nature of this financial corporatist history clarified.
While Krugman generally has his heart in the right place, he unfortunately seems completely mired in the system mindset that one HAS TO be either a democrat or a republican. So this kind of history-falsifying partisanship follows from that.
That the system itself is criminal, that "both" parties comprising the entrenched Washington system are overwhelmingly guilty, and that the Dems are only marginally less wicked than the Reps, are truths which seem to be beyond the psychological capacity of system thinkers, even relatively sane ones like Krugman.
If one looks back at the flow of news and commentary from about 1978 to the passage of Garn-St. Germain, one can find some grist for both points of view —certainly by the present day both parties, responding in some way to the same ideological currents, will have contributed mightily to the legal and regulatory landscape that have fostered our unique claims on history— but one will find it impossible not to notice a sort of acceleration, a kind of intensification of effort, something, that occured after 1980.
When comprehensive histories of this series of financial crises are finally written they will have to take into account far more than the headline changes that took place to assess the weight of responsibility for what has happened.
I can think of three sets of rules changes:
Deregulation in began takes off old banking restrictions.
New regulations allow for securitization which begins the low quality (at times predatory) lending parade.
The drastic lowering of reserve requirements and general liaise fare regulatory regime started with the Fed around 1996 (and perfected under Bush).
Who was in charge of what at any given time varied. The Democrats being slightly more interested (and I do mean slightly) in economic management of the economy to wards a better future are probably also more likely to be holding any particular smoking gun.
Gotta hand it to PwC. Snapping up Satyam, cheaply, courtesy of PwC's own useless audit of Satyam, has given them a cheap option to get back into the integration business, and if the regulators ever see through the fog, PwC just sell Satyam again, with a shiny new clean name. All thoroughly gamed.
Liked your posts as well today Yves.
This Blogger thing feels better to me
YS:
I read the "Posner Hit Piece". For my money it's garbage. Posner is the most economically literate judge ever to sit on the bench. Even if he has a Harvard JD, Law Review, etc.
Brad DeLong reminds me of Krugman, except for one thing: Krugman, I long ago concluded is a smart guy who knows exactly what he is saying. If Krugman puts out propaganda, he knows it. DeLong doesn't.
Errata: Posner is a judge on the 7th Circuit Court of Appeals. The 4th Circuit is in Virginia.
Paper machines are so expensive that paper makers don't like to expand even in good times, though this is also partly due to the time it takes for a new machine to go "on line." I can certainly remember times when supplies were pretty tight and no one was adding capacity.
To echo attempter, Greidler's piece is embarrassing. Obviously, this falls at the feet of both parties. If the party not in power at the time knew this was all so terrible (with any of the pieces of deregulation legislation), why didn't they reverse it when they were in power?
It's one thing for Krugman to try to pin the blame on Reagan with poor facts. It's a wholly more asinine thing to basically call Krugman an errant idealogue in the process of being an errant idealogue yourself.
Look at the language. "Falsify history." I'm not sure that a failure to list every single piece of bank legislation is the falsification of history, but maybe I just don't understand the English language. "Clean up their mess." As if the Republicans want to clean up this mess by "capping interest rates or restoring the usury law!"
Just embarrassing.
Both parties are beholden to the financial industry. Just read the Animal Spirits piece for confirmation.
@Brad DeLong’s essay on the eclipsing of the Chicago School is absolutely superb.
There remains little doubt that the “foundational assumption” of the Chicago School of Economics, that rational P-1 utility maximizer–“economic man”–has about as much basis in fact as the Garden of Eden. The end result of this is that neoclassical economics can now be seen for what it is–a secular religion. And likewise the Chicago School can be seen for what it really is: a cultural phenomenon, and not a scientific one, as it pretends to be.
Some years ago Samuel Huntington popularized his theory about the “clash of civilizations.” He argued that cultural differences would come to dominate international conflict. Realpolitik–ideology and economics–would take a back seat to religion and culutre in the world he prophesied:
It is my hypothesis that the fundamental source of conflict in this new world will not be primarily ideological or primarily economic. The great divisions among humankind and the dominating source of conflict will be cultural.
~
http://en.wikipedia.org/wiki/Clash_of_Civilizations
It is difficult to understate the pretensions inherent in Huntington’s theory. Through the lens of Huntingon’s “logic,” today’s conflicts are seen as struggles of science vs. religion, of free-market economic rationality vs. oppressive Islamic superstition. But with the unveiling of the true nature of neoclassical economics, the conflicts can be seen for what they truly are–battles between competing groups of religious fanatics.
This does not mean that I buy into Huntington’s theory that culture will somehow trump realpolitik. Not by a long shot. The fact is that culture and realpolitik are so inextricably interwoven that the duality he imagines is a false one.
Nor do I buy into Huntington’s placing so much emphasis on inter-civilization conflict. As Peter Turchin points out, “lethal collective violence occurring within societies/states” has, since the end of the Cold War, “killed roughly ten times as many people as interstate wars.”
http://thesciencenetwork.org/programs/beyond-belief-candles-in-the-dark/peter-turchin
Here I believe Huntington is running interference for the oligarchs. And given Huntington’s close links to the American Enterprise Institute, this should come as no surprise. J.R. Hobson, a radical British economist, theorized in 1902 that, “It has become a commonplace of history how governments use national animosities, foreign wars and the glamor of empire-making, in order to bemuse the popular mind and divert rising sentiment against domestic abuses.”
Worth a read:
The Federal Reserve System Balance Sheet: What Happened and Why it Matters; by Peter Stella; IMF Working Paper 09/120; May 1, 2009.
May 01, 2009
http://www.imf.org/external/pubs/ft/wp/2009/wp09120.pdf
I agree that the fault for what has happened lies at the door of both Democrats and Republicans. One has only to look at the roles of Rubin, Summers, and Congressional Democrats in deregulation during the Clinton Administration to know this is true. Still Greider seems intent on more than a little revisionist history of his own. He tries unconvincingly to exculpate Reagan in the S&L scandal. But Reagan was about much more than that. He shifted the tax structure to favor the already wealthy. It is really with him that we begin to see the creation of the paper economy. And his policy of trickle down economics is precisely what Bush resurrected with a vengeance. The Democrats are certainly deeply implicated in all this but most of the big explosions are associated with Republicans. Now this may not stay true. If Obama continues to pursue the lamebrained policies of Summers and Geithner, his explosion may be the biggest of them all.
Re Hussman, I don't quite understand why he thinks stocks are properly valued now if A) he is taking a defensive position and B) he is predicting 100% inflation.
(comment continued)
Which brings us back to the the civil war currently transpiring in the United States, because I do believe there is a “clash of civilizations” occurring within our borders.
The United States has dueling business cultures. One is that of the crusading warrior, historical manifestations of this being Manifest Destiny, the Monroe Doctrine, and most recenlty the Iraq and Afghanistan wars. It’s hallmarks are domination, either through conquest or intimidation, and plunder. It’s religion is neoclassical economics and its Holy See the Chicago School of Economics. Its precursor in Western civilization can be found in the 16th-century Spanish conquistador. “We came here to serve God and the king, and also to get rich,” declared Cortes’s devoted companion, Bernal Diaz del Castillo. “It was greed, cupidity, the thirst for power and fame,” J.H. Elliot wrote, “that drove forward a Pizarro or a Cortez.” Today the religion has changed from Christianity to neoclassicism, but the pattern of marauding expeditions, the capture of booty, has varied little. Nor has the the type of society that esteems such endeavors:
Any attempt to explain the extraordinary success of an enterprise undertaken by so tiny a group of men against such overwhelming superiority of numbers must necessarily take into account both the aspirations of the individual conquistador and the readiness of the society from which he came to accept their validity and esteem their achievement. The conquistador knew that he faced sudden death. But he also knew that, if he survived, he would go back rich to a world in which riches conferred rank and power.
~
The crusading warior culture was deemed innocuous by most Americans as long as its targets were external. Now that it’s virulence has been unleashed against the American people, however, it’s raising some eyebrows. As Carlos Fuentes observed, the United States is “a democracy inside and an empire outside: Dr. Jekyll and Mr. Hyde.”
Standing in counterposition to the crusading warrior tradition is the merchant, industrial or commercial tradition. To its credit stand the industrial behemoths as well as millions of independent shopkeepers and farmers. Production is its goal, either goods or services. Its religion is more diverse, a combination of classical economics, the secular religion of Thomas Jefferson along with some populist and socialist leanings.
Both the crusading warrior (perhpas no better epitomised in the phrase “eat what you kill”) and merchant traditions have roots that extend deep into American society. They constantly compete for dominance. J.H. Elliot provides a snapshot of a similar competition that occurred in 16th-century Spain:
But Columbus himself did not belong to the tradition of the Reconquista. As a Genoese, settled in Portugal and then in southern Spain, he was a representative of the Mediterranean commercial tradition, which had begun to attract Castillians during the later, Middle Ages. His purpose was to discover and exploit the riches of the East in association with a State which had conferred its protection upon him. For this enterprise he could draw upon the experience acquired by Castile in its commercial ventures and its colonization of the Canaries. But unfortunately for Columbus, Castile’s mercantile tradition was not yet sufficiently well established to challenge its military tradition with any hope of success. While he saw his task essentially in terms of the establishment of trading bases and commercial outposts, most Castilians were accustomed to ideas of a continuing military advance, the sharing-out of new lands, the distribution of booty and the conversion of infidels. Inevitably the two opposing traditions—that of the merchant and that of the warrior—came into violent conflict, and in that conflict Columbus himself was defeated and broken. It proved impossible for him to compete with the deeply engrained habits of a crusading society…
i think greider was right on. he didn't say reagan had no responsibility, only that krugman got his history wrong in blaming it all on reagan ("reagan did it").
first, i was glad to see his reference to usury laws. geoghegan's recent article in harper's stressed the importance of that change in benefiting the financial v industrial industries. if any commenter thinks this is wrong, i'd appreciate some counter references to read. here's geoghegan's harper's link:
http://www.harpers.org/archive/2009/04/0082450
second, if krugman wants to make a big deal out of garn-st. germain he should have at least mentioned how much democratic support it had:
http://thomas.loc.gov/cgi-bin/bdquery/z?d097:H.R.6267:
co-sponsors include dems chuck schumer and steny hoyer. the house version was passed 272 – 91 and the senate version passed by voice vote. the conference report was passed in both the house and senate by a voice vote — which usually means there was no significant objection (probably none, but i can't check as the cspan archives only go back to '87).
……
p.s. imo greider has done his homework on this era — for example, see his book secrets of the temple. again though, if anyone has an alternative reference or critique, i'd be very glad to know of it.
DownSouth,
Have you considered neo-classical economics from a historic perspective, in a sense it's 'reason to be' which then brings in horizontal social divisions and the changing tensions between these?
If not, this short section from Istvan Mészáros' Beyond Capital might interest you.
‘Marginal Utility’ and neo-classical Economics
selise,
Yes, Grieder is correct, particularly if deregulation and the rise of neoliberalism are seen as process rather than a string of discrete policy moments.
Then the question losses its partisan character and becomes more systemic, more related to why capitalism shifted to more overt forms of looting.
Then dynamics of a fundamental nature such as falling rate of nonfinancial profit [and attempts to offset this] can become part of the picture.
@downsouth, your comments bring on a bit of deja vu, seen your work before, know the mind, alas I concur with them.
To day, in the land of Skippy, the Rio tino-Chinalco deal is dead and China is not too happy. I would forward the thought, Xenophobia via the opposition from bonsai's camp (PM Howard's party [hes just a little W. Bush]). Funny how a front bencher (Defense minister) was thrown under the bus and resigned for conduct violations ie conflicts of interests via his brothers employment and talks in his office and now the PM Rudd under fire for the lending of a Ute/Mobile office here in Brisbane (free of charge by local car dealer), and the announcement Kiboshing of the rio tinto-chinalco deal, political skulduggery ummmm too savory eh?
To whit, the two camps you reference, having a little food fight eh eh, even tho its external?
Skippy…Your Godless Semi-Capitalistic Corporation (Chinalco)…not in this God fearing Quasi-Religious-Capitalistic Country…bloody Godless Communists hiding behind Capitalism, too funny.
ps ds=jd or the ilk of.