The Stakes (Or why they call Economics the Dismal Science)

William Greider had a column in http://www.washingtonpost.com/wp-dyn/content/article/2009/03/19/AR2009031902511_pf.html">yesterday's Washington Post. I have been reading Mr. Greider's stuff since, well, since the 80's at least. He predicted the Dems would lose big in 1994 and spelled out how the Party of the People had forgotten how to communicate to The People. He was right then and this new column is well worth your time to read. He talks about exactly what President Obama is facing and the various interest groups that are clamoring for his attention and what has changed over the last 9 months:



The fight over what happens to that bailout money is important. This is a fight worth having, even though it is also upsetting. We want vigorous debate, we want the issues explored, we want to hear from the Paul Krugman's and other economists who are trying to shout some alarms. This new President has to make some fundamental choices that will affect the entire rest of his term and how the people regard him. What side is he on? That is the fairest question that can be asked of any public official and a question that should be answered. (By all elected public officials. That seems to be a basic requirement of the job.)

I could not agree more with the last line of this article:

People are angry, but they want this president to succeed. Mobilized citizens can help him to prevail. If he goes with the other side, they will bring him down.

Differences of opinion do not mean a loss of hope. They mean a difference of opinion on something that is extraordinarily important. I want and desperately need for this President to succeed.

I just don't view it that the Power Elite Government gave bailout money to the Power Elite because it is some kind of Power Elite thing. We saw what happened when Lehman Brothers failed. Sorry, I don't want to see that again. Millions of jobs were lost on account of that event. So my view is that bailing out the big guys is actually to get the financial system first stable and then flowing in order for the little guys to be able to find and keep jobs. Now I would like to see more safety nets put into place, but there are actually little guys who DO worry about the deficit, and one has to wonder how long China will keep buying our T bills.

So I don't see the Us vs. Them. Populism is not wired into me. I view each situation individually. I thought the AIG employees were self entitled jerks, but I don't view everyone involved in those financial institutions that way. I do agree with Obama that they need to get out of New York more often though.


Edit: he goes on to talk about regulatory reform and that the Fed is not the best place for that. That is more the kind of discourse I "get".

If we try to dismantle, nationalize, takeover the huge AIGs, Citigroups, etc, we begin making alot of people we need cooperating unhappy, like foreign governments who own a big piece of us and who we trade with. We take over the banks in a long process that precludes doing anything else while we figure it out.

We've some done testing, but letting Geithner's plan play out and doing more testing, saves some of the banks. We need the people we're mad at. I'm not ready to pronounce the best they consider of bad choices wrong yet, before trying.

I'm always right on with the social critics, but how is Obama going to manage this massive business of the government, reregulate, and finance the issues we elected him on. If the markets finesse this, maybe not disclosing everything, playing some games, we still get some upside numbers and time to do other things.

What is so wrong with seeing this work, tweaking the plan, emphasizing over and over how we got here and for how long, the systemic problems, and laying off the AIG furor, and as if it's all Obama's fault. He is trying to plug in relief, some of it dissed by the lobbied Congress people; we need to understand and explain the tightrope. A lot of the bailout problem was created by Bush, as well as the rest of the problem

I'm more worried we won't get a public side to go along with a private side of health insurance, but we won't get anything if we feed the anger, and further the class war. Obama wants a quieter, more pragmatic revolution, and was the reason many of us voted for him.

Just because the media sees their job of stoking outrage, or with the more thoughtful ones who feel ethically compelled to say their truth, we still have to be more tempered.

I've spent a long life trying to rely on, involved with mobilizing citizens. However, when angry, they're not a reliable bet. Ending wars, for starters. I've seen many an effort to enrage irresponsibily, without little truths, even in defending Kerry, where the ends were to justify their means.

I, for one, am not a Krugman fan, and his ivory tower, political tin ear. His latest was all negative, all damning, all hopeless. Give me Robert Reich.

I'm really ready to leave DU, almost all blogs of very well-meaning people, because it's really unhelpful.

Sorry for the rant, and if it seems silly and ill-informed. I'm like many of us that way, I guess.

We need to talk to each other. (And hey, still, as far as I know, no one died and made me Queen of the Freakin Universe. I am trying to figure this all out like everyone else. Apologies, under such circumstances, are not needed.)

None of us know exactly what is going on. I think that the national government has leaned too far to the side of Big Business over the last near 30 years or more. That is where, intellectually and ideologically, I come from. It is a part of my belief structure. I don't see the current struggle as a new class war, I see it as the next chapter in one that has been going on for a long time.

We exchange ideas in here because we want to test out our thinking with people we respect. The exchange of ideas is healthy. I like Paul Krugman, but I see Krugman and Reich as pretty much in agreement on this. (Reich has this amazing slide show that shows the enormous gulf in incomes between the upper 5% and the rest of Americans. It's an eye-opener.)

And I don't trust the bankers. I think they did their part to get us into this mess and I see no contrition from them. And yes, I want to see that pain and contrition. I honestly do.

I am Gen X, grew up under the Reagan Revolution, where it seemed things got much better -- no gas lines, out of a recession, no hostages taken etc. My main problem with the GOP back then was their foreign policy a la Iran/Contra and so forth. I also thought we should help the least among us, and not put them down.

But the structural stuff you are talking about, I just am not there. Well, maybe I am there now (because of the foolish deregulation of commodities markets and Finance), but it is relatively new.

Oh, and one of the main economic reasons I was opposed to the GOP was because they always ran up deficits. I just think that apart from recessions where deficit spending is needed, I think the federal government should balance its budget. So ... we need to either cut spending or raise taxes or a combination of the two. Entitlements represent a huge proportion of the budget, and to say that we should take a look at them is not a betrayal of working people. Maybe we will end up raising the wealthy's tax on SS. I don't know. But it should be on the table. And by the way, John Kerry has always stood for fiscal responsibility, and it was part of the reason I liked him.

Paul Krugman was wrong with his discussion of social security acting like the shortfall to come was no big deal -- yes it is, as is the shortfall in Medicare.

I'm trying hard to see where the anger and dissing people who we owe and need will get us anywhere (like Europe), as you said. Maybe that's too big picture for many wanting their pound of flesh, and those always wanting the revolution that never happens.

Obama is in a tough place for someone who wants to be as progressive as possible, and thinks it's still affordable by the unpopular raising taxes. He is a fiscal discipline kinda guy, with that personal history that informs, as you say, leading us through a crisis needing stimulus spending and taxes.

Since the GOP always runs up debts and we clean it up, rather than anything about health care, "they kick the can down the road" and the cycle continues.

(our JFK!)

We don't have tools to personally rebound. I'm hoping the regulations will help, but I'm not naive to think the selfishness will end with some grand ephiphany on the mount.

My hubby has been covering business news for four decades, as long as I've known him, and he's the first to be wary and distrustful. Many in regional newspapers, winning awards, so on the side of the little guy back in '81 with a long series "Wall Street Casino: Gambling with Someone Else's Money." Now happy to be employed at 67 doing just the facts on public/private partnerships, etc, with Latin American infrastructure (or how they're all be stopping). Look for China and more coal industry.

I'm feeling that Obama wants to protect and curb the practices more than those in Congress, which didn't like the bankruptcy relief court, or taxing he wealthier for $300+ billion for health care, and more. Campaign dollars at work.

I'm frustrated not that Obama doesn't get it, but what he can't do anything about it. I also wish people knew about constructive anger, as he said.

I am still smarting by John Kerry's inability to understand that Hedge Fund managers should pay the same tax rate as the rest of us. Meanwhile, Obama has already proposed that the Hedge Fund Managers have their taxes raised (it is currently 15%). And we don't even know how the Senator will vote on it given his very wrong stance on it before.

Also, will Senator Kerry be voting for the 90% tax hike on AIG bonuses? I think he should vote no, because it's a bad, possibly unconstitutional bill. I am far more offended by the Hedge Fund managers paying so little taxes than I am about the AIG bonuses. It is under the radar now, but the good Senator from Mass. should be warned that the populist fury will glomb onto whatever the media decides to play up next.

is not unconstitutional.

Is this good or bad? Personally, unless Obama has another idea to recoup this money, he may be heading for trouble not supporting it.


"Obama implies rejection of House bonus tax plan"

http://www.google.com/hostednews/ap/article/ALeqM5jUtOqjn-Gmqh0fIoTp_GZIOAVVEwD973C63G0

Of course, as always consider the media source.

Also, I think, we need to play better ball with Wall Street if they are to be in partnership over toxic assets. Like holding us hostage, as Obama has said.

More than Stockholm Syndrome, I don't think we have a choice.

We need to find better ways to get satisfaction over this. I do think there is criminality with bigger fish we need to investigate. Just like other world compromising Bush disasters.

did say he'd have to look at it closely.

The law is clearly Constitutional.

Also, the "shaming" is working. I think we had a discussion about public shaming maybe a year ago, when there was a public shaming in Georgia of rich people who used unbelievable amounts of water (one guy used 400K gallons of water in one month). Some here expressed discomfort with shaming. I am for it in extreme circumstances. Bottom line, the water abusers cleaned up their act. It worked. Now with the bonuses, Cuomo is doing a threat of public shaming and now a bunch of people have given their full bonus back.

I would prefer to solve the problem that way, then pass a weird law that targets a small group of people for taxation. However, I love that a bunch of Republicans voted for a 90% tax in the House. That is rich.

distrustful of doing business with them. Seeing 'mistreatment' of Liddy, faux outrage by Congress who should have known better in the first place. We should have understood about the bonuses, but the culture has been changing before our eyes, about contracts signed onto last Fall. Retroactive anger?

We can say we don't trust them, don't like them, they need a spiritual overhaul, but we need them to invest in the toxic assets, markets-with regulations.

Just because the media found something to pin the administration on, something they understand about the arcane economy, stoking it, are we saying that we need to tax something that sends a bad signal about law, tax as punishment? That may be a convenient way out, but I still think true. Getting back bonuses another way without rage is not punitive enough? Preventing more bad bonuses not enough?

It's the whole enchilada, the excesses of Cassano, is what I would like laid out and maybe decided if illegal. A lot of it isn't, unfortunately.

That is above my pay scale to make conclusions on, but I just don't like the way the bill was hastily put together, and it targeting a small group of people. It makes me queasy.

The future is on the line.

Krugman is laying on the despair pretty thick.

I am now hearing that the President is being pressured to drop health care reform from his agenda. I do not agree with this bank bailout, I think it is too much risk exposure for tax payers with almost no way for the taxpayers to get their money back. If this President drops energy and environmental concerns and health care and has as his major achievement a bailout of the banks, then my regard for him drops accordingly.

And I think that the investment tax should top out at the highest rates, as other income does. Period. This is what is needed and I think this tax reform is long overdue.

In a democracy, the President serves the people. The people are not here to serve the President. He gets the respect and accolades he has earned by his advocacy for the people. That is the democratic way. Dissent is an important part of the process. It is how citizens interact with their government. I feel that, should this bailout and loans, which might end up totaling $8 trillion dollars, be the prime focus of this Admin, then I will feel as though the voice of the people has not been given it's due.

the thing is that the drumbeat on the left is that the plan sucks and nationalization is the only solution. I don't believe the solution is all that clear. There are finally more objective analyses of the plan coming from its critics.

Here is an interesting comparison.

Nationalization is the best way to clean up the banks, but I'm not convinced that people know how it would work or how big the resulting losses could be.

And he wrote an http://www.dailykos.com/storyonly/2009/3/23/712012/-Sigh...-the-biggest-problem-is-not-(toxic)-bank-assets">excellent diary today that lays out the real problem. The "toxic assets" of the banks are not the real problem. I think the real problem is paying off the trillions in insurance made against those mortgage backed securities failing. And there isn't enough money in the world to pay off those debts.

I further agree with Jerome that the insurance on the cds bets made here should be voided. This is the real problem. The diddling around with the toxic assets won't help anything. The drain of money from working people and taxpayers to a tiny elite will accelerate and everyone loses until we address this problem.

There is a tiny group of people who made this problem and who are profiting from it even now. Stop that from happening. Cancel these things before they cancel out everything else. I think the bank bailout today is inadequate and will harm the ability to move forward on all the other things Obama was elected to do. I honestly do. I agree with Paul Krugman and with Jerome here. I do not see why we continue to spend our precious dollars on those who created this crisis. Let them, for a change, eat cake.

that it's still not clear. Here is a plan that attempts to nationalize not based on toxic assets. It's complex, potentially costly and uncertain.

Krugman just linked to a piece that he says matches his example. I went to the link and one of the comments there struck me:



It would help if those proposing nationalization outline a plan with numbers as realistic as they can get them to show the feasibility of nationalizing large institutions like Citi.

http://krugman.blogs.nytimes.com/2009/03/23/geithner-plan-arithmetic/">Geithner plan arithmetic

anymore because they are bought up by Hedge Fund managers, doesn't that mean that the CDS insurance does NOT need to kick in? After all, the credit default swap is an insurance paid against CDO's IN CASE they fail. If that problem is fixed, why would AIG or any other CDS issuar have to pay?

That New York Times reporter said they are working on that, and when the process is done, the CDS's don't need to be paid anymore. No "hurricane", no payout.

to work on health care reform and is expected to stay about two weeks.

http://www.politico.com/news/stories/0309/20373.html

I am less liberal/lefty/whatever you want to call it, but I demand our health care system be reformed.

Krugman is really no help in this regard, too. He is screaming about the bank plan, well, then when he screams about health care, no one will listen.

going in, I read. Frustrating the sniping power he has.

we had Lehman Brothers. And my question to those opposed to bailing out the banks: can you stomach another financial panic and millions of more jobs lost in the name of economic justice, fairness, and all that good stuff? I simply cannot.

I don't see why Obama has to drop his agenda. I hope your sources are wrong.

One of the problems that has bothered me from the beginning, but for which I was (and still am) ready to give Obama the benefit of the doubt, is that it seems alternate Democrats views are not represented in the government circles, and therefore these views will not be heard. This may also be why they are getting more strident than some think is necessary: they need to be heard. It is the case in foreign policy. I am not sure I agree with Chaz Freeman in half of what he said, but it is clear he was an alternate voice that needed to be heard. Same thing with finances. Most of the voices that are here have been trained by Bob Rubin. Where are the voices of Bob Reich, or of those who predicted years ago that this fiasco would happen. Nowhere to be heard. The people in the financial team represent the view of the banks. Who represent ours?

I think these are these ideas, in addition to the fact that the moderates continue to be way too important and too resolute to do very little, that makes me worry.

We need this team to succeed, but how is also important. A bailout as it stands now, with the same people who failed being able to continue operating these banks with nearly no strings attached is hard to swallow. Of course, we cannot allow them to fail because there are way too many people who would lose their jobs and who are not responsible from the current mess. However, right now, is it not what is happening: those who screwed up are still in place, and those at the bottom of the scale are being fired in order to lower the costs?

This is why I am so queazy about the bailout: we need something, but do we need this?

with so many unknowns, not really wanting to dismantle capitalism and no choice anyway. Seems like every suggestion has downsides that particular view wants to de-emphasize.

Academics aren't always good measures of the possible and keeping a government working, but I'm more than disheartened, not sure whether personal views aren't clouding real opportunity with Geithner's plan, should it reaally work to some degree. I know the academics will not ind it having worked, because originally against. There's a vanity there.

I know Obama wants a new authority now to be able to intervene in AIGs when risk perceived, more than in just simple banks, but what were the limits before?

I'm willing to give a bad situation time, although every NYT negative story about the bank crisis, probably Krugman inflicted, when I know they prop up those interests otherwise (Bloomberg), is not helping and is selective criticism, considering pass given Bush, etc., for a very long time.

True that Baucus will pass on the public portion of health care, and defer to Grassley, letting him take the heat for "bi-partisan" health care? How do we get public, even if not single-payer, altogether and impossible.

Feel our crisis and Congress are badly and conveniently crippling our possibilities.

http://www.portfolio.com/business-news/portfolio/2009/03/23/TARP-Helps-Banks-for-Rich?page=2#page=2

Okay, these MF banks need to give the MF money back ASAP.

This is not good:

http://online.wsj.com/article/SB123785266231219605.html

That is who is getting the money. The taxpayers are getting the shaft.

Some of it is for stabilization.

I think the problem is there really is "Good bailout money" and "Bad bailout money", and they are being conflated. I didn't know that Northern Trust was a bank for the rich. Clearly, they should not have been given anything -- remember, though, that that was on Paulson's watch.

There are no real guidelines about how this money will be used. They are just giving the money to those who are responsible for this mess in the first place.

At the same time, there is no money to help those who have lost their job or do not have healthcare.

extension of unemployment and COBRA benefits for those out of work. Then, there is the help for struggling homeowners which indirectly helps other homeowners in a neighborhood maintain the current value of their homes. However, these are just small helping hands. As I understand it, we have to take care of the market first in order for the consumer to get some relief, however,I agree their needs to be more accountability on this taxpayer money being handed out.

if one can believe what is said in the WSJ.

http://blogs.ft.com/economistsforum/2009/03/treasury-rewards-waiting/



Warning: this is a fairly technical discussion of risk, fear vs. greed, and how the market behaves.



It ends:



I feel like there are two arguments going on in this discussion threader:

1. Whether the plan will work
2. Whether there should be a plan

For me, it is inconceivable not to go forward with Bailout Hell. We do not have a choice. What is now a recession will turn into a depression if all of these financial institutions are allowed to fail. And I just feel like Krugman and friends are ideologically opposed to the plan, therefore being biased as to whether it will work or not. I like the above author's views, which is that academics and the finance people need to have a more mature conversation.

Krugman vs. Anti-Krugman is kind of interesting (Mass brought it up as a bizarre phenomenon that emerged on Sunday). I actually think it is not really about Krugman, the man, but more the ideologues vs. the pragmatists. I am on the pragmatist side. And seriously, it would be political suicide for Obama to drop health care reform. I have no doubt there are mealy mouthed Democratic Establishment types telling him he can't do it; but Obama is a pretty politically savvy guy. He will tell them where to go in a charming manner, I am sure.

http://www.pbs.org/moyers/journal/03272009/watch2.html

as well as an essay by Simon Johnson and a few graphs that explains the origins of the crisis, if you have not seen it earlier.

http://www.theatlantic.com/doc/200905/imf-advice (It is long, but really worth reading)

As well as these two diagrams that show to what point the finance industry became way too big and show the need to structural reforms as well as cosmetic ones.