Trying to Understand the Great Depression and the Recent Recession

I spent a couple hours reading articles in the “Wilson Quarterly” looking back at the Great Depression and comparing it to our current condition. Economists still disagree about what caused the Depression and how it ended, but most of us have a kind of simple mental model, based mostly on … nothing. The one I learned might be called a “hangover model”. We lived too fast and too furiously in the 1920s and woke up with the headache like after a night of partying. This model is definitely not true. But read for yourselves some of the others.

This is a very long post. It would be even longer if I had not tried to except the articles. You can go to the originals via the links.

The bottom line I took from these articles is that we suffered a systemic breakdown, caused by a combination of our government and private institutions and changing conditions.

Greed is always present, but greed did not provoke the collapse. Nor did lack of regulation. The crisis happened in the midst of regulations, some of which gave incentives to destructive behavior. Rather, it was more like an engine running out of gas.

This is not good news. It would be a lot better if we could identify the bad guys or the bad actions and just ban them. This is simple minded.

The ideas and institutions that served us for a longer time than most Americans have been alive, just don't work as they used to. We have yet to come up with a new workable system. There is nothing to "go back" to. We have to go forward. But how?

Revisiting the Great Depression
There is no precise definition of a depression; it's a term of art. Generally speaking, it's a broad economic collapse that produces high unemployment from which there is no easy and obvious escape. The crucial difference between recession and depression is that recoveries from run-of-the-mill recessions occur fairly rapidly in response to automatic market correctives and standard government policies ... A depression occurs when these mechanisms don't work, or don't work quickly. The pivotal question becomes: Why?

One answer is that powerful historical, social, and political changes overwhelm the normal market and policy responses.
Then, the forces suffocating economies stemmed from a jarring historical rupture: the end of the gold standard. In the late 1920s and early '30s, countries clung to the gold standard--backing paper currencies with gold reserves--as a defense against hyperinflation. ... But defending the gold standard caused country after country to suffer banking runs and currency crises. ...By 1936, more than two dozen countries had reluctantly jettisoned gold. Once this happened, expansion generally resumed.

Something similar is happening today, with the welfare state--the social safety net of wealthy democracies--playing gold's destructive role. In Europe, government spending is routinely 40 percent or more of national income. In the United States, it exceeds a third. Like the gold standard 80 years ago, these protections command broad support. They mediate between impersonal market forces and widely shared norms of fairness. The trouble is that many countries can no longer afford their costly welfare states. ... The more austerity spreads, the greater the danger it will feed on itself. What may make sense for one country is disastrous for many--just as in the 1930s.

The exhaustion of economics is another parallel between our time and the Depression. Then, as now, economists didn't predict the crisis and weren't able to engineer recovery. ... Today's orthodoxy is Keynesianism (after John Maynard Keynes), and governments responded to the 2007-09 financial crisis with its textbook remedies.
...We're still a long way from a second Great Depression, even if such an economic disaster is conceivable. Compared to what happened in the 1930s, the present distress--here and abroad--is tame.
Still, the economy's present turmoil resembles the Great Depression more than anything since. ... Europe is sinking into recession. In the United States, unemployment stayed above nine percent for 21 consecutive months, and then another seven after a short period slightly below that level.
The Depression is usually dated from late 1929 to the eve of World War II. But people didn't immediately recognize that they had entered uncharted economic waters. ... Unemployment, for example, reached nearly 12 percent in the recession year of 1921 and was 8.9 percent in 1930. The riddle is: What caused the Depression to defy history? Over the years, many theories have been floated and discredited.

Chief among the fallen is the stock market crash of 1929. True, it was terrifying ... But steep market declines, before and since, have occurred without causing a depression ... Moreover, stocks rebounded ... By March 1930, the Dow had recovered 74 percent from their December level. Stocks later fell, but that was a consequence of the Depression, not the cause.

Another familiar villain is the Smoot-Hawley tariff. ... The tariff's direct effects were modest, and its timing also argues against its significance. .... Trade did collapse in the Depression, but (again) that was consequence, not cause.

Finally, there's Herbert Hoover. The anti-Hoover indictment is that he passively let the Depression deepen and, by trying to balance the budget, made it worse. This argument is unfair and inaccurate. ... In three years, he nearly doubled federal public works spending and pushed the states to do likewise ... the federal budget still ran a large deficit: four percent of GDP. "It would be hard to find an economic historian to argue that fiscal [budgetary] tightness was a significant factor in worsening the Great Depression," writes Timothy Taylor, managing editor of The Journal of Economic Perspectives.

None of these familiar scapegoats solve the puzzle: Why did the economy continue getting worse? Some other force or forces must have been responsible. Scholarship on this question has proceeded in spasms.

In 1933, Irving Fisher of Yale, then one of the nation's most prominent economists, published an article titled "The Debt-Deflation Theory of Great Depressions." ... Fisher's analysis explains why modern economists dread deflation. ... didn't explain precisely what caused the 1930s' deep deflation.

In 1936, Keynes provided his answer in The General Theory of Employment, Interest, and Money. The culprit was insufficient "effective demand"-- what economists now call "aggregate demand."
But his argument, like Fisher's, was abstract. It lacked a detailed explanation of the Depression itself. Since then, scholars have scoured the historical record to obtain a fuller answer. A breakthrough occurred in 1963 with the publication of A Monetary History of the United States, 1867-1960 by Milton Friedman (a subsequent Nobel Prize winner) and Anna Jacobson Schwartz. Friedman and Schwartz argued that the Federal Reserve caused the Depression by failing to rescue the banking system. ...The irony was that Congress created the Fed in 1913 to backstop the banking system.

What would have been a normal, if severe, recession became a depression. Friedman and Schwartz blamed the Fed's passivity ... the supply of money and credit shrank.
Not so, argued the economic historian Charles Kindleberger in his 1973 book The World in Depression, 1929-1939. The collapse was international and reflected the inability of a Britain weakened by World War I to continue to stabilize the world economy. Among other things, Kindleberger wrote, Britain's leadership role had required it (a) to act as "lender of last resort" to stem banking crises, (b) to keep its markets open to sustain trade, and (c) to maintain stable exchange rates. After the war, Britain couldn't perform these tasks.
The gold standard transmitted the breakdown around the globe, argue economic historians Barry Eichengreen and Peter Temin ...Gold's straitjacket was its supposed virtue. By eliminating inflation and currency fluctuations, it reduced uncertainty and encouraged commerce. This was the theory and belief.

After World War I, countries sought to restore the gold standard, which had been widely suspended during the fighting. Because the reliance on gold had delivered prosperity, this was understandable. But there were daunting problems: Prices had exploded during the war; gold was relatively scarce; exchange rates had shifted; countries were saddled with large debts. ... Skewed exchange rates meant that two countries, the United States and France, ran large trade surpluses and accumulated disproportionately large gold stocks. By 1930, they owned nearly 60 percent of the world's gold.

The resulting gold scarcity--for most countries--created a fatal interdependence. If one country raised interest rates, it might drain gold from others.
Germany's Reichsbank, the Bank of England, the Fed, and other central state financial institutions were handcuffed in their efforts to aid their countries' banks. The Depression weakened banks by increasing their customers' loan defaults; loan losses then made the banks more vulnerable to depositor runs. But a central bank couldn't inject too much money and credit into the system without raising doubts about its country's commitment to gold.
Gold's oppressive consequences ultimately caused countries to abandon it. Austria, Germany, and Britain did so in 1931. ... By 1937, world manufacturing output was 71 percent above its 1932 level and had exceeded its 1929 level.

Why was the Depression so deep and long? ... government economic policies perversely reinforced the original slump. Banks were not rescued. Defaults and bankruptcies fed deflation. Unemployment spiraled up, production down. Prevailing economic doctrine was suicidal. The good news, it's said, is that we understand what happened and can prevent a repeat.

Unfortunately, these reassurances omit an obvious and more discouraging lesson: The Depression couldn't end until people changed their beliefs and behavior ... Just as the gold standard amplified and transmitted the effects of the Depression, so the modern welfare state is magnifying the effects of the recession.
Casting the welfare state in this role will strike many as outrageous. After all, the welfare state--what Americans blandly call "social spending"--didn't cause the 2007-09 financial crisis. This dubious distinction belongs to the huge credit bubble that formed in the United States and elsewhere, symbolized by inflated real estate prices and large losses on mortgage-related securities. But neither did the gold standard directly cause the 1929 stock market crash. ... But once the slump started, the gold standard spread and perpetuated it. Today, the weakened welfare state is perpetuating and spreading the slump.

What has brought the welfare state to grief is not an excess of compassion, but an excess of debt...Most spending represented income transfers. Even in the United States, with its sizable military budget, "payments for individuals" (which means entitlements such as Social Security and Medicare) amounted to two-thirds of federal spending in 2010, up from a quarter in 1960.

But this system required favorable economics and demographics--and both have moved adversely. A younger population was needed to lighten the burden of supporting the old, the largest claimants of benefits. Rapid economic growth was needed to generate the tax revenues to pay for benefits. Indeed, the great expansion of benefits started in the 1950s and '60s, when annual economic growth in Europe and the United States averaged about four percent or more, and the expectation was that this would continue indefinitely.
The means of escape from these unhappy trends was to borrow.
... welfare states became an engine of international austerity. Countries' choices were constricted. To maintain existing levels of spending, they needed to borrow. But lenders demanded higher interest rates, and to keep these down, governments had to resort to austerity, which meant cutting social programs and raising taxes. ... almost all advanced countries, including the United States, are potentially subject to it. Countries embrace austerity to keep their credit worthiness. Or they embrace it because they lose their credit worthiness.

What this means is that governments, against their will, are being forced to reconsider some basic post-World War II premises ... much as countries in the 1930s were forced to reconsider economic premises based on the gold standard. Now as then, the process is unwelcome, painful, and agonizingly slow.
The ultimate danger is that the welfare state will go into a death spiral. ... As political leaders grapple with these problems, they are constantly reacting to events--doing too little too late.
Governments are losing control over their economic fates, because high debt also undermines standard Keynesian anti-recessionary tools, a.k.a. "stimulus," spending more and taxing less in times of economic weakness. The prospect of more debt simply sends interest rates up, nullifying some or all of any "stimulus" and, for some countries, closing access to private credit markets. It's true that some major debtor countries, notably the United States and Germany, have so far escaped this squeeze. Their interest rates (at this writing) remain low, about two percent on 10-year bonds. But there's no ironclad reason why these countries should remain immune forever..

So it's not preposterous to compare the gold standard then with the welfare state now. In both cases, a framework is imposed that impedes recovery from what might otherwise be a recognizable recession. The obstacles lie in institutions and beliefs that are deeply woven into the social, political, and intellectual fabric of societies. It takes time to adjust--and sometimes adjustment doesn't happen at all ...

This does not mean we are condemned to a second Great Depression. The messy process of grappling with overcommitted government may lead to slow growth, long recessions, or stagnation--but not the dramatic collapse of the 1930s. China, India, Brazil, and other developing countries, representing about half of the world economy, don't face the dilemmas of mature welfare states. Their economic growth may provide a safety net for the "old world" of Europe, North America, and Japan. But here, too, there are cautionary comparisons. China's rise and America's problems have fragmented economic power. Cooperation is strained. The analogies with Britain's post-World War I weakness and the paralyzing rancor between Germany and France are obvious. Another parallel with the 1930s is the euro, which, as the gold standard once did, has created a straitjacket that makes recovery harder.

All of these challenges suggest that a second depression or some prolonged period of economic disappointment and hardship is no longer implausible, as it seemed for most of the past half-century. The mastery of economic activity we thought we had achieved--not in the sense that we could eliminate all business cycles or financial panics, but in the more limited way that we could avoid pervasive instability--can no longer be taken for granted. The mistake, popularized largely by economists, was to believe that regulation of the economy could be derived from theory and converted into practical precepts for policy. The reality is that economic life is not solely described or dictated by rhythms suggested by economic models. It moves in response to institutions, technologies, beliefs, and cultures that follow their own logic, sometimes with completely unexpected, mystifying, and terrifying consequences.


Great Recession or Mini-Depression?
by Robert Z. Aliber
Words may be failing economists and others who characterize the economic downturn that began in 2008 as "the Great Recession." "Mini-Depression" may be more like it.

The recession that began in January 2008 was more severe than any of the other 10 recessions the United States has endured since World War II. The decline in the nation's gross domestic product (GDP) surpassed previous records and the percentage of American workers without jobs nearly did so. And the expansion of the U.S. economy since the recession officially ended in June 2009 has been sluggish, challenging the economists' adage "The sharper the decline, the quicker the recovery."
Most recessions since World War II have come about because the Federal Reserve curbed the growth of credit to restrain inflationary pressures..

Once the Fed became convinced that the inflation threat had abated, it would reverse its credit policies: The supply of credit would expand, and developers would produce more homes, knowing that the underlying demand was still strong.

The recession of 1981-82 was especially severe because the Fed was determined to stamp out the expectations of accelerating inflation that had developed in the second half of the 1970s.
The contractive monetary policy adopted by Fed chairman Paul Volcker in October 1979 led to the highest interest rates since the Fed was created in 1913--short-term rates climbed to more than 20 percent and long-term rates to more than 10 percent. Unemployment rose above 10 percent.
The distinctive feature of the most recent recession was the massive failure of leading financial firms...
Countrywide and Washington Mutual had been extremely aggressive in extending mortgage credit after 2000 as each battled to become the nation's dominant mortgage lender. They weakened their credit standards and became inventive at developing new kinds of mortgage loans that reduced the interest payments that borrowers were required to pay in the first few years, allowing home buyers to take on debts that were large--much too large--relative to their incomes.

Easy credit contributed to the surge in real estate prices, which climbed by 10 percent annually at the national level between 2002 and 2006 and by 20 percent a year in the nation's 16 most rapidly growing states, in the South and West. Two government-sponsored lenders, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which between them indirectly provided half of the nation's mortgage money, were aggressive buyers of mortgages from Countrywide and Washington Mutual. Fannie Mae and Freddie Mac were able to sell their bonds to investors because some foreign governments and their sovereign wealth funds were of the impression that these bonds were guaranteed by the U.S. Treasury.

Eventually, rational exuberance morphed into irrational exuberance, and Americans started buying homes and apartments simply because prices were increasing and they saw an exceptional opportunity for profit. And prices were increasing mainly because Americans were buying property.
The decline in real estate prices that started at the end of 2006 was not prompted by any Fed action but by a slackening of foreign demand for Fannie Mae and Freddie Mac bonds.
The decline in real estate prices in the first few months of 2007 was gradual. The true dimensions of the crisis became clearer in August, when Countrywide suddenly experienced a "run"; it was no longer able to roll over the maturing short-term loans it had been using to underwrite its aggressive funding of new mortgages. Other lenders stumbled, too.
The hangover from the property price bubble is one major cause of the sluggishness of the economic expansion ...

The current recovery has also been slowed by the $300 billion increase in the nation's trade deficit since 2008. Each increase of $1 billion in the trade deficit--either because Americans are spending more on foreign goods or foreigners are spending less on U.S. goods--represents a loss of 12,500 American manufacturing jobs. ...

What remains distinctive about the recession of 2008-09 and its continuing aftermath is the decline in home prices.

In both the 1920s and the mid-2000s, economic euphoria was pervasive as bubbles in asset prices led to surges in spending--and those spending increases further inflated the bubbles that had fostered them in the first place. Then asset prices imploded, household wealth shrank, and banks suffered large losses when borrowers were unable to repay their loans.

The recession of 2008-09 and its aftermath more closely resemble the Great Depression than any of the other post-World War II recessions. Indeed, this episode might aptly be called the Mini-Depression of 2008-09.
The 2008 recession did not cascade into another depression because the U.S. Treasury and the Federal Reserve provided abundant funds to recapitalize the banks and limit their distress selling of assets. This intervention--which began in September 2008--sharply reduced the likelihood that a liquidity crisis would morph into a solvency crisis.
Even this intervention would have been unnecessary had the Fed and government bank regulators recognized the emerging bubble in property prices in 2004 and 2005 and used their authority to curtail the risky and pernicious credit practices of Countrywide, Washington Mutual, Fannie Mae, Freddie Mac, and other financial institutions. ... Yet when real estate prices began to fall and the tightening of credit led to the collapse of big lenders, it became clear that neither the Federal Reserve nor the U.S. Treasury had contingency plans to deal with runs on banks and other financial firms. A few ounces of prevention would have yielded a ton of cure.

The Debt Bomb
by Louis Hyman

When wages stagnate and inequality rises, Americans try to borrow their way toward the American dream. Inevitably, the bubble bursts. But we can learn from the lessons of 1929.
In the last hundred years, economic inequality in America has peaked twice: in 1928 and in 2007. It is no coincidence that our periods of greatest inequality have coincided with excessive lending
In the decades between those two moments in our socioeconomic history lies the great era of post-World War II prosperity, and here too there are lessons to be learned. That prosperity rested to a large extent on policies the federal government put in place in response to the crash of 1929 and the Great Depression. Yet those same policies laid the foundation for today's financial crisis, as the New Deal order dissolved and some of its innovations were turned to new ends. It would be almost comforting to embrace the tales journalists and others now spin that place all culpability at the feet of bankers of vast cunning and greed, or at the other end of the spectrum, with big government, but the true causes are
Launched in 1933, the Home Owners Loan Corporation (HOLC) stopped the free fall in house prices by swapping government bonds for past due mortgages held by lenders, averting massive numbers of foreclosures and steadying the nation's housing markets. (Like several other New Deal reforms, the agency had its origins in President Herbert Hoover's 1931 White House Conference on Home Building and Home Ownership.) But the real financial innovations were the creation of the Federal Housing Administration (FHA) in 1934 and the Federal National Mortgage Association (Fannie Mae) in 1938.
The FHA also made it possible to offer Americans much longer mortgages of 20 and (later) 30 years, which reduced the size of monthly payments and allowed borrowers to pay off both interest and principal. That step made home loans more affordable and eliminated the need for constant refinancing that had made balloon mortgages so dangerous.

Fannie Mae's job was to fund these new mortgages. Whereas in the 1920s banks had to seek out investors to buy their participation certificates, under the new system they could simply sell mortgages they made to Fannie Mae, which would then resell them to insurance companies and other large institutional investors.
The new mortgage system inaugurated a long period of stability. The suburbs, where the American dream would flourish, were built on its loans. But the new system had another effect: It further legitimated borrowing of all kinds. Indeed, the suburban housing supported by the FHA all but required that Americans acquire that other great generator of debt: the automobile. New Deal-era plans for urban housing that would have produced a landscape ripe for mass transit were scrapped.
Living in mortgaged homes, driving in financed cars, postwar Americans relaxed at new shopping centers. They borrowed more but also earned more, which meant that while the habit of borrowing grew, debt as a share of income remained relatively stable.
The origins of the shift from a relatively egalitarian manufacturing economy to an unequal financial economy can be seen in the midst of this prosperity. During the 1960s, however, retailers confronted a dilemma.
All of these developments during America's flush postwar years helped breed new financial attitudes. The fullest expression of the era's optimism was the resurrection of 1920s-style mortgage finance, albeit in a new form. In 1970, Fannie Mae began bundling large numbers of mortgages into a kind of security that could be easily traded in markets around the world, and which had the implicit guarantee of the U.S. government. The mortgage-backed security was first proposed in the Fair Housing Act of 1968 as a mechanism to help low-income families buy housing. ... Since FHA lending had buoyed the fortunes of the middle class in the postwar era, surely enabling more borrowing to help less affluent people couldn't be a bad idea, policymakers reasoned.

The timing was unfortunate. Slowly, inexorably, the world that supported Americans' postwar assumptions began falling apart in the 1970s as the international economic order shifted from American-dominated recovery back to a more normal state of global competition. The economic dislocations of the 1970s--inflation and deindustrialization--stemmed fundamentally from this return to normalcy. The stable growth of the postwar period that had rewarded budgeting and borrowing disappeared.
Turning the great centers of American manufacturing into financial companies appalled many chief executive officers who prided themselves on making something. In a joint interview in 1995, Fortune magazine asked Welch and Roberto Goizueta, then the CEO of Coca-Cola, to look ahead. For Welch, the answer was obvious. Financial services would become a bigger share of GE's business. Goizueta demurred, saying, "I would never find excitement in the financial services. I would like to produce something that I could touch."
As finance gained in strength and in its importance to the American economy, bankers increasingly complained that their creativity was being hampered by those pesky regulations that had safeguarded the economy since the 1930s. Gradually many of the old strictures were shaken off, a process that culminated in the repeal in 1999 of the Glass-Steagall Banking Act of 1933, which had cordoned off banking from insurance. Like the repeal of Glass-Steagall, many financial "innovations" of the 1970s and '80s actually involved the revival of financial instruments or practices that had existed in the 1920s and earlier. But one was stunningly new.

In 1983, the Federal Home Loan Mortgage Corporation (Freddie Mac), which the federal government had created in 1970, and two private firms launched an otherworldly financial instrument called the collateralized mortgage obligation (CMO). While the mortgage-backed security and its ancestor, the participation certificate, had paid all investors in the same way, the CMO was structured to allow the creation of many different kinds of securities out of a bundle of mortgages. It did so by slicing the interest and principal payments the mortgages generated into many tranches. In CMOs there was something for every kind of buyer, from long-term investors to speculators guessing at tomorrow's interest rates.

There was a practical public motive behind the creation of the CMO. As interest rates rose in the late 1970s, American savings and loan associations were thrown into crisis because depositors began demanding higher interest on their accounts than these financial institutions could earn from making mortgage loans. As a result, the S&Ls were collapsing. In this dire situation, the CMO worked like magic. Freddie Mac bought vast numbers of mortgages from the S&Ls and repackaged them. New money flowed in. By 1985, pension funds were investing more than $1 trillion a year in American mortgage debt. Oil money from the Middle East financed housing developments in the Midwest. Global finance and American finance aligned to produce a new global economy of debt.

The CMO story underscores an important lesson about the origins of the financial crisis. Contrary to what many politicians and pundits have claimed, the upsurge of securitization was not simply a product of "deregulation." Regulations may have changed to promote a certain kind of financial system, but at no point did the state abandon the market to itself. It was the interplay of public and private purposes and mechanisms--Freddie Mac, S&Ls, mortgage-backed securities--that made these new sources of capital possible.

By the late 1990s, the volume of uncollectable credit card loans was rising. But by sequestering the greatest risk of defaults into high-risk/high-return tranches, much as Freddie Mac had disaggregated mortgages, issuers could still gain a good rating for their securities. And despite the increase in defaults, repayments were rising. ...The entire credit system leaned on the different kinds of debt, all securitized, that ultimately rested on one support: rising house prices.

Then, in the autumn of 2006, the impossible happened: Housing prices began to fall. ... The global credit market rested on the same assumption that guided American home buyers: Prices would always go up. Foreclosures would be randomly distributed, as the statistical models assumed. Yet as those models, and the companies that had created them, began to fail, a shudder ran through global capitalism. Lehman Brothers, the venerable investment bank, held a massive exposure to subprime mortgage-backed securities, a position that contributed to its demise in 2008. The insurance giant AIG watched its entire business collapse as it was required to make good on its mortgage bond guarantees. The crisis began in subprime mortgages, but it quickly spread throughout the economy, as complex financial instruments betrayed both their inventors and their investors, just as they had in 1929. The global resale of debt had enabled borrowing on a scale unimaginable to the world of 1929, but the consequences were all too familiar.

In most speculative bubbles, the participants choose to be involved. Speculators in Dutch tulip bulbs or tech stocks knew what they were getting into, and, in the end, they were the main people who got burned. Speculation in housing, however, affected the two-thirds of Americans who owned homes. The speculation took hold of their most important asset and played havoc with their lives. If the collapse in prices had been confined to houses, then perhaps the damage would have been more limited, but during the 1990s, as wages stagnated, Americans had borrowed against this rising equity to pay for goods and services.

That structural connection between economic inequality and the nation's financial crisis is still largely ignored. The dangerous investment choices that precipitated the crisis are but a symptom of this underlying cause. Income stagnation continues, pushing Americans toward greater borrowing and less saving. Unemployment remains extraordinarily high. And those who do find work often have to accept lower wages.

Meanwhile, as those at the bottom hang on, profits continue to concentrate at the top. Without a good alternative, capital continues to be invested in consumer debt rather than in the businesses--big and small--that provide jobs. Bankers are once again skittish about lending. If we are to find solutions to the crisis, it is more important to ask why so much money flowed into mortgage-backed securities and so little into productive businesses than to search for villains to blame for what went wrong.

During the Great Depression, New Deal policymakers figured out ways to harness the resale of debt, but they recognized that increasing the supply of credit without also increasing wages would only lead to another crash. But in the last 40 years, debt levels have climbed while wages have remained stagnant because securitization made it much easier to lend to consumers than to businesses. That continuing imbalance is a threat to the long-run stability of the American economy.

Today, as in the Great Depression, we have a choice about the policies that redirect the flow of capital. But it is much more difficult to increase wages. Americans have pulled back from the worst excesses of the past decade, but they haven't seen bigger paychecks. Without that crucial ingredient, it is hard to see how we will be able to regain our lost prosperity.

Posted by Christine & John at January 22, 2012 3:07 PM
Comments
Comment #334961

It wasn’t one thing, it was many things with a few key effects.

Taken from an elite perspective, things were back in shape with the stock market soon enough. But that recovery is deceptive, because it ignores a basic truth: the primary malignant event isn’t that the rich lost a lot of money, but that in both cases the average person had been encouraged to store up assets, which they were then deprived of. This creates a situation within a consumer economy where the productivity needed to justify job creation isn’t possible with the wages currently at hand.

You’re still trying to blame the GSEs for the mess, trying to say that whatever government touched was inherently flawed. The data still doesn’t back you, not with other securities backed mortgages and credit not going bad.

The basic problem is that somebody has to pay, sooner or later. The system Republicans came up with allowed lenders to be more predatory, and more importantly, to avoid the financial consequences of roping people into loans they could not pay. Your Congresses also wrote laws that allowed banks to get bigger, that allowed well-regulated banks to buy up investment banks and other businesses that they otherwise would have been firewalled from.

Your policy created a system that was more vulnerable to the inevitable failures of the market.

More to the point, as with the Depression, you created a system that was dynamically stacked, in financial terms, against the very consumers it takes to pay for the goods that your companies need to move in order to justify employing so many people.

You assume that there is a true point of equilibrium here, and that if we simply do away with all the inconvenient rules propping this or that up, if we simply make most interactions private, then things will naturally restore themselves. But what if the system is built such that there is no one natural point point of equilibrium, but instead, several or more? What if what’s really happening, with all the obstruction you’re achieving, is that we’re lingering in a point of equilbrium which long term isn’t healthy? What if doing nothing means lingering in this economic purgatory for decades, like Japan has, after it’s deflationary collapse?

There are all kinds of systems that can work in this perverse kind of stability, remaining ineffecient yet self-sustaining because that mode of operation is mutually encouraged by the factors.

I believe that your party’s attempts to forestall additional aid are keeping us stuck in bad condition, that if we simply applied the right level of help to this economy, pushed it hard enough, it might reboot, resolve its problem, and then dynamically reassert itself at a higher level. Now, before you say this can’t happen, I say, look at what happened in the Depression, and WWII. Economic forces seemed to be conspiring against self-sustained growth in the Great Depression, with conditions returning when FDR tried to reassert austerity. But when WWII forced a great deal of government spending to go into the economy, it reset, and gave us the powerful economy that became the envy of the world.

Now, though, we’ve been reset into a pathological state of economic being. We’ve been put in a position where economic factors conspire against growth, conspire against our nation reaching its full productive capacity. You might blame liberal policies for the problem, but if you look at what actually motivates the failure to open new businesses, finance new investments and the like, the answer given is that the customers won’t come.

Not Regulation. Not Obamacare. Not the displacement of private investment with public dollars. Not taxes. The simple fact that the average person is less able to afford to do business with everybody else than they use to. A problem, by the way Republicans have no real plan to solve, just the old political standbys I’ve mentioned. Your party is intellectually bankrupt on this front. It’s tried its policies, and they got us into this mess, into this problematic mode of economic operation.

It’s time to return to what’s worked. It’s time to do new things where new things will help us. It’s time to stop kidding ourselves that an economy where the rich unload their burdens and withhold their compensation can long sustain itself.

It’s not marxism or any other kind of lazy selfishness at work here. It’s the simple fact that if you want to encourage people to live within their means, you can’t be constantly inflating what they owe, and deflating what they make, so the rich can get richer.

Posted by: Stephen Daugherty at January 23, 2012 8:35 AM
Comment #334996

Stephen

I understand that it is difficult to let go of your hatreds and misconceptions, but did you even read the texts?

Your conception is simple and simply wrong. You think of the financial crisis as a bank robbery. In fact, isn’t that a metaphor you sometimes use? In your fairy tale, bad guys weakened the defense of the system and then another group of bad guys ripped off the system. I wish it was that simple. If it were, we could just rebuild the walls to restore the “good old days”.

ishey see the complexity. It is worse than you think. If you look at the history, you see that the Depression Era reforms and the post WWII system started to fail in the 1960s. This happened because the conditions in the world changed. Nothing lasts forever. People and leaders made adaptions. Things continued to function. We had a time of significant prosperity from 1982-2008, but the system was running out of steam.

The crash of 2008 was almost worldwide. I say almost because some developing countries escaped it. This was in some ways good, but it means that we have lost some of the imitative.

The smart action by the Fed and TARP may have prevents a larger fall, but attempts to put things back on track are not working. The models have failed, as they did in the early 1930s. We are going through an era of rethinking.

So you are right the “my thinking” has been overtaken by events. The methods that I believed in from the 1980s would not work. But it is also true that “your ideas” have been overtaken by events and the things from the 1970s that you believe in also will not work in the changed environment.

It is not 1982, 1972 or 1945. The world has changed but our adaptions have not changed enough with it.

It is probably true that people with my old ideas and with your old ideas could be part of the problem and not part of the solution. What we probably need is a period of pragmatism & experimentation. Neither the standard monetary stimulus or the massive fiscal stimulus has performed as its proponents predicted.

There are a limited number of ingredients to fixing these problems but they can produce a practically infinite number of policy permutations. There is probably not one the will work, but maybe a combination can.

BTW - your analysis of what I said and what I want is sophomoric. I have told you so many times that I am NOT in favor of trashing regulation or having government just step aside that my figures are getting tired from typing it. I am not your stereotype and in fact neither is anybody else.

Posted by: C&J at January 23, 2012 5:24 PM
Comment #335004

Two things not taken into account by these guys C&J are the rise of the far right and fascism in the decade before the financial meltdowns of the 20’s and the ’00s. Secondly the technology booms that occurred in the decade before the financial meltdowns that led to stagnant job creation both before and after the crash.

Posted by: j2t2 at January 23, 2012 9:24 PM
Comment #335006

C&J-
First, you realize that you can’t argue fair use of those articles if your excerpts are too total? You should be excerpting about ten or twenty percent at best. Otherwise, you should be asking permission of the authors to reprint their work. I say this as your friend and fellow writer.

Second, it isn’t hatred driving me, nor misconceptions.

Tell me, do the GSEs have a worse than average level of defaults? No, they don’t. Did they have the great majority of market share in terms of new loans, originated during the critical time of housing market frenzy? No. Perfectly private non-bank lenders did, many capable of doing much more than Fannie or Freddie could, especially since Congress saw fit to saddle them with new regulations in the wake of past indiscretions. You talk about how Dodd or Frank got in the way of new regulations, but you don’t mention (perhaps never knew to mention!) that efforts to increase regulation were actually successful.

Of course, none of the non-bank lenders were so saddled, nor the companies doing all the refis, and the vase majority of the subprime lending.

So, how have I misconceived? When folks at Goldman Sachs are merrily selling people ****ty deals, when somehow banks, and investment firms, and insurance companies like AIG are loaded down with toxic assets, when the role of derivatives are so critical, why are we always returning to the GSEs, who had better than average default rates on their subprime loans, or CRA loans, which again had lower default rates? Why are we looking for fire where we see no smoke?

Or put another way, why the hell are we ignoring companies that easily had much more excessive failures in the subprime markets, who had much less regulatory constraint, and going after the GSEs, who mismanaged or not, were not so critically incompetent in loaning to people that could pay them back that their default rates contributed to the mess?

I have a pretty clear view of what happened, and what the logic of it is. You can’t make money on a bad loan for as long as they did, unless you had somebody to sell to. Now some Secondary mortgage sales are good risks, even in the subprime market, but they weren’t doing their due diligence on things. There are actual policies on record, actual whistleblowers out there indicating just what kind of culture they were running, just how degenerated this shadow banking system was.

The CDOs, by themselves, could not cause the problem. You had to get to a point where these instruments were being abused, basically, in order to hide a whole bunch of risk and bad loans, so that people would buy the securities and assets in question, and make their bad decision somebody else’s problem.

There could have been regulation on derivatives, and on the leveraging possible with them that would have put a natural constraint on how much these banks would have put themselves in the whole. Any number of similar laws could have put people in the position of being willing to burst the bubble sooner, accelerate the lending more slowly.

The GSEs’ loans were not particularly bad investments. They got caught up in the credit crunch more than anything. Their entire business was secondary mortgages, and if the primary mortgages weren’t being sold because of that crunch, because of the crash in the Housing market, what do you think happens to them?

The private lenders, who were far more irresponsible, far more unconstrained, and saddled with far more of their own bad risks, tanked first, fastest, and fiercest. AIG and Lehman Brothers, among others, failed because they were part of the whole system of folks exploiting bad debts. People were exploiting bad debts because they could, because with the laws the way they were, they could sell off debts people would likely never be able to pay.

And the dirty little secret here is this: in order to avoid the necessity of increasing wages to see economic growth, the supply siders of the eighties, nineties, and beyond, encouraged the distribution of easy credit. If people could leverage themselves endlessly to get the goods they needed, nobody’s ox would have to get gored. Unfortunately, one fact remains true, and that is that in the end, debts must be paid for real money to be made.

The rich want our oxes to be gored, even though they benefited disproportionately over time from it, and we ended up taking on most of the debt. Well, this is my attitude: They had their fun, their fun ruined a lot of lives, led a lot of people down the garden path, and now, we need a reckoning, and we need to get back to where people can live cash and carry lives on the wages they earn, rather than needing to rely on credit to supplement wages that can’t even maintain stable value in the market as it is.

The rich don’t have to bleed every dollar, and the poor don’t have to get the mansions. This more about valuing fairness for the Middle class again, after years of excessive deference on matters important to them.

Posted by: Stephen Daugherty at January 23, 2012 10:21 PM
Comment #335008

Stephen

I worried about the fair use. I am not sure exactly how much I needed to cut out. I didn’t want to take out so much that I left the wrong impression. I know that many people would not or could not follow the links.

Re what you are missing - you are missing the systemic nature of the problem and the interaction between players, which included government and regulators.

Government guarantees - implicit and explicit - encouraged more speculation than would have been normal.

I worry about making it possible for private profit and public risk.

I also think the “your people” is too simplistic. You mention Goldman. It contains both Republicans and Democrats, rather more Democrats. Beyond that, many of the regulatory changes were made during the Clinton Administration.

This statement is silly - “And the dirty little secret here is this: in order to avoid the necessity of increasing wages to see economic growth, the supply siders of the eighties, nineties, and beyond, encouraged the distribution of easy credit.” It implies much more planning and coordination than was possible. Beyond that, most supply siders believe that wages will/should increase with productivity. So there is no dirty little secret here.

I always have the use of diminutives, btw, unless you really mean small.

“They had their fun, their fun ruined a lot of lives, led a lot of people down the garden path, and now, we need a reckoning,” this is also a silly statement. It is wrong on a variety of points. First, the “rich” of today are often not the rich of yesterday who “had their fun”. In fact, many of those rich lost their money and would not be the beneficiaries of being bailed out. Second, again, you implicitly believe that most people are stupid enough to be “led down the garden path”.

“debts must be paid for real money to be made.” This is true. We should probably try to get the money paid back as much as possible by those who took out the debt.

I also want to reform the system, but with new ideas based on the new conditions. The old system broke down. As you read in the articles, S&Ls could not get people to put money in at the low rates they were offering. I remember this time. You cannot go back to the time when people just put money in banks and took the interest rates offered, unless you want to constrain people’s options by law.

We also have many more international players. Until the breakdown of Bretton Woods, the U.S. could call the shots. We cannot go back to the era of fixed exchange rates tied to the dollar.

So you see that almost NONE of the old conditions are in place. Conservatives did not get rid of them. The world grew and evolved.

j2t2

The authors did address authoritarian systems. But you recall that the Nazis came to power in 1933. They were a symptom, not a cause of the troubles.

I don’t know what fascist systems you are talking about in the decade before 2000. Totalitarian regimes were generally in retreat during the 1990s. Most of Latin America was restored to democracy. the states of the Soviet Empire became mostly democratic.

They also addressed the changes in technology. But the technology booms in the 1920s and 1990s did not destroy jobs. On the contrary unemployment was unusually low during those times and median incomes were rising.

Posted by: C&J at January 23, 2012 11:15 PM
Comment #335010
The authors did address authoritarian systems. But you recall that the Nazis came to power in 1933. They were a symptom, not a cause of the troubles.


Yes they came to power in the early 30’s but they were changing the mindsets of people during the ‘20’s. It was a time of political upheaval.


I don’t know what fascist systems you are talking about in the decade before 2000. Totalitarian regimes were generally in retreat during the 1990s. Most of Latin America was restored to democracy. the states of the Soviet Empire became mostly democratic.

I was thinking more the repub revolution in Congress of ‘94 and the Election of GWB in 2000. By this time these guys were farther to the right than the conservatives of Reagan. They were changing the mindset of America and they were continually shifting farther right with corporate capitalism, in fact after the meltdown they seemed to have doubled down on the failed ideologies that led us into the meltdown.

They also addressed the changes in technology. But the technology booms in the 1920s and 1990s did not destroy jobs. On the contrary unemployment was unusually low during those times and median incomes were rising.

Are you suggesting the 12%-8% unemployment rate was not due in part to the assembly line improvements of the ‘20’s? When I speak of the decade before the ‘08 meltdown I speak of ‘98 to ‘08. Job creation was non-existent during the GWB era. Are you saying the lack of jobs has more to do with with off-shoring? I don’t think so.


Posted by: j2t2 at January 24, 2012 12:06 AM
Comment #335012


Isn’t a major cause of recessions/depressions an overzealous anticipation by the market and business community, during technology booms, leading to excess capacity which cannot be sustained.

Our country has experienced more than thirty recessions/depressions. The last ten or so have been milder than the first twenty or so primarily because of Fed intervention and government stimulation.

Since Roosevelt, what administration hasn’t tried to stimulate the economy when a recession hits? Reagan did it with tax cuts, massive government spending/borrowing and tariffs.

I know little about economics, but it seems to me that during the Bush years, the Bush tax cuts did not produce nearly as much economic growth as was predicted, touted. Without the housing boom, there would have been little to no economic growth during the Bush years. As a result, the Fed was forced to keep interest rates very low.
When the prime is around 1% and a recession occurs, isn’t the Fed’s ability to stimulate the economy hampered?

During the Bush Administration, many investors were moving into overseas markets. The housing boom was the best investment going in America and much of Europe’s troubles stem from their banks investments in our housing market.



Posted by: jlw at January 24, 2012 1:26 AM
Comment #335016

My apology C&J, but, Stephen’s initial reply had it factually correct.

WWII Massive government debt spending to hire men into the armed forces and women into the factories via government contracts with the private sector, accomplished what NEITHER austerity, free markets, or compromised stimuli could accomplish.

3 Republicans got the Congressional vote they needed to pass the Gramm Leach Bliley Act, with Naive Pres. Clinton’s signature. That act overturned the FDR protection against another Great Depression onset to failed banks and credit lending, which was known as the Glass Steagal Act. The G-S Act banned multi-line business banks. Investments banks were not allowed to be Mortgage Lenders, and Savings Banks were not allowed to be Investment banks. This prevented banks from becoming Too Big To Fail by preventing banking lines of business from incestuously creating monster children of multiple leveraging on the back of single assets, whose asset value was known by those knowledge of the Great Depression to fluctuate.

Modern Republicans with the aid of ignorant Democrats abandoned the lessons learned and the healing processes of structural reform which paved the way for massive government stimulus to have a profound and lasting effect.

The bankers allowed greed and specialization to blind them from the fundamental reality that asset values can, and WILL fluctuate for a number of economic reasons. By ignoring that lesson, the banks became incredibly vulnerable and susceptible to dealings premised on mortgage asset values NEVER falling.

Then it was Republicans who sealed the deal to bail out the banks because they simply had no other choice save allow the U.S. and global economy fall into a global credit crisis and economic depression.

Then it was Republicans who BLOCKED most of Obama’s proposal to remedy the Great Recession in the same manner WWII did, through massive short term government spending which put people back to work on national infrastructure projects via contracts with the Private Sector. Obama began his presidency outlining this grand vision of boosting consumer demand dramatically by stemming job losses and rebounding the job market through infrastructural growth. That vision was not only sound in the short term, but also long term by enhancing the future efficiency and dispatch of intra-state business and international export via needed road, bridge, rail, air, and school construction, maintenance and innovation. Obama was forced by the Republicans in Congress to abandon such a grand vision and solution by obstructing to the furthest extent possible, all measures proposed by Obama, including ones Republicans had previously advocated.

In other words, Republicans put politics ahead of nation and the American people on their priority list. A fact which did not go unnoticed or unreported by Obama himself.

Republicans literally took the position that if they could not have the power to dictate their solutions, no one else’s solutions would survive their obstructionist tactics in the Congress, either, which had the effect of punishing the middle class workers and unemployed for economic events which were entirely beyond their control.

All this has not been lost on a sizable portion of the American public, either. Which explains why Obama’s and Democrats favorable and disapproval ratings are better than those for Republicans and their Party on issues surrounding challenges of the middle Class and unemployed.

The smart Republicans of presidential caliber saw this writing on the wall, and rejected the option to run against Obama in 2012, leaving that Sisyphus mountain and boulder to lesser candidates with no empathy for the American people and an abundance of personal aspiration to drive them into the race. With the economic recovery underway, despite Republican obstructionist efforts, it is likely a large enough majority will see the wisdom of that previous 1864 Republican refrain by Abraham Lincoln: “Why change horses in mid-stream?”


Posted by: David Remer at January 24, 2012 6:21 AM
Comment #335028

David, good to see your keystrokes again! I check in on Poliwatch on occasion and admire your penchant to educate and inform.

I agree with your rendition except for the latter part where you break bad on Republicans for their part in our demise.
Agree, dropping a $T on WWII recovered us from the depression. And, that kicking the struts out of financial infrastructure over the last 30 years led to the great recession. Also, new financial gimmickery such as hedge funds and CDO’s put into place with no regulation helped to drag us down. And, let’s not be so naïve as to think that Phil Gramm didn’t have duopoly help, and plenty of it, in ‘slipping into Congress in the dark of night’ to make a change in the 2000 Commodities Futures Modernization Act.
But, toward recovery, throwing money at the ‘systems’ ain’t what it used to be. In FDR’s time most of the money spent or debt incurred was within the US. We mfctr’d most of the WWII war materials. We created wealth in the US.

Today we have spent more in Iraq than in WWII and still had a recession. Trying to buy our way out of this one is different. Mfctring, for the most part, is overseas, we are globalised, in that much of what we spend ends up in foreign coffers. We borrow money and China/Japan, etc. owns our debt, now, to the tune of some $15T and rising. Done with the help of the duopoly/corpocracy, David, IMO.

Otherwise - - -

Posted by: Roy Ellis at January 24, 2012 11:13 AM
Comment #335040

David Remer-
Good to see you around. Saw on my Facebook notifications that you have a birthday around this time of the year. If so, happy birthday! Thanks for the good word.

However, I think you’re being a little charitable. I think Clinton and the other Democrats were neither naive nor confused. I think they conceded the argument to the Republicans on that front, and genuinely believed it was for the best when they did it.

The main difference, I would say, is that at least most Democrats, can draw back from that support, either because they are open to learning their lesson, or because they’ve got voters who will reward them for acting like they have. Thus, Dodd-Frank. It’s no big mystery why those two signed onto Wall Street Reform: they know their legacies are tarnished by such policies, and sponsored the law as a way to get the shine back on things.

I don’t particularly care why a politician does good things, as long as they do it. It could be because somebody has photos of them, a pair of salad tongs, Rastafarians, and the family dog, that has them all doing things that are illegal in eleven states. But if such encouragement motivates them to back the right laws, then they’ll merit re-election. Otherwise, out on their ear.

I believe that being picky about motivations misses the point. I don’t care why Clinton signed the repeal of GS. He was wrong to. Doesn’t matter to me that he was a Democrat. Doesn’t matter, either, when somebody comes across, like Republicans often do, and says “Well, Democrats voted for this, so I got you there.”

Yeah, they voted for it, too. And they were wrong. And I’d say to them, “You’re still wrong, you’re just wrong with company.”

I care whether they made the mistake of backing that bad policy. Right now, though, I can cut them some slack, but only if they’re willing to push better policy now, and fix their mistakes.

C&J-
I’d say that you should read well enough that you understand the point, and then use selective quotes to move your argument. I try to treat it like a college paper, where you can quote, but you’re expected to write most of your stuff yourself.

I’m not missing the systemic nature of the problem. In fact, my argument depends on understanding things systematically. The predatory lending could not have become the problem it did unless somebody was buying the loans. Getting folks to buy those loans both involved disguising them amongst other, less risky assets, and disguising the relative risk of the assets.

Many of the Non-bank lenders, rather than rely on something like deposits, or income from their debtors (them paying back the principle and interest), instead relied on derivatives to fund their operation in the first place.

So on and so forth. There are several key places where we needed regulatory controls, not just one. People bring up GLB, but that and other repeals merely made it to where institutions that made loans to consumers could get entangled in investment banks, insurance companies with those who sold stock, etc. There were several weaknesses working together that lead to a greater disaster.

The fact that the SEC was regularly underfunded, and regularly undercut, that the people hired to run it often had no interest in good faith policing of the markets is a critical part of it, as is the fact that both Republicans in Congress, and officials in the Clinton administration interfered in the ability of the CFTC to regulate derivatives like they needed to, even in the wake of a disaster that nearly started the great recession ten years early.

As for private profit and public risk? Well, that’s what your policies bring already. The aim of most liberals is to make it difficult for this kind of disaster to happen again so that necessary bailouts are a rarity, not a regular occurence.

As for your people? Well, folks are so ambiguous about whther they’re Republicans these days that I got to be a little vague to address the collective of folks who follow the Right Wing. And, as some may point out, Democrats are among the people who helped create the system. My argument isn’t a lack of involvement of those from my party. It’s that my party is better able to choose to reform things than yours. Yours has committed itself to maintaining the pre-crisis status quo.

As for Goldman Sach’s? I’d be careful about generalizing back in my direction before you see what they spent in 2010. My feeling is that they were intent on getting in good with those who were obviously about to win and have power over their industry, and when they felt it was safe, or that they weren’t getting what they wanted, they turned back to the GOP, who they supported by a majority in 2006 as well.

This statement is silly - “And the dirty little secret here is this: in order to avoid the necessity of increasing wages to see economic growth, the supply siders of the eighties, nineties, and beyond, encouraged the distribution of easy credit.” It implies much more planning and coordination than was possible. Beyond that, most supply siders believe that wages will/should increase with productivity. So there is no dirty little secret here.

Well, it doesn’t have to be a deliberate, organized conspiracy, just the emergent, natural consequence of an economic order that discourages greater shares of the profits and revenues with those on the lower rungs of the ladder. Folks come to depend more on finance, financial companies make profits, seek to make even greater profits, those trying to keep the engine going grease the wheels on Wall Street to make more financing available, etc.

It works until something flips in the system, and we find that years of relying on finance has burdened consumers with excessive debts, more than they can pay. The dirty little secret is that the GOP’s policies have been geared primarily towards greasing the skids, but with so much of the financial sector licking its wounds, there aren’t alternatives, and the Republican’s policies are just pushing a string.

Interest rates, kept low in order to avoid the train-wreck coming early, are the lowest they can be. You can’t lower them, like Volcker or Greenspan did under Reagan, to encourage more growth. Banks aren’t lending like they used to be, and really shouldn’t be, anyways.

Which means what, precisely? Means we need government stimulus. They can issue debt, do the things that help get consumers back in business, literally speaking. They don’t have to do it forever, and in fact, they shouldn’t. The key is to kick the system back up into a more efficient, more productive mode, and then apply austerity measures to that economy, instead of trying to apply it to an economy that is weaker.

As for having their fun?

Look, the rich in this country enjoyed deference for quite a long time. And that seemed to work. But only seemed. Now we realize that they weren’t running things so smartly, and the consequences of their stupidity and greed are hitting us at home.

Regardless of what philosophical approach you take to this, there is a certain level of resentment and impatience already in place, an as far as the GOP’s rhetoric on the subject, intended to deflect blame, people have heard it before.

“They had their fun, their fun ruined a lot of lives, led a lot of people down the garden path, and now, we need a reckoning,” this is also a silly statement. It is wrong on a variety of points. First, the “rich” of today are often not the rich of yesterday who “had their fun”. In fact, many of those rich lost their money and would not be the beneficiaries of being bailed out. Second, again, you implicitly believe that most people are stupid enough to be “led down the garden path”.

Silly? No, factually correct. I read a book before the crisis about credit card companies, and all the tricks they did. They deliberately sought out students, sought out people in bankruptcy. They deliberately tripped people up, and charged them greater interest on the flimsiest of pretenses. The situation with predatory housing lending was so bad that virtually every state AG was looking to go after these people, before the Bush Administration pre-empted them with a federal law. The dirty tricks they used are real.

As far as rich people losing money, many did, I’m certain. But people at their income group are back in business, where a lot of us aren’t. It’s easier to recover when you can take the hit. Also, many of the investors in the banks were practically bailed out in full, thanks to TARP and the Fed’s rather generous plan. You know, what you erroneously called the first stimulus? So, they’re not doing that badly.

As for the last part? You don’t have to be stupid to be deceived. You can be trusting, and take people at their word who don’t deserve it. You can be somebody who employs most of their critical thinking in other areas, who would rather not have to put much thought into their investments, working hard elswhere (could that be why people employ brokers?) Or you could simply be faced with a system that’s deliberately made a black box to you, like many hedge-funds?

I’m a writer of fiction and somebody who’s been trained in filmmaking technique and computer effects. I’ve seen many movies and gone through their behind the scenes material. Trust me when I say that some of the most convincing looking stuff can be fake. Many of the shots in one movie I saw, which I thought were real submersibles, were in fact models shot in swimming pools.

Sometimes getting people to believe things is less about getting every detail right, less about them being stupid, and more about presenting compelling things well. There are a wealth of real-looking events from the movies which have bene revealed to be utterly implausible by shows like Mythbusters.

Stupidity isn’t necessary to fool people. Being only partially informed, not having a professional understanding on the subject, or dealing with somebody who knows how to lie to your face and not get caught helps.

We should probably try to get the money paid back as much as possible by those who took out the debt.

You’re ignoring that part of the problem is, that the debts piled on these people were either knowingly placed on those who couldn’t pay them back, or ratcheted up to excess on those who were formerly able to afford it (as is the case with ARMS and the like)

Now, if you go after these people for everything, or throw them out of their houses, the long-term proceeds might not be what they should be, especially in this housing market. The push to foreclose came with people trying to make money by selling off the houses, but with the housing economy like it is, would they actually get paying customers?

It might be better, in the end, to accept a reduced payment that nonetheless represents a regular, sustainable inflow of actual cash into the program. Rather than continue to chase after an unrealistic market goal, one ought to pursue a plausible path to responsible repayment of debts.

And that would be my thing, really. In the end, as cynically and edgily as some played things, they were running the markets in a state of delusion, believing that they could keep on pushing people into greater and greater debt, screwing more and more people, and not have it feedback to cripple the market. Despite their idealizations of how the market would persevere in its growth, it didn’t.

The world’s changed, sure, and the laws need to change with it. Evidently, though, the direction the GOP took was wrong. It put too much trust in Wall Street to police itself.

Posted by: Stephen Daugherty at January 24, 2012 2:09 PM
Comment #335043


I agree with Roy in that duped is not a word I would use to describe the Democrats duplicity. I would ascribe duped to the constituents of both parties.

I disagree with Roy about breaking bad on Republicans, they are the champions of this philosophy and will remain so. Give them the opportunity and they will continue down the same road. We call it Gramm (R) Leach (R) Bliley (R) because of the three who wrote and sponsored the Act.

The Republicans were able to push through the corporate financial agenda, trade agreements, financial deregulation, huge tax breaks for the wealthy, etc., and have set their sites on the social agenda that will complete the process of deregulating the work environment, reducing workers incomes, and equalizing American workers with their third world counterparts.

Rhetorically, Democrats are saying they have gotten the message, but money has and can continue to make genuine believers out of many. Seeing results should be the Democratic constituencies basis for believing their politicians.

Republican voters are all about stopping Obama before he might do something to harm, ‘destroy America’, the continuation of the Republican domestic agenda.

Posted by: jlw at January 24, 2012 2:52 PM
Comment #335051

I think maybe some of you would be interested in watching this segment that was on the new Bill Moyers program recently:
link textDavid”>http://billmoyers.com/segment/david-stockman-on-crony-capitalism/”>David Stockman on Crony Capitalism

Stockman was Reagan’s budget director.
When I was watching this, I found myself wondering if Stockman supports OWS…?

Posted by: Adrienne at January 24, 2012 4:15 PM
Comment #335053

j2t2

Your comparison not valid. In the 1990s Republicans advocated smaller government. In the 1930s, Nazis sought to expand government and create more rules.

Re unemployment - in the 1920s, after the rapid recovery from the recession after World War I, unemployment remained very low, under 5%, until the crash. If labor saving devices had been the proximate cause, you would have seen it happening more gradually.

David

You hit on the effects of the war. We not only spent lots of money, but also worldwide lots of things were being destroyed and lots of people were dying. Eliminating 4o million workers has a way of eliminating unemployment. We would be unwilling to pay that sort of price lightly.

Re the stimulus - Democrats controlled both houses of Congress and had a filibuster proof majority in the Senate for the first year. They got what they wanted. Beyond that, the stimulus was bigger than any other in the history of the world. There was not much more that could have been used. Even then, they pissed away a lot of money. There is only so much manure that can be useful.

Stephen

I tried to include as much as I thought I could and then gave the links. I was not trying to write those things myself.

re the systemic nature - I explained to you that banks could not get enough depositors to by for the mortgages they were writing. If you have any money, is it all in the bank getting the interest they pay. That is why your statement, “Many of the Non-bank lenders, rather than rely on something like deposits, or income from their debtors (them paying back the principle and interest), instead relied on derivatives to fund their operation in the first place.” is true but useless. It is really old-thinking. Are you sure you are not getting information from grandpa?

Re “the rich” and their fun - the rich are not like an individual. Many of “the rich” who had their fun are now the poor who are complaining. So you want to punish and reward the wrong people. And you morality is misplaced.

Your view on all these things is very old Testament punishment and retribution. You want judgement and punishment, but you choose the wrong victims and perps in many cases.

Re -“people at their income group are back in business, where a lot of us aren’t.” People are not groups. People are individuals. Many of the people in the high income groups were not there ten years ago. And many who were there are there no longer. You are taking the Marxist/Nazi idea of group definition that caused so much destruction in the 20th century. You want to punish individuals according to the group they belong.

I would also point out that many who “had their fun” did it on borrowed money. Now you want to reward them and call them victims.

RE debt - People bought things with that money. They “had their fun” Now you are making them victims. You want the prudent people to pay for the deadbeats. This is unjust.

Adrienne

I oppose crony capitalism. If you have crony capitalism, you have to have lots of government involvement. It is a definition of crony capitalism. When people call for more government, they are inviting more crony capitalism.


Posted by: C&J at January 24, 2012 4:44 PM
Comment #335057

Jack, please take the time to listen to what Stockman had to say when you get a chance, okay?

Posted by: Adrienne at January 24, 2012 5:04 PM
Comment #335059
In the 1990s Republicans advocated smaller government. In the 1930s, Nazis sought to expand government and create more rules.

C&J advocating is not doing. The small government conservatives were reigned in by reason and “smart government” dems led by Bill Clinton. In fact, under GWB and the repub led Congress, the small government conservatives expanded government much like the Nazi’s of the ‘30’s. They added the Patriot Act, Made bankruptcy harder for individuals and easier for the corporations. They reformed medicare by demanding the government borrow money to pay full asking price for prescriptions from their big pharma donors. They lowered taxes creating huge deficits and continued to borrow from Chinese dictators to fund aggression and war in the middle east. They made the Nazi’s look better than small government conservatives. Because these same small government conservatives are now demanding that we do more of the same it seems as if this financial collapse was an intentional act by small government conservatives to ruin the country.

It seems to me these financial collapses happen when small government conservatives are in power long enough to exercise their ideologies thereby creating the conditions necessary for the collapse. They are, after all, anti-government haters whose stated goal is to make government small enough to drown in the bathtub.

Posted by: j2t2 at January 24, 2012 5:14 PM
Comment #335061

Adrienne

I know what Stockman says. I agree with much of it. The main idea is that the well-connected use the power of government to leverage into economic power and vise-verse. That is crony capitalism.

I wrote a post about how that axis of power in Washington has grown such a malignant system where some people are “rent seeking” by controlling pressure points w/o creating wealth.

The way that I think we can combat that is to remove the pressure points as much as possible, make transactions much more transparent and remove the concentrations of power that allow well-connected people to take advantage of the system.

This means making government more efficient but also smaller. You cannot have crony capitalism unless government officials have access to significant economic power.

Liberal tend to blame businesses for “corrupting” government. Conservatives often blame government for interfering in the market. In fact both these things are correct. It happens always and everywhere where we find concentrations of power and we are left with two policy choices.

We can try to find selfless people who are also very good at their jobs and possess nearly unlimited capacity to understand the intricacies of the system. When we find such people we can put them at the nexus of power and trust them to make the right decisions. Or we can recognize human failings and prevent to the extent possible concentrations of power that can corrupt and be used offensively.

J2t2

I agree with you that Bush expanding and bloated government. That caused many of our problems. The solutions, then, would not be to grow it even bigger as Obama has done.

Your comparison still breaks down re the Nazis, who were both in theory and practice totalitarian, i.e. government controls almost everything.

You may be making a point about small government folks bloating government, however. Hoover’s response to the downturn was to vastly increase spending. He ran the deficit up to 4% of GDP. So like Bush, Hoover raised spending and like Bush, he was replaced by a president who spent even more. Was the solution to spend more? The Depression didn’t end until WWII changes all the rules of the game. Tens of millions of death and destruction on a scale never seen before or since was a high price to pay.

Posted by: C&J at January 24, 2012 5:55 PM
Comment #335069
I agree with you that Bush expanding and bloated government. That caused many of our problems. The solutions, then, would not be to grow it even bigger as Obama has done.

Not just Bush C&J the same conservatives who clamor for small government today in Congress were just as involved in this economic terrorism as GWB. The difference between what GWB and the conservatives did and what Obama did is night and day. The stimulus was needed, the lowered taxes/war/medicare reform/pharma payoff wasn’t.

Your comparison still breaks down re the Nazis, who were both in theory and practice totalitarian, i.e. government controls almost everything.

Not any more than conservatives telling us Gingrich/Romney/Obamacare is socialist. Not any more than conservatives telling us Obama is a socialist.

You may be making a point about small government folks bloating government, however. Hoover’s response to the downturn was to vastly increase spending. He ran the deficit up to 4% of GDP. So like Bush, Hoover raised spending and like Bush, he was replaced by a president who spent even more.

4% of GDP was obviously to small which allowed the cycle of financial ruin to continue. FDR did more and put people back to work until conservatives caused the return to what they call “fiscal sanity” in ‘37 and put us back into the cycle of financial ruination.

Was the solution to spend more? The Depression didn’t end until WWII changes all the rules of the game. Tens of millions of death and destruction on a scale never seen before or since was a high price to pay.

Yes it was,however the answer is appropriate regulation but it is always to late for that when the damage is done C&J. Who knows where we would have ended up had they stayed the course in ‘36. When did the income inequality that drives these financial meltdowns return to a less extreme level that sustains the country? Between ‘37 and ‘47, coincidence?

Posted by: j2t2 at January 25, 2012 12:03 AM
Comment #335070

The main takeaway from the Great Depression is not so much the causes of the downturn, or the eventual end of it, but what was done to prevent its re-occurence. Several programs were tried. Some succeeded, some did not. Some persist to this day. However, two programs made the difference in preventing another depression; at least, until the current ‘Great Recession.’ What are those two programs?

1) FDIC insurance
2) Glass Steagall

The great mistake that led to the current version of the ‘Great Recession’ can be tied directly to the repeal of Glass Steagall.

We suffered a preview of the consequences of deregulating the financial industry during the S & L crisis of the late 80’s and early 90’s. (The Wikipedia article on ‘S & L Crisis” gives a nice thumbnail sketch). The federal government intervened in various ways including the RTC. In retrospect, the S & L Crisis seems almost quaint compared with the devastation the next round of deregulation would cause.

Repealing the Glass Steagall Act set the stage. The Act established firewalls, barriers between the three main sectors of finance, appropriate barriers given the fundamentally differing natures of those three sections. Without the firewalls between commercial banks, investment banks, and insurance companies, the economic fire caused by bad mortgages spread across the three financial sectors. Furthermore, the scale of the fire was greatly magnified on an order of magnitude, or more, by lack of regulation of commodoties. ‘Shadow banking’ occurred, with various arcane forms of commodoties, mortgage derivatives, trading back and forth and generating fees without any supervision whatsoever. All were built upon underlying instruments that were doomed to fall apart in a real estate downturn.

One of the most important purposes of the Federal Reserve is to maintain orderly financial markets. Without oversight of the mortgage derivaties in the Shadow Banking markets, even in 2007 the person in charge of overseeing Wall Street for the Reserve believed all was well.

Posted by: phx8 at January 25, 2012 12:29 AM
Comment #335075

Roy, good to hear from you, again. Love your commentary and position.

As for breaking bad on the GOP, I did concede that Clinton and Democratic (implied) votes in Congress were part and parcel of the Gramm Leach Bliley Act. The thing is, the Gramm Leach Bliley Act was ENTIRELY sponsored and drafted by Republicans. Democrats would not likely have even thought of such a measure, and a number of Democrats balked intensely on the House and Senate Floors regarding the passage of the GLB Act, with warnings of what might happen down the road should such a measure become law. They were proved right. Enough Democrat votes were garnered to pass it, nonetheless, so your point is well made, that this was a bi-partisan accepted legislation.

As for the rest of breaking bad on the current GOP, I think my comments are born out by the factual record. I remain very critical of the DNC for their failure to underwrite the reforms the middle class requires to grow again, which starts with political and political finance reforms. That said, I was shocked to see Obama address those in the SOTU last night. Don’t know yet if Obama called for such reforms with the intent to lead his party in that direction, or, if he was simply pandering to the Independent voters who will make or break his reelection in Nov. Time will tell.

But, I am truly impressed to finally see political and campaign finance reforms being pushed back to the forefront of the political dialogue by the President, no less. We Independents have been calling for such action for nearly a decade now. We have finally been heard by Obama and some Congress persons. That lifts my optimism a smidge regarding my daughter’s future in the USA. We simply will not manage our debt and deficits until these kinds of political reforms are addressed: limit or kill corporate and special interest campaign financing, halt the abuse of the filibuster in the Senate, force the FEC to incorporate the largest voter block’s representatives, Independents, on the FEC board, move voting to the weekends and make accountable voting easier, not harder, for citizens.

We must do these things, not because they are easy, but, because the political hyper-partisans have made them so very hard (to paraphrase JFK).

Independents drove this agenda. Some Democrats are getting on board. And so far, I have to continue to ‘break bad’ on the Republicans for refusing to even consider such reforms to strengthen our democratic elections, reduce hyper-partisanship, and foster common ground consensus building political measures in government by giving Independents their proper and earned status as the largest voter identity block which determines the outcome of elections between the Democratic and Republican party candidates.

Posted by: David Remer at January 25, 2012 7:30 AM
Comment #335076

C&J, your comment about eliminating the work force in the war ending unemployment does not hold up. If you will recall, in America we opened our job markets to women, and a great many of them were not willing or able to leave that job market when the war was over. Ergo, moving women into the work force equalized the losses of men in the war, negating your suggestion that unemployment was eradicated by the losses in the labor force. Unemployment was driven down by economic expansion and both private and government sector job growth. A baby boom was underway and consumer demand to accommodate the futures of all those babies came on the heels of the surge in jobs created during and after the War.

As for the stimulus, using raw dollar amounts in claiming it was the largest stimulus in our history fails to account for inflation over the decades in comparing the 30’s and 40’s and 50’s stimulus to todays. America was able to drive down the greatest debt rise in America’s history following WWII, and America can do it again, in many of the ways Obama outlined in the SOTU last night, investing in the government-private sector partnership to innovate, upgrade, and launch American into the position of being the 21’st century’s greatest ever exporter of new technology on the foundation of the best infrastructure for private sector business since the 1960’s.

Yes, such a future will require dramatic cuts in spending in other areas, and increasing revenues for the government’s role as partner. All that is standing in the way of such a future however, is hyper-ideological and partisan divide created by Democrats and Republicans, which obstructs all measures to move in that direction. Political reforms have to be made before this economic growth can take off. Obama was wise to address such reforms last night recognizing the reality and impact Independent voters will have on all of government and elections going forward. Republicans would be wise to begin to listen to those independents as well, or fail to garner their votes in future elections.

Posted by: David Remer at January 25, 2012 7:46 AM
Comment #335077

C&J, except for foreign aid and the interest on the debt paid to foreign investors, just about all government revenue recycles back through the private sector. Think about that for a moment. It is true. And the direct implication of that truth is that the size of government is not, in and of itself, an impediment to private sector growth and jobs.

Far more relevant to the issue of America’s job and economic future growth, is the whether or not the government’s actions and spending foster job growth, private sector innovation and export development, consumer demand growth, and real wage growth. To the extent that large government fosters these, large government is great for America. To the extent that large government makes such attempts with half measures, that large government’s efficiency in reaching those objectives is diminished.

Radial far right ideology which demonizes government as a necessary evil which should be kept as small and impotent as possible, is to a large extent these days, fostering the half-measures and no measures that diminish the efficiency of government to partner with the private sector for economic growth and expansion, and in turn, deficit elimination and debt reduction.

The private sector will not expand our future, absent government as partner. We are a growing service economy with falling real wages for half of workers, and the private manufacturing and R&D industry at the direction of the private sector is exporting jobs and economic activity and expansion overseas. A partnership between government and the private sector not dissimilar from that of the WWII and post WWII era, can expand America’s growth and economy. As long as Republicans assert the government is the enemy, several self-fulfilling prophecies are set in motion to impede the growth and expansion of America’s future in this new century.

Posted by: David Remer at January 25, 2012 8:03 AM
Comment #335080

C&J-

That is why your statement, “Many of the Non-bank lenders, rather than rely on something like deposits, or income from their debtors (them paying back the principle and interest), instead relied on derivatives to fund their operation in the first place.” is true but useless. It is really old-thinking. Are you sure you are not getting information from grandpa?

The operative words were “in the first place.”

The question you fail to deal with here is why those companies folded up so quickly after the downturn began. The truth was, they were always a product of market speculation, nothing more. They never had deposits to back them, never really were cash and carry. This allowed them to avoid rules like the CRA, and the regulatory requirements Fannie and Freddie had, and that allowed them to dominate the mid-2000s secondary mortgage market. They could originate the mortgages like hotcakes, then turn them into securities, launder them with other derivatives, and then make what one day would be called toxic assets out of.

Ordinary banks would have had leverage requirements. Overstep those, and you’d end up with your deposits sold to the FDIC, and your bank shut down. These non-bank lenders had no such requirements, and no such system in place to mitigate such collapses.

Your party let these things exist, to prove we didn’t need to bind financial institutions in all those unprofitable regulations. However, as we discovered, there was a whole lot of downside to their freedom, freedoms similar to the ones depository banks once had, before the reforms that followed the onset of the Great Depression.

If you investigated further than the GSEs, you would know this.

As for the overlaps that probably have you claiming my picture is old fashioned? Well, your legislation did that. The main reason the big banks were paralyzed, too big to fail, was that the Republican Congress passed a series of laws permitting further conglomeration, and the addition of divisions that dealt in insurance, hedge funds, investment banking, etc.

You wonder why I disregard your picture, it’s because of these huge gaps in the understanding your arguments demonstrate. Why should I trust a theory that explains so much incompletely when I have one that better explains everything?

As far as the rich and their fun? The rich did recover faster. It’s a matter of historical record. Folks on Wall Street were not punished for being so disastrously wrong. Your narrative of justice already dealt is faulty at best.

As for my views? my views are simple in principle, thought they allow for nuance in practice. If we are to reward people we ought to reward them for doing good. If we are to punish them, we ought not to be shy about it.

As for people being individuals? As far as I can see, they can be both, and it is your own philosophical narrowness that has you denying that people function BOTH as individuals, and as groups. Man is singlular in nature, but also social, too. I am Stephen, but I am also a Daugherty, a White Man, an American, a Texan, a Computer technician, and a member of any number of other groups as well. My ancestors called Germany, Ireland and Great Britain home, among other places, and I am also one of millions with an autism spectrum disorder.

The real world gives us histories, collective memberships,and whatever else. I am like this group of people, not like this other.

Now if you asked me whether I was concerned about standing up for my rights as a white man, you would find that I have considerably less patience with the notion that I actually need help there. At the same time, if you asked about Autism Spectrum folks, you would find another opinion altogether, as I recall my struggles.

I can pretend like I’m an island, completely self-made, or I can admit that my nature includes my indentifying as a member of several groups.

That doesn’t mean I believe in the extreme sense of collectivism as expressed in Marxism, but neither does that mean that I identify all that strongly with the collectivism that is corporatist capitalism, either.

The are properties of society that won’t show up if you only look at people in a reductive sense, behaviors that only make their full sense when you get everybody interacting together.

You can throw around loaded words relating to extreme collective identities, but just as I refused to identify with white supremacists or white rights groups, despite my ethnic background, I refuse to identify myself with a collective to that extent. I choose my associations, and the degree to which I strengthen them and follow them, and that’s the beauty of this country.

As far as this goes?

I would also point out that many who “had their fun” did it on borrowed money. Now you want to reward them and call them victims.
RE debt - People bought things with that money. They “had their fun” Now you are making them victims. You want the prudent people to pay for the deadbeats. This is unjust.

No, this is not about letting the deadbeats get off. I say that if you’re not willing to pay regular mortgage payments, you ought not to get a mortgage adjustment. Both Obama and myself support an approach that if you’re willing and able to pay a certain amount each month, that you should be allowed to refinance your home and get a sustainable, manageable obligation.

You’re arguing by vilification, and by doing that, missing much of my meaning.

As for your description of crony capitalism? Look, your people called for less government for decades, diluted the power of many agencies, yet at the same time, indulged in stunning levels of corruption. Size is a red herring here. It this attitude that we’re not supposed to harm anybody’s bottom line that leads us to crony capitalism. It’s this notion that helping the corporations do what they want is the pinnacle of effective government.

We’ve seen the FDA become dependant on drug companies to fund the trials, with the effect that drugs got on the market that shouldn’t have. We’ve seen the SEC get buddy-buddy with the folks they’re supposed to police. We’ve seen defense contractors like the former Blackwater, KBR, and Halliburton awash in money with little accountability, despite war-changing screw-ups (remember what started Fallujah?) costlier bases and base services, and shoddily built structures, like showers that electrocute the poor soldiers who get into them.

You define it your way, so you can make some short term claim about Solyndra, and try and pin some kind of corruption on Obama. Me? I’ve seen the real crony capitalism in action, and what Obama’s doing ain’t it. Your side has a ways to go in reforming its own approach to legislation before it can even think of lecturing us with any authority on crony capitalism.

Posted by: Stephen Daugherty at January 25, 2012 2:37 PM
Comment #335083

Mr. Remer writes; “C&J, except for foreign aid and the interest on the debt paid to foreign investors, just about all government revenue recycles back through the private sector.”

Isn’t that special, as thought private revenue isn’t…and, without being funneled thru Washington first and losing much of its impact.

He writes; “To the extent that large government fosters these, large government is great for America. To the extent that large government makes such attempts with half measures, that large government’s efficiency in reaching those objectives is diminished.”

If I may paraphrase here…only large government with large expenditures is effective…large government with small expenditures is ineffective. How in the world can one have large government without large expenditures?

Large government revenues makes work for government…that’s about it.

Posted by: Royal Flush at January 25, 2012 3:28 PM
Comment #335084

Stephen great comments.
And you’re right, people on the right (and some on the left) have absolutely no grounds to lecture on the topic of crony capitalism. Because the fact is, their policies have aided and abetted it taking over our government every single step of the way. That’s why people like David Stockman are so rare — because he’s among the few standing on the right who have been willing to face reality and speak out honestly.

Posted by: Adrienne at January 25, 2012 3:34 PM
Comment #335085

SD writes; “Both Obama and myself support an approach that if you’re willing and able to pay a certain amount each month, that you should be allowed to refinance your home and get a sustainable, manageable obligation.”

Well, I suppose obama is delighted that you support him. Suppose this “certain amount” is below just the interest on the mortgage? What then? Should the bank and its depositors take the hit?

Posted by: Royal Flush at January 25, 2012 3:35 PM
Comment #335087

Chris Hedges, just like David Stockman, understands that we don’t have capitalism or democracy any longer — and if people (of all political stripes) want either, we’re all going to have to join together and fight for them.

The Corporate State Will Be Broken

Quote from the link:

Our electoral system, already hostage to corporate money and corporate lobbyists, gasped its last two years ago. It died on Jan. 21, 2010, when the Supreme Court in Citizens United v. Federal Election Commission granted to corporations the right to spend unlimited amounts on independent political campaigns. The ruling turned politicians into corporate employees. If any politician steps out of line, dares to defy corporate demands, this ruling hands to our corporate overlords the ability to pump massive amounts of anonymous money into campaigns to make sure the wayward are defeated and silenced. Politicians like Obama are hostages. They jump when corporations say jump. They beg when corporations say beg. They hand corporations exemptions, subsidies, trillions in taxpayer money, no-bid contracts and massive loans with virtually no interest, and they abolish any regulations that impede profits and protect the citizen. Corporations like Goldman Sachs, because they own the system, are bailed out by federal dollars and given essentially free government loans to gamble. I am not sure what to call our economic system, but it is not capitalism. And if any elected official so much as murmurs anything that sounds like dissent, the Supreme Court ruling permits corporations to destroy him or her. And they do.

Turn off your televisions. Ignore the Newt-Mitt-Rick-Barack reality show. It is as relevant to your life as the gossip on “Jersey Shore.” The real debate, the debate raised by the Occupy movement about inequality, corporate malfeasance, the destruction of the ecosystem, and the security and surveillance state, is the only debate that matters.

Posted by: Adrienne at January 25, 2012 3:53 PM
Comment #335089

Gosh Adrienne, I didn’t know Occupy was still functioning. Like the hula-hoop, fun for kids but just history now.

Posted by: Royal Flush at January 25, 2012 4:17 PM
Comment #335091


Two words, crony and capitalism. Under a capitalist economic system, the only size government that is not vulnerable to crony capitalism is no government at all.

Our local city government has been recalled three times in the last two decades for participating in crony capitalism is such a way that it was totally obvious. Our county commissioners are all crony capitalists as well. As is the controlling faction in my village government.

With our capitalist economic system, the only check on crony capitalism has to come from the people. Crony capitalist politicians have a great weapon to use on the people, divide and conquer.

Most Americans know that both political parties participated in what has happened to our country, not in response of crony capitalism but in support of it.

Crony capitalism, during the Bush Administration, grew to a height not seen since the days of the Harding Administration in the 1920’s and the Gilded Age of the Robber Barons.

The war in Iraq was a crony capitalist war.

Beware of small government crony capitalist demagogues who decry crony capitalism.

Ronald Reagan was a very good crony capitalist demagogue.

Both Reagan and Bush were crony capitalist demagogues who created $9 trillion in debt for the cause.

Crony capitalism is inevitable with capitalism, reducing the size of government frees capitalism to do it’s worse, not it’s best.

Crony capitalism can only be kept under control when the people can resist the temptation to follow demagogues who tell them what they want to believe.

My take on the SOTU and the Republican response, Obama was classic Obama presidential mode, throwing red meat at the Republicans while extracting some skin from them, and calling for bipartisan support to move the country forward.

The Republican response was the same response they have been giving since Obama took office, over our dead bodies. Not until Democrats totally capitulate to our demands or we destroy Obama’s presidency.

From my historical perspective, the Republican position is unprecedented since the Civil War era when the Democratic party led the South into succession.

My take on conservatives as Nazi’s. They are vulnerable to demagogic rhetoric that has become more Nazi, Fascist in nature in promotion of conservative approved individual liberties.

True Americans who belive in individual liberties would have tar, feathered, and rode out of town on a rail, a demagogue named Gingrich for announcing his position of purging the government of liberal workers. That is the kind of rhetoric Nazi types love to here. The kind of demagoguery that has them cheering wildly and so happy they could goose step.

Posted by: jlw at January 25, 2012 4:28 PM
Comment #335095

As far as the effects of the war, what eliminated unemployment here wasn’t all those people dying, it was this country having intact factories, unlike Europe, at the end of the war, in addition to the fact that people had a lot of money saved up.

As for the stimulus? We didn’t have that “filibuster-proof” majority until long after the Stimulus, although it did, in part, come out of the fact that your party drop-kicked Arlen Specter out of the party for supporting it. We’ve been over the figures, but let me assure you, we wasted far more money deficit financing an eventual recession with your tax cuts, which your party described as stimulus measures for the economy than we did restarting the growth that now has Obama almost even for his administration’s share of the job losses.

So, you’re exaggerating on both counts there, and neglecting your own party’s history.

As for that “filibuster-proof majority”?

I’d say this. It was filibuster proof only if EVERY Democrat voted to end the filibuster. And then, only while we had sixty votes. Filibuster-resistant was more like it.

But why was being filibuster-proof (sorry, resistant) so important?

Because your party was literally setting records for being obstructive. NO other Senate Minority in American history ever was so obstructive. Your party resorted to constant appeals to the filibuster, which unfortunately don’t come with the Jimmy Stewart-Era requirement that you actually have to talk as long as you want to hold up the debate. We lose those votes, the bill is as good as dead. What good is a majority if you can’t pass a bill with it?

And if you remember your basic high school civics, you can’t pass a law unless it passes both chambers.

So don’t act like the limits placed on that Congress were merely self-imposed. I can’t really get how you can justify that obstruction at the same time you deny it’s effect. It seems like a bunch of rhetorical nonsense to me, trying to manuever for maximum punchiness of claim, and minimum blame for the dysfunction your side is actually deliberately causing.

The Republican’s biggest problem in this coming election isn’t merely that they are trying to walk between the rain drops, it’s that to succeed in getting elected (and re-elected), they practically have to. Their big idea coming out of their latest leadership conference is this:

“Our members are united around the realization that the policies that have been promoted by this administration have not worked,” Majority Leader Eric Cantor (R-Va.) said.

The realization. As if they hadn’t been not only repeating this, but doing their utmost to make it happen! Crippling the transition from right-wing policies has been their aim from the start. They won’t even negotiate in good faith for the good of the country.

The sad part is that your party thinks that it can continue to keep power like this. Just look, though, at the way your party’s freaking out over Newt Gingrich, though.

Your last nominee’s political advisor, Steve Schmidt, has this to say about what happens if he wins Florida:

[N]ot only are we not moving towards a coalescing of support by the Republican establishment for Newt Gingrich, we’re probably moving toward the declaration of war on Newt Gingrich by the Republican establishment. And if Newt Gingrich is able to win the Florida primary, you will see a panic and a meltdown of the Republican establishment that is beyond my ability to articulate in the English language.

So, there you go.

Your party may get what it wants in terms of a fire-breathing, uncompromising Republican, but it will also get a man who almost nobody else likes.

Posted by: Stephen Daugherty at January 25, 2012 4:59 PM
Comment #335097

Royal Flush-
I’m not sure you’re quite grasping this, but the significance of the whole bubble collapse was that they made too many bad loans, or got too many people on terms with their mortgage or refinance that they couldn’t afford over the long term.

So the problem for them now is not taking a haircut because of what government might force on them, it’s getting shaved bald by their own idiocy. Theoretically they could still do better, and theoretically, everybody could just shove every expense they have aside to pay things back totally, and we could all have our nice moral system without a single problem or bailout of any kind.

Theoretically.

But in the real world, if they or we want the real estate market to return to normal, if we want to prevent further unneccessary foreclosures, if the banks want to avoid the further generation of toxic assets, they might be well advised to take the cut, and over the long term get a nice, safe, assured, low-risk revenue stream.

Posted by: Stephen Daugherty at January 25, 2012 5:16 PM
Comment #335099

RF:

Gosh Adrienne, I didn’t know Occupy was still functioning. Like the hula-hoop, fun for kids but just history now.

Oh gosh no — it’s still functioning all over the country, and it’s growing. I think perhaps you think the movement disappeared because it isn’t being covered by the corporate media as much as it once was? You see, the corporate media has gone back to thinking that if they simply keep ignoring the movement, that will make it go away. But of course, it won’t. In fact, it’s just begun.

In fact, Chris Hedges, the Pulitzer Prize winning journalist and Occupy supporter whose article I just linked to earlier is actually suing the Obama and the Secretary of Defense over indefinite detention of U.S. citizens that was just passed with the National Defense Authorization Act.

And to give you another recent example, you probably haven’t heard that this past Tuesday the Director of the National Park Service, Jonathan Jarvis, stood up in defense of Occupy at a House Oversight and Government Reform Subcommittee hearing dedicated to the protests in DC.

Posted by: Adrienne at January 25, 2012 5:23 PM
Comment #335107

“…in addition to the fact that people had a lot of money saved up.”

Stephen,

That is not an insignificant point. The concept of a “balance sheet” explanation for the Great Depression, Japanese “Lost Decade” and the current “Great Recession” has gained considerable traction in recent years. http://www.house.gov/apps/list/hearing/financialsvcs_dem/richardc.koo.pdf

While, the government spent a huge amount of deficit financed money in WWII generating full employment, it also limited the ability of people to spend that money by rationing consumer goods and expropriating the manufacturing sector for the war effort. It was not only a full employment program but also a forced savings program which allowed the private sector to pay down the extraordinary debt that had been run up in the years proceeding the Great Depression. By the end of the war, the private sector balance sheet was in excellent shape.

The popular Keynesian explanation for the recovery from the Great Depression often fails to mention the forced savings aspect of the spending. It wasn’t just Keynesian stimulus spending.


Posted by: Rich at January 25, 2012 7:43 PM
Comment #335110

David, an excellent last para there, in that it succinctly defines the current. But, I have my own self indulgent interests to protect here.

First of all, the current political climate should lead everyone to understand why we need a 3rd party with a diff pol att - - - to achieve any REAL reform in this country. You would think Independents would recognize that and get on with it.

Obama’s speech is less ‘transforming America’ and more nibbling at the edges, involving gov’t in many more aspects of business and life. Mitt is clearly establishment, status quo, the corpocracy candidate. Newt is whatever you want him to be to receive your vote.

Obama says we are ‘on the move’ economically and wants to pursue amnesty. Newt says we are on the ropes and wants to pursue amnesty. Mitt, the status quo, corporacy guy, wants to secure the borders. It’s like la-la land dejavu.

Aren’t we globalised to the affect that if a dollar is won or lost in Malta, Wallstreet feels it? Not a word or byte on globalization from the President, while the IMF relates in todays WaPo that “The global economy is slowing sharply and is at far greater risk of recession than was thought just months ago.”

The taxpayer has ponied up for 30 years to relocate corp’s overseas. Now, Obama wants to reward them, again, to come back to the US. He is going to ‘incentivize’ co’s to hire workers and help train a couple of million workers for all those jobs that ‘will’ come back to these shores. He relates that trade laws are so unfair to the US and he is going to go get um, China, etc.

Don’t we all know that if he makes a serious ‘protective’ move we will get slapped down by the IMF/WTO globalised corpocracy?

In brief, a pig in every pot and not a word about the debt. But, anyone who doesn’t believe we are on the ‘rise’, don’t know what they are talking about!!

I’m standing for Buddy Roemer for President and a 3rd party with a diff pol att.

Otherwise - - -

Posted by: Roy Ellis at January 25, 2012 9:24 PM
Comment #335112


Roy, the IMF/WTO did not slap Reagan down and there was hardly a country that he did not accuse of unfair trade practices, hardly a tariff that he wasn’t willing to impose on those countries.

Reagan had his pets to, like the apartheid government of South Africa.

I guess the IMF/WTO could take a different approach since this is Obama.

Posted by: jlw at January 25, 2012 10:03 PM
Comment #335132

Rich-
We could point out, though, that nobody would have saved much without the jobs Keynesian spending produced!

Posted by: Stephen Daugherty at January 26, 2012 1:37 PM
Comment #335170

http://www.xat.org/xat/worldbank.html

http://www.brettonwoodsproject.org/topic/adjustment/synthesisreport.pdf

These two urls provide some information about money, the depression and the history of the IMF, WTO and World Bank.
Most amusing to observe the duopoly talking populist in posturing for the 2012’s.

Likely the Corpocracy can string folks along for another 4 years by suggesting we can lure (buy) mfctr’s to return to these shores.

The World Bank and the IMF are going begging again. The World Bank is putting $27B into Eastern Europe as its kinda soft there and the IMF thinks they will need another $500B or so to float the piigs further down stream.

Posted by: Roy Ellis at January 27, 2012 6:12 PM
Comment #335308

Well, I might like a two-scoop vanilla w/cherry on top.

Posted by: Roy Ellis at January 29, 2012 8:17 PM
Comment #381271

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