European Tribune - Community, Politics & Progress.

'nobody could have predicted...'

by Jerome a Paris
Mon Oct 13th, 2008 at 02:14:13 AM EST

With a big nod to Helen

One of the most annoying things these days is to watch our political leaders, business stars and pundits tell us that the current crisis is unprecedented, and that "nobody could have predicted" what's been going on - and go on to use the opportunity to ask for more powers to themselves in order to enact the solutions they see to the crisis.

The fact is: that crisis WAS PREDICTED - and not just by lefty bloggers. The people that now tell us they could never have conceived such a thing just dismissed the warnings, and those bearing them, with something approaching contempt back then. And ofcourse, they are now telling us that their solutions are the only one that will work today, and that we must urgently give them more powers, and again ignore the shrill warnings of the "extremists" that were right then. Why are they taken seriously, again?

Oh - of course. Because being Serious^TM is more about fitting into the mainstream than about being correct.

Before reading the rest, here are some links to my longstanding series on Bubbles Greenspan and the Anglo Disease

Anyway, here are a few examples of warnings from early 2005. I blogged each of these articles on DailyKos back then, but I won't link to these just to underline the point: these warnings did not come from shrill lefties, they were printed in the Financial Times, the main business paper in Europe (and the main competitor to the Wll Street Journal globally), and they were expressed by senior bankers or politicians.

the 'crack cocaine of global finance'
Has a newly resilient international banking system acquired near-immunity to crises? Or could a financial bolt from the blue still expose global finance to a devastating systemic shock?
(...)
Note, in passing, the astonishing fact that most of the assets of US financial institutions are not subject to the risk-based capital regime and supervisory constraints that apply to US banks. This is because a high proportion of US financial activity now takes place outside the banking system, in institutions ranging from non-banks such as GE Capital to giant hedge funds.
An overly generous financial safety net has potentially been extended by default as a result of the growing concentration of financial assets and liabilities.
(...)
The positive feature of credit derivatives is that they can give banks an opportunity to transfer risk to those institutions that are best equipped to bear it. But the market can be illiquid, while trading strategies depend on highly complex pricing models. And credit derivatives have never been tested in times of acute market stress. With so much of the market concentrated in a handful of complex giants, there is a risk that any attempt to reduce their exposure in the face of a shock could magnify rather than diminish the shock. he banks' first line of defence, in the event of trouble, is their capital cushion. Yet it is hard to know what constitutes an adequate cushion when so much financial activity that could pose a systemic threat is outside the banking system, and when the degree of leverage in finance is so hard to gauge.

That article also points out the increase risk taking of the financial world as cheap liquidity brings returns down, and flags that the behavior of new, untested, financial products in times of stress is generally hard to predict. It furthermore notes that current regulations are largely pro-cyclical (ie they reinforce market movements, by allowing booms to go higher, and making busts more painful)

So we have it all - the shadow banking system, the abuse and concentration of derivatives, the risk of illiquidity, the lack of regulation and supervisions, and the insane pro-cyclicity or what little there is.

Clouds sighted off CDO asset pool
many bankers argue that the world already has reason to be grateful to credit derivatives. Without them, the arguments goes, financial markets could have crashed after the Enron scandal or, more recently, after General Motors had its debt ratings downgraded. "It's fair to say that in the past [the GM shock] would have caused the market to seize up entirely," says Sean Park, global head of credit trading at Dresdner Kleinwort Wasserstein.
Yet the very same traits of CDOs that can be so benign also carry potential risks. The sector has expanded so dramatically in recent years that it has, in itself, helped boost demand for credit products. In turn, that has helped keep bond prices high - and may have lulled investors into a false sense of security. Meanwhile, the fact that CDOs disperse credit among multiple investors means that, if a nasty accident did ever occur with CDOs, it could richochet through the financial system in unexpected ways. Many insurance companies, banks, hedge funds and pension groups have piled into the sector.
(...)
"I have been to dealer-sponsor events [selling CDOs] and the way they simply things scares me," says Charles Pardue, of Prytania, a hedge fund. "I fear there are people being lulled into the idea they understand [these instruments] - when they may not."
(...)
One of the most crucial questions in this fast-growing market is whether investors correctly understand "correlation" risk - that is, the danger that if one asset turns bad it could affect other assets in a snowball effect.

That article discusses the extraordinary growth of derivatives and structure products like CDOs (collateralized debt obligations) and CDSs (credit default swaps), amidst a quasi-desperate quest for higher returns in markets where returns are squeezed down because asset prices are inflated by cheap liquidity. It underlines, yet again, that things are okay because conditions are extraordinarily mild and that the instruments are untested in times of crisis. Some of the risks we saw explode in the past year are even noted already - correlation risk, while some are implied (the era back then is permanently described as one of cheap, pervasise, liquidity)

Property could fall like a house of cards
Nout Wellink, president of the Dutch central bank, last month warned that a hangover from the property boom could well exacerbate the next downturn.
(...)
The end of housing bubbles in other countries has been associated with periods of prolonged economic weakness, increasing financial fragility, rising government deficits and the appearance of monetary instability.
(...)
But it is not just borrowers who are hurt by a housing market collapse. Rising levels of bad debt inflict damage on lenders' balance sheets. This often leads to a credit crunch and sometimes to a full-blown banking crisis.
(...)
The head of the Dutch central bank now regrets what he calls the "artificial stimulus" provided to the economy by the housing boom.

So - not just a warning printed in the Financial Times, but coming from the head of the Central Bank of a major European country, and warning of how the same circumstances had brought about the same consequences time and over again. He was ignored, but he was, of course, correct.

So - just 3 articles from early 2005, before there were any hints of any weakness in the ongoing bubbles, coming from uninmpeachable sources in one of the most Serious^TM publications around...

No, nobody could have predicted how this would end...

One of the striking things about business newspapers, in fact, is that they are great sources of information if you don't read the headlines, the front page or just the leading paragraph of articles, but focus on the full content of the paper. All the information is there, available to be analysed. But the analytical skills of their main pundits and editorialists, and the common wisdom on context that gets distilled into other articles, rarely absorbs that content - in fact, it is often amazing how often it appears that those people in such papers that are in charge of analysing the news and providing an interpretation that will be distributed far and wide (for these pundits are influential) do not read their own paper...

And thus, as mainstream news organisations, politicians and TV anchors get their cues from the Serious People in the business press, the hard information gets lost as analysis turns into mush or propaganda (your choice), and people believe it was never there in the first place.

"Nobody could have predicted" really means "I'm too stupid to know what I'm talking about."

Dean Baker's latest note needs to be read in full, but here's the money quote:

Imagine that the bailout had gone down a second time. Suppose that the financial markets and credit markets had panicked in the same way that they actually have panicked since the bailout's passage.
The newspapers would be filled with news stories, columns, and editorials condemning the ignorant hordes who just can't understand economics, and who forced their leaders in Congress to vote against the bill. However, when bad things happen after Congress follows the advice of the elite (who, by the way brought us to this crisis in the first place), no one is supposed to say anything.
Well, the real story here is that the elites brought us this mess. They were too dumb to see an $8 trillion housing bubble and to recognize the damage it would cause when it burst. They didn't know what they were doing then and they still don't know what they are doing now.

We have to take their microphones away from them. Urgently.

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'nobody could have predicted...' | 34 comments (34 topical, 0 editorial, 0 hidden)

Crossposted from DailyKos (4.00 / 5)

http://www.dailykos.com/storyonly/2008/10/12/154917/88/216/624232

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (jeromeguillet@yahoo.fr) on Sun Oct 12th, 2008 at 03:55:48 PM EST

Re: Crossposted from DailyKos (none / 0)

[Drew's WHEEEEE™ Technology]

/beat you to it

Where's your motherf*%&ing flag pin?

by Drew J Jones (blahblahblah@blahblahblah.com) on Sun Oct 12th, 2008 at 09:04:18 PM EST
[ Parent ]

Re: Crossposted from DailyKos (none / 0)

...adding...

[Drew's Crystal Ball of GAAAAAHHHHH™ Technology]

Where's your motherf*%&ing flag pin?

by Drew J Jones (blahblahblah@blahblahblah.com) on Sun Oct 12th, 2008 at 09:05:41 PM EST
[ Parent ]

Re: "nobody could have predicted..." (4.00 / 10)

Matthew Paris the other day on what he said in the Times in 2004:

Columnists are nervous of looking silly. It was with hesitation that in August 2004, writing on this page after a Times poll had reported vast economic confidence among the public, I suggested that "a darker melody in a minor key is faintly audible beneath the oom-pah-pah of economic optimism: a persistent, puzzled, inquisitive counterpoint.
"Why? Why does there seem to be all this money sloshing around?.." "...Maybe the growing wealth so many of us feel... simply because each of us is prepared every year to set a higher valuation on our fellow citizens' houses, is not a chimera. But I cannot but share... this nagging feeling that a nation of homeowners energetically bidding up the value of each other's property, borrowing on the basis of the inflating figures, then spending the money in hypermarkets every weekend... is somehow riding for a fall." I wondered if I was missing something, but wrote it anyway; was comprehensively demolished by fellow columnists; and, with a shrug of the shoulders, let the subject drop.
http://www.timesonline.co.uk/tol/comment/columnists/matthew_parris/article4922449.ece

Maybe it's because I'm a Londoner - that I moved to Nice. Blog - Nice Experience

by Ted Welch (tedwelch-at-mac-dot-com) on Sun Oct 12th, 2008 at 04:24:25 PM EST

yep (4.00 / 4)

... was comprehensively demolished by fellow columnists; and, with a shrug of the shoulders, let the subject drop.

The consensus was overwhelming, and intimidating. It "made its reality', and those that commented on it were seen at not players but, at best, harmless bystanders or, at worst, enemies to be crushed.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (jeromeguillet@yahoo.fr) on Sun Oct 12th, 2008 at 04:36:28 PM EST
[ Parent ]

Re: yep (none / 1)

Well you know

That's not the way the world really works anymore,"

;-)

Life should consist in at least fifty percent pure waste of time, and the rest doing what you please.

by ceebs (bunchofwankers (at) gmail (dot) com) on Sun Oct 12th, 2008 at 06:05:09 PM EST
[ Parent ]

Re: "nobody could have predicted..." (4.00 / 8)

There's a very good article on Greenspan's legacy - and some of the few who argued against him:

George Soros, the prominent financier, avoids using the financial contracts known as derivatives "because we don't really understand how they work." Felix Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential "hydrogen bombs."
And Warren Buffett presciently observed five years ago that derivatives were "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives -- exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street.
http://www.iht.com/articles/2008/10/09/business/09greenspan.php

Sadly too many were (like Paris above), a bit afraid of looking silly, especially when confronted by "the Oracle":

Time and again, Greenspan -- a revered figure affectionately nicknamed the Oracle -- proclaimed that risks could be handled by the markets themselves.
"Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury," recalled Alan Blinder, a former Federal Reserve board member and an economist at Princeton University. "I think of him as consistently cheerleading on derivatives."
Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, says Greenspan opposes regulating derivatives because of a fundamental disdain for government.
Levitt said that Greenspan's authority and grasp of global finance consistently persuaded less financially sophisticated lawmakers to follow his lead.
"I always felt that the titans of our legislature didn't want to reveal their own inability to understand some of the concepts that Greenspan was setting forth," Levitt said. "I don't recall anyone ever saying, 'What do you mean by that, Alan?' "
...
"He had a way of speaking that made you think he knew exactly what he was talking about at all times," said Senator Tom Harkin, a Democrat from Iowa. "He was able to say things in a way that made people not want to question him on anything, like he knew it all. He was the Oracle, and who were you to question him?"
ibid

Maybe it's because I'm a Londoner - that I moved to Nice. Blog - Nice Experience

by Ted Welch (tedwelch-at-mac-dot-com) on Sun Oct 12th, 2008 at 04:48:12 PM EST
[ Parent ]

Re: "nobody could have predicted..." (4.00 / 5)

"(Greenspan) had a way of speaking that made you think he knew exactly what he was talking about at all times," said Senator Tom Harkin, a Democrat from Iowa. "He was able to say things in a way that made people not want to question him on anything, like he knew it all. He was the Oracle, and who were you to question him?"

A classic example of rhetoric trumping reality. There was a reason rhetoric was one of the seven liberal arts. Barron's ran an article earlier this year which questioned Greenspan's academic credentials. What cannot be questioned are his rhetorical credentials. Rhetoric is what enabled him to surf the crest of the Chicago School neo-classical economics wave set in motion by Friedman.

While I do not recommend that all college undergraduates be required to take a course on rhetroic, I do think that they should be required to take a course that alerts them to the power of that art to win on style arguments that should loose on substance. The dominance of Friedman and Greenspan and the techniques used by Greenspan should be combed and used as exhibit A.

If sanity be culturally normative, then by the norms of this culture I claim insanity.

by ARGeezer (argeezer a in a circle yahoo dot com) on Mon Oct 13th, 2008 at 01:44:33 AM EST
[ Parent ]

Re: "nobody could have predicted..." (3.88 / 8)

We have to take their microphones away from them. Urgently.

Yes, precisely. The time has come to call them what they are, charlatans, to denounce them, and to use this moment of crisis to strip them of their rheotorical power.

We stand witness to the opening battle of a war of ideas that will determine the shape of the global economy for as long as the rest of us are likely to live. As wrote

Opportunity to change the economics ideas that are the blueprint for the construction of economic institutions. The destruction of the old order requires the a new order be built. The old order is destroyed by uncertainty, not risk.
We live in uncertain times, the old economic ideas that said that pumping $700 billion into banks to recapitalize them would end the crash. It did not. The old ideas have thus been broken. In an economy ordered by risk, the cost of given actions are calculable within a margin of error. In an economy dominated by uncertainty, the result of any action is essentially unknown. We live in an economy dominated by uncertainty, the last time this was true was during the 1970s, and resulted in the rise of neoliberalism. The period of uncertainty during the 1930s resulted in the regulation of the economy by the national state, and the collapse of the network of international trade.
In looking to where we head now, I'd like to point to 5 hypotheses put forward by Blyth:
1. In periods of economic crisis, ideas (not institutions) reduce uncertainty.
2. Following uncertainty reduction, ideas make collective action and coalition building possible.
3. In the struggle over existing institutions, ideas are weapons.
4. Following the delegitimation of existing institutions, new ideas act as institutional blueprints.
5. Following the delegitimation of existing institutions, ideas make institutional stability possible.
These five simple statements say so damn much. This is what is happening today. We are in the midst of a process of change which will structure the way that the economy functions for the rest of all our natural lives.
They tell us a great truth. Economic crises are both moments of great danger and great opportunity.

Where, Jerome, are the generals of the Left?

What remains of the once great tradition of Keynes, Clement Atlee, and FDR?

Yes, we must take away their microphones, but to whom shall we give voice?

To what ideas shall we give support?

I know what I want.

Call up the craftsman, bring me the draughtsman, build me a path from cradle to grave
And I'll give my consent to any government that does not deny a man a living wage
Go find the young men, never to fight again, bring up the banners from the days gone by
Cast moderation, heart of this nation, desert us not we are between the wars...
Billy Bragg- Between The Wars

Reflationary policies require counter-cyclical spending. What is spent to prompt up cycle must be roughly equivalent what is falling down. In these times we live, that's one hell of a lot of cash.

The last time around, the only activity that could be called upon to marshal that kind of mass consumption was war.......

I hope that we have the sense to see a path out that involves spending the money, yes. But spending it on helping men and women, not killing them.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Oct 12th, 2008 at 04:35:10 PM EST

Not sure where the general are (4.00 / 9)

but this is certainyl right:

Reflationary policies require counter-cyclical spending. What is spent to prompt up cycle must be roughly equivalent what is falling down. In these times we live, that's one hell of a lot of cash.
The last time around, the only activity that could be called upon to marshal that kind of mass consumption was war.......
I hope that we have the sense to see a path out that involves spending the money, yes. But spending it on helping men and women, not killing them.

As it were, we have the perfect target for that spending: energy infrastructure - improving the housing stock, building public transport networks, and renewable energy. Jobs, and the solution to the two most pressing long term problems: fossil fuls depletion and global warming.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (jeromeguillet@yahoo.fr) on Sun Oct 12th, 2008 at 04:53:55 PM EST
[ Parent ]

Re: Not sure where the general are (4.00 / 6)

<blockqoute>As it were, we have the perfect target for that spending: energy infrastructure - improving the housing stock, building public transport networks, and renewable energy. Jobs, and the solution to the two most pressing long term problems: fossil fuels depletion and global warming.</blockqoute>

I agree, of course. However, to employ econo-speak, is policy of this sort going to be Pareto optimal, or is going to involve increasing the tax take from people who are doing well, and using it to boost the consumption of those who are not doing well.

And more, if this sort of "green stimlus" is going to have any effect on increasing consumption, it's going to have to be directed at those with lower incomes who will actually spend the money instead of of putting it into a Swiss Bank (thought I hear that Lichenstein is the new Switzerland....)

Who is out there putting in these terms, and putting it into proper proportion, i.e. explaining that we are talking about spending that is on order with multiples of GDP, not percentages?

Ironically, in global terms, Labor is far less powerful politically now than it was in 1929.

The Labour party has slipped the leash of labor unions, and now sees itself as master to, rather than servant of, the TUC.

And don't get me started on the US Democratic party.

Where, globally, is labor organized into a politically relevant force?

I see a lot of promise in this crisis, but I also see very real peril. Of collapse, economic and social. Of anti-democratic forces rising in Europe and America.

I'm thinking of Smedley Butler, and wondering what it means that the past 10 years have seen the creation of a private military industry outside the control of the State.

And I'm worried.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Oct 12th, 2008 at 05:20:07 PM EST
[ Parent ]

Policy of this sort is collective action ... (4.00 / 2)

... creating new capabilities that did not exist before. It therefore exists entirely outside the semantic universe of Pareto Optimality, which is about distribution of a well understood, well known, and given amount of goods and services, and is incapable of comprehending social-entrepreneurial creation of new real value.

Also, with respect to:

And more, if this sort of "green stimlus" is going to have any effect on increasing consumption, it's going to have to be directed at those with lower incomes who will actually spend the money instead of of putting it into a Swiss Bank (thought I hear that Lichenstein is the new Switzerland....)

In the round, it increases income, because when governments order goods and services in the middle of a recession, producers fulfill those orders. It then is distributed as earnings primarily to wage and salary incomes, since profit earnings are low in the middle of a recession.

Tax cuts depend on consumption spending for their stimulus in the first round, as well as in later rounds ... government spending only requires consumption spending in the second round and later effects. The immediate income and employment impact is not subject to being undermined by dropping propensities to consume.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Sun Oct 12th, 2008 at 06:08:51 PM EST
[ Parent ]

Kickstarting Policies. (none / 0)

In the round, it increases income, because when governments order goods and services in the middle of a recession, producers fulfill those orders. It then is distributed as earnings primarily to wage and salary incomes, since profit earnings are low in the middle of a recession.
Tax cuts depend on consumption spending for their stimulus in the first round, as well as in later rounds ... government spending only requires consumption spending in the second round and later effects. The immediate income and employment impact is not subject to being undermined by dropping propensities to consume.

Ok, so consumption is fueled by expanding the money supply, to create capital to be employed in kickstarting consumption, but this involves a great deal of inflation. So in the end existing wealth is diluted in order to allow for the economy to generate social income.

Don't you see that pissing some people off?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Oct 12th, 2008 at 06:42:47 PM EST
[ Parent ]

In what alternate universe is this inflationary? (4.00 / 3)

The immediate spending is in the middle of a deep, global recession. So there is no serious risk of a demand-driven inflation component.

And once the infrastructure that is being constructed comes online, the result is an increase harvest of domestic energy supplies and reduced energy consumption, which is an increase in aggregate supply that is the only serious prospect for countering massive cost-push price inflation from imported energy over the next two decades.

Where is the inflationary impact?

Government spending creates fiat currency, as always, and that fiat currency is used to mobilize currently unemployed resources, which is not an inflationary use of newly created purchasing power, and the portion that is recirculated and used to finance consumption spending also mobilized unemployed resources, which is not an inflationary re-used of that newly created purchasing power.

Certainly any effort to get the same effect primarily through monetary policy might be inflationary, but then that would be because of the extreme ineffectiveness of monetary policy in the face of a strong recession, especially when it is a global recession so that neo-mercantalist exchange rate policy is unlikely to lead to any substantial growth in export demand.

As far as "create capital" ... it is hard to tell in reading this whether the "capital" is finance capital (claims on incomes flowing through going concerns) ... real economic capital (goods and services that expand the productive capacity of the economy) ... or a Three-Card-Monte conflation of the two.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Sun Oct 12th, 2008 at 07:07:37 PM EST
[ Parent ]

Re: In what alternate universe (none / 0)

Ok, what I was trying to say here is that:

There must be massive deficit spending.
This deficit must be financed.
The Chinese don't look willing to make the loan.
So we make the money by printing it.
The amount of money printed is not going to be matched by an equivalent amount of goods.
There will be more money to buy roughly the same amount of goods.
The amount of money required to buy the same amount of goods will increase.
Inflation.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Oct 12th, 2008 at 10:17:21 PM EST
[ Parent ]

Re: In what alternate universe (4.00 / 2)

On 2:

This deficit must be financed.

You mean the trade deficit impact of the spending? Well, yes, but in the middle of a global economic downturn is the time when it will be least difficult to finance that ... and it only needs to be finance, since it is self-funding, given that the eventual savings on the trade account will more than offset the original trade-account impact of the government spending on infrastructure.

On 5:

5. The amount of money printed is not going to be matched by an equivalent amount of goods.

Why not? I would argue the exact contrary: under strong recessionary conditions, the amount of money printed will of course be matched by something quite close to that amount of newly produced goods and services.

It is a major government spending program on infrastructure when the economy is booming, or at least well advanced in a normal recovery that the spending will not be matched by that amount of newly produced goods, but instead will in part shoulder aside existing production, which is an inflationary process.

You seem to be assuming that when faced with the orders from the government, suppliers will turn their backs on orders from other customers, rather than increasing production to meet the new orders without turning away existing customers. Which in a deep and global recession is presumption that I find to be absurd.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Sun Oct 12th, 2008 at 10:25:41 PM EST
[ Parent ]

Re: In what alternate universe (4.00 / 3)

Infrastructure is wealth.

It's indirect wealth - it doesn't live in warehouses, and people can't buy it directly.

But if breeds wealth in the same way that lack of infrastructure - including lack of banking infrastructure - destroys it.

If you're losing spending power, it doesn't matter if you're losing it to inflation or because items are piling up in the docks because no one can offer a credit line for it.

There's also the subtext that 'inflation' is often really just code for 'worker power.' But that's for another diary.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Oct 13th, 2008 at 05:42:45 AM EST
[ Parent ]

On the subtext, quite definitely ... (none / 0)

... when there are members of the Federal Open Market Committee who talk about wages increasing at half the rate of productivity growth as an "inflationary threat" that may have to be tamped down with a rise in the cash rate ... while asset-price inflation is always for the best ... its clear that the obligation to pursue a full employment economy is primarily honored in the breach.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Mon Oct 13th, 2008 at 05:28:50 PM EST
[ Parent ]

Re: "nobody could have predicted..." (4.00 / 8)

All the publicly recognized economic geniuses seem to have one talent: the ability to tell us what happened yesterday.

Anyone here could do that, so what are these people paid for? Everyone knew this was a bubble and yet there is no mechanism apparently for dealing with bubbles before they become "too big to burst", no mainstream notion that that would even be desirable - because really it's all bubbles and who are we to discriminate? Is that the idea?

If this is the scienco of economics, just give me back my LSD.

by melvin on Sun Oct 12th, 2008 at 04:59:55 PM EST

Re: "nobody could have predicted..." (none / 1)

i don't think we can have pure capitalism without bubbles.

on the flip side to mcmansions with greening pools, we have the third world, dying for lack of shelter.

'virtual' pensions disappear in a puff of smoke here, 4/5ths of the world never had a pension to lose...

apparently in Syria, all business has to be 20% government owned, so regulators and ceo's are 'on the same side'. the arab world already gave us key concepts in mathematics, i have a hunch we're going to get a few lessons in banking next...

Peace is not the absence of war -- peace is the absence of fear. Ursula Franklin

by melo (melometa4(at)gmail.com) on Tue Oct 14th, 2008 at 07:20:19 AM EST
[ Parent ]

Re: "nobody could have predicted..." (none / 0)

We don't need government ownership in companies to have a healthy capitalist regulation. We just need honest regulation!

Further I think government ownership of companies might work in the opposite direction, especially in places like Syria: instead of making business more honest it will make government more corrupt. CEO's and ministers will indeed be on the same side: their own.

Compare this with the very same experience from Fannie and Freddie.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid (arvid.hallen at gmail.com) on Tue Oct 14th, 2008 at 11:16:54 AM EST
[ Parent ]

Re: "nobody could have predicted..." (none / 0)

In countries like Syria, CEO's and ministers, if not identical, tend to have very close family relationships...

Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant.

by linca (antonin POINT lucas AROBASE gmail.com) on Tue Oct 14th, 2008 at 11:18:03 AM EST
[ Parent ]

Re: "nobody could have predicted..." (none / 0)

Ha, yes.

Syria is an... interesting... place. I've heard many crazy stories from people who've been there in connection with Tanganiyka Oil, (recently sold to Sinopec btw).

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid (arvid.hallen at gmail.com) on Tue Oct 14th, 2008 at 11:50:13 AM EST
[ Parent ]

Re: "nobody could have predicted..." (none / 0)

We just need honest regulation!

That's always difficult to impossible to achieve when private companies have a lot of money -> lot of leverage -> lot of influence over politics and bureaucrats.

*Traitor*, n.
A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.

by DoDo on Wed Oct 15th, 2008 at 05:22:54 AM EST
[ Parent ]

Re: "nobody could have predicted..." (none / 1)

DoDo:

That's always difficult to impossible to achieve

understatement of the millennium!

if you're so smart as to be a clued-in bank regulator, how come you don't come play the game from our side and become rich?

how in heck can we pay regulators enough to be uncorruptible?

i'm agin the death penalty, but i fear it would take a deterrent of that magnitude to deter the kinds of legal (because their game designers are several steps ahead of the regulators and legislators) shenanigans that are reducing trusting citizens to penury.

Peace is not the absence of war -- peace is the absence of fear. Ursula Franklin

by melo (melometa4(at)gmail.com) on Wed Oct 15th, 2008 at 06:15:26 AM EST
[ Parent ]

Re: "nobody could have predicted..." (none / 1)

Hence you prevent companies and private individuals from having lots of money.

We know roughly the price of a seat in the Danish parliament. Cut that in half and set it as having 100 % rate in a progressive tax scheme. (For added fun, have double the number carry a 110 % tax rate...)

- Jake

Ceterum censeo Chicago esse delendam

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 15th, 2008 at 07:03:46 AM EST
[ Parent ]

Re: "nobody could have predicted..." (4.00 / 6)

Weeee, I get a namecheck on dKos. {fame beckons - ego inflates}

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Sun Oct 12th, 2008 at 05:25:13 PM EST

Re: "nobody could have predicted..." (none / 1)

We have to take their microphones away from them. Urgently.

Are we talking/posting in code now? HOW do you/we take away THEIR ... MICROPHONES? What does this mean? Please translate for this incredibly peaceful person.

Welcome to ET, Paul Krugman

by THE Twank (paszeski__aaaaaaatttttt__yahoo.com) on Sun Oct 12th, 2008 at 06:38:47 PM EST

Re: "nobody could have predicted..." (4.00 / 5)

My reading is that Jerome is suggesting we engage in a little old-fashioned, peaceful but thorough, corporate trust-busting to bring real diversity in ownership, and consequent real diversity of viewpoints expressed, to the mass media. If Jerome isn't suggesting it, I am!

by keikekaze on Sun Oct 12th, 2008 at 08:27:44 PM EST
[ Parent ]

Re: 'nobody could have predicted...' (none / 1)

psss..

One of the guys who clearly predcited a housing bubble explosion in the US just got the Nobel prize... without predicting the problem in the black banking market... (though he got it for other work)

I think you and the bankers who predicted how the disaster would propagate to the banking system could ask the nobel prize next year.

fortuantely we all agree now: nationalization, state guarantees for internal banking (regulated) transactions and huge infestructure projects (energy, green housing, trasport) with heavy taxes on the rich and specultative financial transaction and cut in taxes for small/family companies and lower incomes.

If we convince economists to include taxes on greenhouse gases (cars, heating...) in exchange for rebates for low income people we have the beginning of a new economic model...which is a capitaism if we want to call it that way.. but it is complety different from the one which exists now.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon Oct 13th, 2008 at 07:36:38 AM EST

Re: 'nobody could have predicted...' (none / 0)

great comment, kc.

it would also mitigate the myth that government is either irrelevant or outright inimical, which is borne out in voter apathy and low turnout.

for decades, even lefty governments in yurp have been seen as a problem, rather than a solution to ordinary peoples' ills.

when people see their taxes being used to raise quality of life, rather than spent on expensive war toys, then i believe civic pride would return naturally.

this breakdown is necessary, unfortunately, as we did not agree on a better way earlier, because no-one from the Serious People^TM was listening to the swelling chorus from jerome and others.

Peace is not the absence of war -- peace is the absence of fear. Ursula Franklin

by melo (melometa4(at)gmail.com) on Tue Oct 14th, 2008 at 07:29:22 AM EST
[ Parent ]

Re: 'nobody could have predicted...' (4.00 / 5)

The latest TUC press release - hope this isn't the wrong place for it to go.

TUC welcomes bank capitalisation but calls for tough conditions
Responding to the Government's purchase of shares in banks today (Monday), TUC General Secretary Brendan Barber said:
"This is a bold and welcome move. The Prime Minister and Chancellor may have had to dust down rusty and unused parts of their policy tool kit, but they have acted decisively and continued to show leadership at the global level.
"Securing the condition that banks will start lending again is the most important outcome today. This will reassure the many businesses where the credit freeze was beginning to threaten jobs and investment, and new mortgage lending will bring some relief to the housing market.
"But questions and challenges remain. In RBS at least, the Government is now the majority owner, and in other banks it will be by far the biggest shareholder. It now has major responsibilities as an owner that cannot be passed to an arms-length body. The lack of proper control by the owners of banks - shareholders and investment funds - has been a key cause of the crisis."
"The banks today have received as much cash as the annual defence budget. Tax payers will want to see big changes in return. It is not enough to limit cash boardroom bonuses for a year and accept a few ritual resignations. There cannot be big pay-offs for those who go, as was the case with Northern Rock. There needs to be a wholesale review of bonuses and pay throughout the upper levels of these banks, not just a year long ban on boardroom cash bonuses."
"The Government must stop the banks it owns using tax havens and other tax avoidance scams. It must also have a long term vision of how the UK banking sector should work. The banks have shown that they will act irresponsibly if allowed and there will be even less competition after enforced mergers. This will require a tough new regulatory regime."
"Let us hope that today's action represents a turning point in the crisis, but the Government must stand by to do more. It has shown that it can be bold when faced by a financial crisis, it must stand by for equally radical moves to help the rest of the economy."

Ad astra per aspera

by In Wales (inwales aaat eurotrib.com) on Mon Oct 13th, 2008 at 09:53:40 AM EST

Re: 'nobody could have predicted...' (4.00 / 3)

And another;

FSA warning to top UK bankers lacks the teeth to curb bonuses, says TUC
Commenting on the letter today (Monday) from the Financial Services Authority (FSA) to the Chief Executives of UK banks, advising them on remuneration policies, TUC General Secretary Brendan Barber said:
"Today's FSA letter does not go far enough to crack down on bonuses. Too much of it simply sets out boxes to tick, and it has no teeth. Voluntary codes have made little or no difference to soar-away executive pay.
"We take the rather old-fashioned view that bankers, like the vast majority of people at work, should be paid a proper wage for doing a good job, and should not require bonuses to get up in the morning.
"The FSA and the Government - who now own a great chunk of Britain's banks - should urgently outline how any new code will be enforced."

Ad astra per aspera

by In Wales (inwales aaat eurotrib.com) on Mon Oct 13th, 2008 at 11:29:22 AM EST
[ Parent ]

Prophets Without Microphones (4.00 / 2)

The Times [Murdoch Alert] has a list up:

Money Central - Times Online - WBLG: Ten people who predicted the financial meltdown

The financial events of recent weeks have filled many of us with shock and panic. Surely no one could have predicted that we would be in this mess? Well, actually, they did. Here are ten people who saw the financial meltdown coming..

See the comments for a long list of more.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Oct 14th, 2008 at 03:29:21 AM EST

'nobody could have predicted...' | 34 comments (34 topical, 0 editorial, 0 hidden)

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