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Becoming a Banana Republic

by ARGeezer Tue Mar 31st, 2009 at 01:52:35 AM EST

Simon Johnson appeared on MSNBC Monday with David Schuster.  There he said that this financial crisis has the potential to be worse than the Great Depression, that we are running out of time to deal effectively to prevent such an outcome and that a solution requires some form of nationalization of the big banks and breaking up the financial oligarchy that now controls US politics.  The most difficult task in his opinion will be breaking the power of the oligarchy.  I am very glad to see this said in the national electronic media.  The interview referenced an article in the May Atlantic Monthly:

                                       The Quiet Coup

You may want to read the entire article, but excerpts are posted below the fold.


Simon Johnson has extensive experience with the problems the IMF faces in dealing with financial crises in various countries.  He has said that the biggest problem the IMF always faced in any country was opposition from local elites who had a vested interest in blocking what needed to be done.  The current crisis is no different.

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn't be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn't roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there's a deeper and more disturbing similarity: elite business interests--financiers, in the case of the U.S.--played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

-Skip-

The great wealth that the financial sector created and concentrated gave bankers enormous political weight--a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.

Of course, the U.S. is unique. And just as we have the world's most advanced economy, military, and technology, we also have its most advanced oligarchy....(T)he American financial industry gained political power by amassing a kind of cultural capital--a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America's position in the world.

In the course of presenting the now well known litany of how we got to this pass he makes some very much needed comments regarding the role of academic economists and the media.  While he tweaks NCE, he does not take it on explicitly, focusing instead more on pop culture.  Hopefully, one battle at a time.

Wall Street's seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes. As mathematical finance became more and more essential to practical finance, professors increasingly took positions as consultants or partners at financial institutions. Myron Scholes and Robert Merton, Nobel laureates both, were perhaps the most famous; they took board seats at the hedge fund Long-Term Capital Management in 1994, before the fund famously flamed out at the end of the decade. But many others beat similar paths. This migration gave the stamp of academic legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance.

As more and more of the rich made their money in finance, the cult of finance seeped into the culture at large. Works like Barbarians at the Gate, Wall Street, and Bonfire of the Vanities--all intended as cautionary tales--served only to increase Wall Street's mystique. Michael Lewis noted in Portfolio last year that when he wrote Liar's Poker, an insider's account of the financial industry, in 1989, he had hoped the book might provoke outrage at Wall Street's hubris and excess. Instead, he found himself "knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share. ... They'd read my book as a how-to manual." Even Wall Street's criminals, like Michael Milken and Ivan Boesky, became larger than life. In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country--and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom--trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress.

From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:

  • insistence on free movement of capital across borders;

  • the repeal of Depression-era regulations separating commercial and investment banking;

  • a congressional ban on the regulation of credit-default swaps;

  • major increases in the amount of leverage allowed to investment banks;

  • a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;

  • an international agreement to allow banks to measure their own riskiness;

  • and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.

The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.
 

The solutions to these problems have been presented at ET previously.  It is good to see them now presented in one of the premier examples of what remains of a Quality Press in the USA.  An article such as this in The Atlantic Monthly will be hard to ignore.

At the root of the banks' problems are the large losses they have undoubtedly taken on their securities and loan portfolios. But they don't want to recognize the full extent of their losses, because that would likely expose them as insolvent. So they talk down the problem, and ask for handouts that aren't enough to make them healthy (again, they can't reveal the size of the handouts that would be necessary for that), but are enough to keep them upright a little longer. This behavior is corrosive: unhealthy banks either don't lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won't pay off at all. In either case, the economy suffers further, and as it does, bank assets themselves continue to deteriorate--creating a highly destructive vicious cycle.

To break this cycle, the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization. Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards--contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible.

Nationalization would not imply permanent state ownership. The IMF's advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC "intervention" is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse.

The government needs to inspect the balance sheets and identify the banks that cannot survive a severe recession. These banks should face a choice: write down your assets to their true value and raise private capital within 30 days, or be taken over by the government. The government would write down the toxic assets of banks taken into receivership--recognizing reality--and transfer those assets to a separate government entity, which would attempt to salvage whatever value is possible for the taxpayer (as the Resolution Trust Corporation did after the savings-and-loan debacle of the 1980s). The rump banks--cleansed and able to lend safely, and hence trusted again by other lenders and investors--could then be sold off.

Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5trillion (or 10percent of our GDP) in the long term. But only decisive government action--exposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health--can cure the financial sector as a whole.

Well, we know that avoiding looking at the books and dealing with the problems is only allowing things to get worse.  We better get with the program he is describing----But we have this problem with the elites, which is compounded by the position of the USA at the top of the global financial system and (still) having the world's reserve currency.

To paraphrase Joseph Schumpeter, the early-20th-century economist, everyone has elites; the important thing is to change them from time to time. If the U.S. were just another country, coming to the IMF with hat in hand, I might be fairly optimistic about its future. Most of the emerging-market crises that I've mentioned ended relatively quickly, and gave way, for the most part, to relatively strong recoveries. But this, alas, brings us to the limit of the analogy between the U.S. and emerging markets.

Emerging-market countries have only a precarious hold on wealth, and are weaklings globally. When they get into trouble, they quite literally run out of money--or at least out of foreign currency, without which they cannot survive. They must make difficult decisions; ultimately, aggressive action is baked into the cake. But the U.S., of course, is the world's most powerful nation, rich beyond measure, and blessed with the exorbitant privilege of paying its foreign debts in its own currency, which it can print. As a result, it could very well stumble along for years--as Japan did during its lost decade--never summoning the courage to do what it needs to do, and never really recovering. A clean break with the past--involving the takeover and cleanup of major banks--hardly looks like a sure thing right now. Certainly no one at the IMF can force it.

Johnson thinks that the extent and the depth of the developing crisis or DEPRESSION may force the sort of actions that can only be undertaken by breaking up the existing oligarchy.  (I swear I only became aware of this article on Monday after 5 PM!)

In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.

-Skip-

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we'll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and--because eastern Europe's banks are mostly owned by western European banks--justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration's current budget are increasingly seen as unrealistic, and the rosy "stress scenario" that the U.S. Treasury is currently using to evaluate banks' balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

The conventional wisdom among the elite is still that the current slump "cannot be as bad as the Great Depression." This view is wrong. What we face now could, in fact, be worse than the Great Depression--because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.

(My bold)

Display:
European Tribune - Becoming a Banana Republic
we are running out of time to deal effectively to prevent such an outcome
As long as the banking crisis goes unresolved the "real economy" will suffer damage. Now, the longer this happens the deeper the damage will be, and the harder to repair. I came up with the following metaphor yesterday - the situation is like that of living tissue starved of oxygen: the longer the lack of oxygen the more extensive the tissue damage as more and more cells die, eventually compromising the tissue's ability to heal.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 04:05:25 AM EST
... more potential than real, since in the middle of a free fall period of a recession, prudent banks ought not to be lending to firms and households that projection of current trends suggest could well not be credit-worth within six months to a year.

And since we have tried to construct a recovery on the bank of imprudent banking and it has been a massive fail, demanding imprudence from banks now seems to me to be a mistake.

We are, IOW, in precisely the kind of downturn that cannot be alleviated by monetary policy, and requires an effective safety net to limit the damage and strong stimulus to create a bottom to the recession.

Obviously, that bottom cannot be made the platform for a strong recovery based on strong income growth unless those activities capable of generating strong income growth are able to attract finance. But ... as we have seen ... just having liquidity is not enough for that. We also need to avoid having activities capable of generating strong income growth drowned out by a focus on appropriating existing income under the cover of creating fictitious wealth. And in any event, that means a functioning banking system for recovery at the trough to complement the recovery, not the false promise of a banking system that itself acts as the engine of growth.

Luckily for the global economy, either the US or the EU establishing a robust income-led recovery ought to suffice for a global recovery. OTOH, it is a bit nerve wracking for the global economy that neither the US nor the EU seem to be institutionally capable of pursuing the full policy package, with the EU likely to be able to maintain a more or less functional safety net, but institutionally incapable of pursuing an adequate stimulus, and an adequate stimulus still in the realm of possibility for the US, while the US seems institutionally incapable of providing a functionally adequate safety net.

If neither of those pan out, that would leave a global recovery to be hammered out between China and Japan, which would certainly be economically feasible ... but whether it is geopolitically and socioeconomically feasible, I haven't the faintest idea.

We seem to have been condemned to live in interesting times.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 02:53:38 PM EST
[ Parent ]
A lot of the damage at the moment is more potential than real, since in the middle of a free fall period of a recession, prudent banks ought not to be lending to firms and households that projection of current trends suggest could well not be credit-worth within six months to a year.

Fair enough, but what was then the cause of the recession? Just the popping of the asset bubble, or was the banking crisis and the credit crunch a factor?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 03:02:22 PM EST
[ Parent ]
Popping the asset bubble, the oil price spike, and the financial melt-down.

But a recession is a dynamic process, not a mechanical one ... in the current stage, its in free fall because its in free fall, and magically and instantly providing a functional, prudent banking system would not be enough of a boost to create a bottom.

Letting it find a bottom on its own gives the strongest likelihood of a low employment macroeconomic equilibrium.

Enough of the output gap has to be covered to create a bottom, and at that bottom, after the recognition lag, there have to be prospects for new income-creating activity.

Here in the US, that means we have over six months before we will really need to have have a fully functioning banking system again, able to create long term credit to finance long-term, self-funding real investment. And given the amount of Stimulus I wasted on tax cuts, that could easily require a Stimulus II.

Geithner and Treasury are, of course, frittering away the time we have in one last effort to prove that the Paulson Plan Mark III or Mark IV can at least work, so the open questions are how fast it will take the plan to fail, and whether a workable plan can be rammed through in the aftermath.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 03:17:14 PM EST
[ Parent ]
But a recession is a dynamic process, not a mechanical one ... in the current stage, its in free fall because its in free fall, and magically and instantly providing a functional, prudent banking system would not be enough of a boost to create a bottom.

Letting it find a bottom on its own gives the strongest likelihood of a low employment macroeconomic equilibrium.

Right, once the landslide is started, it matters not one iota why it did.

But I still claim that as long as the banking system is not stabilised the crisis will not touch bottom. Not because their credit is needed but because it freaks out the business class to see the banks in bad health and it leads them to withdraw their capital from the "real economy".

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 03:41:49 PM EST
[ Parent ]
And a good way to turn a recession into a depression is for the government to be unable or unwilling to privide sufficient stimulus or to undertake necessary reforms to the financial system.  Hopefully, some of the saner heads among our elite, perhaps Warren Buffet among them, will come out strongly in favor of such reform, even though it will come at a high cost to the oligarchy. Hope springs eternal...

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 04:05:12 PM EST
[ Parent ]
Ditto with banks ... the real economy is not going to get financial capital to survive based on the fact that they need it ... the fact that they need it to survive is why it won't be available. And real capital in the productive sector cannot actually be withdrawn, its just that lack of replacement over time leads it to depreciate.

So its the same as the banking system ... making a bottom is required for the financial capital to show up in any event.

Ergo the government has to be the driving force in finding a bottom.

We've known this about monetary production economies for over half a century, its just that the understanding of a monetary production economy is inconvenient for a range of private interests during financial bull markets, so quite a lot of money has been invested over more than half a century in creating willful ignorance regarding monetary production economies.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 05:29:16 PM EST
[ Parent ]
quite a lot of money has been invested over more than half a century in creating willful ignorance regarding monetary production economies.
Indeed, according to Mason Gaffney the systematic mis-education of generations of US citizens has been the primary goal of Neo-Classical Economics since its inception as a polemical recasting of Classical Economics into a form useful to undercut the appeal of Henry George.  As a practitioner in the field of economics who has managed to work both in the academic environment largely defined by NCE and yet to have a robust understanding of its deficiencies, what proportion of academics in economics and business even understand what the NCE projects have done to our collective ability to understand the world, including the original formulation, the "synthesis" by Samuelson and the more recent elaboration by Freidman et al with such doctrines as the Effecient Market Theory?  If you feel the need to assume a more obscure persona in order to answer, I will certainly understand.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 07:42:00 PM EST
[ Parent ]
To adopt a more obscure persona, I expect I would have to change my username to ".".

Between heterodox economists and orthodox economists who understand that there are stretches of the economy that the standard toolkit does not work for ... maybe 20%?


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 08:28:25 PM EST
[ Parent ]
BruceMcF:
Between heterodox economists and orthodox economists who understand that there are stretches of the economy that the standard toolkit does not work for ... maybe 20%?
The younger Galbraith puts it at 0.1% ...

NYTimes.com: Questions for James K. Galbraith (October 31, 2008)

Do you find it odd that so few economists foresaw the current credit disaster? Some did. The person with the most serious claim for seeing it coming is Dean Baker, the Washington economist. I saw it coming in general terms.

But there are at least 15,000 professional economists in this country, and you're saying only two or three of them foresaw the mortgage crisis? Ten or 12 would be closer than two or three.

What does that say about the field of economics, which claims to be a science? It's an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.



Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Apr 1st, 2009 at 04:04:17 AM EST
[ Parent ]
Never got round previously to read the article from which you took your sig-line. A lof his views are attuned with ET thinking (and rants).
by Nomad on Wed Apr 1st, 2009 at 07:21:45 AM EST
[ Parent ]
(1) First, not seeing the mortgage crisis coming for a regional economist, or a development economist, or an economic historian studying the fight between President Jackson and the Second Bank of the United States ... that's not a universal metric of whether they are wearing marginalist mainstream blinkers.

There are very few macroeconomists or financial economists remaining in the profession, having mostly been replaced by marginalist microeconomists pretending to do macroeconomics or financial economics ... and even an economist who is aware that the marginalist mainstream is radically incomplete would not have known the magnitude of the problem without the information.

I was online saying there was an unsustainable housing bubble in 2006, but I am a completely obscure regional development economist, and there's no reason that comments I make online would ever come to the attention of Jamie Galbraith. And I certainly did not expect the total meltdown, since I was not aware of how much financial fragility there was in the system. But if you had polled the individual subscribers to the Journal of Post Keynesian Economics and the Journal of Economic Issues, there would have been more than 10 or 12 who would have called a major financial system meltdown as a realistic possibility.

(2) At the 2006 ASSA meetings, there would have been more than 10 or 12 economists in the same room who would have argued that the housing bubble was unsustainable ... but it would have been the AFEE reception, and Jamie Galbraith would not have been there. Jamie Galbraith is a mainstream economist who understands some of the limitations of the approach, but that does not mean he is in close touch with large number of heterodox economists. And heterodox economists tend to be scattered across academe, in smaller institutions or lying low in state universities.

Indeed, the scattered nature of heterodox economics is on reason for the formation of ICAPE, the International Confederation of Associations for Pluralism in Economics, with 13 association members, and between 30 members between associations, institutes, journals and individual academic departments.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 09:43:09 AM EST
[ Parent ]
BruceMcF:
We've known this about monetary production economies for over half a century, its just that the understanding of a monetary production economy is inconvenient for a range of private interests during financial bull markets, so quite a lot of money has been invested over more than half a century in creating willful ignorance regarding monetary production economies.
It is a sad reflection on the state of Economics that the private interests that benefit during a financial bull market can bribe academics and policy makers into willful ignorance of monetary production economies.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Apr 1st, 2009 at 04:12:07 AM EST
[ Parent ]
bribe? Try cow or intimidate!  My suggestion to Bruce about responding from deeper cover was only partly facetious.  Perhaps he teaches at an institution where anthropologists or sociologists have moved into the higher ranks of administration.  To them NCE is like the proverbal "dead skunk in the middle of the road."  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 1st, 2009 at 11:30:34 AM EST
[ Parent ]
BruceMcF:
And real capital in the productive sector cannot actually be withdrawn, its just that lack of replacement over time leads it to depreciate.
It can actually be made to lie idle, as is happening in the car industry.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Apr 1st, 2009 at 05:39:42 AM EST
[ Parent ]
Land for development can lie idle for decades.

One of the arguments in favour of a tax on land rental values is that it gives an incentive for land to be put to productive use.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Apr 1st, 2009 at 05:49:57 AM EST
[ Parent ]
There is a large opportunity cost in developing land.

But a tax on developed land rental values ensures that already developed land is put to use.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Wed Apr 1st, 2009 at 05:54:22 AM EST
[ Parent ]
then there is also overworked land, which sometimes CAP pays farmers to leave fallow.

that equal and opposite side to the argument should be present also, n'est-ce pas?

Preservation of 'wild zones' every so often, and not taxing too heavily for those who are cash poor, yet land rich. if they are not exploiting their land, it could be saving resources for future generations, why tax present owners for that. do you want them all to have to sell because they can't pay land taxes?

</devil's avocado>

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Wed Apr 1st, 2009 at 09:42:51 AM EST
[ Parent ]
Environmental easements and the old "Soil Bank" from the Eisenhower Administration, along with zoning regulations have all served to preserve fallow land.  The current US agriculture policies are a disaster in this regard.  Fortunately, the dependence on fossil fuels required by those policies will eventually prove self limiting.  We can only hope we will be able to move in that direction before it becomes a greater food crisis.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 1st, 2009 at 01:17:32 PM EST
[ Parent ]
But it is not made to lie idle as a bargaining tactic from "the capitalist class" ... it lies idle because of lack of demand for its products.

Corporations are sociopaths, and that includes sacrificing strong immediate interests of the corporation itself for the greater good of "corporations as a whole". To get corporations on board, they have to be persuaded that it is in their interest. Now, this can and normally does include a substantial amount of self-deception, where the immediate interest of the corporation in the conventional wisdom of corporate managers and board members is not, in reality, the actual immediate interest of the corporation.

That is why one of the main tools for making real equipment lie idle is an aggressively anti-full-employment monetary policy ... in the specific US case, the FOMC is made up of government appointees and Presidents of not for profit corporations (Federal Reserve Banks) where the effect on the corporate bottom line nets out, as any surplus revenue over operating costs and a fixed nominal dividend is handed over to the Treasury, and where the short term interests of the commercial banks is often served by shying away from full employment conditions.

Creating the macroeconomic conditions in which it is in the perceived self-interest of corporations to idle equipment is far easier than convincing corporations with clear profit opportunities from the use of equipment to let that equipment lie idle. Without an immediate countervailing interest, such as the interest to gain the best bargain possible in negotiations with its own workers, its very hard to get a corporation to refrain from producing to meet a demand.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 09:52:31 AM EST
[ Parent ]
P/N Time on ET

Corporations are sociopaths

It is the owners and managers of the corporations who are the sociopaths.  They act out their anti-social tendencies through corporations as their instruments.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Wed Apr 1st, 2009 at 12:15:27 PM EST
[ Parent ]
... I argue that specific sets of institutional rules and folkviews bias outcomes in specific ways.

And, no, it is not necessary for any individual in the corporate chain of command to be a sociopath for the corporation as a whole to behave as a sociopath ... it is only necessary for boards of directors to follow their fiduciary responsibilities under the law.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 12:41:30 PM EST
[ Parent ]
Can you recommend any books on Institutionalism?
by Colman (colman at eurotrib.com) on Wed Apr 1st, 2009 at 12:52:18 PM EST
[ Parent ]
The problem is that it was at its most coherent when it was the dominant US approach, before and after WWI. John R. Commons Legal Foundations of Capitalism and Institutional Economics, Thorstein Veblen Theory of Business Enterprise and Imperial Germany and the Industrial Revolution.

The most prominent post-WWII Institutionalist was Galbraith, The New Industrial State, or A Short History of Financial Euphoria. And some who style themselves as Socio-Economists are not far from Institutional Economics ...
(indeed, while Institutionalists founded the American Economics Association, we did not found our own organization until rather late in the process of marginalist capture of the AEA, so if Institutionalist want their ASSA meetings money to not go to supporting a marginalist mainstream association, we register under the Association for Social Economics, who were a founding member of the group that holds the annual economics meetings)
... and quite relevant to the current financial melt-down is Barry Bluestone, The Great U-Turn.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 03:34:20 PM EST
[ Parent ]
... for Institutionalist, oui? Pronounced "In Sti Twee Shun a leest", voila.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 08:39:38 PM EST
[ Parent ]
Institutional economics, or schools of thought influenced by it, are alive and well and (today, after years of neglect) thriving at the New School for Social Research in NYC, the university founded by Veblen and Dewey in response to WWI and which became known as the University in Exile during WWII because of the many European intellectuals who ended up there due to the war -- Hannah Arendt is one famous example.  The New School has always been the left's answer to Chicago, and it tends to thrive when capitalism is in crisis.
by santiago on Wed Apr 1st, 2009 at 10:55:18 PM EST
[ Parent ]
I saw this dynamic on full display in Los Angeles Unified School District, where all of the players were trying to do good, as they saw it, but due to the structure and dynamics of the institution, almost all were frustrated.  I called the phenomenon INSTITUTIONAL INCOMPETENCE.  

This was especially evident in the handling of the then Architecture and Engineering Division, who had real expertise in building, maintaining and upgrading school facilities, by the rest of the organization.  The stress became more acute as more bond resources came available.  By now even the vestiges of that once fine organization are in ruins, while the district is paying an army of "consultants" far more than the old A&E Division cost and they accomplish little more than the depletion of the bond funds in endless design reviews and staff shuffles.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 1st, 2009 at 12:59:52 PM EST
[ Parent ]
Invested capital in the manufacturing sector is tied into machinery, factory buildings ... physical 'stuff' ... that deteriorates under idleness.  

Land improves under idleness as ecological succession starts to work, either naturally or man-planted 'kick start.'  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Wed Apr 1st, 2009 at 12:11:02 PM EST
[ Parent ]
... when left idle, rather than actually being "withdrawn" to another purpose.

Treating natural resources as a form of real capital is an absurdity ... and it has been argued in ET recently, that an important impetus behind the development of neoclassical economics was precisely to promulgate that absurdity ... so it may well be that the absurdities of "putty capital" assumptions, so completely destroyed by Sraffa's argument, are side-effects of the original absurdity that could be said to be a design feature (from the perspective of vested interests threatened by Georgist Economics), rather than a design flaw.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 12:45:48 PM EST
[ Parent ]
European Tribune - Becoming a Banana Republic
In each of those cases, global investors, afraid that the country or its financial sector wouldn't be able to pay off mountainous debt, suddenly stopped lending
Not exactly. They were not lending but providing capital ("foreign direct investment" or even just stock market capital). And what they did was to pull the capital out to "safety", which is analogous to calling a loan before it matures. The sudden outflow of capital crashed the respective currencies, worsening the credit situation.

And we're talking about speculators, not investors.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 04:09:57 AM EST
... vernacular means speculators, since the common vernacular on this is infected by the habits of newspaper reporters, who write as if financial speculation was actual investment because its speculators who are most willing to pay for newspapers and magazines to find out what information the other speculators already have as they play their games of "guess first".


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 12:48:32 PM EST
[ Parent ]
Now if the G-20 could only agree to a common "Tobin tax"...

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 1st, 2009 at 01:02:37 PM EST
[ Parent ]
i like the idea of putting a tiny tax on every forex transaction, apparently that would raise gazillions.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Wed Apr 1st, 2009 at 03:30:49 PM EST
[ Parent ]
It also would make un-feasable the rapid day trader type moves that arguably are the essence of speculation vs. investment.  AIRC that was a major goal of Tobin's.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 2nd, 2009 at 12:52:47 AM EST
[ Parent ]
then let's do it!

who's pushing for it, and who are the principal objectors?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Apr 2nd, 2009 at 12:04:53 PM EST
[ Parent ]
No one.  The entire financial community.  So you can see that prospects are excellent.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 2nd, 2009 at 04:44:51 PM EST
[ Parent ]
yup, you could even say that's why those leaders are grinning so delightedly at the g20!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Fri Apr 3rd, 2009 at 07:45:59 AM EST
[ Parent ]
European Tribune - Becoming a Banana Republic
In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.
And what they did after JP Morgan had to rescue the banking system was to create the Fed.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 04:11:59 AM EST
... Reserve Banking system, which proved unable to operate on the original plan when the crunch came, and so on top of that foundation was created the modern Fed.

Remember that the Federal Open Market Committee is a child of the New Deal, created by the Banking Act of 1935 (and also note that if enacted today it would have been called the "Guarantee of Recovery, Eternal Accountability, and Terrifi-cness (GREAT) Act").


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 02:59:36 PM EST
[ Parent ]
European Tribune - Becoming a Banana Republic
The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.
Not only in Washington. Economists adopted the meme that "finance is the brain of the economy". You can see this as a positive is Stiglitz's Globalization and its discontents. Financial "innovation" was an unalloyed good, as was the expansion of credit.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 04:16:09 AM EST
Migeru:
a positive isin Stiglitz's


Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 04:53:59 AM EST
[ Parent ]
Economists adopted the meme that "finance is the brain of the economy".
Brain dead economists ---> brain dead economy.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Apr 3rd, 2009 at 12:49:16 PM EST
[ Parent ]
I like Michael Hudson's characterisation of the finance sector as a parasite which (among other things) numbs the brain of the host....

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Apr 3rd, 2009 at 02:18:35 PM EST
[ Parent ]
European Tribune - Becoming a Banana Republic
As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization.
And the FDIC has been doing its job: 21 banks taken over in 2009, against 25 in all of 2008 and only 27 in 2000-2007.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 04:19:40 AM EST
... answer to that, in having the FDIC make hundreds of billions in non-recourse loans to support the ever increasing liabilities of the insolvent banks.

And what if there is a populist revolt when the FDIC has to turn to Congress for a bail-out?


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 03:02:20 PM EST
[ Parent ]
European Tribune - Becoming a Banana Republic
The government needs to inspect the balance sheets and identify the banks that cannot survive a severe recession. These banks should face a choice: write down your assets to their true value and raise private capital within 30 days, or be taken over by the government.
The only part of this that isn't in Geithner's plan is the "or be taken over by the government" bit.

I also don't think giving 30 days for an insolvent bank to recapitalize itself will work. You can't keep the fact that the bank failed its audit (um, "stress test") secret. Once a bank fails the "stress test", it must be taken over by the FDIC immediately to prevent a bank run.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 04:22:20 AM EST
I enjoy reading Simon Johnson and his blog, The Baseline Scenario, but it's worthwhile to remember his tenure and rise to prominence in the IMF- chief economist, at the end- and also to note that he's a charter member of the "Europe. Is. Doomed." club, and for reasons that probably would get the nod from Geithner himself.
A useful voice from the outside the "Obama loves banksters" club. Hope he can still learn.
He's dead on about the Oligarchs being the great problem. He presents no plan to accomplish their removal from control, sadly.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Tue Mar 31st, 2009 at 06:32:18 AM EST
[ Parent ]
comes up with a better solution.

He's dead on about the Oligarchs being the great problem. He presents no plan to accomplish their removal from control, sadly.

My plan is called Make Their Lives Miserable

STEPS

  1. Identify any and all oligarchs including probable successors.  No sense in having one problem replaced by another.  This includes names, home(s) addresses, employment addresses, identify ALL relevant family members, all attended country clubs and social groups, etc.  Treat them like you would if Bin Laden was amongst you.

  2. Make Their Lives Miserable  Use your imagination.  You're fighting for the health of your country.  Get creative.  Think out of the box.

  3. Stop sitting on your fat ass, whining, and get to work!

Do this, and I guarantee you, the MSM will eat it up, both FOX and MSNBC.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Tue Mar 31st, 2009 at 06:58:21 AM EST
[ Parent ]
And so the over-acted theatrical angry Lefty caricature continues.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 31st, 2009 at 07:08:19 AM EST
[ Parent ]
No NO.  The problem solver.  As I started my comment, if you have a BETTER plan, let's see it.  It's VERY easy to sit back and criticize.  Your plan is ... WHAT?

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Tue Mar 31st, 2009 at 07:13:02 AM EST
[ Parent ]
The only part of this that isn't in Geithner's plan is the "or be taken over by the government" bit.
Other things that I fear in my gut to be missing from Giethner's plan is the necessary determination to carry through the examination with determination and honesty and to act on the findings with resolve and alacrity.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 10:39:35 AM EST
[ Parent ]
Yes, but that is not something you can write in a document. "The Treasury will carry out an audit and will take it seriously" - LOL

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 10:45:00 AM EST
[ Parent ]
If Obama really wants to get serious about saving the economy and society, he should replace Giethner with Simon Johnson and give him a free reign to clean things up.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 12:39:30 PM EST
[ Parent ]
These words are as soothing as an entire bottle of wine.  And I'm totally sober.  Thank You!

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Tue Mar 31st, 2009 at 01:00:32 PM EST
[ Parent ]
Let's try not to get intoxicated by the prospect just yet!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 01:33:13 PM EST
[ Parent ]
BTW, the warning you gave me "earlier" is appreciated.  Truly.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Tue Mar 31st, 2009 at 01:37:09 PM EST
[ Parent ]
Only passing on cautions given here to me by others.

He jests at scars that never felt a wound.

I had made a jest about possible police action in the USA, to the effect that I hope they had me on their screen, and was cautioned by one who had recieved such attention.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 03:02:47 PM EST
[ Parent ]
I saw the interview.  Loved the use of the term "oligarchy".  Where are we ... Russia?  LOL

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Tue Mar 31st, 2009 at 06:34:16 AM EST
Not too surprisingly, our domestic oligarchs, close to coeval as they are with the Russian ones, have gotten much better PR, aka "press coverage" than have those in Russia.  Even in its heyday, Raymond Chandler's LA Times was much better at covering international issues than domestic and better at national than local.  Wouldn't want to get too aggressive at covering other local Chandler family enterprises.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 12:44:38 PM EST
[ Parent ]
FT.com / Comment / Opinion - We modernised ourselves into this ice age
Many compare this financial crisis to the stock market crash of 1929, but it is closer to the credit freeze and bank panic of 1907. We might have avoided the worst of the current troubles if we had not overturned laws adopted in response to earlier crises. We should have placed more value on the hard-earned lessons of the instability that comes from unregulated markets and gambling on securities prices.

The bank panic of 1907 is remembered for J.P. Morgan forcing all the bankers to stay in a room until they agreed to contribute to fixing the crisis. What has been forgotten is one major cause of the crisis ­- unregulated speculation on the prices of securities by people who did not own them. These betting parlours, or fake exchanges, were called bucket shops because the bets were literally placed in buckets.

The states responded in 1908 by passing anti-bucket shop and gambling laws, outlawing the activity that helped to ruin that economy.
...
But there was serious concern that [credit default] swaps violated the old bucket shop laws. Thus, the Commodity Futures Modernisation Act of 2000 exempted credit default swaps from these laws. The act also exempted them from regulation by the Commodities and Futures Trading Commission and the Securities and Exchange Commission. Unregulated, the market grew enormously.

Thus, one of the major causes of the financial crisis was not how lax our regulation, or how hard we enforced, but what we chose not to regulate.

Indeed, what we decided was old fashioned and in need of modernisation was, in fact, an effective check on an activity that for 100 years had been illegal, for good reason. As a result, we modernised ourselves into this ice age.



"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Tue Mar 31st, 2009 at 07:06:46 AM EST
What, the FT is saying "financial innovation" wasn't a good thing?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 07:11:14 AM EST
[ Parent ]
When I was writing one of my papers a long time ago, I read a few memoirs written by stockbrokers in the 1880's and 1890's.  I came across a really interesting piece about these very same bucket shops, where a young bucket-shop ace was trying to move up into the world of proper stock-speculation.  
by Zwackus on Tue Mar 31st, 2009 at 09:03:30 AM EST
[ Parent ]
More?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 10:47:32 AM EST
[ Parent ]
What has been forgotten is one major cause of the crisis ­- unregulated speculation on the prices of securities by people who did not own them. These betting parlours, or fake exchanges, were called bucket shops because the bets were literally placed in buckets.

The states responded in 1908 by passing anti-bucket shop and gambling laws, outlawing the activity that helped to ruin that economy.

Naked shorting of stocks is only slightly different from what occurred in the bucket shops and, since Bear Sterns, the SEC has only enforced a ban on naked shorts, over great protest, for relatively brief periods of extreme instability and for specific classes of stocks---financial institutions.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 10:46:33 AM EST
[ Parent ]
And holding Credit Default Swaps by people without an insurable interest is not different at all to "betting on financial assets by people who do not own them".

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 03:04:46 PM EST
[ Parent ]
James K. Galbraith - Wikipedia, the free encyclopedia

Galbraith argues that modern America has fallen prey to a wealthy, government-controlling "predatory class":

Today, the signature of modern American capitalism is neither benign competition, nor class struggle, nor an inclusive middle-class utopia. Instead, predation has become the dominant feature -- a system wherein the rich have come to feast on decaying systems built for the middle class. The predatory class is not the whole of the wealthy; it may be opposed by many others of similar wealth. But it is the defining feature, the leading force. And its agents are in full control of the government under which we live.


Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 07:18:11 AM EST
Has been one, for a long time!

And, in a testament to the stupidity of the average American, unlike in Latin America, it didn't take a military coup to put it in place....they voted for it themselves!

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Mar 31st, 2009 at 09:19:34 AM EST
And, in a testament to the stupidity of the average American, unlike in Latin America, it didn't take a military coup to put it in place....they voted for it themselves!
AAHHH....the genius of the US political system: allow the wealthy to dominate the system by equating money, in the form of donations, with "free speech" and, under those circumstances, allow the voters to choose between effectively vetted candidates.  Then when something bad happens they can say, "Well, you elected him!"

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 10:53:26 AM EST
[ Parent ]
Because the US is so dependent on voluntary capital inflows from the rest of the world, the appearances of constitutional continuity help keep the system going in no small measure. Whether the American establishment has a clear understanding of this, I do not know.

You're clearly a dangerous pinko commie pragmatist.
by Vagulus on Tue Mar 31st, 2009 at 08:45:02 PM EST
[ Parent ]
yup, it's a wooden nickel for sure...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Wed Apr 1st, 2009 at 02:54:38 PM EST
[ Parent ]
Lest we forget, the person who raises the most money usually wins the election.  Why?  They claim ADVERTISING!  We select our leaders/rulers the same way we select the beer we drink, and we all know how crappy American beer is.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Tue Mar 31st, 2009 at 01:05:03 PM EST
[ Parent ]
Members of the American elite have been afraid of two words: nationalization, and plutocracy. See my latest post on the European Tribune.

I have been saying most of these things for more than 6 months, and Obama is perfectly aware of them.

Patrice Ayme
patriceayme.wordpress.com


Patrice Ayme Patriceayme.com Patriceayme.wordpress.com http://tyranosopher.blogspot.com/

by Patrice Ayme on Tue Mar 31st, 2009 at 09:35:28 PM EST
You know there is a formal theory about this sort of thing, used in the electrical power industry in discussions of blackouts. Basically it says that you will always have blackouts, and that by making the system "better" and "more blackout resistant," you inevitably make it so that when you finally do get a failure, the consequences are worse.

I wonder if that is what is going on now. We had financial turmoil in the 1800s leading to modern banking, then a failure of that system leading to larger turmoil in the 1930s, then a failure of that system leading to <something>, and then a really big disaster now. Maybe we should go back to full reserve banking and keeping gold and sliver coins under our mattresses...

by asdf on Tue Mar 31st, 2009 at 11:24:30 PM EST
I somehow suspect that we are way above any minimum rate of failures and will remain there with the existing regulatory scheme.  That said, I am reminded of 1/F noise in electronic systems.  As the frequency declines and the period between events increased, the size of "shot" noise increases.  When I first came across this in the late 70s I wondered if 1/F noise could account for the "big bang!"

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 1st, 2009 at 11:41:03 AM EST
[ Parent ]
Blackouts in electrical networks, 1/f noise, cascading financial failure... Did someone say Self-organized criticality?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Apr 1st, 2009 at 11:42:57 AM EST
[ Parent ]
If the shoe fits?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 1st, 2009 at 12:37:47 PM EST
[ Parent ]
So would the US be the first example of a Banana Republic without the Bananas?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Wed Apr 1st, 2009 at 04:06:14 AM EST
According to FAOSTAT, the US has 410 hectares devoted to bananas, producing 8940 tonnes (in 2007). So the U.S. does have bananas (I've no idea in which states).
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Apr 1st, 2009 at 04:25:06 AM EST
[ Parent ]
Puerto Rico & Hawaii,I guess.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Wed Apr 1st, 2009 at 05:45:35 AM EST
[ Parent ]
So only one state and one commonwealth have yet "gone bananas?"  Surely more will soon follow.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 1st, 2009 at 11:44:07 AM EST
[ Parent ]


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