Fact-esque

Can I Get an Amen?

Sara Robinson:

We cannot word it too strongly now. Free-market economics is one of history's great failures—like monarchy and slavery and torture were failures. Countries that embrace it have invariably degraded themselves, and forfeited their own hopes for peace, democracy, and prosperity. No matter what pretty stories they tell you to justify their behavior, once you give the financiers the keys to your common wealth, you can expect economic collapse as surely as you can expect the sunrise.

This fact needs to be part of our history books, forever, so when somebody suggests this to our grandkids, they recoil as if someone had just blithely suggested reinstituting slavery. It needs to be part of the canon of our great universities and our shared moral code about the role of government. The more our children remember, and the better they remember it, the more freedom they will have to make choices that move them beyond the past, consciously choose a future that is finally and uniquely their own.

"They've never been able to get credit."

She talks about those small businesses we hear so much about from the bailout crowd.

We Are the Citizens, The Mighty Mighty Citizens

Glenn Greenwald reminds me that I owe Robin and all the activists and ordinary citizens who made the Congress halt in its tracks an apology and a BIG slap on the back for a job well done.

For better or worse, yesterday's vote was the rarest event in our political culture: ordinary Americans from all across the political spectrum actually exerting influence over how our Government functions, and trumping the concerted, unified efforts of the entire ruling class to ensure that their desires, as usual, would be ignored.

Indeed. Now that you know what it takes and, more importantly, that it works, DO IT!

Fun, isn't it? Having them listen to us for a change? Wouldn't you like them to do that more often? Keep your cellphones handy and the numbers of your representative even handier. You're going to need them.

The Wizards of Wall Street - Hah!

It's staggering the amount of ignorance out there, an amount so enormous one is forced to consider the possibility that it isn't ignorance at all but willful denial. The mortgage crisis was brought about by corpo's who refused to pay their employees at rates above that of inflation for 3 decades and were aided in their selfishness by banks terrified of inflation in any form. There is zero recognition of this simple fact anywhere in the voluminous articles being written about it, even by economists who should know better.

Then, after yesterday's record stock plunge, analysts got together to figure out the damage and came up with this stunner.

[B]y the time that bell sounded again on the New York Stock Exchange, six and a half frantic hours later, $1.2 trillion had vanished from the United States stock market.

No it didn't. The supposed $1.2T never existed in the first place. It was smoke and mirrors, an illusion, a dream that idiots decided was real. The sudden deflation of the long-time Wall Street debauch was a function of the inevitable recognition that the whole thing was infantile gaming, a fantasy spun by greedy tale-tellers with a noticable lack of scruples.

To suggest, as the NYT's Vikas Bajaj does that something real has been lost is like a fan having a breakdown after the death of their favorite soap opera character.

IT'S NOT REAL, PEOPLE. You can't lose what you never had. All you can lose is your belief in pretty ponies and fairy tales with happy endings. That's not worth a Trillion $$$.

It Ain't What You Do, It's the Way What You Do It

I have to take issue with one of the statements made by Dean Baker in the piece Rob linked to.

The main cause of the economy's weakness is not insolvent banks and lack of credit; it's the loss of $4 trillion to $5 trillion in housing equity as a result of the bubble's partial deflation. Families used their equity to support their consumption in the years from 2002 to 2007, as the savings rate fell to almost zero.

No. The "main cause" is NOT the falling of the savings rate and subsequent use of housing equity. The failure to save, especially by the low-income target audience for the mortgage scammers, was a result of the consummate greed of corporate employers and the bankers whose asses are now on the line as they refused to pay employees what their productivity was actually worth.

The fact that wages have been stagnant for 25 years, that many of us are actually making less than we were 20 years ago, has been conveniently forgotten but incomes haven't even been keeping up with inflation, low as it was. It's been a good time for Wall Street but Main Street has been hanging on by its fingernails.

The assumption by the purchasers of scam mortgages was that the next years would be better. Wages would rise, buying power would rise. By the time those bubble payments came due, they told themselves, we'll be making enough money to pay them. And why shouldn't they believe that? It's what the leaders of our country have been saying for 8 straight years, politicos and Wall Street honchos, both. They can't keep paying us nothing, we told ourselves. They'd be cutting their own throats.

It never occurred to us that they wouldn't see that, that they'd be so blinded by greed and so frightened of the Inflation BoogieMan that they'd let this happen to the country rather than raise what they paid us by enough to pay our bills and even put some money away. It certainly wouldn't have occurred to us to that we would end up paying off the debts of the very people who have kept us in not-so-gentile poverty because our elected representatives, who are in their pockets, ignored us to save them.

We wouldn't believe it when some people tried to tell us and we still don't want to, but that is, plain and simple, the source of the anger that has stopped the Wall Street Juggernaut: "They lied to us, stole our homes and jobs, kept us broke for 3 full decades, and now you want us to bail them out??!!"

Bear in mind that those mortgages might have been done without fancy footwork if the people borrowing the money had higher incomes, as they should have. That the mortgages would have been paid. That the financial sector would have been making real money instead of money on paper all this time.

That is the reason we're in this mess. There is no other.

Tell your friends.

Something to Share With Your Friends

Elizabeth Warren points readers to a 9.25.08 panel held at Harvard about the financial crisis.

It was a terrific panel:  Nobel winner Robert Merton, Dean of the Harvard Business School Jay Light, Harvard economist and Chair of the President's Council of Economic Advisers-2003-05 Greg Mankiw, Harvard Business School Prof and long-time Goldman Sachs partner Robert Kaplan, and me. It might be worth listening to the webcast.

If you know someone who wants to find out what happened, then it is definitely worth it for them to listen to the webcast, although too many of the speakers support the bailout for my taste.  Warren is predictably terrific.  Greg Mankiw though - how does he work in the upper echelon of academia and government?   He spent his time giggling and telling us that both candidates are bad on the issue and that Freddie Mac and Fannie Mae did too have a hand in the problems today and they are run by the Government so there, Wall St. haters.  Any point he was trying to make was drowned out by his sarcastic attitude.  Ick.  So skip over him.  Listen to Jay Light, Warren and Kenneth Rogoff.  They're worth your time.    

Tonic

Via Avedon:

What Brand of Dog Food is the Tastiest?

Read this 'Is My Money Safe' column at the NYT and then bookmark it.  It will come in handy for waving around the next time the lunatics start talking about privatizing Social Security again.  Money quote:

Q. But what if I am about to retire? Then what?

A. Leaving the work force at a time like this creates big problems. Not only is your portfolio down, but you need to start withdrawing from it. So you are essentially locking in your losses.

If your portfolio has taken a big hit, it may be time to seriously consider delaying retirement. Working just a few years more can make a big difference. Or, a part-time job may keep you from having to dip into your portfolio before it recovers.

Relax! For the Love of God, RELAX

While Ezra is panicking (and apparently encouraging others to do so) and generally driving me crazy trying to figure out how to get the bailout passed, Dean Baker agrees with Ian Walsh and Robert Reich (and me):

The main cause of the economy's weakness is not insolvent banks and lack of credit; it's the loss of $4 trillion to $5 trillion in housing equity as a result of the bubble's partial deflation. Families used their equity to support their consumption in the years from 2002 to 2007, as the savings rate fell to almost zero.

With much of this equity now eliminated by the collapse of the bubble, many families can no longer sustain their levels of consumption. The main reason that banks won't lend to these families is that they no longer have home equity to serve as collateral. It wouldn't matter how much money the banks had, they are not going to make mortgage loans to people who have no equity.

And house prices are not going to come back. This is like Pets.com. We are not going to get the price of $200,000 homes in central California back up to $500,000.

The main problem in recovering from the recession will be finding ways to boost demand other than household consumption. In the longer run, this will mean reducing imports and increasing exports. In the short-run, we will have to rely on government stimulus to help spur growth and reduce unemployment. The Democratic demands for stimulus were not extraneous to the legitimate goal of a bank bailout bill. Fiscal stimulus must be central to any serious effort to boost the economy.

The weakness of the banks contributes to the downturn, but they are not the core of the problem. We would still be facing a recession even if all our banks were flush with cash. Hence the hype about the urgency of the bailout was an invention. It would be good to get our banks in order, but it also would be good to send $100 billion to state and local governments to support infrastructure projects and other spending.

How do we go about getting the banks in order? Almost every economist I know rejects the Paulson approach and argues instead for directly injecting capital into the banks. The taxpayers give them the money and then we own some, or all, of the bank. (That's what Warren Buffet did with Goldman Sachs.)

In short: boost the economy by investing in lower and middle income Americans, creating jobs and if any money goes to the banks, then get the same deal that Buffet got for his billions. 

To be clear: I don't mean to pick on Ezra alone; he is unquestionably a brilliant writer and a genius of health policy, who is just scared right now and with good reason considering some of what's being written.   I can comment on what he's writing b/c I love to read his site.  I'm sure other bloggers are going even crazier.  Poor Kevin Drum has given up and is just praying to be wrong. 

It occurs to me that we're getting a good look at what the bloggy world would have looked like if there had been a successful pushback against the rush to invading Iraq.  Spurred on by a hysterical corporate media, we would have seen posts featuring photos of mushroom clouds and Bhopal ... sad posts about the end of Western Civilization ... frantic  wonderings about when the first cloud of poison gas would hit Chicago.   The issues are different but the bottom line is the same now as it was then and ever has been: Never trust BushCo.  Ever ...  Ever.

UPDATE: Stirling Newberry has the best metaphor for the refusal to deal with BushCo yet: "Think of it as foreclosure in place on the Bush White House."  I really like the sound of that.

$150B Now - See You in January

Ian Walsh, with whom I'm a little bit in love, has suggested a plan: Give Paulson $150B now and put something better together for January.   He sets out details for "something better."   Of course, that assumes that the Dems win and that they want the something better, which I doubt, BUT, as we say over and over around here, it's up to us to make them put together something better.  Waiting until January gives us lots of time to build up the pressure.