Alan Greenspan on The Huffington Posttag:www.huffingtonpost.com,2011:/tag/alan-greenspanThe Huffington Post Parties Spoil For 2012 Fight Over Size Of Governmenthttp://www.huffingtonpost.com/2011/04/21/budget-battle-locked-loaded-ronald-brownstein_n_852363.htmlThe Huffington Post News Teamhttp://www.huffingtonpost.com/the-news/
It's always hazardous to predict the issues that will define the next presidential selection. But leading thinkers in both parties say that events of the past two weeks have locked in place a major part of the 2012 general-election contest.
<p>Read more: <a href="/tag/taxes">Taxes</a>, <a href="/tag/bill-clinton">Bill Clinton</a>, <a href="/tag/cbo">Cbo</a>, <a href="/tag/budget-cuts">Budget Cuts</a>, <a href="/tag/ryan-budget">Ryan Budget</a>, <a href="/tag/paul-ryan-budget-proposal">Paul Ryan Budget Proposal</a>, <a href="/tag/george-w-bush">George W. Bush</a>, <a href="/tag/congressional-budget-office">Congressional Budget Office</a>, <a href="/tag/barack-obama">Barack Obama</a>, <a href="/tag/paul-ryan-budget">Paul Ryan Budget</a>, <a href="/tag/federal-budget">Federal Budget</a>, <a href="/tag/bush-tax-cuts">Bush Tax Cuts</a>, <a href="/tag/deficit">Deficit</a>, <a href="/tag/government-size">Government Size</a>, <a href="/tag/budget-battle">Budget Battle</a>, <a href="/tag/federal-budget-deficit">Federal Budget Deficit</a>, <a href="/tag/2012-election">2012 Election</a>, <a href="/tag/spending-cuts">Spending Cuts</a>, <a href="/tag/medicare">Medicare</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/size-of-government">Size of Government</a>, <a href="/tag/world-war-ii">World War II</a>, <a href="/tag/paul-ryan">Paul Ryan</a>, <a href="/politics">Politics News</a></p>
Ted Kaufman: Greenspan Is Back to Lead the Charge Against Responsible Regulationhttp://www.huffingtonpost.com/sen-ted-kaufman/greenspans-back-to-lead-t_b_851909.htmlTed Kaufmanhttp://www.huffingtonpost.com/sen-ted-kaufman/
Wall Street bankers, with help from key Republicans in the House and Senate, have begun a major campaign across the country to kill the regulations currently being developed to enforce Dodd-Frank Wall Street Reform. A recent speech by the leader of Wall Street bankers, JP Morgan's CEO Jamie Dimon, took direct aim at financial regulation and new, more rigorous capital standards. <br />
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The same week, Alan Greenspan -- just a year removed from his mea culpa on "self-regulation" -- <a href="http://www.ft.com/cms/s/0/14662fd8-5a28-11e0-86d3-00144feab49a.html#axzz1KA2hlLfZ" target="_hplink">said the Dodd-Frank legislation</a> would create the "largest regulatory-induced market distortion" in the US since wage and price controls. Very shortly afterwards Senator DeMint introduced a bill to repeal Dodd-Frank. And House Financial Services Committee Chairman Spencer Bachus led 34 of the committee's Republicans in sending a letter to the six agency heads charged with implementing the Dodd-Frank Act stating that the members are "troubled by the volume and pace of rulemakings."<br />
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It is very hard to believe that anyone would propose going back to the policy of "self-regulation" on Wall Street and elsewhere. We tried that during the last 20 years, and it catastrophically resulted in the worst financial meltdown in 80 years, almost destroying the US and world financial systems. It caused more than 3 million homes to be repossessed, drove the unemployment rate over 10 percent, and left millions in economic, and emotional, shock. <br />
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Where was the regulatory backstop that should have been the last line of defense? Completely dismantled by Washington policymakers who bought the view that self-regulation would work and markets could police themselves -- the same ideology that they are boldly pressing now, so soon after its complete failure. <br />
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The question of whether regulation is necessary has been asked and answered, painfully so for many Americans. We are not living in the abstract, debating hypotheticals about what would happen without regulations.<br />
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Before the meltdown, market fundamentalists and Wall Street bankers argued that our financial actors could police themselves, that their self-interest in remaining financially viable would create sufficient incentive to avoid failure -- far exceeding the ability of regulators to limit excessive risk by rulemaking. Systematically, these fundamentalists worked to dismantle many of the prudential New Deal era banking reforms. Their crowning achievement: the repeal of Glass-Steagall (which, passed in the aftermath of the Great Depression, kept our financial system stable and growing for 60 years) in 1999. <br />
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Wall Street and Washington were possessed by this laissez faire ethos over the past 20 years. It was this philosophy, and the decisions that sprang from it, that led us blindly down the path to the financial crisis. <br />
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Before his recent (re-)conversion, Alan Greenspan admitted that this dominant concept of self-regulation was ill-conceived. In a speech on February 17, 2009 before the Economic Club of New York, the former Fed Chairman conceded that the "enlightened self-interest" he had once assumed would ensure that Wall Street firms maintain a "buffer against insolvency" had failed. <br />
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Mr. Greenspan, perhaps more than anyone else, should have known better. But instead of playing the role of the markets' fire chief, he played that of head cheerleader. For example, Mr. Greenspan applauded the trend of financial disintermediation, proclaiming that new innovations would allow risks to be dispersed throughout the system.<br />
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Of course, this was just the tip of the iceberg. Despite having the power to write and enforce consumer protection standards, the Federal Reserve did nothing to combat deteriorating origination standards in mortgage and consumer loans.<br />
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He could have implemented common-sense rules like minimal capital requirements for systemically important financial institutions. That would have been a critical emergency-brake when the Bear Stearns/AIG tailspin began.<br />
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Instead, Mr. Greenspan signed off on regulations that gave banks the ability to set their own capital standards. He allowed banking institutions to leverage excessively by gorging on short-term liabilities and, in some cases, creating off-balance-sheet entities to warehouse their risky assets. <br />
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This makes it hard to believe that Greenspan would return to his old talking points, joining the offensive coordinated by Wall Street banks and others saying that the Wall Street Reform Act will never work, and its implementing regulations should be delayed or watered down.<br />
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Trust alone will not work in business, just like it does not work in sports. Many of us, as fans, are frustrated at the referees and umpires for constantly interfering with the free flow of the game. But they enforce the rules and regulations developed to keep the game orderly and protect the participants. Perhaps a football game would go smoothly for a bit without referees, but I would not want to be at the bottom of the second or third pileup.<br />
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Rebuilding effective regulatory policies and agencies will take time, but that work is absolutely essential. Not every business will follow the call to build trustworthy practices. Only the hammer of fair and consistent regulatory penalties and fraud laws will deter wrongdoers.
<p>Read more: <a href="/tag/ted-kaufman">Ted Kaufman</a>, <a href="/tag/jamie-dimon">Jamie Dimon</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/financial-reform">Financial Reform</a>, <a href="/politics">Politics News</a></p>
Robert Teitelman: Appreciating John Kayhttp://www.huffingtonpost.com/robert-teitelman/appreciating-john-kay_b_851604.htmlRobert Teitelmanhttp://www.huffingtonpost.com/robert-teitelman/
In the financial punditry racket, there's no voice quite like the <em>Financial Times</em>' John Kay, certainly not in the United States: skeptical, elliptical, calm, essayistic, sneakily funny. I'm reminded of this after reading two columns, <a href="http://www.ft.com/cms/s/a9a9d46c-6790-11e0-9138-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fa9a9d46c-6790-11e0-9138-00144feab49a.html&_i_referer=http%3A%2F%2Fwww.thedeal.com%2Fthedealeconomy%2Fappreciating-john-kay.php#axzz1K4qwJcvM" target="_hplink">the first this weekend</a>, <a href="http://www.ft.com/cms/s/9fdfa5b0-6aab-11e0-80a1-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F9fdfa5b0-6aab-11e0-80a1-00144feab49a.html&_i_referer=http%3A%2F%2Fwww.thedeal.com%2Fthedealeconomy%2Fappreciating-john-kay.php#axzz1K4qwJcvM" target="_hplink">the second Wednesday</a>, that gently dismembers the pretensions of the economics profession (Kay is an economist, by the way). The Sunday column's subject was "confirmation bias," that is, the tendency to find evidence to support your own beliefs. He opens with a meeting of economists at Bretton Woods sponsored by George Soros, wanders past the International Monetary Fund and the banks, pauses at Alan Greenspan (who recanted his errors, then took it back), takes a shot at Gordon Brown, sniggers at the European Union and ends up with Ayn Rand and why he won't be lining up to see <em>Atlas Shrugged.</em> Think about it: Soros, Brown, the IMF, the EU and Rand. What do they share? Confirmation bias. In the end, he winds up turning his skepticism upon himself, stating his own long-held belief that "risk capital is best provided by smaller institutions in close touch with investors, not the banks to which we entrust our savings," only to conclude with a tart, "Funny, isn't it, how even one's errors confirm the power of one's ideas?"<br />
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This is a column that would probably never appear in a major American paper, for which economics is a contact sport or a grim attempt to explain what often enough is elusive, ambiguous and complex for those Who Need to Know Facts. In the former camp falls the likes of Paul Krugman, a very smart guy (see his Nobel) who writes with great clarity. But reading Krugman is like being pulverized by a machine. His humor, when it peeks out, is watery, like the sun in Seattle; his certitude is rarely less than complete; he hurtles toward his goal, usually involving Republican infamy, like a boulder dropped off a building. He is less an essayist than a polemicist. In today's column, Kay opens with a brief comment about a bon mot -- "consistency is the first siren of beauty" -- made by University of Chicago economics professor John Cochrane as part of a rejoinder to what Kay calls Krugman's "critique of modern economics" in 2009. In fact, Krugman's "critique" was really an attack on the so-called Freshwater School of rational expectation associated with Chicago and a defense of the Deepwater School, to which he belongs. <br />
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Kay, with his lighter-than-air touch, offers a broader critique that views Krugman and Cochrane, Deepwater and Freshwater, as part of the same logic-chopping species: worshippers at the altar of consistency (and undoubtedly of confirmation bias, too). "Professor Cochrane correctly identifies consistency as the most prized virtue of economic reasoning." Kay then proceeds to dismantle that pretension in his usual way: knocking it off-kilter, then edging it out the door. Consistency is not rationality ("If I commune daily with the fairies at the bottom of the garden, I am consistent but hardly rational"). Indeed in a world of imperfect knowledge -- and that, oh gods of economics, is the world we reside in -- "we see similarities where there are differences and differences where there are similarities. ... Different people will assess the same necessarily incomplete information in different ways, and the same person may assess the same information in different ways at different times. What we do depends on the social context." <br />
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In his essayistic way, Kay gently punctures the bobbing balloon of modern economics as practiced by Krugman and Cochrane: the belief in the self-interested, utility-maximizing, rational animal with an M.B.A., homo economicus. His kicker, which has its roots deep in the empirically driven liberal tradition, from David Hume and Adam Smith (Kay is Scottish) to Isaiah Berlin (Kay taught at Oxford), resembles a kind of inspired doggerel: "I am constant, you are stubborn; I am flexible, you are dogmatic. I am principled, you are ideological; I am pragmatic, you are opportunistic." And again, Kay ends up not with clarity but with complexity and ambiguity. "The injunction to be consistent is used to scold but not to help us live. Perhaps Ralph Waldo Emerson expressed a better perspective than Cochrane's: 'A foolish consistency is the hobgoblin of little minds.' "<br />
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Kay, by the way, has a new book out that pursues a similar theme: "<a href="http://www.amazon.co.uk/Obliquity-goals-best-achieved-indirectly/dp/1846682886" target="_hplink">Obliquity: Why Our Goals Are Best Achieved Indirectly.</a>" I have not yet read it, but it sounds entirely characteristic of the man.<br />
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<em>Originally posted at <a href="http://www.thedeal.com/thedealeconomy/appreciating-john-kay.php" target="_hplink">The Deal.</a></em>
<p>Read more: <a href="/tag/imf">Imf</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/john-kay">John Kay</a>, <a href="/tag/ayn-rand">Ayn Rand</a>, <a href="/tag/international-monetary-fund">International Monetary Fund</a>, <a href="/media">Media News</a></p>
WATCH: 'Let Bush Tax Cuts Lapse,' Greenspan Sayshttp://www.huffingtonpost.com/2011/04/18/bush-tax-cuts-lapse_n_850375.htmlThe Huffington Post News Teamhttp://www.huffingtonpost.com/the-news/
With the risk of a national debt crisis lurking over the nation, former Federal Reserve chairman Alan Greenspan can't agree with continuing vast tax cuts for America's richest taxpayers.<br />
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Appearing on MSNBC's <em>Meet The Press</em> on Sunday, Greenspan was trenchant, saying that Bush-era tax cuts, extended last year <a href="http://www.huffingtonpost.com/2010/11/10/white-house-gives-in-on-bush-tax-cuts_n_781992.html" target="_hplink"> by the Obama administration</a>, must be allowed to expire with the federal deficit, once tomorrow's problem, quickly developing into a threat to today's economy.<br />
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"I think this crisis is so imminent and so difficult that I think we have to allow the so-called Bush tax cuts all to expire," Greenspan said. "That is a very big number," he continued, adding that taxes should return to the higher levels instituted by the Clinton administration in the 1990s not just for the wealthiest taxpayers, but for all Americans.<br />
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Last November, the Obama administration accepted an across-the-board, temporary continuation of steep Bush-era tax cuts, including those for the wealthiest taxpayers, largely to protect middle-class tax payers also included in the legislation. The estimated cost of just the portion of the tax cuts that would apply to the richest Americans is <a href="http://www.huffingtonpost.com/2011/04/18/tax-cuts-rich_n_848933.html" target="_hplink">$42 billion</a> this fiscal year, more than the $38 billion value of the savings from the federal budget cuts lawmakers approved last week.<br />
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On Wednesday, in an attempt to address the nation's mounting federal debt crisis, President Barack Obama outlined a 12-year, $4 trillion deficit-reduction plan. As the U.S. approaches the $14.3 trillion debt ceiling, which the Treasury Department <a href="http://www.huffingtonpost.com/2011/04/04/us-debt-limit-geithner_n_844628.html" target="_hplink">estimates</a> will be hit by May 16, Treasury Secretary Timothy Geithner said he expects Congress to increase the debt limit, allowing the country to borrow more money.<br />
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During the same broadcast on Sunday, Geithner <a href="http://www.huffingtonpost.com/2011/04/17/tim-geithner-debt-ceiling-catastrophic_n_850173.html" target="_hplink">reiterated</a> his confidence that certain congressional lawmakers would come together to raise the nation's debt limit, labeling it "absolutely essential to [preserving] the creditworthiness of the United States of America" and warning of dire consequences if politicians couldn't get the deal done.<br />
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"If you allow people to start to doubt whether the United States of America will meet its obligations, that would be catastrophic," Geithner continued. "[W]e can't take that risk."<br />
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<strong>Watch Alan Greenspan's entire MSNBC interview here:</strong><br />
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John Wellington Ennis: With Release of Atlas Shrugged Movie, a Rise in Rand Rants on Reasonhttp://www.huffingtonpost.com/john-wellington-ennis/atlas-shrugged-movie_b_848286.htmlJohn Wellington Ennishttp://www.huffingtonpost.com/john-wellington-ennis/
I awoke the other day to this email from a stranger:<br />
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<blockquote>Just saw <a href="http://www.huffingtonpost.com/john-wellington-ennis/missing-the-point-of-emat_b_185695.html" target="_blank">your 2009 piece on <em>Atlas Shrugged</em>.</a> You completely missed the point of Rand's book, which is that you can't consume what you don't produce, but that a lot of folks would like to consume what they can take from others. I'm looking forward to the movie next month. No doubt we will see the leftists out in force to tell us how bad it is. The best thing for <em>Atlas Shrugged</em> and Ayn Rand has been the Obama administration.</blockquote><br />
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I replied: "Then you can't see the movie if you didn't produce it, by that reasoning..."<br />
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A movie adaptation of any lengthy book is bound to reduce its ideas, themes, and arguments to piece meal phrases that will not do justice to the author's intent. But I foresee a particular risk in this upcoming film effort tackling Rand's opus of ego, and spurring some to further reduce it to clichés about how everyone is always trying to take your sh*t from you.<br />
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As it is, Ayn Rand's 1957 epic has enjoyed a revival among those who obsess that Obama is striving to subjugate them (hint: it's the corporations, not the government). Look at <a href="http://www.wired.com/gadgetlab/2010/08/worlds-biggest-writing/" target="_hplink">Nick Newcomen</a>, an acolyte of Ayn that last year drove all over America to correspond to GPS coordinates so that his epic road trip would spell out on a map "READ AYN RAND" like terrestrial sky-writing.<br />
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<a href="http://publicinterestpics.org/wp-content/uploads/2011/04/worldsbiggestwriting-660x647.jpg"><img class="aligncenter size-full wp-image-1346" title="worldsbiggestwriting-660x647" src="http://publicinterestpics.org/wp-content/uploads/2011/04/worldsbiggestwriting-660x647.jpg" alt="" width="528" height="516"></a><br />
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Without driving over 12,000 miles for a month at $4 a gallon, let me simply append Nick Newcomen's message:<br />
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<a href="http://publicinterestpics.org/wp-content/uploads/2011/04/Read-Things-Besides-Ayn-Rand.jpg"><img class="aligncenter size-full wp-image-1347" title="Read Things Besides Ayn Rand" src="http://publicinterestpics.org/wp-content/uploads/2011/04/Read-Things-Besides-Ayn-Rand.jpg" alt="" width="501" height="358"></a><br />
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People carve reason to fit their rationale. Ayn Rand's gospel of self-empowerment reads perilously close to selfishness justified by selfishness. As I maintained in <a href="http://www.huffingtonpost.com/john-wellington-ennis/missing-the-point-of-emat_b_185695.html" target="_blank">my previous piece on <em>Atlas Shrugged</em></a>, there is a lot of brilliance in Rand's writing. So brilliant, it tends to blind readers into empathy with its persecuted geniuses, and let many readers feel they, too, are like the genius characters in Rand's tale. After all, they just got through a thousand-page book -- that's like reading the Bible or the dictionary or James Joyce.<br />
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However, the narrative universe in Rand's saga of society unraveling is, from a literary standpoint, science fiction, written in the style of a melodrama, and riddled with repetition. Ideologically, it's a thousand-page stacked deck. Inspiring though it may be, the simplistic, black-and-white world in <em>Atlas Shrugged</em> is like an Art Deco-era <em>Star Wars</em>. The key difference -- people aren't trying to run Jedis for Congress.<br />
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Ayn Rand waxes at length on how some people (geniuses) are better than others (looters), and her characters say the same things to each other over and over in different long-winded ways. I can't help but wonder: What kind of person has to do this? What did she have to convince herself of? Why do the characters speak to each other in essays?<br />
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Where many try to find ties to today's U.S. government in Ayn Rand's writing, it can be forgotten what her reference point really was. Born Alisa Zinov'yevna Rosenbaum, her family suffered their business being confiscated under the 1917 Russian Revolution by Lenin's Bolsheviks. Her idea of "the socialists are coming to get you" wasn't affordable health care -- it was, <em>literally</em>: the socialists are coming to <em>get </em>you.<br />
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As I have maintained, I ultimately enjoyed the book and was drawn to parts of its driving philosophy. I recognized early on in the piece that the author had a bitter complaint against all the people trying to stifle innovation all the time, and figured she would cite examples from the real world, but she only showed it in her two-dimensional foils.<br />
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Ayn Rand prizes reason above all else. The problem is, even objective reasoning tends to be used subjectively. The nobility of reason as the penultimate approach to life over faith and compassion vanishes once exaggeration is injected into the argument process.<br />
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Any deviation from the accurate facts, devolved of emotion or selective recognition, betrays the virtue of reason. Exaggeration is frequently employed these days to turn a talking point into a terrifying call to arms. Embellishing your argument to incite fear in others so that they subscribe to your point of view is manipulating your case to gain more support, under a misrepresented pretense. Exaggeration is lying. Exaggeration should be recognized as the enemy of reason.<br />
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It's not that reason is so objectionable. It's what often passes for reason that is not only disingenuous, but insulting, and ultimately dangerous. Rand's encouragement of relying on labels for types of people, from looters to leftists, breeds oversimplification. Labels are another shortcut around reasoning, a short-sighted fallacy reduced to a descriptor trying to be passed off as accepted fact.<br />
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But ultimately, Ayn Rand put her own ego above everything else, not reason. She never again spoke to her contemporary conservative William F. Buckley after he quoted someone else's line of criticism of <em>Atlas Shrugged</em>. This is the author of the greatest selling novel of all time, as <a href="http://www.youtube.com/watch?v=5KmPLkiqnO8&feature=player_embedded" target="_blank">William F. Buckley pointed out to Charlie Rose.</a><br />
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Another act of her contempt to those who didn't give her absolute reassurance: Rand tore down her protégé and lover <a href="http://en.wikipedia.org/wiki/Nathaniel_Branden" target="_hplink">Nathaniel Branden</a> (who she kept in an open arrangement between both their spouses) once she learned that he had slept with one of his own acolytes in their institute of objectivism. Her assaults in print against him failed to include her personal relations with him. To not acknowledge a jealous rage as a factor in the reasoning of the trouncing of a colleague before your shared followers -- this defies the pretense of one's reasoning being superior to another.<br />
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When used selectively as a pretense, to be lauded as sublime because of verbose language suggesting superiority, Ayn Rand's principle of reason bears little distinction from the malleable rules behind any other religious belief system -- ones that are always self-sustaining, that won't tolerate doubters and that tend to favor the predispositions of the leaders making the rules.<br />
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The problem of selective reasoning extends beyond literary blather into real world troubles when self-appointed acolytes of Ayn Rand inject her simplistic self-righteousness into things like the budget of the United States of America. Rep. Paul Ryan, <a href="http://www.tnr.com/blog/jonathan-chait/80552/paul-ryan-and-ayn-rand" target="_blank">who has professed his adoration of Ayn</a>, has touted a budget proposal that prolongs debt payoff, lowers taxes on the rich, and which the Nobel prize winning economist Paul Krugman referred to as <a href="http://krugman.blogs.nytimes.com/2011/04/06/paul-ryans-multiple-unicorns/" target="_blank">a unicorn hunt</a>. One of Ayn's most ardent admirers was Former Fed Chief Alan Greenspan, who was enamored with the ideas of unregulated markets to let geniuses thrive for the betterment of society. Why would the wise men of Wall Street cut corners and subvert the market -- which would only strangle our economy and end up looking bad?<br />
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Surely the wealthiest tycoons wouldn't be so obsessed with bleeding our economy for a little more money. It's not like they would listen to their superior sense of self and rationalize selling predatory mortgage loans as derivatives on the international market, right? They certainly wouldn't endeavor in such fraud as boasting false ratings, used to coax the elderly into seemingly safe investments. They are successful, therefore they are geniuses, and therefore we as a society rely on their accomplishments to move us all forward. It stands to reason.<br />
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Because of course, all ambitious business leaders would share the same priorities of unabated self as Ayn Rand and Alan Greenspan, and the rules regulating industries exist only because whoever wrote them were looters (or as we might think of them today, "haters.")<br />
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Speaking of which, why do we even have traffic laws? Surely drivers are all looking out for the betterment of society, and they know that if they abuse the system by speeding or not waiting at intersections, there will eventually just be a pile up, and then the government would have to come bail them out. Those fast drivers wouldn't be reckless, because they know it might look bad for them later. They're just geniuses for going so fast -- they deserve even <em>less</em> regulation.<br />
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And because I insist I reached this ban on traffic laws through reason -- sweet sacred reason! -- who are you to tell me I'm wrong? You're just a looter trying to thwart my progress because you're jealous and want me to drive you everywhere since I decided that traffic laws don't apply to me. After all -- it's <strong>me</strong> we're talking about here!<br />
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This is the inherent paradox in taking an absolutism about reason: if you arch to support any one person, book, or movie adaptation you haven't seen yet as further proof to your own prearranged beliefs, you are avoiding reason altogether. You are looking for gospel to buttress your faith. You are seeking repetition of ideas -- fundamentally, the faulty premise that everything literally comes down to one side versus the other.<br />
<br />
The idea that sides must be chosen in advance of the release of the film <em>Atlas Shrugged</em> feels a little like Team Jacob and Team Edward. With the look of a TV movie, I doubt that the "leftists" will be out in force telling Rand fans how bad the movie it is. Whoever would identify themselves as "Leftisits" are likely preoccupied with the GOP's use of government to assault unions, state workers, pregnant women, teachers, the elderly, the ground, the skies, and the oceans, to worry about another science fiction movie that won't be as good as the book.
<p>Read more: <a href="/tag/ayn-rand-politics">Ayn Rand Politics</a>, <a href="/tag/james-joyce">James Joyce</a>, <a href="/tag/ayn-rand">Ayn Rand</a>, <a href="/tag/william-f-buckley">William F. Buckley</a>, <a href="/tag/atlas-shrugged-movie">Atlas Shrugged Movie</a>, <a href="/tag/ayn-rand-objectivism">Ayn Rand Objectivism</a>, <a href="/tag/ayn-rand-government">Ayn Rand Government</a>, <a href="/tag/paul-krugman">Paul Krugman</a>, <a href="/tag/united-states">United States</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/atlas-shrugged">Atlas Shrugged</a>, <a href="/tag/nathaniel-branden">Nathaniel Branden</a>, <a href="/tag/ayn-rand-philosophy">Ayn Rand Philosophy</a>, <a href="/tag/objectivism">Objectivism</a>, <a href="/books">Books News</a></p>
Vicky Ward: The Whirligig of Time Fails to Bring Its Revengeshttp://www.huffingtonpost.com/vicky-ward/the-whirligig-of-time-fails-to-bring-its-revenges_b_845175.htmlVicky Wardhttp://www.huffingtonpost.com/vicky-ward/
A year ago, while Washington was grandstanding about the about lazy, unethical, risky banking practices that put the entire country at risk -- I published a book. It was called <em>The Devil's Casino: Friendship, Betrayal and the High Stakes Played Inside Lehman Brothers</em>, and it chronicled, among other things, the lazy, unethical, risky banking practices that had put the entire country at risk in 2008. <br />
<br />
At the time, the D.C. hearings and S.E.C. investigations were underway, and Washingtonians swore that they'd clean up the mess and regulate the hell out of Wall Street -- and that greed would be a thing of the past.<br />
<br />
I expressed my skepticism at the time. "The crisis will happen again," I said. "Not tomorrow, and not in the same way -- but you cannot regulate greed." That, really, was the central theme of the book, which looked at the evolution of Wall Street through the narrow lens of Lehman Brothers, spanning fifty years.<br />
<br />
Fast forward to today, when my book comes out in paperback. Let's take a look at the headlines:<br />
<br />
Alan Greenspan has just declared that Dodd-Frank reform legislation is a waste of time for the reasons listed above. The financial system is so "<a href="http://www.pewfr.org/reform_news_detail?id=3640" target="_hplink">irredeemably opaque</a>," he wrote in the <em>Financial Times</em>, that policymakers cannot hope to sort it out. Barney Frank (D. Mass), the former chairman of the House Financial Services Committee naturally disagrees. In the <em>Financial Times</em>, he mumbles on about the effectiveness of stress tests. But didn't it take most U.S. banks about thirty seconds to pass those in the wake of <a href="http://en.wikipedia.org/wiki/Term_Asset-Backed_Securities_Loan_Facility" target="_hplink">TALF</a>?<br />
<br />
Mr. Greenspan has a point.<br />
<br />
But, forget opacity -- let's just look at the simple stuff.<br />
<br />
Bernie Madoff -- in jail for perpetrating the biggest Ponzi scheme ever -- has declared that it was no surprise that J.P. Morgan stands accused of reaping $6.4 billion in funds from the scheme. The bank denied this, but <a href="http://www.nytimes.com/2011/02/16/business/madoff-prison-interview.html?_r=1" target="_hplink">Madoff said the bank "must have known."</a> In other words, when given the opportunity to make money in dubious circumstances -- people take the money.<br />
<br />
President Obama has ended his open war with Wall Street, <a href="http://www.huffingtonpost.com/2011/02/07/obama-chamber-of-commerce_1_n_819448.html" target="_hplink">making nice </a>with the Chamber Of Commerce and promising that he will find ways to work with them, not against them. Why has he taken this unprecedented action? Could it be because he has realized that if employment does not rise and the economy is still faltering, he might not be re-elected in 2012?<br />
<br />
Lloyd Blankfein, the CEO of Wall Street's favorite punching bag, Goldman Sachs, has just received <a href="http://www.theage.com.au/business/world-business/18m-pay-day-for-goldman-ceo-20110403-1ct5t.html" target="_hplink">a bonus of $18 million</a> at the same time that one of his outside directors, Raj Gupta, the former CEO of McKinsey, is testifying that he <a href="http://www.bloomberg.com/news/2011-03-23/goldman-s-lloyd-blankfein-will-testify-today-in-galleon-trial.html" target="_hplink">gave inside information from Goldman board meetings to Raj Ratnaram</a>, the CEO of hedge fund Galleon.<br />
<br />
And what about Warren Buffett, considered for most of his 80 years the only straightshooter in the world of finance, and a crucial player in saving the world economy (well, Goldman Sachs) in 2008? Turns out he might not be quite so straightforward. His image is tarnished amid <a href="http://dealbook.nytimes.com/2011/03/31/sokol-and-the-lubrizol-trades/" target="_hplink">accusations</a> that he acquired the chemicals company Lubrizol when he knew that his second-in-command and heir-apparent, Jeffrey Sokol, since let go, had just bought $10 million shares of the firm.<br />
<br />
On Friday, <i>Wall Street Journal</i> readers were treated to this great headline: "<a href="http://online.wsj.com/article/SB10001424052748704530204576235010413833114.html" target="_hplink">Subprime Bonds Are Back</a>". Whoopee! <a href="http://moneywatch.bnet.com/economic-news/video/60-minutes-michael-lewis-on-the-financial-collapse/403547/" target="_hplink">The very things</a> that led Americans to treat their houses as ATMs are having a resurgence.<br />
<br />
And on Monday, we learned that <a href="http://www.npr.org/blogs/money/2011/04/04/135113152/whos-too-big-to-fail" target="_hplink">the Fed and US Treasury are engaged in a war with the FDIC</a> over how many companies should be branded too big to fail. The Fed and US Treasury want less than ten; the FDIC wants three to four times that number. The moral of this is: Greenspan is right. It's all too complex for anyone to sort it out.<br />
<br />
Meanwhile has anything happened to the housing Government Sponsored Entities, Fannie Mae and Freddie Mac, which blew up the weekend before Lehman did?<br />
<br />
Yes: according to <a href="http://www.nytimes.com/2011/04/01/business/01pay.html" target="_hplink">a front page article </a>in Friday's <em>New York Times</em>. Although neither Fannie or Freddie has yet been reformed (that's on next year's agenda, apparently), their top six executives received over $35.4 million since their collapse in 2008. That's an awful lot of money for doing-well, nothing.<br />
<br />
And all those dreadful losses reported to be happening in the hedge fund industry, swirling with rumors about insider trading after the closure of David Ganek's Level Global and three other hedge funds in the wake of <a href="http://online.wsj.com/article/SB10001424052748704243904575630693960704872.html?mod=djemalertNEWS" target="_hplink">FBI raids</a>? Well, it turns out that hedge funds, while not outperforming the market, are still profitable -- thanks to those lovely fees.<br />
<br />
Greed never dies; rules are made to be bent; the rich are indeed different from the rest of us -- and <a href="http://www.enotes.com/shakespeare-quotes/whirligig-time" target="_hplink">Shakespeare's fool </a>was wrong. It would seem the whirligig of time does not, alas, bring its revenges.<br />
<br />
<em>Vicky Ward is a contributing editor to Vanity Fair and the author the New York Times Bestseller: The Devil's Casino, Friendship, Betrayal and the High-Stakes Games Played Inside Lehman Brothers (John F. Wiley & Sons). </em>
<p>Read more: <a href="/tag/raj-rajaratnam">Raj Rajaratnam</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/doddfrank">Dodd-Frank</a>, <a href="/tag/insider-trading">Insider Trading</a>, <a href="/tag/blankfein">Blankfein</a>, <a href="/tag/talf">Talf</a>, <a href="/tag/hedge-fund-fees">Hedge Fund Fees</a>, <a href="/tag/bernie-madoff">Bernie Madoff</a>, <a href="/business">Business News</a></p>
Jonathan Weiler: Suck on Thishttp://www.huffingtonpost.com/jonathan-weiler/suck-on-this_b_844746.htmlJonathan Weilerhttp://www.huffingtonpost.com/jonathan-weiler/
Notes from a nation in which the wealthy and powerful increasingly act with near impunity and the lesser off just have to "suck on this" -- in the <a href="http://thinkprogress.org/2008/05/30/five-years-ago-today-thomas-friedman-said-the-iraq-war-was-about-telling-the-middle-east-to-suck-on-this/" target="_hplink">immortal and unwittingly apt phrase of one of our elite pundits</a>.<br />
<br />
1) Last week, former Fed Chairman Alan Greenspan weighed in on the wisdom of free markets and invisible hands:<br />
<br />
"Today's competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith's "invisible hand" that is unredeemably opaque. With notably rare exceptions (2008, for example), the global "invisible hand" has created relatively stable exchange rates, interest rates, prices, and wage rates."<br />
<br />
Lots of people had fun with this statement, <a href="http://crookedtimber.org/2011/03/30/with-notably-rare-exceptions/" target="_hplink">including Henry Farrell and his readers at Crooked Timber</a>. Among their efforts to contextualize Greenspan's remarks:<br />
<br />
"With notably rare exceptions, Newt Gingrich is a loyal and faithful husband."<br />
<br />
"With notably rare exceptions, Charles Manson has lived a peaceful life"<br />
<br />
"With notably rare exceptions, Germany remained largely at peace with its neighbors during the 20th century."<br />
<br />
In 2008, Alan Greenspan acknowledged that he found a "flaw" in his ideology about how markets work. Happily for him, it appears that he has recovered his former self-confidence. So, Greenspan presided over a calamity with devastating consequences for millions but no personal "skin" in the game and has managed to forget whatever remorse or sense of self-reflection about the consequences of his actions he might have briefly entertained. As for the people who have suffered the actual consequences: Naturally, they can "suck on this."<br />
<br />
2) Here's a <a href="http://digbysblog.blogspot.com/2011/04/official-not-is-it.html" target="_hplink">notable tidbit</a> about Transocean, Ltd., the company whose rig exploded last Spring, causing the Gulf oil disaster:<br />
<br />
"Transocean Ltd. gave its top executives bonuses for achieving the "best year in safety performance in our company's history" -- despite the explosion of its oil rig that killed 11 people and spilled 200 million gallons of oil into the Gulf of Mexico."<br />
<br />
I trust no comment is necessary here.<br />
<br />
3) This week, <a href="http://prospect.org/cs/articles?article=the_impunity_of_the_roberts_court" target="_hplink">the Supreme Court handed down a 5-4 decision</a> in which it determined that John Thompson, who was wrongly convicted of robbery and murder and spent eighteen years in jail in Louisiana, including fourteen on death row, was not entitled to compensatory damages, despite the fact that Supreme Court precedent deems it a constitutional offense to knowingly withhold exculpatory evidence (which happened at several points in Thompson's case). The majority opinion, written by Justice Thomas and a concurring opinion penned by Justice Scalia argued that only one person - in apparent willful denial of the actual case record - was guilty of withholding evidence and that this wasn't the DA's responsibility. <a href="http://www.slate.com/id/2290036/" target="_hplink">Slate's Dahlia Lithwick</a> described Thomas' and Scalia's opinions as a "master class in human apathy." Of course, why should they care about whether Thompson receives justice? He's just a loser-nobody, after all.<br />
<br />
4) On ABC's <em>This Week</em> on Sunday, former Bush administration spokeswoman <a href="http://videocafe.crooksandliars.com/heather/paul-krugman-talk-uncertainty-just-myth-bl" target="_hplink">Torie Clarke repeated the incessant meme</a> that businesses aren't investing or hiring because of "uncertainty," <a href="http://patriotsquill.blogspot.com/2011/03/krugman-on-greenspans-latest.html" target="_hplink">despite there being no credible evidence for that supposition</a>. Recall that a key premise of capitalism is that there is a fundamental relationship between risk and reward, which drives innovation, progress and wealth creation. Notwithstanding this basic premise, wealthy corporations are sitting on record piles of cash, making record profits, doling out record bonuses and still we're hearing that these poor babies are unable to act because there might be new taxes someday, or new regulations or new trade agreements. In other words, what we once called "life" has now been re-defined as intolerable and paralyzing uncertainty.<br />
<br />
This is, of course, in stark contrast to the message that ordinary workers, unionized and otherwise, receive every second of every day: your lives are too secure; you need to learn how to live within more modest means, like "everyone" else; that a generous welfare state is too indulgent, disincentivizing people from entering the crucible of competition and, yes, uncertainty, that makes our magnificent system the extraordinarily productive beast it has always been. Corporations cannot be expected to be productive unless they have an entirely predictable playing field on which to act. Ordinary workers cannot be expected to be productive as long as they face an entirely predictable playing field in which to act. In other words, message to corporations -- we're sorry to trouble you in anyway (<a href="http://my.firedoglake.com/scarecrow/2010/06/17/republican-joe-barton-apologizes-to-bp-for-forcing-them-to-pay-for-their-damages/" target="_hplink">remember Congressman Joe Barton's pathetic apology to BP last year?</a>). Message to workers - "suck on this."<br />
<br />
5) <a href="http://www.thenation.com/article/159433/how-wall-street-crooks-get-out-jail-free" target="_hplink">William Greider's article</a> in the latest issue of <em>The Nation</em> documents the degree to which the Justice Department is increasingly giving a pass to large corporations that have engaged in potentially criminal misconduct. <br />
<br />
The <a href="http://www.nytimes.com/2010/08/24/business/24judges.html" target="_hplink"><em>New York Times</em> reported</a> last year that federal judges were expressing mounting frustration with the sweetheart deals that prosecutors were cutting with big banks. <br />
<br />
Along those lines, Greider quoted former Delaware Senator Ted Kaufman about the alarming degree of law-breaking and impunity from prosecution among our largest enterprises: "at the end of the day, this is a test of whether we have one justice system in this country or two. If we do not treat a Wall Street firm that defrauded investors of millions of dollars the same way we treat someone who stole $500 from a cash register, then how can we expect our citizens to have any faith in the rule of law?" Unfortunately, we already know the answer to that question. After all, Treasury Secretary Tim Geithner has dismissively said that calls for prosecuting wrongdoing in the financial collapse reflect a "very deep desire for Old Testament justice."<br />
<br />
Geithner can rest easy, though. The fact that not a single financial executive has gone to jail in connection with the 2008 meltdown and that, instead, Wall Street received a massive bailout for its troubles, suggests that we're a very long way from realizing his deep-seated fears of public retribution.<br />
<br />
Two nations, separate and unequal.
<p>Read more: <a href="/tag/joe-barton">Joe Barton</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/impunity">Impunity</a>, <a href="/tag/transocean">Transocean</a>, <a href="/tag/wall-street-fraud">Wall Street Fraud</a>, <a href="/tag/tim-geithner">Tim Geithner</a>, <a href="/tag/connck-vs-thompson">Connck vs. Thompson</a>, <a href="/politics">Politics News</a></p>
Analysts: Greenspan Derivatives Comments Shouldn't Be Trustedhttp://www.huffingtonpost.com/2011/03/30/greenspans-derivatives-co_n_842766.htmlThe Huffington Post News Teamhttp://www.huffingtonpost.com/the-news/
Former Federal Reserve Chairman Alan Greenspan said the Dodd-Frank financial reform bill had the potential to become the "largest regulatory-induced market distortion" since 1971 in a Wednesday op-ed for the <a href="http://www.ft.com/cms/s/0/14662fd8-5a28-11e0-86d3-00144feab49a.html#axzz1I5fBCwlC"><em>Financial Times</em></a>, leaving some financial experts astounded.<br />
<br />
Greenspan took particular aim at the decision -- currently under debate at the Treasury -- to regulate the foreign exchange derivatives market. Doing so, Greenspan warned, could cause a large portion of the market to move overseas. <br />
<br />
Foreign exchange derivatives are used by financial entities to hedge and make bets on currency exchange rates. According to the <a href="http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq410.pdf">Office of the Comptroller of the Currency</a>, trading in foreign-exchange contracts produced more revenue than any other type of derivative in 2010 -- yielding $9 billion at the nation's top five banks.<br />
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Proponents of derivatives regulation have argued that foreign exchange derivatives -- or forex -- should be subject to the same transparency and accountability rules as other derivatives. <br />
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"If this market is deregulated, it's going to be the candidate for blowing the next hole in the economy," said Michael Greenberger, a former director at the U.S. Commodity Futures Trading Commission. "[Greenspan's] article reads like it's written from another universe. And it essentially is playing with dice, because it assumes that we are out of all problems: that unemployment is fine, that people's pensions are in place, that the housing market is stable and that everything is fine."<br />
<br />
Dodd-Frank was intended in part to set regulations in place that will prevent the derivatives market -- a notoriously opaque branch of the financial sector -- from causing another financial crisis. Whether forex is granted an exemption will likely be determined by Treasury Secretary Timothy Geithner, who has said he will make a decision on the matter in the upcoming weeks.<br />
<br />
"The last person anyone should listen to on financial reform is one of the people who had the most to do with creating the circumstances that caused the financial crisis," said Dennis Kelleher, the president of <a href="http://www.bettermarkets.com/" target="_hplink">Better Markets</a>, a nonprofit organization that promotes the public's interest in capital markets. "Greenspan was a cheerleader for markets-know-best and governments-should-regulate-least. And that has cost the country and the world trillions of dollars, millions of jobs and untold financial losses to American families."<br />
<br />
Walter Dolde, a finance professor at the University of Connecticut and an expert on derivatives, said he agrees with Greenspan that the threat of the forex market moving overseas could be real. He just isn't as concerned.<br />
<br />
"Could some of the players get petulant and pick up their marbles and leave?" asked Dolde. "Yes, they could. Is that a bad thing? I don't think so. Then they become some other country's problem."
<p>Read more: <a href="/tag/regulations">Regulations</a>, <a href="/tag/derivatives">Derivatives</a>, <a href="/tag/economy">Economy</a>, <a href="/tag/economic-crisis">Economic Crisis</a>, <a href="/tag/federal-reserve">Federal Reserve</a>, <a href="/tag/banks">Banks</a>, <a href="/tag/financial-crisis">Financial Crisis</a>, <a href="/tag/forex">Forex</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/foreign-exchange-derivatives">Foreign Exchange Derivatives</a>, <a href="/tag/dodd-frank">Dodd Frank</a>, <a href="/business">Business News</a></p>
Global Central Banks Face An Essential Revolutionhttp://www.huffingtonpost.com/2011/03/24/central-banks-worldwide_n_840022.htmlThe Huffington Post News Teamhttp://www.huffingtonpost.com/the-news/
<a href="http://www.reuters.com" target="_hplink"><img src="http://i.huffpost.com/gen/211216/REUTERS-LOGO.jpg"></a><br />
<br />
By Paul Carrel, Mark Felsenthal, Pedro da Costa, David Milliken and Alan Wheatley <br />
<br />
FRANKFURT/WASHINGTON - On a warm, Lisbon day last May, Jean-Claude Trichet, the ice-cool president of the European Central Bank, was asked whether the bank would consider buying euro zone governments' bonds in the open market.<br />
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"I would say we did not discuss this option," Trichet told a news conference after a meeting of the ECB's Governing Council. Four days later, the ECB announced that it would start buying bonds.<br />
<br />
Trichet's U-turn was part of an emergency package with euro zone leaders to stave off a crisis of confidence in the single currency. By reaching for its "nuclear option", the ECB had also helped rewrite the manual of modern central banking.<br />
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That's happened a lot over the past three years. Since the early days of the financial crisis in 2008, the European Central Bank, the U.S. Federal Reserve and the Bank of England have all been forced to adopt policies that just a few years ago they would have dismissed as preposterous. And the Bank of Japan responded to the Sendai earthquake and tsunami by doubling its own asset-purchase programme, to keep the banking system of the world's third-largest economy on an even keel.<br />
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For a generation, the accepted orthodoxy has been to focus on taming inflation. Financial stability has taken something of a back seat. Now, whether mandated to do so or not, western central banks have bought up sovereign debt to sustain the financial system, printed money by the truckload to stimulate their economies, sacrificed some of their independence to coordinate monetary policy more closely with fiscal decisions, and contemplated new ways of preventing asset bubbles. Some -- such as Bank of England Governor Mervyn King -- have joined wider political protests at commercial banks that are still behaving as if they are "too big to fail", and as if being bailed out is just a hazard of business.<br />
<br />
In the measured world of central banking, it amounts to nothing short of a revolution. Otmar Issing, one of the euro's founding fathers and a career-long monetarist hawk, told Reuters that in buying government bonds the ECB had "crossed the Rubicon". The question now for the ECB -- and for its counterparts in Britain, the United States and elsewhere -- is what they'll find on the other side.<br />
<br />
EXTRAORDINARY CIRCUMSTANCES<br />
<br />
Don Kohn, a former vice-chairman of the Federal Reserve, realized central banking was changing forever at a routine meeting of his peers in Basel, Switzerland, in March 2008. The shockwaves from the U.S. subprime mortgage meltdown had begun rocking banks around the world and Kohn, a 38-year veteran of the U.S. central bank, listened as one speaker after another described the fast-deteriorating economic conditions.<br />
<br />
"It was terrible," Kohn said. "One of the people at the meeting used the phrase, 'It's time to think about the unthinkable'."<br />
Kohn left the meeting early to return to Washington, but the line stuck in his head. He would use it a few days later to justify his support for a Federal Reserve decision to spend $29 billion to help J.P. Morgan buy investment bank Bear Stearns, which was teetering on the edge of bankruptcy.<br />
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That financial meltdown caused a credit crunch that triggered a severe recession and, in countries such as Greece, a sovereign debt crisis. After slashing interest rates practically to zero, central banks desperate to prevent a new global depression had no choice but to expand the volume of credit, rather than its price, by reaching for the money-printing solution known as "Quantitative Easing" (QE). In the eyes of critics, Federal Reserve Chairman Ben Bernanke was living up to his nickname of "Helicopter Ben" -- a reference to a speech that he gave in 2002 in which he took a leaf out of the book of the renowned monetarist economist Milton Friedman and argued that the government ultimately had the capacity to quash deflation simply by printing money and dropping it from helicopters.<br />
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Until that point, the Fed was a lender of last resort for deposit-taking banks. By invoking obscure legislation from the Great Depression, it also became a backstop for practically any institution whose collapse could threaten the financial system. Kohn and others at the Bear Stearns meeting had just done the unthinkable.<br />
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"When the secretary of the (Fed) Board was reading off the proposals ... my heart was racing," Randall Kroszner, a Fed governor at the time, says of the decision.<br />
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An academic economist from the conservative, free market-oriented University of Chicago, Kroszner was instinctively against intervention. At the same time, he knew that a decision by the Fed to stay above the fray would trigger financial panic. Before the meeting Kroszner had chatted with Bernanke, another scholar of economic history, about a historic parallel in which financier J.P. Morgan -- the person, not the company -- opted against stepping in to save the Knickerbocker Trust, precipitating a financial panic in the first decade of the 20th century.<br />
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"I couldn't believe that we were faced with these questions, and I couldn't believe that I could support them," Kroszner told Reuters in February. "In these extraordinary circumstances, it was very risky to just say no."<br />
<br />
By the time the $600 billion second round of quantitative easing wraps up in June, the central bank will have spent a staggering $2.3 trillion -- more than 15 percent of GDP -- buying bonds. It has also created new lending windows to channel funds to financial institutions and investors and expanded its financial safety net for everything from money market mutual funds to asset-backed securities and commercial paper. The Fed argues that its loans have been repaid without any cost to taxpayers, and that the beginning of a recovery in the U.S. economy and the fading of the threat of deflation, which gnawed at Bernanke, justify its bold improvisation.<br />
<br />
But some experts, including a number of Fed officials themselves, believe the central bank is paying a big price. Some critics say the Fed's open-ended provision of next-to-free money is encouraging more reckless risk-taking by banks and speculators. Others say the Fed has exceeded its remit and encroached on the turf of politicians. Some Republicans, in particular, want to curtail the Fed's powers.<br />
<br />
The United States has not been alone. In Britain, the Bank of England has run its own programme of quantitative easing, spending 200 billion pounds (about 14 percent of GDP) mostly on UK government securities, and has introduced a scheme for financial institutions to swap mortgage-backed securities for UK Treasury bills. The ECB took three main steps: adjusting its money market operations to offer unlimited amounts of funds, lowering standards on the collateral it accepts in such operations, and buying bonds. The bond buying, though amounting to 1.5 percent of euro zone GDP, is less radical than the Fed's because the bank absorbs back the money that its purchases release. But its initiative is still highly controversial.<br />
<br />
Issing, the ECB's chief economist from 1998 to 2006, calls the bond-buying dangerous. But he also concedes that the problems of the past few years have required extreme measures. "It is difficult to justify within the context of the independence of the central bank," says Issing. "But, on the other hand, the ECB was the only actor who could master the situation. What matters now is that it finalizes this programme and gets out."<br />
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BLOWING UP THE ORTHODOXY<br />
<br />
Central banks have historically often been subordinated to governments, but the high inflation and slow growth that followed the oil price shocks of the 1970s ushered in a relatively simple orthodoxy: their goal should be to keep inflation in check. Maintaining a slow and steady pace of price rises became the overriding aim of central bank policy, and independence from political pressures came to be seen as a pre-requisite for achieving this. Starting with New Zealand in 1989, central banks in more than 50 countries adopted explicit, public targets for inflation.<br />
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Western governments claimed this was responsible for the Great Moderation, a two-decade period of relatively stable growth in developed economies. It still has many proponents, but the credit crisis has made a mockery of that overriding simplicity, exposing serious flaws in how central banks defined their mission and operated. One flaw: they did little to prevent the build-up of the asset bubbles that triggered the financial crisis, such as the boom in U.S. subprime mortgages. Another: the obsession with inflation blinded them to dangerous trends in banking. After all, what is the point of keeping inflation low if lax lending and feckless financial supervision threaten to tip the economy into the abyss?<br />
"The problem was not that the Fed lacked instructions to avoid a crisis," says James Hamilton, a professor of economics at the University of California, San Diego and visiting scholar at the central bank on multiple occasions. "The problem was that the Fed lacked the foresight to see the crisis developing."<br />
<br />
Fed Chairman Bernanke doubts central banks can know for sure that an asset bubble has formed until after the event, and feels monetary policy is too blunt a tool to arrest any worrisome developments. At the same time Bernanke, former vice-chairman Kohn and others agree that the central bank might be able to employ broader tools to prevent asset prices from getting too frothy. For example, the Fed regulates margin requirements for buying equities with borrowed funds; it could use these to rein in a galloping stock market.<br />
<br />
"The simplicities of extreme inflation targeting -- which said if you meet your inflation target and keep inflation stable the rest of the economy would look after itself -- have been blown apart," Sir John Gieve, who was deputy governor at the Bank of England from 2006 to 2009, told Reuters. "The Bank's objectives have become a lot more complicated. Some people have been quicker to realize this than others. If you talk to the Japanese, they would say they have been doing this for a while."<br />
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ANY ANSWERS?<br />
<br />
Could the Fed and its counterparts in Britain and Europe learn from Asian central banks, many of which limit the proportion of deposits that banks can extend as loans? Should they insist that a home buyer make a sizeable deposit when taking out a mortgage -- a practice that might have tempered the U.S. housing bubble? Central banks in some emerging economies outside Asia already appear to be adopting such methods - known as 'macroprudential' steps - to complement traditional interest rate policy. Turkey has been raising commercial banks' reserve ratios while simultaneously cutting interest rates, and Brazil signaled this month it would rely more on credit curbs and less on rate increases to fight inflation.<br />
<br />
Or should they look closer to home, for example to the central banks of Australia and Canada? Both are inflation-targeters, but they sailed through the global crisis without having to resort to extreme measures. A history of conservative banking regulation in those countries meant they never faced severe credit problems.<br />
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"Prior to the crisis a lot more people were of the view that if it's not broke don't fix it," said Dean Croushore, professor of economics at the University of Richmond in Virginia and a former economist at the Philadelphia Federal Reserve. "Policymakers didn't react, particularly with respect to housing. Maybe being a bit more proactive is a good thing."<br />
Then again, some Republican lawmakers want the Fed, which has a dual mandate to keep inflation low and maximize employment, to focus exclusively on the first task. They contend that monetary policy is not the right tool to create jobs.<br />
Buying up bonds and bailing out failing firms does indeed blur the boundaries between monetary and fiscal policy. Critically, it also suggests that supposedly autonomous central banks are doing the bidding of politicians.<br />
<br />
"Things cannot change in a measured way," said European Central Bank policy maker Axel Weber earlier this month. He is also head of Germany's Bundesbank, but last month he stood down as a candidate to succeed Trichet at the ECB. His outspoken opposition to the bank's bond-buying underlined the rift between the traditional approach to central banking and the political expediency born of the crisis. "There will have to be fundamental change ... If institutions are too big to fail, they are too big to exist," Weber said, echoing comments by King at the Bank of England.<br />
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MORE INTRUSIVE<br />
<br />
The shift is already happening. "Bond investors are not facing a future change; they are living through a change," said Gieve, the former Bank of England deputy governor. Inflation remains very important, and I have no doubt my colleagues at the Bank of England take it very seriously ... But they are also aware of the need to stabilize the financial system. They need to get the economy on a sustainable growth track."<br />
<br />
Of course the Fed has never operated in a vacuum. Greenspan swiftly cut interest rates after the Black Monday stock market crash in October 1987 and again in September 1998, after the Fed had to organize a $3.5 billion rescue of LTCM, a big hedge fund. But some experts, including Stephen Roach, Morgan Stanley's non-executive chairman in Asia, have long argued that an explicit financial stability mandate would force the Fed -- and other banks -- to pay closer attention to looming bubbles and weak links in the system rather than simply mopping the mess up later.<br />
<br />
Legislators are giving central banks more powers to keep an eye on financial -- as distinct from monetary or economic -- trends. Academics have also broadened their reach in that direction, with the Federal Reserve's prominent Jackson Hole conference last summer featuring a paper arguing that policymakers should pay closer attention to financial variables in their macroeconomic assessments.<br />
<br />
That's exactly the direction things are headed. Since the beginning of this year, ECB boss Trichet has chaired something called the European Systemic Risk Board (ESRB) -- a body designed to take a bird's eye view of Europe's financial system and flag up emerging problems so the relevant authorities can act. In Britain, the government has decided to disband the Financial Services Authority and give the Bank of England the job of preventing any build-up of risk in the financial system, on top of its monetary policy role. And in the United States, newly enacted legislation gives the Fed a leading role in financial regulation as part of the Financial Stability Oversight Council.<br />
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"From a regulatory standpoint, we'll be more aware and more intrusive in monitoring institutions that are systemically critical," Dallas Fed President Richard Fisher told Reuters in an interview.<br />
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POLITICS, OF COURSE<br />
<br />
With those expanded roles comes a greater need for central banks to explain their actions to citizens, markets and politicians alike. Investors will no longer be able to anticipate how policy makers will act just by tracking inflationary trends as they did for a generation before the Great Financial Crisis.<br />
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Bernanke made it a priority from the start of his tenure in 2006 to improve communications. He didn't have to do much to improve upon his oracular and sometimes opaque predecessor, Alan Greenspan, who famously said, "if I turn out to be particularly clear, you've probably misunderstood what I've said."<br />
<br />
But the crisis exposed the Fed to withering fire. "It's hard to maintain mystique when there have manifestly been a series of policy errors, not just at the Fed but in many branches of government," says Maurice Obstfeld, a professor of economics at the University of California at Berkeley.<br />
<br />
Even harder, when the big central banks themselves have yet to work out how they will implement their new powers. The new rules in the United States, for instance, give regulators more leeway to wind down global financial institutions deemed too large to fail in case they touch off a catastrophic domino effect as loans are called in. But how that will work in practice remains to be seen.<br />
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"At the end of the day it comes down to whether or not the too-big-to-fail resolution mechanisms are robust. There's still some thinking to be done on that," David Altig, research director at the Atlanta Fed and a professor at the University of Chicago's Booth School of Business, said in a telephone interview.<br />
<br />
To judge by comments by Weber and King, that's a big, unanswered, politically charged question. The BoE chief has been vocal in complaining that the concept of "too important to fail" has not been addressed, and that bankers continue to be driven by incentives to load up on risk.<br />
<br />
Then there's the fact that deciding which firm should live and which not is an intensely political process. Look no further than the furor over the U.S. authorities' decision to bail out insurer AIG and car maker GM, but to let investment bank Lehman Brothers go to the wall months after arranging a rescue of Bear Stearns.<br />
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With an expanded awareness of their mandates, wouldn't central banks be forced to take into account such dilemmas when they are setting interest rates?<br />
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"It's a risk, but one has to be aware of the risk and to avoid it," says Issing, the former ECB chief economist. "It's macroeconomic supervision; it's not micro control of individual banks. But if the European Systemic Risk Board identifies systemic risk, it must be solved with tools of regulation and not by lax monetary policy."<br />
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A FACT OF LIFE<br />
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In truth, central banking, by its nature, has always been an intensely political enterprise. To pretend otherwise is naive. War, revolution, depression and calamity have always subjugated central banks to political necessity, and most are still state-owned. Like a country's highest court, a central bank cannot -- no matter how vaunted its independence -- be unaware of the political and social mood. The Fed chairman and the U.S. Treasury secretary worked hand in glove during the financial crisis and have the freedom to discuss a range of topics when they meet informally every week.<br />
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The political nature of central banking was brought home last month when Weber decided to stand down early. He had judged that he did not have enough political support from the 17 members of the euro zone, and his relationship with German chancellor Angela Merkel was also rocky. He will hand over to Jens Weidmann, Merkel's economic adviser. Critics of the appointment -- and there is no shortage of them in a country that likes its central bankers tough and independent -- worry that Weidmann will weaken the Bundesbank's statutory freedom from political influence.<br />
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That misses the point completely, says David Marsh, co-chair of the Official Monetary and Financial Institutions Forum, which brings together central banks, sovereign wealth funds and investors. Marsh says the launch of the euro in 1999 was a political act itself, one that has already led to a much more politicized regime of monetary management.<br />
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"The interplay with governments -- whatever the statutes say about the supreme independence of the European Central Bank -- is a fact of life," he says. "The mistakes and miscalculations of the last 12 years show how monetary union has to be part of a more united political system in Europe. That is not loss of independence. That is political and economic reality."<br />
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It is against this backdrop that Trichet's apparent conversion on the road from Lisbon to Brussels last May must be seen.<br />
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Niels Thygesen, a member of the committee that prepared the outline of European Economic and Monetary Union in 1988-9, says the euro zone debt crisis forced the ECB to show some flexibility by agreeing to the bond-buying programme. "It is a departure relative to the original vision for the European Central Bank, which was supposed to be a bit isolated from dialogue with the political world," he says. "On the other hand, I never thought that was quite a tenable situation."<br />
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Thygesen, now a professor at the University of Copenhagen, said he did not particularly like the idea but acknowledged that the ECB might in fact have gained some clout by agreeing to the bond-buying plan. Trichet helped rally euro zone leaders into arranging standby funds and loan guarantees that could be tapped by governments in the currency bloc shut out of credit markets -- relieving the ECB of some of the burden of crisis management. "It was part of a bargain and I'm sure Mr Trichet bargained very hard and in a way successfully," says Thygesen. "The ECB has stood up well and gained substantial respect for its political clout in bringing about actions on the part of governments, which otherwise might not have taken place."<br />
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LESSONS FROM JAPAN<br />
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It doesn't always work out that way. Just ask the Bank of Japan.<br />
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The BOJ embarked on quantitative easing as far back as 2001. But a decade on, it has still failed to decisively banish the quasi-stagnation and deflation that has dogged Japan's economy since the early 1990s. Only once in the past decade, in 2008, has Japan experienced inflation of more than 1 percent -- the central bank's benchmark for price stability.<br />
<br />
When the global crisis hit, the BOJ revived a 2002 scheme to buy shares from banks and took a range of other unorthodox steps to support corporate financing. But its actions failed to placate critics who view it as too timid. Senior figures in the ruling party and opposition parties talk of watering down the BOJ's independence and forcing it to adopt a rigid inflation target.<br />
<br />
"The government tends to blame everything on the BOJ," Kazumasa Iwata, a former BOJ deputy governor, told Reuters. Makoto Utsumi, a former vice finance minister for international affairs, defended the bank's current set-up, saying it would be "absurd" and "unthinkable" for a developed country like Japan to make its central bank a handmaiden of the government.<br />
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The bank's prompt response to the devastating March 11 earthquake and tsunami has since earned it widespread plaudits. The BOJ poured cash into the banking system, doubled its purchases of an array of financial assets and intervened in the foreign exchange market in coordination with the central banks of other rich nations to halt a surge in the yen that was hurting Japan's exporting companies.<br />
<br />
Charles Goodhart, a professor at the London School of Economics who was on the Bank of England's Monetary Policy Committee from 1997 to 2000, believes a measure of central bank independence can be preserved, even if cooperation with ministers is needed to keep the banking system stable. "I think trying to maintain the independent role of the central bank in interest rate setting remains a very good idea," he told Reuters. "When it comes to financial stability issues, at any rate under certain circumstances and at certain times, there will have to be a greater involvement of the government."<br />
How to achieve that balance is the subject of a whole other debate. "None of this is going to be quite in the separate boxes it has been in the past," says Gieve, the former Bank of England deputy governor. "If you have inappropriate monetary policy, all the macroprudential instruments in the world will find it very difficult to push water up hill."<br />
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IMPORTING INFLATION<br />
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As if the political dimension was not enough of a headache, central bank rate-setters seem to be finding it harder to nail down the sources of the inflation they are tasked to fight. One reason is globalization.<br />
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Central banks have traditionally turned a blind eye to a one-off rise in prices stemming from, say, an increase in consumption taxes, a sharp drop in the exchange rate that boosts import costs or, as now, a spike in oil. As long as the price jolt does not change inflationary expectations or worm its way into the broader economy by prompting workers to ask for higher wages, policy makers have usually felt comfortable in keeping their eye on underlying cost pressures at home.<br />
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That remains the consensus, as demonstrated by the Bank of England, which has failed to keep inflation down to its 2 percent target for much of the past five years.<br />
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But in a world of integrated supply chains, can inflationary impulses be neatly attributed to either domestic or international forces? Does it now make sense, as some analysts argue, to estimate how much spare capacity there is globally, not locally?<br />
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The answers to those questions will have huge implications for monetary policy.<br />
<br />
Lorenzo Bini Smaghi, one of six members of the ECB's Executive, has warned that sharper rises in the prices of commodities and goods imported from emerging economies will push up euro zone inflation unless domestic prices are controlled. "A permanent and repeated increase in the prices of imported products will tend to impact on inflation in the advanced countries, including the euro area," he said in Bologna in January.<br />
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St. Louis Fed President James Bullard admits the United States could not consider its own inflation outlook in complete isolation from the rest of the world.<br />
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"Perhaps global inflation will drive U.S. prices higher or cause other problems," he told a business breakfast in Kentucky in February. The ties that bind global banks and the ease with which capital flows across borders mean that central banks have to be more aware than ever of the international consequences of their policy actions.<br />
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Because the dollar is the dominant world currency, the Fed came under widespread fire for its second round of bond buying. Critics in China and Brazil among others charged that dollars newly minted by the Fed would wash up on their shores, stoking inflation and pumping up asset prices.<br />
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"How do we conduct monetary policy in a globalised context?" asks Richard Fisher, the Dallas Fed president. "How do we regulate and supervise and develop our peripheral vision for those that we don't supervise in a formal way, in a globalised context? Not easy."<br />
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Structural shifts in the world economy also raise questions about how long central banks should give themselves to hit their inflation goals -- further blurring the picture for investors.<br />
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"The central bank always has the choice of the time horizon over which it hits its inflation target," Thygesen, the Copenhagen professor, said. "As the Bank of England is now learning, it may have to extend that horizon somewhat in particularly difficult circumstances. There may be good reasons for doing it, but that is where the element of discretion lies."<br />
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The Bank of England expects inflation to remain above target this year before falling back in 2012. The ECB, which seeks medium-term price stability, is resigned to inflation remaining above its target of just below 2 percent for most of 2011. In the last 12 months, it stood at 2.3 percent.<br />
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It all adds up to a significant shift in the environment in which central banks operate. Policy-making is a whole lot more complicated. With a broader mandate for keeping the banking system safe comes increased political scrutiny. With fast-expanding export economies like China becoming price setters instead of price takers, offshore inflation and disinflation are of growing importance. If the rise in oil prices is due to increased demand from developing nations, for instance, can western central banks still play down ever-higher energy bills as transient?<br />
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That all means it will become tougher for central banks to preserve their most precious asset, credibility.<br />
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"Look at the '90s and the early years of this century -- central banks were at the peak of their reputation worldwide, and I was already saying at that time that we know from experience that the risk is highest when you are on top," Issing says. "Central banks have to take care to restore their reputation, if it has been lost. I think this is a difficult situation for central banks worldwide."<br />
<br />
(Paul Carrel reported from Frankfurt, David Milliken from London and Mark Felsenthal and Pedro Nicolaci da Costa from Washington; Additional reporting by Rie Ishiguro in Tokyo; Writing by Alan Wheatley; Editing by Simon Robinson and Sara Ledwith)<br />
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Michele Swenson: The Great Wealth Shift Upward: Corporatists' War on the Working Classhttp://www.huffingtonpost.com/michele-swenson/the-great-wealth-shift-up_b_827296.htmlMichele Swensonhttp://www.huffingtonpost.com/michele-swenson/
<em>Please, sir, may I have another cup of poorr-ridge?</em><br />
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The U.S.'s Dickensian economy is a legacy of Milton Friedman's 40-year promotion of unregulated capitalism advanced by the University of Chicago School of Economics. The neoliberal model widely disseminated through many U.S. universities has been exported worldwide. Naomi Klein (<em>Shock Doctrine: The Rise of Disaster Capitalism</em>) wrote about Friedmanite "disaster capitalists" who exploit natural or man-made disasters -- <em>crisis as catalyst for change</em>. Such "shock doctrine" is prelude to imposition of harsh policies of unregulated capitalism and the sell-off of public domain to profit multinational corporations. A U.S. financial crisis is one more opportunity to shift wealth upwards at the expense of federal, state and local governments and the working class.<br />
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Disaster capitalists' first concrete success was the 1973 violent overthrow of Chile's first democratically elected president, Salvador Allende, by dictator General Augusto Pinochet, <a href="http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB8/nsaebb8i.htm" target="_hplink">abetted by the CIA</a>, with the Nixon administration's blessing. Pinochet declared a "nation of owners" 30 years before George W. Bush touted his "Ownership Society." The Chilean dictator, writes Klein, replaced the public school system with vouchers and charter schools, instituted pay-as-you-go health care and privatized Chile's Social Security system -- a mirror of the U.S. conservative agenda.<br />
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Many uprisings in the Middle East are reactions to the same pattern of crony capitalism -- the marriage of parasitic multinational corporations seeking privatization of resources for profit with corrupt regimes and their elite associates who appropriate their country's wealth for their inner circle, at the expense of the people. Hosni Mubarak's ill-gotten family <a href="http://ipsnews.net/news.asp?idnews=54538" target="_hplink">wealth</a> is estimated between $1 billion to $70 billion, while more than 20 percent of Egypt's 82 million people reportedly live on less than two dollars a day.<br />
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Notes Klein, most coups since Chile have been carried out by "elites in suits" -- many have grown extremely wealthy on the backs of "large portions of what had been the working class who were discarded from the economy altogether and turned into surplus people," <a href="http://books.google.com/books?id=Pse7S3Q8YYQC&pg=PA149&lpg=PA149&dq=ricardo+grinspun+surplus+people&source=bl&ots=mbestndm4E&sig=bKsyDtImBbeF-T_WjjL_0FB7tmY&hl=en&ei=7lhlTfyIGYKs8Abx_ICSBg&sa=X&oi=book_result&ct=result&resnum=1&ved=0CBkQ6AEwAA#v=onepage&q=ricardo%20grinspun%20surplus%20people&f=false" target="_hplink">said economics professor Ricardo Grinspun</a>. "Everywhere the Chicago School crusade has triumphed, it has created a permanent underclass of between 25 and 60 percent of the population," writes Klein.<br />
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To neoliberals, any crisis is an opportunity to loot deregulated markets and crush the working class. Klein quotes a New Orleans activist: "Those who do not support public education, healthcare, and housing will continue to turn all of our country into the Lower Ninth Ward unless we stop them." Rather than rebuild large parts of <a href="http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=5600#" target="_hplink">New Orleans post-Katrina</a>, much of it became a blank slate on which corporatists could launch new markets of privatized, deregulated capitalism. Louisiana's education secretary boasted of "the first 100% free-market education system in the country," as most of New Orleans' 124 public schools were replaced by charter schools, which received more public, private and foundation funding than New Orleans public schools ever did pre-Katrina. So, too, were 7,500 public school staffers, including teachers, fired -- effectively breaking the union in a "right-to-work" state. <br />
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At the core of the Chicago school neoliberal crusade is the triple obsession of privatization, deregulation and union-busting. Crony capitalism on steroids permitted the most criminal behavior within the <a href="http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=5415#" target="_hplink">banking/mortgage industry</a>, economic fraud measured in trillions of dollars of losses, with no prosecutions, notes economics professor William K. Black. The same banksters who betrayed their responsibilities and committed fraud were bailed out by taxpayers, got rich and continue to benefit, said Black, who calls the financial reform bill of 2010 a "travesty" that fails to address the underlying cause of the financial crisis.<br />
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In spite of the 2004 FBI report of an "epidemic of mortgage fraud," both Alan Greenspan and Ben Bernanke failed to use the authority that only the Federal Reserve has to regulate mortgage bankers, notes Black. Even Bernanke has acknowledged "two societies" due to a wide disparity of wealth. Black calls the wealth gulf and resulting plutocracy a <a href="http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=5415#" target="_hplink">greater threat to democracy than to the economy</a>. Furthermore, Obama's capitulation by extending Bush tax cuts for the wealthiest one percent exponentially increases the extraordinary power of the wealthiest elites, in the wake of the Supreme Court's 2010 <em>Citizens United vs. FEC</em> decision.<br />
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Michael Hudson, President of the Institute for the Study of Long-Term Economic Trends, observes that the predominant mindset on the deficit commission is to reduce labor's wages -- depression is deemed a "solution," to achieve wage cuts of "20 percent." Wall St./corporate philosophy holds that they will become richer if they "can only impoverish the economy" by shifting the tax burden away from finance and industry onto labor. So, too, did Alan Greenspan a decade ago praise debt as a "cure" for the <a href="http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=6002#" target="_hplink">"labor problem"</a> -- a means to create steadily falling wages. "What Greenspan and others call the post-industrial economy is really neo-feudalism, a financialized economy where all of the surplus goes to the banks," says Hudson.<br />
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Professor Tom Ferguson of the Roosevelt Institute, <a href="http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=6019#" target="_hplink">observes</a> that the need for stimulus and jobs is ignored, while non-stimulant large tax giveaways are freely granted to the super-rich, proving how "cheap" is talk about deficits. Extension of the Bush tax cuts for the wealthiest two percent (which never created jobs in 10 years) are <a href="http://www.americanprogress.org/issues/2010/07/let_cuts_expire.html" target="_hplink">projected</a> to add almost $830 billion to the deficit over the next 10 years.<br />
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Social Security "reform" is further distraction, as the program should have been sound for decades. However, Obama's tax deal with Republicans to cut the Social Security tax, Ferguson says, will make the short-term finances of Social Security look worse, setting the stage to ultimately squeeze and cut Social Security, and fulfilling a long-time dream of corporatists to gut all New Deal-type programs.<br />
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Economist Dr. Robert A. Johnson judges that in terms of Sen. Alan Simpson's budget "minnows and whales," Social Security is a "minnow." The "Moby Dick of the American budget problem" is <a href="http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=5997#" target="_hplink">money in politics</a>. One result is enormous military pork, another the unresolved financial corruption, prompting Johnson's forecast of another large-magnitude financial industry bailout within 20 years. Health care is responsible for the greatest inflationary costs, says Johnson, naming the best cure a Medicare-for-All model. Unfortunately, corporatists blocked the most comprehensive health care reform, also the best for economic recovery.<br />
<br />
Ronald Reagan's budget director David Stockman acknowledged that historic Reagan federal budget deficits were a strategy to cut domestic spending. So, too, did Reagan's regressive taxation -- increased payroll taxes and tax cuts for unearned capital income of the wealthy -- shift the greater tax burden to the working class. Whether in D.C. or Wisconsin, large tax breaks for the wealthy have been followed by declarations of budget emergency and demands for austerity cuts to social programs and workers' compensation. Wisconsin Gov. Scott Walker reversed <a href="http://host.madison.com/ct/news/opinion/editorial/article_61064e9a-27b0-5f28-b6d1-a57c8b2aaaf6.html" target="_hplink">Wisconsin's surplus</a>, creating a deficit with large tax cuts for businesses and the wealthy, and then promoted a bill demanding pay and benefit cuts for public employees, and elimination of collective bargaining rights.<br />
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More crony patronage buried in the same bill would permit the sale or no-bid contract-for-management of Wisconsin's state-owned utilities to anyone. Several likely candidates were subsidiaries of <a href="http://blogs.forbes.com/rickungar/2011/02/22/a-secret-deal-between-gov-walker-and-koch-brothers-buried-in-state-budget/" target="_hplink">Koch Industries</a>, whose billionaire owners <a href="http://motherjones.com/mojo/2011/02/wisconsin-scott-walker-koch-brothers#" target="_hplink">were large donors</a> to Walker's 2010 gubernatorial campaign and to the Republican Governors Association.<br />
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<a href="http://tanque.org/peptide/norquist.html" target="_hplink">Grover Norquist</a> (Americans for Tax Reform) has agitated for a huge wealth shift upwards and dismantling of democracy, and applauds the effects of states' fiscal crises. "We are trying to change the tones in the state capitals, and turn them toward bitter nastiness and partisanship," he gloated.<br />
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Determined to gut state budgets and public employee compensation, Republican corporatists rejected renewal of the <a href="http://my.firedoglake.com/themediaconsortium/tag/wages/" target="_hplink">Build America Bonds program</a> that expired on Dec. 31, 2010. The bonds comprise roughly 20 percent of all new debt sold by states, called a lifeline to states that face up to $130 billion shortfalls this year and cannot deficit spend and are further constrained by reduced state income tax revenues due to continuation of George W. Bush's federal and dividend tax cuts. Congressional Republicans are reportedly preparing legislation <a href="http://www.truth-out.org/throwing-public-unions-under-bus66362" target="_hplink">to change federal bankruptcy law</a> so states can declare bankruptcy in order to erase pension responsibilities to workers.<br />
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U.S. corporate taxes are 35 percent, but, thanks to loopholes, the General Accounting Office <a href="http://www.nytimes.com/2008/08/13/business/13tax.html?_r=1&adxnnl=1&adxnnlx=1298415771-przrLMO1bLmEjdBPrRATBw" target="_hplink">reported</a> that two out of three U.S. corporations paid no federal income taxes from 1998 through 2005. <em>Forbes Magazine</em> reported that in 2009 General Electric generated $10.3 billion in pretax income and a "tax benefit of $1.1 billion," paying nothing to Uncle Sam. In 2009, big corporations with tax shelters shifted a $100 billion <a href="http://wonkroom.thinkprogress.org/2009/04/22/corporate-tax-offshore/" target="_hplink">annual tax burden</a> onto U.S. taxpayers.<br />
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"Balancing the budget" and "deficit reduction" are code for shifting benefits of government spending to corporations and Wall St., away from workers, as corporatism has steadily gained dominance and subverted democracy in state and federal legislatures.<br />
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Disaster capitalism has come full circle -- Koch brothers et al pay for "populist" demonstrations, exploiting as shills Tea Party people whom they seek to disempower, who in turn agitate for disempowerment of workers in unions, which Governor Walker, whose election was hugely funded by the Koch brothers, seeks to break in return for handing over control of the people of Wisconsin's public utilities to the Koch Brothers. It is the rise of modern feudalism under corporate feudal overlords.<br />
<br />
<em>Corporate media are too invested in the conservative/corporate narrative to relate the story of disaster capitalists' subversion of democracy. Accurate information about the economic crisis is best accessed through alternative media such as The Real News Network (TRNN.Com), DemocracyNOW! and Free Speech Radio News.</em>
<p>Read more: <a href="/tag/chicago-school-of-economics">Chicago School of Economics</a>, <a href="/tag/milton-friedman">Milton Friedman</a>, <a href="/tag/disaster-capitalism">Disaster Capitalism</a>, <a href="/tag/balanced-budget">Balanced Budget</a>, <a href="/tag/economic-fraud">Economic Fraud</a>, <a href="/tag/deregulated-markets">Deregulated Markets</a>, <a href="/tag/president-salvador-allende">President Salvador Allende</a>, <a href="/tag/neofeudalism">Neo-Feudalism</a>, <a href="/tag/unionbusting">Union-Busting</a>, <a href="/tag/ronald-reagan">Ronald Reagan</a>, <a href="/tag/drown-government">Drown Government</a>, <a href="/tag/new-orleans-postkatrina">New Orleans Post-Katrina</a>, <a href="/tag/deficit-reduction">Deficit Reduction</a>, <a href="/tag/labor-problem">Labor Problem</a>, <a href="/tag/michael-hudson">Michael Hudson</a>, <a href="/tag/deficit-commission">Deficit Commission</a>, <a href="/tag/augusto-pinochet">Augusto Pinochet</a>, <a href="/tag/chile-coup">Chile Coup</a>, <a href="/tag/neoliberals">Neoliberals</a>, <a href="/tag/shock-doctrine">Shock Doctrine</a>, <a href="/tag/koch-brothers">Koch Brothers</a>, <a href="/tag/us-financial-crisis">U.S. Financial Crisis</a>, <a href="/tag/tom-ferguson">Tom Ferguson</a>, <a href="/tag/middle-east-uprisings">Middle East Uprisings</a>, <a href="/tag/dr-robert-a-johnson">Dr. Robert A. Johnson</a>, <a href="/tag/privatization">Privatization</a>, <a href="/tag/william-k-black">William K. Black</a>, <a href="/tag/mubarak">Mubarak</a>, <a href="/tag/bankrupt-states">Bankrupt States</a>, <a href="/tag/grover-norquist">Grover Norquist</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/naomi-klein">Naomi Klein</a>, <a href="/tag/permanent-underclass">Permanent Underclass</a>, <a href="/tag/federal-reserve">Federal Reserve</a>, <a href="/tag/ben-bernanke">Ben Bernanke</a>, <a href="/denver">Denver News</a></p>
Greenspan: 'Government Activism' Is Slowing U.S. Recoveryhttp://www.huffingtonpost.com/2011/03/04/alan-greenspan-government_n_831227.htmlThe Huffington Post News Teamhttp://www.huffingtonpost.com/the-news/
Less than a year after<a href="http://www.usatoday.com/money/industries/banking/2010-04-07-financial-crisis-commission_N.htm" target="_hplink"> testifying that his free-market approach</a> to the financial sector was "wrong 30 percent of the time," Alan Greenspan, former chairman of the Federal Reserve, is taking aim at what he calls "government activism." <br />
<br />
Writing in <em>International Finance</em>, Greenspan <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1468-2362.2011.01277.x/full" target="_hplink">rails against</a> the "frenetic pace of new financial regulations," which he says have hampered "what should be a broad-based robust economic recovery."<br />
<br />
Greenspan directs no ill-will at the Federal Reserve's decisions in the wake of the financial collapse, nor at the Troubled Asset Relief Program (TARP), both of which he believes "were critical in assuaging the freefall."<br />
<br />
Other regulatory structures, however, don't get off so easily. The former Federal Reserve chairman casts a skeptical eye toward both the $814 billion federal stimulus and "housing and motor vehicle subsidies," believing that the government's decision to support prices "delays the liquidation required to restore balance to market supply and demand."<br />
<br />
Greenspan also calls the 2010 Dodd-Frank financial reform bill "impossible to judge" at the present moment. Still, he foresees it causing "many unforeseen market disruptions" in the future.<br />
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He appeared on CNBC's Squawk Box early Friday morning to further discuss the issue, saying that while the "degree of activism has actually gone down" in the last six months, he predicts the implementation of the "internally contradictory" Dodd-Frank Act will soon surface as a chief economic issue. Here's <a href="http://www.cnbc.com/id/41892629" target="_hplink">more</a> from Greenspan:<br />
<br />
<blockquote>What we're going to find is the unexpected consequences of much of the new regulations that are going to come as a result of Dodd-Frank are going to be reversed... That is going to create very high degrees of uncertainty.</blockquote><br />
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Greenspan, famous for his dedication to free-market ideology, acted as Chairman of the Federal Reserve from 1987 to 2006. In the wake of the 2007 financial collapse, many scrutinized his decision to lower federal interest rates in the mid-2000s. In 2008, he admitted his tendency to avoid regulation <a href="http://www.guardian.co.uk/business/2008/oct/24/economics-creditcrunch-federal-reserve-greenspan" target="_hplink">might have been "partially wrong."</a><br />
<br />
<br />
<strong>WATCH CNBC's interview with Greenspan:</strong><br />
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<p>Read more: <a href="/tag/tarp">Tarp</a>, <a href="/tag/government-activism">Government Activism</a>, <a href="/tag/squawk-box">Squawk Box</a>, <a href="/tag/video">Video</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/housing-subsidies">Housing Subsidies</a>, <a href="/tag/cnbc">Cnbc</a>, <a href="/tag/federal-reserve">Federal Reserve</a>, <a href="/tag/great-recession">Great Recession</a>, <a href="/tag/dodd-frank">Dodd Frank</a>, <a href="/business">Business News</a></p>
Robert Auerbach: The Social Security Lock Box Hoax and the National Debthttp://www.huffingtonpost.com/robert-auerbach/the-social-security-lock-_b_830563.htmlRobert Auerbachhttp://www.huffingtonpost.com/robert-auerbach/
The huge deficits of the federal government now and in the future have been and will be financed in large part by selling U.S. Treasury securities to the public. The present value of those securities is the national debt. It is useful for understanding the plans to limit the national debt being considered by the Congress to have approximate estimates of the size of the national debt and to avoid bad policies based on the Social Security lock box hoax.<br />
<br />
Anyone who has examined the U.S. Treasury and the central bank (the Federal Reserve) records knows the national debt clocks on the internet and in New York City generally display one misleading number. The national debt, subject to a statutory limit that must be approved by Congress, was $14.014 trillion on January 4, 2011. (Daily Treasury Report). That number on the debt clocks is much larger than the debt the federal government owes the public, including foreign holders, who hold U.S. Treasury securities. <br />
<br />
$4.629 trillion was recorded as "intergovernmental holdings", the money the government owes itself. This <a href="http://www.socialsecurity.gov/OACT/ProgData/specialissues.html" target="_hplink">includes</a> the Social Security trust funds that hold non-marketable Treasury securities. The estimate for "intergovernmental holdings "amount did not include $1.190 trillion Treasury securities held by the Federal Reserve, which is part of the government.(Federal Reserve Statistical Release, 2/17/11) The Federal Reserve actually sends back to the Treasury any interest it receives that it does not use for its operations. These intergovernmental transfers, taking money out of one government pocket and putting it in another government pocket, has no economic significance. It might help to inform dubious observers that the Federal Reserve is part of the government.<br />
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Subtracting all the money the government owes itself from the statutory limit that must be approved by Congress, the amount the federal government owes the public is approximately $8.195 trillion (plus other adjustments). That was 58 percent of the number usually displayed on the debt clocks and 55 percent of gross U.S. output (gross domestic product).<br />
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Part of the publicly held national debt are "Major Foreign Holders". They held approximately half the public debt, $4.4 trillion. The largest holder is mainland China ($1.16 trillion) and second place is Japan ($882 billion).<br />
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These estimates cannot be precisely made. The present value or market value of the Treasury securities is very difficult to estimate if the government decides to buy back some of its long term bonds, long before their final maturity. The price of the bonds could rise (with bids that are higher than current market values) or fall with (lower bids) to levels that are difficult to predict. This problem is crudely bypassed by using the final payment on Treasury bonds (their par value) as their value.<br />
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Not only do many people believe that the money the government owes itself is part of the national debt, some believe that the funds recorded in federal government trust funds are assets, items of wealth that will provide income in the future. For example, with all due respect for Vice President Al Gore, he campaigned for president in 2000 advocating the placement of Social Security taxes in the Social Security "lock box" to benefit future generations. <br />
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The Social Security lock box is an electronic record on a government computer. It represents no wealth from the Treasury assets it holds. The government can even pay itself more interest on that recorded number increasing its size. Why not double the interest payments and make people who believe in the lock box very happy. That would have some economic result until they tried to use it. Sending the Social Security recipient a printout from the computer that holds the lock box number without some money would not be well received. <br />
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When Social Security payments are made the government can print the money, use deposits from government accounts at private banks, borrow money (sell Treasury securities) or use current revenue sources such as tax collections. <br />
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Alan Greenspan helped fill the Social Security lock box, as I noted in my 2008 book, <em>Deception and Abuse at the Fed</em>. Greenspan was appointed by President Ronald Reagan to be chairman of a bipartisan commission to save Social Security, The National Commission on Social Security Reform, the Greenspan Commission, 1981-83. <br />
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Greenspan received praise for achieving a compromise solution in a crisis atmosphere. As the measure passed the Senate, it was reported that the changes would "assure the solvency of Social Security for the next 75 years." <br />
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A primary part of the Greenspan Commission's solution was an increase in the payroll tax rate over a phase-in period. The combined employee/employer payroll taxes (Social Security plus Medicare taxes) were raised 15 percent to 15.3 percent of wages for 1990 (still in effect in 2007). The tax fell only on lower incomes, $35,800 or less in 1984 ($97,500 in 2007). <br />
<br />
The final plan actually collected more funds than were paid out to Social Security recipients for every year thus far so that on a pay-as-you-go basis it resulted in a larger than necessary tax increase on lower incomes. The tax collected helped to finance other government spending such as the Afghanistan/Iraq wars that began in 2003. <br />
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Taking the Greenspan Commission payroll tax increases and the Reagan tax cuts together, the result was a substantial shift in the tax burden to those on lower incomes. <br />
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In 2009, eight individuals, seven of whom "helped craft and secure" the recommendations of the 1983 Greenspan Commission reported the success of the Greenspan Commission to the Senate Budget Committee. (11/10/2009): <br />
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<blockquote>Social Security is currently in surplus. According to the 2009 Annual Report of the Board of Trustees, published May 12, 2009, Social Security ran a surplus of $180 billion last year and had accumulated a reserve of $2.4 trillion. (Even excluding the interest income, there was still a surplus of $64 billion.)</blockquote><br />
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People advising the Greenspan Commission believed in the lock box: "Some have argued that Social Security's investment income should be ignored because it involves inter-fund transfers which are not shown when the federal budget is displayed on a unitary basis and are irrelevant for the limited exercise of macroeconomic analysis." What about naughty economists who don't want to be part of a "limited exercise of macroeconomic analysis" to support the Social Security lock box hoax?<br />
<p>Read more: <a href="/tag/social-security">Social Security</a>, <a href="/tag/al-gore">Al Gore</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/senate-budget-committee">Senate Budget Committee</a>, <a href="/tag/national-debt">National Debt</a>, <a href="/business">Business News</a></p>
Dean Baker: Greenspan's Incompetence Badgers Wisconsin's Workershttp://www.huffingtonpost.com/dean-baker/greenspans-incompetence-b_b_826155.htmlDean Bakerhttp://www.huffingtonpost.com/dean-baker/
Alan Greenspan has been strangely missing from the fierce battle over the future of public-sector unions in Wisconsin and other states. His absence is strange because he bears more responsibility for the current conflict than anyone else alive.<br />
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The reason is simple. Mr. Greenspan's incredible incompetence in allowing the $8 trillion housing bubble to grow unchecked created the fiscal crisis that is gripping Wisconsin and most other states. <br />
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To be clear, states always face financial stress in economic downturns. Most states had to struggle to balance their budgets in 2001-2002 and earlier in the earlier 1990-1991 recession. During a recession tax revenues fall. Consumers buy less, which means less sales tax revenue. Workers earn less money, which means less income tax. And property values fall, leading to less property tax revenue.<br />
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At the same time the need for state programs increases. Unemployed and underemployed workers are more likely to need public benefits like unemployment insurance, Medicaid, Temporary Assistance for Needy Families (TANF) and other public support programs. <br />
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Recessions are part of capitalism, and responsible leaders prepare for cyclical downturns. However this recession is no ordinary downturn. The recession officially began in December of 2007, so it is now 37 months since the start of the downturn. <br />
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At this point following the 2001 recession, the economy was down 1.5 million jobs from the pre-recession level. 37 months after the start of the 1990-1991 recession the economy had generated 1.1 million more jobs than the pre-recession level. At this point following the 1981-82 recession, the worst prior recession of the post-war period, the economy had 5.5 million more jobs than before the recession.<br />
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By comparison the number of jobs now stands 7,700,000 below its pre-recession level. Furthermore, no one is projecting that this gap is about to be closed in the next several years. <br />
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There should be zero doubt: This downturn is the reason that Wisconsin has a budget crisis. Perhaps Wisconsin's leaders can be blamed for not recognizing that the economy was being managed by complete incompetents -- and planning accordingly -- but this is the story of the state budget crisis. <br />
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According to the <a href="http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf" target="_hplink">Congressional Budget Office</a>, the economy is operating at more than 6.4 percentage points below its potential level of output. If Wisconsin's state economy was 6.4 percent larger, and its revenues increased accordingly, it would have more than $4 billion in additional revenue in its coffers over the next two years. <br />
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This increase in revenue would easily cover the projected deficit. This is even before we add in the savings from lower payouts for unemployment insurance and other benefits that would follow from a return to normal levels of unemployment. In short, there can be little dispute that Wisconsin's budget crisis is Alan Greenspan's work. <br />
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The allegations of the union bashers can easily be shown to be nonsense. Wisconsin's public-sector workers are paid no more than their private-sector counterparts. They tend to get somewhat better pensions and health care coverage, but this is offset by <a href="http://www.epi.org/publications/entry/6785/" target="_hplink">lower pay </a>for comparably skilled workers. <br />
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Nor has there been an explosion of public-sector employment under the period in which Democrats governed the state. The <a href="http://www.doa.state.wi.us/debf/pdf_files/bib.pdf" target="_hplink">last budget</a> prepared by former governor Jim Doyle projected 69,038 full-time equivalent (FTE) positions for the state in 2011, an increase of 1.4 percent from the 68,092 FTE number in 2003, the year when Doyle took office. It takes some very inventive arithmetic to make a 1.4 percent increase in employment over eight years into a bloated state workforce.<br />
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How does it change anything if we know that Greenspan (last seen <a href="http://www.brookings.edu/events/2011/0211_mortgage_market.aspx" target="_hplink">being feted</a> at the Brookings Institution) is the real villain in the Wisconsin budget crisis? First, it should turn the heat where it belongs: Washington. <br />
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The problem of the downturn is a lack of demand. A lack of demand is solved by spending money. We have to get our elected representatives to ignore the shrill whining of the Wall Street deficit hawks. We need sufficient stimulus from the public sector to overcome the falloff of more than $1.2 trillion in spending from the private sector that resulted from the collapse of the housing bubble. <br />
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If members of Congress are too intimidated to do what is needed to fix the economy, then Wisconsin's legislators should do what common sense dictates: Follow the money. Rather than taking pay and benefits from schoolteachers and firefighters, it makes sense to take money from the people who have it. This means taxing Wisconsin's wealthy and its corporations. The tax increase only needs to be temporary; since the state budget should be fine once the economy recovers.<br />
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Of course the wealthy and the corporations will claim that they will leave the state and stop hiring, but these are not people who are known for their truthfulness. They are known for their money. <br />
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If these big winners in the downturn are forced to share more of their wealth until the economy recovers, then maybe they will put more pressure on Congress to support the sort of stimulus needed to get the economy back on track. This would be a real win-win for just about everyone. <br />
<p>Read more: <a href="/tag/public-employees">Public Employees</a>, <a href="/tag/wisconsin">Wisconsin</a>, <a href="/tag/budget-deficit">Budget Deficit</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/wisconsin-unions">Wisconsin Unions</a>, <a href="/tag/wisconsin-protests">Wisconsin Protests</a>, <a href="/tag/wisconsin-union-protests">Wisconsin Union Protests</a>, <a href="/business">Business News</a></p>
Mark Bazer: Video Interview With Bethany McLean, Co-Author of All the Devils Are Here http://www.huffingtonpost.com/mark-bazer/video-interview-with-beth_b_825814.htmlMark Bazerhttp://www.huffingtonpost.com/mark-bazer/
Bethany McLean, co-author of <em>All the Devils Are Here: The Hidden History of the Financial Crisis</em>, stopped by The Interview Show, hosted by Mark Bazer, to discuss the book and who are the biggest a**holes on Wall Street.<br />
<br />
Video below.<br />
<br />
(Next Interview Show is March 4 at The Hideout (6:30 p.m. to 8 p.m.), featuring Patrick Sansone and John Stirratt of the Autumn Defense and Wilco, Avenues chef de cuisine Curtis Duffy and more.)<br />
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<p>Read more: <a href="/tag/mortgage">Mortgage</a>, <a href="/tag/goldman-sachs">Goldman Sachs</a>, <a href="/tag/merrill-lynch">Merrill Lynch</a>, <a href="/tag/countrywide">Countrywide</a>, <a href="/tag/wall-street">Wall Street</a>, <a href="/tag/all-the-devils-are-here">All the Devils Are Here</a>, <a href="/tag/bethany-mclean">Bethany McLean</a>, <a href="/tag/subprime">Subprime</a>, <a href="/tag/fannie-mae">Fannie Mae</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/regulation">Regulation</a>, <a href="/tag/stan-oneal">Stan O'Neal</a>, <a href="/tag/credit-default-swap">Credit Default Swap</a>, <a href="/chicago">Chicago News</a></p>
Greenspan On Financial Crisis: 'Not Bad'http://www.huffingtonpost.com/2011/02/18/alan-greenspan-crisis_n_825281.htmlThe Huffington Post News Teamhttp://www.huffingtonpost.com/the-news/
Former Federal Reserve chairman Alan Greenspan oversaw policies that contributed to the worst economic catastrophe since the Depression. But the morning after the stock market crashed, he reportedly didn't feel too bad.<br />
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Speaking publicly at New York University, Greenspan recounted what was going through his mind one morning in September 2008, after the Dow Jones Industrial Average dropped nearly 7 percent.<br />
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According to <a href="http://nyunews.com/news/2011/02/18/18greenspan/<br />
" target="_hplink">Washington Square News</a>:<br />
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<blockquote>"The morning after we learned of the news," he said, "I was able to look myself in the mirror and say, 'Hey, not bad.'"</blockquote><br />
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Greenspan kept interest rates low in the decades leading up to the crisis, helping promote first a bubble in technology stocks and then a bubble in real estate assets. With money flowing cheaply, investors scrambled to buy products that later proved dangerously risky.<br />
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Even when other Federal Reserve officials expressed concern over the fast-moving economy, Greenspan held firm.<br />
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The former Fed chairman has also been a strong supporter of <a href="http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html<br />
" target="_hplink">derivatives</a>, the financial instruments that worsened the financial meltdown.<br />
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In <a href="http://www.huffingtonpost.com/2010/04/07/greenspan-to-financial-cr_n_528147.html" target="_hplink">testimony</a> before the Financial Crisis Inquiry Commission last year, Greenspan said he was "right 70 percent of the time, but I was wrong 30 percent of the time and there are an awful lot of mistakes in 21 years."<br />
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On that morning in September, the full extent of the crisis hadn't yet unfolded. Few people predicted just how severe the economic fallout would be. <br />
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<p>Read more: <a href="/tag/business-news">Business News</a>, <a href="/tag/interest-rates">Interest Rates</a>, <a href="/tag/financial-crisis">Financial Crisis</a>, <a href="/tag/federal-reserve">Federal Reserve</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/housing-crash">Housing Crash</a>, <a href="/tag/economic-crisis">Economic Crisis</a>, <a href="/business">Business News</a></p>
Michael Likosky: Machiavelli, Third World America and Our National Crisishttp://www.huffingtonpost.com/michael-likosky/machiavelli-third-world-a_b_824651.htmlMichael Likoskyhttp://www.huffingtonpost.com/michael-likosky/
When something goes horribly wrong, it's always useful to look to the Classics to understand what's actually happened and how to move forward. Is our national economy a case in point? <br />
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A lot of compelling stories are now circulating about what caused our crisis. <br />
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Choose the story that works for you, e.g. bad trade deals, financial speculation, special interest government, excessive partisanship, expensive wars, cavalier privatization, neglect of physical infrastructure, eclipsing opportunity, teachers/police-officers/firefighters live the life of Riley, etc. <br />
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And, the policy prescriptions follow, e.g. rewrite NAFTA, produce and export more while importing less, make financial instruments touch base with the real economy and also reduce speculation on the American Dream, increase transparency on how government does its business, force politicians to align their party interests with the national interest, end unnecessary wars of defense or aggression, use a basic cost-benefit analysis to determine whether a private contractor does the work of government cheaper than public employees, invest in infrastructure and clean energy to lay a foundation for growth and domestic energy security, invest in K-12 and community colleges to create pathways of opportunity, re-enact Herbert Spencer's Social Statistics, etc.<br />
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Unfortunately, while all this is compelling and clearly germane to our crisis and route out of it, we are not having a grounded holistic public debate about the actual root of our crisis. <br />
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For those seers who think that they understand what all others cannot see, and possess the prudent path forward, that one group has a monopolistic understanding of our crisis and the appropriate route out of it. Everyone else is just self-interested and wrong-headed. A solution will emerge shortly from the laboratory of either the Tea Party, Republicans or Democrats, that a short bullet pointed document or a viral youtube rant will solve things. <br />
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But there may be comfort in Machiavelli's <u>The Prince</u>:<br />
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<blockquote>When trouble is sensed well in advance it can easily be remedied; if you wait for it to show itself any medicine will be too late because the disease will have become incurable. As the doctors say of a wasting disease, to start with it is easy to diagnose but difficult to cure. So it is in politics. Political disorders can be quickly healed if they are seen well in advance (and only a prudent ruler has such foresight); when, for lack of a diagnosis, they are allowed to grow in such a way that everyone can recognize them, remedies are too late.</blockquote><br />
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For the rest of us, it seems obvious that we've got a large crisis caused by many problems decades in the making and not reducible to the policies of a single sector or political party. The underlying illness though -- at its core -- couldn't be clearer. Is it all over then?<br />
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In America, we have a belief that a broad-based recognition of an illness represents an opportunity to solve it through democratic participation and deliberation. In many ways Arianna Huffington's book, <a href="http://www.amazon.com/Third-World-America-Politicians-Abandoning/dp/0307719820" target="_hplink">Third World America</a>, diagnoses important aspects of our disease, taking a broad view. <br />
<br />
Others do as well. I have written a recent book, <a href="http://www.amazon.com/Obamas-Bank-Financing-Durable-Deal/dp/0521147115/ref=sr_1_1?s=books&ie=UTF8&qid=1297965197&sr=1-1" target="_hplink">Obama's Bank: Financing a Durable New Deal</a>, that explains how President Obama is offering a prescription to the type of disease Huffington lays out -- and trying to disabuse us of the myth that this is a Greenspan/Rubinite crisis along the way. <br />
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The President's Budget Plan for 2012 should be viewed as a prescription for the illness that is readily apparent to us all. It should open up a discussion. We should be assessing the plan based on its ability to address that illness. We must, however, invest in democratic participation and deliberation to do so. We should be spending our time hashing out the Big Picture by revisiting our domestic crisis canon, not engaging in single issue diagnoses and the litmus test politics that comes from them. We've got lots of broken arms to fix, but we need to make sure that we don't loose site of the underlying disease. Otherwise, we may end up only with stitched up body parts.
<p>Read more: <a href="/tag/robert-rubin">Robert Rubin</a>, <a href="/tag/infrastructure">Infrastructure</a>, <a href="/tag/national-infrastructure-bank">National Infrastructure Bank</a>, <a href="/tag/third-world-america">Third World America</a>, <a href="/tag/finaancial-crisis">Finaancial Crisis</a>, <a href="/tag/publicprivatepartnerships">Public-Private-Partnerships</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/arianna-huffington">Arianna Huffington</a>, <a href="/tag/barack-obama">Barack Obama</a>, <a href="/tag/housing-crisis">Housing Crisis</a>, <a href="/tag/machiavelli">Machiavelli</a>, <a href="/politics">Politics News</a></p>
Richard (RJ) Eskow: Fannie's Scandalized, Freddie's Dead -- and the Next Financial Meltdown May Have Already Startedhttp://www.huffingtonpost.com/rj-eskow/fannie-freddie-and-privat_b_820593.htmlRichard (RJ) Eskowhttp://www.huffingtonpost.com/rj-eskow/
Here's an idea: Let's give hundreds of billions of dollars in government-backed guarantees to private banks so they make a fortune writing mortgages without any risk to themselves. Hey, what could go wrong?<br />
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The FCIC's recent report illustrated an important lesson from the economic meltdown: Privatization, not big government, ruined Fannie Mae and Freddie Mac. Running a government program like a private corporation leads to the worst excesses of executive self-indulgence. Fannie and Freddie didn't bring down the economy, as some have claimed, but they were destroyed by the same privatize-and-deregulate philosophy that led to the crisis. <br />
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Now we're learning that Washington may be preparing to take that destructive philosophy even further. Proposals to "reform" Fannie and Freddie by privatizing them even more aren't just bad, dangerous ideas. Worse, they suggest that we could be returning to the blind and mistaken ideologies of the past. If that's true, then it's only a matter of time until the next meltdown comes.<br />
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<strong>Doomsday</strong><br />
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Mark your calendars. This may be remembered as the week our next financial crisis began, the moment when the Greenspan Republicans and Rubin Democrats who ruined the economy the last time around regained control... and the cycle began all over again. Only two short years after Wall Street's fraud and greed brought down the world's economy, a Beltway think tank is proposing to put taxpayers on the hook for mortgages written and administered by the same corporate miscreants.<br />
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And that's the <em>Democratic </em>proposal. The Republicans want to double down on a failed strategy of "privatizing" government mortgage financing, while at the same time cutting back on regulation and oversight. It all boils down to the same thing: bringing back the same sybaritic, taxpayer-backed greedfest that 's already shattered the economy more than once. <br />
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Fannie and Freddie are "government-sponsored enterprises," or "GSEs." But ideologues have learned exactly the wrong lesson from the Great Recession. It was the "E" part of these companies, not the "G" part, that caused the problem. The real lesson is that it's a mistake to mix government programs with private-sector-style get-rich-quick incentives. The GSEs failed because they treated their Federal mandate as if it was the key to Fort Knox.<br />
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<strong>SmokingFinancialGun.com</strong><br />
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If the Financial Crisis Inquiry Commission wants to publicize its work more, maybe it should set up a tabloid website like The Smoking Gun, or pitch a TV tell-all scandal show about badly-behaved executives ("VH1: Behind the Mortgage"). Their first episode could feature Daniel Mudd, the former Fannie Mae CEO who bragged that he wrote his own rules with regulators and <a href="http://books.google.com/books?id=iD8-bWporl8C&pg=PA4&lpg=PA4&dq=we+always+won,+we+took+no+prisoners+mudd&source=bl&ots=taPyFBXWRb&sig=n5gh6V6QX0k0HPwGcrmduBmPsGQ&hl=en&ei=4KdSTcTKN8SBlAe9xOj_Cg&sa=X&oi=book_result&ct=result&resnum=5&ved=0CDcQ6AEwBA#v=onepage&q=we%20always%20won%2C%20we%20took%20no%20prisoners%20mudd&f=false" target="_hplink">boasted that</a> "we always won, we took no prisoners." According to the FCIC report, regulators later concluded that Mudd ran a company with an "arrogant and unethical corporate culture, where Fannie Mae employees manipulated accounting and earnings to trigger bonuses for senior executives." <br />
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Mudd ran the company with so much materialistic self-absorption that he might have been starring in an 80's hair-metal video (presumably without Tawny Kitaen on the hood of a Jaguar, but who knows?) His tenure at Fannie was marked by misleading, cheating, bullying, and the reckless pursuit of a fast buck. But then, why wouldn't it be? He was compensated like a private-sector executive, but backed by government authority and coddled with taxpayer guarantees. It was all upside, baby, and Mudd liked his upside.<br />
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Regulators found that Mudd and his colleagues "<a href="http://www.msnbc.msn.com/id/12923225/ns/business-corporate_scandals/" target="_hplink">manipulated accounting</a>" so that they could keep paying themselves huge bonuses, even as they ran what one observer called "the worst-run financial institution" he had seen in thirty years as a regulator. It worked, too. Mudd made $65 million between 2000 and 2008. (Hmm ... "manipulated accounting" ... is that <em>legal</em>?)<br />
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Conservatives should be just as outraged as progressives. Executives like Mudd didn't build their businesses. They didn't even manage them competently. They took a free ride with government backing, yet paid themselves as if they were captains of industry. How did this perverse situation develop?<br />
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<strong>Freddie's Dead (Fannie, too)</strong><br />
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Fannie Mae and Freddie Mac are going to die, at least in their present form, as victims of over-indulgence. But they didn't start that way. Fannie Mae was created in 1938 and functioned smoothly for thirty years, all through the postwar housing boom. It was turned into a separate government-sponsored enterprise in 1968 in order to take its large debts off the Federal balance sheet, and Freddie Mac was created shortly afterward (to create "competition"). They're creatures of privatization, and they were encouraged to bring "free market" aggression to their mission. <br />
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And man, did they. As FCIC testimony revealed, "The "Fannie and Freddie political machine resisted any meaningful regulation using highly improper tactics... OFHEO (their regulatory overseer) was constantly subjected to malicious political attacks and efforts of intimidation."<br />
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The companies faced a turning point in 2005, when the greed-addled private market was rushing into subprime mortgages and other high-risk loans. A government-sponsored corporation that was true to its mission wouldn't have followed the lemmings, but privatization fever had taken hold. As a Fannie Mae executive told his colleagues back then: "We face two stark choices: stay the course [or] meet the market where the market is." Ill-advised by architects of calamity like Citibank, they jumped in with both feet despite dire warnings from people inside the organization. <br />
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<strong>Risk and Reward</strong><br />
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Alan Greenspan and Robert Rubin both told the FCIC that better corporate risk management will help prevent the next financial crisis. The Fannie Mae story proves how naive that belief is. Like many financial executives, Mudd's short-term wealth depended on writing more business, whatever the risk. So he humiliated, abused, and ignored Chief Risk Officer Enrico Dallevecchia when Dallevechia warned him of the dangers of writing substandard business. The frustrated Risk Officer finally wrote a memo to Mudd which said that Fannie had "one of the weakest control processes" he had "ever witnessed in his career," and that he was "upset" that he hadn't even known told the company was taking on more risk until he saw the announcement. A bellicose Mudd told Dellavecchia to "address it (to him) man to man" and "face to face," rather than by email. <br />
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CFO Robert Levin bullied the company's chief analyst in a similar way when he was told that the company wasn't charging enough for its Alt-A mortgages. That's called "buying business," and it should never happen at a government-sponsored enterprise. It means that an enterprise created to complement the private sector is competing with it instead. Mudd and Levin did what many executives would do in a similar situation: They lowered their underwriting standards, wrote a lot of bad mortgages, and walked away as rich men. Mudd now lives comfortably in Connecticut with $80 million in earnings, thanks to the American taxpayer, and is a director for an investment fund (Fortress Investment Group -- a name we're providing as a public service to unwary investors). <br />
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<strong>Meltdown II: The Sequel</strong><br />
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Arguments over Fannie and Freddie are usually a proxy for ideological differences about the role of government. Conservatives who blame Fannie and Freddie for the meltdown (which they didn't cause but certainly made worse) want to prove that government intervention in the economy is a bad idea. But this isn't a battle between right and left as much as it is between what works and what doesn't. We've now seen what happens when American-style bankers are given government-backed guarantees and Goldman Sachs-style bonuses. Privatizing to Wall Street is like giving your car keys to a pickpocket. <br />
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Nevertheless, Capital Markets Subcommittee Chairman Scott Garrett is holding a hearing today on "reforming" Fannie and Freddie, and his <a href="http://financialservices.house.gov/hearings/hearingDetails.aspx?NewsID=1753" target="_hplink">witness list</a><a href="http://www.rightwingwatch.org/content/cato-institute" target="_hplink"> contains four names: someone from an anti-government, anti-regulation think tank </a>that's funded by Citibank, the Koch Brothers, Chase, and American Express, along with a variety of oil refiners and pharmaceutical companies; someone from <a href="http://www.sourcewatch.org/index.php?title=Reason_Foundation#Funding" target="_hplink">another anti-government group</a> which has received funding from Bank of America, Lehman Brothers, PriceWaterHouseCoopers, and the California Realtors Association; someone from a <a href="http://www.rightwingwatch.org/content/american-enterprise-institute" target="_hplink">conservative think tank </a>funded by Prudential and American Express, among others; and a Democrat ...<br />
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... from the Center for American Progress, the group that wrote the Democratic "privatize Fannie and Freddie" proposal." In other words, the hearings have been stacked in the banks' favor. Meanwhile the administration's plan for reforming Fannie and Freddie is overdue, but the Center for American Progress is close to the White House. If that means that its proposal is a preview of administration thinking, we've got a big problem.<br />
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We're told that the White House plan will be released Friday and will include three options. One option would have the government withdraw entirely from the mortgage market, but that's likely to be politically infeasible. Neither party wants to explain to voters why they can't get home loans and the price of their house has plummeted. And while specifics weren't provided for the other two, <a href="http://online.wsj.com/article/SB10001424052748703989504576128403630694340.html" target="_hplink">the <i>Wall Street Journal</i></a> reports that the others would "create a way for the government to backstop part of the secondary mortgage market" like Fannie and Freddie, but gave no specifics.<br />
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The <em>Journal</em> also reports that "top administration officials have publicly discussed the merits of a limited but explicit federal guarantee of securities backed by certain types of mortgages," adding: "The housing and banking industries have advanced proposals arguing that such a guarantee is needed to maintain a healthy market, particularly for long-term, fixed-rate loans that remain a keystone of U.S. housing."<br />
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The short version: There will be one proposal that's politically impossible, and two others that give banking and real estate lobbyists what they want. Care to bet which one <em>won't </em>make it through Congress?<br />
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Yves Smith gave the CAP proposal the once-over, under the heading "<a href="http://www.nakedcapitalism.com/2011/02/wall-street-co-opting-nominally-liberal-think-tanks-banks-lobbying-to-become-new-gses.html">Wall Street Co-Opting Nominally Liberal Think Tanks,</a>" but our one-sentence summary of their proposal is this: They want to dismantle Fannie and Freddie and let private banks administer their programs backed by by government guarantees. And don't worry, says CAP. Our "chartered mortgage institutions," though "fully private," will have to be "fully transparent" and follow government rules. (They would never, never "manipulate accounting," would they?)<br />
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<strong>The End</strong><br />
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Proposals like CAP's would make Fannie and Freddie's private-sector successors a microcosm for the entire economy under the failed policies of Democrats like Clinton, Rubin, and Summers, as well as Republicans like Greenspan and... well, all of them. Executives at these financial institutions would be likely motivated to cook the books and sell bad mortgages, while taking advantage of taxpayer guarantees to consolidate their already too-big-to-fail institutions. And they'd be recruited from a Wall Street cohort with a documented record of deception and criminality. All of CAP's lofty and well-stated goals are undermined by the identify of the folks doing the lending. As for the Republicans, they don't even bother stating lofty goals.<br />
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The government has to work out a way to unwind itself from the mortgage market. The administration has a proposal to lower the size of mortgages it will guarantee, and that's a good first step. But the previews of their overall proposals are disturbing and weak, while the Republicans appear to be planning for anarchy and fiscal looting.<br />
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The problem is much bigger than Fannie and Freddie. This real danger is that this could be a turning point, a return to the failed ways of the past. If we don't see stronger proposals than these in the coming months, this will be remembered as the week that the destructive policies of the Greenspan/Rubin crowd came back from the dead. It will be recalled as the beginning of the end, the moment when the next wave of privatization began and the way was paved for a collapse that may be even greater than the one we're in today.<br />
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<em>Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the<a href="http://www.ourfuture.org/curbingwallstreet" target="_hplink"> Curbing Wall Street </a>project. Richard also blogs at <a href="http://nightlight.typepad.com">A Night Light</a>.<br />
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He can be reached at "rjeskow@ourfuture.org."<br />
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Website: <a href="http://www.eskowandassociates.com">Eskow and Associates</a></em><br />
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<p>Read more: <a href="/tag/robert-rubin">Robert Rubin</a>, <a href="/tag/yves-smith">Yves Smith</a>, <a href="/tag/financial-crisis-inquiry-commission">Financial Crisis Inquiry Commission</a>, <a href="/tag/deregulation">Deregulation</a>, <a href="/tag/privatization">Privatization</a>, <a href="/tag/daniel-mudd">Daniel Mudd</a>, <a href="/tag/fannie-mae">Fannie Mae</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/fannie-and-freddie">Fannie and Freddie</a>, <a href="/tag/freddie-mac">Freddie Mac</a>, <a href="/tag/center-for-american-progress">Center for American Progress</a>, <a href="/business">Business News</a></p>
BAD NEWS: What Role Did Reporters Play In The Financial Crisis?http://www.huffingtonpost.com/2011/02/04/bad-news-new-book-financial-crisis-press_n_819033.htmlThe Huffington Post News Teamhttp://www.huffingtonpost.com/the-news/
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008. Recrimination sometimes seems like the real American pastime, and the near-slide into the financial abyss presents a teeming buffet of potential culprits.<br />
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Depending upon your ideological predisposition, the crisis owes to the greedy bankers who turned home loans into casino chips, or to the federal regulators who abdicated authority, allowing Wall Street to turn itself into a gambling parlor. It was homeowners who treated their mortgages like winning lottery tickets, cashing in through repeated rounds of refinancing. It was politicians who championed expanded home ownership with reckless tax incentives and mandates forcing banks to lend even to borrowers with sketchy credit. It was the Federal Reserve which kept interest rates too low for too long. <br />
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But one segment of American society has largely evaded scrutiny in the search for the source of the disaster: the financial press. This is a dangerous oversight, argues journalist Anya Schiffrin in an intriguing and thoughtful new book, <a href="http://www.thenewpress.com/index.php?option=com_title&task=view_title&metaproductid=1809" target="_hplink">"Bad News: How America's Business Press Missed the Story of the Century."</a> <br />
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As the crisis begins to fade from memory, and as acute fear is predictably replaced by complacency, a rigorous accounting of what actually transpired is imperative. Schiffrin aims to impose that accounting on those of us who make our living writing about finance. Her findings are not comforting, suggesting that coziness with sources and a lack of financial acumen made many reporters vulnerable to bogus assurances that nothing was wrong.<br />
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Schiffrin is herself a member of the tribe, having worked as a correspondent for Dow Jones news service in Vietnam during the Asian financial crisis (an experience that gave her an taste of the risks inherent in an economy shy of reliable information). She brings her experience and contacts to bear on this project, probing how shrinking budgets in a time of traditional media decline deprived many newsrooms of the resources needed to unravel a complex story, just as financial journalism confronted its ultimate test: a historic real estate bubble enhanced by the steroids known as derivatives. <br />
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A necessary disclosure: I wrote a chapter of this book, examining my experience covering the crisis as the national economic correspondent for the <em>New York Times</em>. And I don't fully buy into its overarching thesis that the reporting in the run-up to the crisis amounts to a systemic failure. As several chapters in <em>Bad News</em> make clear, a good deal of excellent work in the years before the crisis could have limited the pain had warnings been heeded--not least, work by my former <em>Times</em> colleagues Gretchen Morgenson and David Leonhardt, who sounded the alarm early on that home prices were getting well of whack with American incomes, setting up a fall. <br />
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The trouble was that a louder chorus repeatedly drowned out this probing reporting about the magnitude of the real estate bubble--a steady celebration of permanently rising home price, the fantasy that propelled a construction binge, a mortgage bonanza and no end of wealth that got created along the way. That chorus abetted and enabled the capture of the regulators who are supposed to be able to tune out such noise while dispassionately scrutinizing the numbers.<br />
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This is not to exonerate the press or chastise the lazy reader, the reflexive posture for many a scribe whose words have failed to produce happy results. Though the press rarely has the power to dominate events and does not make policy, we are collectively responsible for the understanding that our audience takes away from our words. And it is a fair hit to assert that we are prone to being manipulated and getting swept up in the excitement of the times, rather then stopping to ask the critical, typically difficult-to-answer questions that public service journalism demands. <br />
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This is not so much because we consciously decide to become cheerleaders, urging on bubbles that take shape on our watch, but rather because cheerleading is the product of the easiest options that present themselves on any given day. Rising prices, soaring stock markets and the wealth accruing to executives overseeing the festivities are verifiable facts, whereas warnings and worrying entail the indulgence of conjecture and speculation, and they might turn out to be wrong. <br />
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It takes a special breed of reporter to do the digging and put faith in their convictions as they take on the dominant narrative of the moment--particularly when that narrative is championed by prize-winning economists celebrated as wise men, such as the former Federal Reserve Chairman Alan Greenspan and his successor, Ben Bernanke, who played leading roles in convincing the public that everything was fine.<br />
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I first saw this dynamic up close during the technology bubble of the late-1990s. I never heard one of my colleagues profess a desire to help the Nasdaq continue to multiply. I never was privy to a directive to tout the impregnability of every new dot-com that came along. But many writers effectively opted to play these roles by default in selecting the stories that were most readily available--profiles of start-ups arranged by ubiquitous public relations consultants; astounding tales of technological discovery; stories of the wealth being harvested from the market like the proverbial gold at the end of the rainbow. <br />
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You could sit at your desk in any newsroom in America in 1999 and simply wait for a press release to arrive in your inbox or a wire story to be flagged by your assignment editor and soon find yourself writing about something that no one had ever written before--the largest merger in history! The fastest this! The slickest that! The path of least resistance turned journalists into boosters, while critical stories entailed a path into the wilderness, with no eager sources and only piles of inscrutable documents.<br />
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Fundamentally, there is much to Schiffrin's point that most reporters took the easy route in the years leading up to the financial crisis, which meant buying into the fantasy that justified ridiculously inflated housing prices. The real estate bubble so dominated the era that it caused even serious reporters to miss the underlying story: Tens of millions of Americans needed to use their houses as ATMs because their pay checks no longer delivered enough money to finance even middle class aspirations--health care when someone got sick, college for children, a functioning car to get to work. That is the broadest context in which to critique the financial press. We mostly missed the breakdown in the American middle class bargain, and so we did not appreciate how predatory lending effectively went mainstream.<br />
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The more immediate coverage of the crisis and its aftermath has occasioned conspiratorial talk that the press oversold the fears of a systemic meltdown to help enable the Bush and Obama administrations to deliver the taxpayer-financed bailouts for Wall Street. Some have suggested that the financial press played a role much like the Washington press corps in the lead-up to the Iraq War, frightening the public with apocalyptic visions that required intervention. (Schiffrin cites the pre-Iraq War coverage as a potent example of coziness with sources yielding tainted journalism, though her critique is more systemic than conspiratorial.)<br />
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As someone who sat inside one of the biggest newsrooms during the crisis, however, I reject the notion that has taken root in some quarters that we were essentially active participant in a government-directed con. Yes, there were good reasons to doubt the veracity of Bush's Treasury Secretary, Hank Paulson, who had previously headed Goldman, as he warned in the fall of 2008 that the public either had to hand over $700 billion to Wall Street or invite a meltdown. Those doubts (which were duly <a href="http://www.nytimes.com/2008/09/23/business/23skeptics.html" target="_hplink">reported</a> at the time) have only intensified as the terms of the bailout have emerged, with Goldman managing to secure a "<a href="http://www.huffingtonpost.com/2011/01/26/goldman-sachs-aig-backdoor-bailout_n_814589.html" target="_hplink">backdoor bailout</a>," through funds dispensed to the insurance firm American International Group. <br />
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Continued investigation into the terms of the bailouts and how they came about is required. But the idea that the press was effectively complicit in an Iraq-style ruse, trumping up the mushroom clouds to justify the intervention, is misleading and unfair. The Bush administration doctored the intelligence to create a false perception of threat in Iraq. But economists and business people were genuinely and legitimately terrified of a potential repeat of the 1930s banking runs as major financial institutions teetered toward collapse in the fall of 2008. Money was freezing up, laying waste to companies, sending the unemployment rate soaring. <br />
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There turned out to be no weapons of mass destruction in Iraq, despite the bad journalism that insisted otherwise--journalism that contributed to the stampede into the war. But you simply cannot say the same about the financial consequences at risk as the Bush administration crafted the bailouts. Did the trillions of dollars of interrelated and suddenly un-payable credit obligations constitute weapons of mass destruction pointed at the global economy? Maybe, maybe not. There was simply no way to be sure, and whatever the government did--wade in with a rescue, or stand back and watch--was bound to affect the outcome. <br />
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Once the markets became ruled by fear, an expensive bailout was the price of preventing the worst. That bad news simply had to be reported, whatever the consequences, even as we knew that the stories themselves were adding to the fear.<br />
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<em>Bad News</em> provides little reason to imagine that the press will heroically prevent the next crisis, figuring out where danger lies before everyone else does. Financial crises build over many years through the fabric of the culture itself, warping expectations, altering the risks people and institutions are willing to bear in pursuit of return on their money, while tilting the balance away from the intrusions of government regulation. Journalists operate within our culture, and we absorb collective understandings.<br />
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Still, the basic critique of the book is instructive and worth contemplating. It boils down to most of us not cultivating a wide enough circle of sources. For anyone who writes about finance, it is worth pausing to consider where we regularly draw our information and then actively expanding that zone. It is worth looking at how many of our sources are people whose job descriptions include having to talk to reporters for a living. Because in this crisis, as in all such events, the warnings were never going to be obtained from people paid to talk to the press, a group dominated by the special interests that benefit from the status quo. <br />
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The real insights were waiting in harder to reach places, among people who typically have good reason to avoid journalists--the ranks of mid-level managers inside predatory lending operations; those doing due diligence inside banks that were buying a selling radioactive securities; the growing ranks of regular families that could no longer pay the bills.<br />
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In my own view, and from my own experience, blaming the press for the financial crisis is like blaming January for giving you a cold: You may have a point, but you better be prepared to dress warm again next winter. In both the technology bubble and the run-up to the Iraq War, a much stronger case can be made that shoddy reporting helped nurture disaster. Even by the everyday standards of journalism, bad information was presented as fact. But in the case of the financial crisis, the system did not fail so much as function according to the ordinary rules of engagement. <br />
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This is Schiffrin's fundamental point, and it amounts to bad news indeed. It would be so much more convenient if we could blame it on a Judy Miller, pin it on one guy who got it wrong, then lance that boil and feel better. But the problem goes right to heart of a press that simply reflects too few voices, often missing out on the ones that have something important to tell us. <br />
<p>Read more: <a href="/tag/judy-miller">Judy Miller</a>, <a href="/tag/financial-crisis">Financial Crisis</a>, <a href="/tag/media">Media</a>, <a href="/tag/iraq">Iraq</a>, <a href="/tag/journalism">Journalism</a>, <a href="/tag/bad-news">Bad News</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/anya-schiffrin">Anya Schiffrin</a>, <a href="/tag/ben-bernanke">Ben Bernanke</a>, <a href="/business">Business News</a></p>
Tom Alderman: The Placebo Effect and How to Use Ithttp://www.huffingtonpost.com/tom-alderman/the-placebo-effect-and-ho_b_818349.htmlTom Aldermanhttp://www.huffingtonpost.com/tom-alderman/
If you're in medicine or any of the healing arts, you certainly know the placebo effect. You've may have even used it -- treating an imagined condition with sugar pills, or a dose of Alan Greenspan-speak that the patient can't really follow except the part where you say, "<em>...it will be better in a few days.</em>" And, miraculously, it is. Some might call this placebo effect a deception -- and it is. Others may say it's mind-over-matter -- and it is. It's a conundrum called the placebo paradox meaning: it's unethical to use a placebo, but it also unethical <em>not </em>to use something that heals.<br />
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Since most of us are not in the healing business, the opportunity to test this paradox doesn't often pop up. So when Jerry Weintraub show us an effective use of a placebo in business and relationships -- it's worth noting. <br />
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If you live outside of Southern California, are not in the entertainment business and don't read movie credits, you've probably never heard of Jerry Weintraub. But you've seen movies he's produced:<em> Nashville</em>, <em>Diner</em>, <em>Oh God(s)</em>,<em> The Karate Kid(s)</em> <em>and Oceans 11, 12</em> and <em>13</em> -- he likes sequels. And, if you've ever seen Elvis, Sinatra, Led Zeppelin, The Carpenters or Neil Diamond in concert, Weintraub was there. Jerry is the guy behind the guy who sings the songs. When you deal with so many high profile artists, many of whom tip the scale towards abundant narcissism, Weintraub's masterful use of the placebo is instructive. <br />
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In his very engaging memoir, <em>When I Stop Talking, You'll Know I'm Dead: Useful Stories from a Persuasive Man,</em> Weintraub tells about his former client, John Denver, the singer-song writer with a pre-Beiber hairstyle. Denver was an unknown performer getting $70 a show in Greenwich Village. Weintraub signs him and turns him into a mega-watt star. One time, while Denver is on a European concert tour, word gets back that John is <em>not </em>happy and is threatening to fire Weintraub. The L.A. agent drops everything, flies over to Europe to find out why his star is grumpy. <br />
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<em>"It's the tour,</em>" grumps Denver,<em> "The hotel stinks, the food is no good, the venues are just awful and the sound system is terrible. I think I have to let you go.</em>" A calm Weintraub asks for four hours to fix the problem.<br />
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Four hours later, the agent returns and announces the problem is solved, <em>"I fired Fergusun." </em><br />
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<em>"Who's Fergusun?</em>" asks Denver?<br />
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<em>"You had hotel, food, venue and sound problems? Fergusun was in charge of all of that. I fired him." </em><br />
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The singer, who didn't know Fergusun, was filed with guilt that he got the poor guy fired and right before Christmas. <br />
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Weintraub thought about it and suggested that instead of firing Fergusun, maybe he should just move him to another part of the business, away from people. <em>"Hide him,</em>" says the agent. <br />
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<em>"Yeah, I feel a lot better about that,</em>" sighs the relieved artist.<br />
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The next night Weintraub asks how the sound and the show went. "<em>Oh much better,</em>" says a happy Denver, <em>"I could tell the difference right away. I'm glad we could fix it without firing Fergusun.</em>" Of course, there was no Fergusun. <br />
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Deception? Uh huh. Effective? Oh, yeah. You should read what he did with Led Zeppelin. Better yet, listen to the audio edition of his entertaining autobiography. <a href="http://www.hachettebookgroup.com/books_9781607889687.htm" target="_hplink">http://www.hachettebookgroup.com/books_9781607889687.htm</a><br />
<br />
Weintraub is his own narrator and his slightly grainy, street savvy New York accent juices up the warmth and authenticity throughout the memoir. Aside from the many insider showbiz tales, the value of this book is seeing and understanding how a master salesman works without any stereotypical hard sell. Weintraub is in the people business, the high-maintenance people business. Perhaps you have some in your family or at work. There are stories here that offer interesting perspectives on dealing with all sorts of people. After all, Weintraub is a guy who knows when and how to use the placebo effect. But if YOU are ever in the position to deploy this tactic, please us it wisely. It still is deception.<br />
<p>Read more: <a href="/tag/neil-diamond">Neil Diamond</a>, <a href="/tag/the-karate-kid">The Karate Kid</a>, <a href="/tag/master-salesman">Master Salesman</a>, <a href="/tag/oh-god">Oh God</a>, <a href="/tag/the-carpenters">The Carpenters</a>, <a href="/tag/led-zeppelin">Led Zeppelin</a>, <a href="/tag/the-placebo-effect">The Placebo Effect</a>, <a href="/tag/the-placebo-paradox">The Placebo Paradox</a>, <a href="/tag/placebo">Placebo</a>, <a href="/tag/elvis-presley">Elvis Presley</a>, <a href="/tag/oceans-11">Oceans 11</a>, <a href="/tag/nashville">Nashville</a>, <a href="/tag/hachette-audio">Hachette Audio</a>, <a href="/tag/youll-know-im-dead">You'll Know I'm Dead</a>, <a href="/tag/greenwhich-village">Greenwhich Village</a>, <a href="/tag/john-denver">John Denver</a>, <a href="/tag/frank-sinatra">Frank Sinatra</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/when-i-stop-talking">When I Stop Talking</a>, <a href="/tag/jerry-weintraub">Jerry Weintraub</a>, <a href="/books">Books News</a></p>
Robert Lenzner: Why the Financial Crisis Could Not Have Been Preventedhttp://www.huffingtonpost.com/robert-lenzner/why-the-financial-crisis_b_815846.htmlRobert Lenznerhttp://www.huffingtonpost.com/robert-lenzner/
The multi-trillion dollar meltdown of financial markets in 2007-09 could not have been prevented. It was absurd speculation on the part of the special Presidential Commission to even suggest this impossible nirvana. No way Jose!<br />
<br />
Let me tell you why. As my esteemed friend Jim Stone, chairman of Plymouth Rock Assurance headquartered in Boston, puts it so succinctly; "We have wagered our place in history on our relative strength in finance. Bad bet."<br />
<br />
The financial markets crisis could not have been prevented because Alan Greenspan, chairman of the Federal Reserve Bank, for 18 long years the power center in the nation for monetary policy, did not believe in reining in the animal spirits on Wall Street. He chose to ignore pleading from wise titans like Loews Corp. Laurence Tisch, and Wall Street great John Whitehead, who begged him to turn off the spigot of easy money and rock-bottom interest rates.<br />
<br />
Yeah, it could have been prevented if Greenspan had actually taken steps to dampen down "irrational exuberance," his description of the craziness that began in the mid-1990s -- and continued to accelerate until mid-2007. Regrettably, Greenspan's utter and naive faith in free market ideology, makes him look a fool -- not the God-like figure we all created.<br />
<br />
Yeah, it could have been prevented if the Clinton administration led by Robert Rubin and Larry Summers had not blithely agreed to deep-six the discipline of the Glass-Steagall Act -- which in 1933 wisely separated the activities of the investment banks and the commercial banks -- and had ensured relative stability on Wall Street for over half a century.<br />
<br />
Sure, the meltdown could have been prevented if these very same chaps in cahoots with the SEC and some conservative members of Congress had not ambushed an attempt to regulate the fastest growing financial market in the world -- the explosion in the use of derivatives -- from being regulated in any way, shape or form.<br />
<br />
The leverage unleashed by these new securities was never understood or considered to be a danger despite warnings from wise heads like Warren Buffett. Ignorance ruled the day.<br />
<br />
Yeah, the meltdown could have been prevented in 2004 if SEC Chairman Bill Donaldson and 2 of the other 4 Commissioners had not buckled under Wall Street's demand that the ceiling on the use of leverage -- borrowed money -- be raised to unimaginably dangerous levels like being able to borrow $30 or $40 for each $1.00 of capital the banks held. So was endangered the entire financial system with the verdict applied from Washington, DC.<br />
<br />
Yeah, the meltdown could have been prevented if only Tim Geithner, then resident of the New York Federal Reserve Board, had only carried out the duties handed him to oversee, i.e. regulate the money center banks like Citigroup. He did nothing to protect the system before the crisis exploded and the financial system was threatened.<br />
<br />
I've been dying to ask Geithner if he ever reviewed Citigroup's financial statements to recognize just how dangerous to its survival were the excessive off-balance sheet operations that were not at all in the "shadows" of the shadow banking system -- but were right there in front of him. Need I remind you that Citigroup shares fell from $60 to 97 cents in 2009?<br />
<br />
Yeah, maybe the panic that ensued in September 2008 might have been prevented if Hank Greenberg -- while he was CEO and Chairman of AIG -- had liquidated the $240 billion of risky credit default swap contracts on his balance sheet -- or if his successors had comprehended the hari-kari they were committing by doubling the 100% leveraged book of insurance to over $500 billion of disaster waiting to happen.<br />
<br />
And I could go on. But, I'll leave you with this uncomfortable and disturbing thought. The absurdity of this commission's conclusion is expressed so bluntly by Douglas Holtz-Eakin, the Chicago economist, who revealed yesterday that the majority Democrats on the commission and the Republican minority were so alienated from each other they weren't even communicating -- well before the reports were even written.<br />
<br />
All this sordid and tragic mess that Wall Street made for itself with the passive lack of assertion by those responsible for cleaning up the mess. And how ironic it comes in the wake of hedge fund operator John Paulson making for himself some $5 billion in one year of operation -- an unbelievable multiple of what the chairman of Goldman Sachs, Morgan Stanley, JP Morgan Chase earn -- which is not chump change either.<br />
<br />
So, I turned to a financier I highly respect, Jim Stone, chairman of the CFTC in the Carter administration, now the CEO and Chairman of a private insurance company in Boston, Mass. -- Plymouth Rock Assurance -- a hardy competitor to Berkshire Hathaway's Geico.<br />
<br />
Here's what Stone sent me; It's definitely food for thought.<br />
<br />
<blockquote>"I think the crash would have been easy to prevent: leverage limits of 5 to 1 (or even less) would have done that. Cut leverage and we can all relax a bit."<br />
<br />
<br />
"A society can be judged by whom it chooses to reward most highly. The closer the reward scale is to the contribution scale, the better for the nation's future. A trader may be brilliant and honorable, as many are, but their work is not of the sort that will keep America a great, strong nation. That problem is not so easily correctable. We have wagered our place in history on our relative strength in finance. Bad bet."</blockquote>
<p>Read more: <a href="/tag/larry-summers">Larry Summers</a>, <a href="/tag/robert-rubin">Robert Rubin</a>, <a href="/tag/tim-geithner-treasury-secretary">Tim Geithner Treasury Secretary</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/business">Business News</a></p>
Dean Baker: Can We Take Away Alan Greenspan's Pension?http://www.huffingtonpost.com/dean-baker/can-we-take-away-alan-gre_b_815781.htmlDean Bakerhttp://www.huffingtonpost.com/dean-baker/
Joe Nocera gets most of the story right in his <a href="http://www.nytimes.com/2011/01/29/business/29nocera.html?ref=business" target="_hplink">discussion</a> of the Financial Crisis Inquiry's Commission's (FCIC) report today. There was gross negligence, greed, and outright fraud, but none of this would have lead to catastrophic consequences if we didn't have a housing bubble. (For that matter, having a housing bubble driven economy virtually guaranteed catastrophic consequences, even without the financial abuses. Spain, which had a well-regulated banking system and no financial crisis, keeps reminding us of this fact, with its <a href="http://stats.oecd.org/index.aspx?queryid=21760" target="_hplink">20.6 percent unemployment</a>. The commission was off on the wrong foot from the outset in looking at the "financial crisis." The real crisis is an economic crisis caused by the collapse of an asset bubble which had been the engine of growth in the economy.)<br />
<br />
Nocera blames the mass delusion that house prices could rise endlessly with no foundation in the fundamentals of the housing market. This is absolutely right, but there is a key point missing. We have regulators, most importantly central bankers like Alan Greenspan and Ben Bernanke, who are not supposed to succumb to mass delusions. They are supposed to make their assessments of the economy based on a measured analysis not the hysterical rantings of the deluded masses.<br />
<br />
Using simple economic analysis and the arithmetic we all learned in 3rd grade it was possible to recognize the housing bubble <a href="http://www.cepr.net/index.php?option=com_content&view=article&id=405" target="_hplink">as early as 2002</a>. It was also possible to know that the bursting of the bubble would be bad news for the economy and that the news would get worse as the bubble grew larger.<br />
<br />
The Fed had enormous power with which to shoot at the bubble. First, Greenspan and Bernanke could have used the resources of the Fed to document the evidence for the existence of the bubble and highlight the consequences of its bursting. Note that this is not about mumbling "irrational exuberance." The idea is have the Fed's research staff put out paper after paper showing that house prices were hugely out of line with their historic levels with no plausible explanation in the fundamentals. This research could have been highlighted in Congressional testimony and other public appearances by Greenspan and other top Fed officials.<br />
<br />
The second step involves the Fed's regulatory power. The deterioration of lending standards and outright fraud in issuing mortgages that is documented in the FCIC report was knowable to regulators at the time. (I knew about it because people from around the country were telling me about abuses by their friends/relatives in the mortgage industry. And, I have no regulatory authority.) The Fed could have used its regulatory authority to crack down on the banks that were issuing fraudulent mortgages and to prod the SEC to go after the investment banks that were securitizing them.<br />
<br />
Finally, if steps one and two did not work, the Fed could have raised interest rates. Greenspan has always been dismissive of the idea that higher interest rates could have popped the bubble, noting that long-term rates stayed low in 2005 and 2006 even as short-term rates rose by several percentage points. This is again a silly cop out.<br />
<br />
Suppose that Greenspan started a round of rate increases with the explicit target of popping the housing bubble. For example, suppose he announced the first half point rise in the federal funds rate and said that he would continue to raise interest rates until the real value of the Case-Shiller 20 City index fell below its 2000 level. This likely would have gotten the attention of financial markets and had some impact on house prices.<br />
<br />
Instead Alan Greenspan, with Ben Bernanke at his side, did nothing. In fact, at several points he seemed to foster the bubble by dismissing the concerns of those who raised questions about the run-up in house prices.<br />
<br />
There is a real problem of incentives here. Greenspan and Bernanke would have gotten serious heat from the financial industry if they had done the right thing and shot at the bubble. After all Angelo Mozillo, Robert Rubin, and many other rich and powerful types were getting very rich. On the other hand, they seem to have suffered zero consequence from doing nothing, even when their failure to act had absolutely disastrous consequences.<br />
<br />
The lesson here for future central bankers is to keep the financial industry happy and everything will be fine. If that is the case, then we should expect more irresponsible behavior from the industry and possibly more bubbles. The problem is that the cops are on their payroll.<br />
<br />
It is not too late -- we could still fire Bernanke and take away Alan Greenspan's pension. Unfortunately, the financial industry is not about to let that happen nor is the business media likely to even let these options be discussed in polite circles.<br />
<p>Read more: <a href="/tag/banks">Banks</a>, <a href="/tag/financial-crisis">Financial Crisis</a>, <a href="/tag/wall-street">Wall Street</a>, <a href="/tag/recession">Recession</a>, <a href="/tag/housing-bubble">Housing Bubble</a>, <a href="/tag/fcic-testimony">FCIC Testimony</a>, <a href="/tag/fcic-report">Fcic Report</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/fcic">Fcic</a>, <a href="/tag/joe-nocera">Joe Nocera</a>, <a href="/business">Business News</a></p>
Bernanke: All But 1 Major Wall Street Firm Could Have Failedhttp://www.huffingtonpost.com/2011/01/27/bernanke-all-but-one-majo_n_815079.htmlThe Huffington Post News Teamhttp://www.huffingtonpost.com/the-news/
<a href="http://www.reuters.com" target="_hplink"><img src="http://i.huffpost.com/gen/211216/REUTERS-LOGO.jpg"></a> WASHINGTON (By Dave Clarke and Kevin Drawbaugh) - Twelve of the 13 most important U.S. financial firms were at the brink of failure at the height of the credit crisis in 2008, according to previously undisclosed remarks made by Federal Reserve Chairman Ben Bernanke in November 2009 to an investigative panel.<br />
<br />
The deeply divided Financial Crisis Inquiry Commission released the notes from its private interview with Bernanke and others on Thursday as part of a final report on the origins of the 2007-2009 crisis.<br />
<br />
The 10-member panel's final report was endorsed only by its six Democratic members. It criticized the culture of deregulation championed by former Federal Reserve Chairman Alan Greenspan and said the government had ample power to avert the crisis but chose not to use it.<br />
<br />
The report did not identify which of the 13 firms was not considered by Bernanke to be in danger of failure, but it did say that Goldman Sachs was among those Bernanke feared could be taken down amid a huge funding crisis in late 2008.<br />
<br />
"If you look at the firms that came under pressure in that period ... only one ... was not at serious risk of failure," Bernanke told the commission. "Even Goldman Sachs, we thought there was a real chance that they would go under."<br />
<br />
The Fed chairman also said: "As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression."<br />
<br />
The commission was set up by Congress to get at the roots of the crisis, but its final product was marred by the lack of consensus and comes after last year's passage of the Dodd-Frank financial reform law, further blunting its impact.<br />
<br />
A competing minority report from three Republican commissioners largely exonerated Greenspan, a fellow Republican, saying, "U.S. monetary policy may have contributed to the credit bubble but did not cause it."<br />
<br />
Through a spokeswoman, Greenspan declined to comment.<br />
<br />
A fourth Republican on the panel issued yet another report, focused mostly on U.S. housing policy in explaining the origins of the crisis.<br />
<br />
FODDER FOR BOTH SIDES<br />
<br />
In the fight between pro-reform Democrats and anti-reform Republicans, the main report and the two dissents provide fodder for both sides, while highlighting partisan fault lines that today pervade political Washington, from financial regulation, to health care, to addressing the budget deficit.<br />
<br />
The unveiling of the three reports was seen by markets as a nonevent that did not pose a fresh threat to financial firms.<br />
<br />
"The market is not really going to react -- the market already has a very good idea of what happened," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel Inc in Cincinnati, which owns bank shares.<br />
<br />
One Wall Street investor, who asked not to be named, said: "We still face the same problems we did before. I don't think we're learning much from it. This is total rehash of stuff that has surfaced and been discussed and chewed over."<br />
<br />
As banks have pulled back from the brink over the last 12 months and returned to profits, some senior bankers have gone on the offensive against critics.<br />
<br />
Barclays Plc's chief executive Bob Diamond told UK lawmakers earlier this month that it was time for banks to stop apologizing for the mistakes that caused the financial crisis.<br />
<br />
"There was a period of remorse and apology for banks and I think that period needs to be over," Diamond told a committee during 2-1/2 hours of questioning.<br />
<br />
Jamie Dimon, chief executive of JPMorgan Chase & Co said not all banks were in trouble during the crisis. "There is a huge misconception. Not all banks needed that (rescue money). Not all banks would have failed," Dimon said on Thursday at the World Economic Forum in Davos.<br />
<br />
French President Nicolas Sarkozy clashed with Dimon at a later Davos session, telling him, "The world has paid with tens of millions of unemployed, who were in no way to blame and who paid for everything."<br />
<br />
MOUNTAIN OF NOTES, DOCUMENTS<br />
<br />
Regardless of the policy implications, a mountain of interview notes and internal documents obtained by the panel contained some revelations.<br />
<br />
For instance, the main report says Goldman Sachs capitalized on the government's bailout of American International Group to get even more payments from the beleaguered insurer, including $2.9 billion from proprietary trades Goldman placed for its own profit.<br />
<br />
The FCIC says that beyond the $14 billion in AIG bailout funds that Goldman distributed to clients, Goldman received an additional $3.4 billion from AIG related to credit default swaps; that the bulk of that was made possible by the AIG bailout; and that Goldman kept $2.9 billion for its own books.<br />
<br />
The crisis that peaked in the fall of 2008 pushed some of the most storied financial firms to the brink of collapse. Some, such as AIG, were bailed out by the government; others, such as Lehman Brothers, were not and vanished.<br />
<br />
Democratic commissioner Brooksley Born told a news conference that the panel made "several" referrals to authorities about potential violations of U.S. law related to the crisis, but panel members declined to give further details.<br />
<br />
The commission was set up by Congress in May 2009. The hope was that its work would rip the lid off the crisis in the comprehensive way that the Pecora Commission did in the 1930s during the Great Depression.<br />
<br />
Arthur Levitt, a former head of the U.S. Securities and Exchange Commission and now an advisor with The Carlyle Group, said the FCIC paled in comparison to the Pecora Commission, whose findings laid the groundwork for creating the SEC.<br />
<br />
"This particular commission was so political from start to finish in terms of both its composition and leadership that it was doomed from the outset," Levitt told Reuters.<br />
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All three of the FCIC's reports generally agree the crisis was not, as some bankers have tried to portray it, some sort of unavoidable natural phenomenon.<br />
<br />
"We conclude this financial crisis was avoidable. The crisis was the result of human action and inaction, not Mother Nature or computer models gone haywire," said the majority report of the six Democrats.<br />
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"The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public," it said.<br />
<br />
(Additional reporting by Maria Aspan, Ben Berkowitz and Daniel Wilchins in New York, and Joe Rauch in Charlotte; Editing by Tim Dobbyn)<br />
<br />
Copyright 2010 Thomson Reuters. <a href="http://thomsonreuters.com/products_services/media/brand_guidelines/legal_notice/" target="_hplink">Click for Restrictions</a>.
<p>Read more: <a href="/tag/business-news">Business News</a>, <a href="/tag/us-economy">US Economy</a>, <a href="/tag/federal-reserve">Federal Reserve</a>, <a href="/tag/ben-bernanke">Ben Bernanke</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/at-risk-firms">At Risk Firms</a>, <a href="/tag/financial-crisis-2008">Financial Crisis 2008</a>, <a href="/business">Business News</a></p>
Richard (RJ) Eskow: Breaking the Silence: FCIC Report Brings the Focus Back to Wall Streethttp://www.huffingtonpost.com/rj-eskow/breaking-the-silence-fcic_b_814624.htmlRichard (RJ) Eskowhttp://www.huffingtonpost.com/rj-eskow/
The Financial Crisis Inquiry Commission's report couldn't come at a better time. At a moment when it seems that Washington would rather forget what happened two years ago, it documents the opportunism, bad judgment, and criminality that crashed the world's economy once -- and could again at any time. An interconnected web of Wall Street criminality, discredited ideology, and politicians chasing big money -- along with a surprising amount of executive incompetence -- has caused continued suffering for millions. At a time when the nation's capital is convinced that CEOs need appeasing rather than policing, the FCIC report is a badly needed return to reality.<br />
<br />
Wall Street executives weren't mentioned in the State of the Union or the Republican response. But their actions caused this crisis, and they can't be ignored politely like tipsy uncles at a family wedding. The only way to prevent the next crisis is by understanding the last one -- and then taking the right actions.<br />
<br />
There was a lot of talk on Tuesday night about the need for jobs, but very little about <em>why </em>we need them. The president lamented the fact that "there are at least five different entities that deal with housing policy." But he didn't point out that the housing market was undone by too little regulation, not too much -- leaving <a href="http://pewresearch.org/pubs/1128/homeowners-mortgage-underwater" target="_hplink">one mortgage in five underwater</a>, <a href="http://www.huffingtonpost.com/2009/11/12/the-economist-the-obama-a_n_355022.html" target="_hplink">3.4 million homes in foreclosure</a>, and a generation's wealth wiped out in a few short months. And the Republicans sang the money-saving virtue of "less government" -- even though we've learned that a government that spends less on regulation is the most expensive government of all. <br />
<br />
As <a href="http://www.nytimes.com/2011/01/26/business/economy/26inquiry.html?_r=2&adxnnl=1&adxnnlx=1296061984-EmjkZiXDVe+4YxeT+BdQWw" target="_hplink">the <em>New York Times</a> </em>reported, the FCIC report will conclude that "the 2008 financial crisis was an 'avoidable' disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street." It will document banker misdeeds that range from irresponsibility and mismanagement to corruption and criminality. It's been reported that the Commission will also refer a number of cases to the authorities for possible prosecution. <br />
<br />
This report has had a long and sometimes challenging history. But to paraphrase an old gospel song, it "may not be here when you want it, but it's right on time."<br />
<br />
<strong>Useful Utopians</strong><br />
<br />
Over three decades, our government was captured by a libertarian-inspired economic philosophy that had previously been considered radical and impractical -- correctly so, as it turns out. That philosophy's most prominent spokesman, former Ayn Rand acolyte Alan Greenspan, was celebrated as a "maestro," until the house of cards he came to symbolize finally collapsed. <br />
<br />
The prevailing economic myth, of an impossibly wise and genuinely free market, was as useful as it was Utopian. It provided ideological cover for the deregulation that both parties embraced. Government leaders were compromised by the lure of huge campaign contributions, and by a revolving door that ensured future wealth for cooperative politicians and regulators from both parties. The result enriched Wall Street and the Washington elite and left the rest of the country wounded. <br />
<br />
The deregulation of the 90s allowed banks to take risks they couldn't possibly survive. But they had been rescued in previous crises, and the cozy relationship between government and bankers assured them they'd be bailed out again. Freed from the consequences of their own actions, they gambled... and we lost.<br />
<br />
<strong>Money for Nothing</strong><br />
<br />
The most surprising thing about the FCIC hearings for me personally was the lack of competence shown by so many top bankers. The Wall Street executives I worked for were smart, demanding, and driven, but bankers like Citi's Robert Rubin and Chuck Prince... not so much. Their FCIC testimony displayed a shaky grasp of their business and a lack of concern about the risks facing their own organizations. Many of them seemed to lack even the most basic level of intellectual curiosity. A big bank is a fascinating, complex entity, but one executive after another seemed to shrug off the details of their own banks' operations with bored indifference. <br />
<br />
Sure, their testimony may have been especially vague because of their understandable desire to avoid self-incrimination. But even allowing for that, the low level of managerial skill they displayed was disconcerting. Today's generation of financial executives may be enjoying the greatest disparity between income and executive performance since indolent princes inherited vast kingdoms through the divine right of kings. <br />
<br />
Yet despite this embarrassing record, these executives want to be pampered and flattered by Washington again -- and they're getting their wish. The president and his party took some steps toward genuine financial reform with last year's bill, but a great deal of work is still needed and their recent appointments aren't encouraging. Meanwhile, the Washington consensus is pressuring the administration to assuage the "hurt feelings" of CEOs with some success, despite record profits that should provide more than adequate compensation for any injuries to their pride.<br />
<br />
<strong>Unfinished Business</strong><br />
<br />
The president only mentioned financial reform in passing, in his comments about regulations: <br />
<br />
<blockquote>When we find rules that put an unnecessary burden on businesses, we will fix them. But I will not hesitate to create or enforce commonsense safeguards to protect the American people. That's ... why last year we put in place consumer protections against hidden fees and penalties by credit card companies, and new rules to prevent another financial crisis...<br />
</blockquote><br />
<br />
<br />
Last year's bill was a start, but more reform is urgently needed -- to break up "too big to fail" banks, end runaway speculation, protect consumers, and end the incestuous relationship between banks and government. Prosecutions are needed, too. They're the only way to ensure that bankers can't violate laws with impunity, knowing that even if they're caught their shareholders will pay the fines.<br />
<br />
<strong>Defunding Reality</strong><br />
<br />
But if the president and his party need to focus their efforts, the Republicans already know what they want to accomplish: They're committed to restoring the klepto-plutocracy that continues to plunder the economy. Their "rollback to 2008 spending levels" would conveniently eliminate funding for the urgently-needed provisions in last year's financial reform law. It would effectively shut down the Consumer Financial Protection Bureau and hamper investigation and enforcement at several different agencies.<br />
<br />
In the Republican response to the State of the Union, Rep. Paul Ryan said that "limited government also means effective government." That statement has been roundly and repeatedly disproved -- by Katrina, the BP spill, and, as the FCIC report will show, by the regulatory negligence that led to the Great Recession. Unfazed by reality, Rep. Ryan insisted that "limited government will unshackle our economy and create millions of new jobs." <br />
<br />
For her part, Rep. Michele Bachmann spoke of "132 regulations put in place in the last two years, many of which will cost our economy $100 million or more." But even if that were true -- she offered no supporting evidence -- that figure is dwarfed by the economic cost of a recession created by regulatory neglect and prolonged by an unwillingness to provide further stimulus.<br />
<br />
<strong>"Limited Government" is the most expensive government of all</strong><br />
<br />
Here's an estimate of the recession's impact on the economy:<br />
<br />
<img alt="2011-01-26-outputgap.gif" src="http://images.huffingtonpost.com/2011-01-26-outputgap.gif" width="499" height="300" /><br />
<br />
(via <a href="http://krugman.blogs.nytimes.com/2011/01/19/the-output-gap/" target="_hplink">Paul Krugman</a>) <br />
<br />
This "limited government" approach to regulation cost us nearly three trillion dollars in lost prosperity. <br />
<br />
Think of this graph as a glimpse of some happier alternate universe, where government did its job and the economy thrived as a result. <a href="http://www.econbrowser.com/archives/2011/01/cumulative_outp.html" target="_hplink">Menzie Chenn</a>, the economist who produced it, describes the recession as a "mindless deregulation and irresponsible fiscal policy induced-crisis" and warns that "certain forces seek to gut financial regulation by way of 'defunding.'"<br />
<br />
The "defunders" are back.<br />
<br />
<strong><strong>Remembering the past to improve the future</strong></strong><br />
<br />
The Republican members of the FCIC staged a walkout last month by ginning up an artificial (and sometimes<a href="http://www.ourfuture.org/blog-entry/2010125123/dictionary-please-wall-streets-wallison-doubles-down-doublespeak" target="_hplink"> unintentionally surrealistic</a>) controversy, and now we know why. The Commission's report will be a comprehensive look at the failures of deregulation, the ongoing danger banks pose to the economy, and the misdeeds of past and present bank executives.<br />
<br />
There are those who would argue that the Great Recession was unavoidable, but that's not true. It could have been avoided with stronger regulations, the deterrent effect of criminal prosecutions, and wiser heads than Alan Greenspan and Ben Bernanke at the helm of the nation's economy. <br />
<br />
Memories are short in Washington, and this report will help us remember. It will take more than Tuesday's polite silence to rein in Wall Street and protect America's economic future. Hopefully this report will serve as a call to action.<br />
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<em>Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the<a href="http://www.ourfuture.org/curbingwallstreet" target="_hplink"> Curbing Wall Street </a>project. Richard also blogs at <a href="http://nightlight.typepad.com">A Night Light</a>.<br />
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He can be reached at "rjeskow@ourfuture.org."<br />
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Website: <a href="http://www.eskowandassociates.com">Eskow and Associates</a></em><br />
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<p>Read more: <a href="/tag/ben-bernanke">Ben Bernanke</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/fcic">Fcic</a>, <a href="/tag/state-of-the-union">State of the Union</a>, <a href="/tag/barack-obama">Barack Obama</a>, <a href="/tag/tim-geithner">Tim Geithner</a>, <a href="/tag/fcic-report">Fcic Report</a>, <a href="/tag/financial-crisis-inquiry-commission">Financial Crisis Inquiry Commission</a>, <a href="/business">Business News</a></p>
Fed Economist To Greenspan In '05: Discovery Channel's 'Flip That House' Should Cause 'Existential Crisis'http://www.huffingtonpost.com/2011/01/14/fed-economist-greenspan-flip-that-house_n_809138.htmlThe Huffington Post News Teamhttp://www.huffingtonpost.com/the-news/
In late 2005, as the housing bubble that would ultimately pop and bring down the economy continued to inflate, Federal Reserve economists briefed the central bank's then chairman, Alan Greenspan, on the state of the economy during a meeting of the Federal Open Market Committee. <br />
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Amid an onslaught of data showing a cloudy forecast, one economist raised a point at that Dec. 13 meeting that could have brought home the case that the Fed had let the housing market spin out of control. <br />
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"I offer one more piece of evidence that I think almost surely suggests that the end is near in this sector. While channel-surfing the other night, to the annoyance of my otherwise very patient wife, I came across a new television series on the Discovery Channel entitled 'Flip That House,'" economist David Stockton said, prompting a roomful of laughter <a href=" http://www.federalreserve.gov/monetarypolicy/fomchistorical2005.htm" target="_hplink">according to the transcript.</a> "As far as I could tell, the gist of the show was that with some spackling, a few strategically placed azaleas and access to a bank, you too could tap into the great real-estate wealth machine. It was enough to put even the most ardent believer in market efficiency into existential crisis. [Laughter]"<br />
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The Fed, the home of many of the most ardent believers in market efficiency, did not go through an existential crisis, however, and did little to slow down surging prices or warn consumers that "the end is near." Instead, many consumers continued to purchase homes under the mistaken impression that housing prices would continue to rise. <br />
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In those homebuyers' defense, elite economists were saying the same thing. "[I]t is hard to say that the housing market is anything but robust," Roger Ferguson, a Fed governor, said at the same 2005 meeting.<br />
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Earlier that year, during its June meeting, the Fed heard evidence that the market could be overvalued by <a href="http://twitter.com/Neil_Irwin/status/25957465828888576" target="_hplink">as much as one-fifth</a>, and Stockton's presentation to Greenspan and the FOMC cited evidence other than cable shows that the housing market was overheated. <br />
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"[R]eports of cooling in the housing markets seem to me to be more frequent and more widespread than was the case six months ago," Stockton said. "As we noted in yesterday's Board briefing, a variety of indicators of housing activity have turned down in recent months. Household attitudes toward home buying have dropped sharply; builder ratings of new home sales have deteriorated; the index of mortgage applications for home purchase has fallen off; and the inventory of unsold homes has moved up. Taken in isolation, none of these measures has an especially reliable statistical relationship to housing activity. But taken together, they could be indicating that we are at the front edge of some cooling in these markets."<br />
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Dean Baker, an economist who had spotted the housing bubble long before the Discovery Channel did, said that the wrong people have lost their jobs as a result of the Fed policy's failure. "It's amazing that it somehow never occurred to him/her that house prices would actually fall," he said in response to the "Flip That House" comment. "They should be fired for not recognizing this possibility and its implication." <br />
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Stockton <a href="http://www.federalreserve.gov/research/staff/stocktondavex.htm" target="_hplink">is still at the Federal Reserve</a>, where he serves as the division director for research and statistics. He did not return a request for comment.<br />
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HuffPost readers: If you find anything else noteworthy in <a href=" http://www.federalreserve.gov/monetarypolicy/fomchistorical2005.htm" target="_hplink">the newly released transcripts, </a>email ryan@huffingtonpost.com, indicating the month of the meeting. <br />
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<p>Read more: <a href="/tag/discovery-channel">Discovery Channel</a>, <a href="/tag/flip-that-house-existential-crisis">Flip That House Existential Crisis</a>, <a href="/tag/flip-that-house-alan-greenspan">Flip That House Alan Greenspan</a>, <a href="/tag/david-stockton-flip-that-house">David Stockton Flip That House</a>, <a href="/tag/greenspan-housing-bubble">Greenspan Housing Bubble</a>, <a href="/tag/mortgage-crisis">Mortgage Crisis</a>, <a href="/tag/flip-that-house">Flip That House</a>, <a href="/tag/greenspan-existential-crisis">Greenspan Existential Crisis</a>, <a href="/tag/david-stockton">David Stockton</a>, <a href="/tag/greenspan-housing-crisis">Greenspan Housing Crisis</a>, <a href="/tag/housing-crisis">Housing Crisis</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/housing-bubble">Housing Bubble</a>, <a href="/business">Business News</a></p>
Robert Brenner: The Greenspan Hornethttp://www.huffingtonpost.com/robert-brenner/the-greenspan-hornet_b_803984.htmlRobert Brennerhttp://www.huffingtonpost.com/robert-brenner/
By day, Alan Greenspan is a mild-mannered Federal Reserve chairman. But by night, he is the masked vigilante known as the Greenspan Hornet. Aided by his faithful oriental chauffeur, Cato Institute, he fights a never-ending battle against government regulation and oversight.<br />
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Recently, though (circa October 2008), he has suffered a crisis of faith in the free market system: "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief." <br />
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After this humiliating public admission, Greenspan withdrew to his Hornet's Nest and brooded: "What happened to the Invisible Hand of the Marketplace? Why didn't he intervene?" The Invisible Hand was Greenspan's superfriend in the Economic Justice League; only Greenspan could see him. <br />
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Cato shrugged. Like a broker, he got paid whether the markets went up or down: "Maybe he got a cramp, Greenspan-san?"<br />
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Greenspan noticed Cato's gesture. "You're right of course, Cato. It all began with <em>Atlas Shrugged</em>. I thought Ayn Rand had all the answers. Now I see the real world is filled with Bernie Madoffs, not John Galts."<br />
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"Too bad Greenspan-san cannot ask her herself," Cato dead. "Rand-san died of cancer from smoking good capitalist cigarettes in 1982."<br />
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"Cato! That's it!" Greenspan cried. "You're a genius!"<br />
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"You mean..?" Cato said.<br />
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"Yes!" Greenspan replied, recovering some of his old decisiveness. "We must journey to the tomb of Ayn Rand! Even the Oracle must sometimes consult with his Oracle. Fire up Black Monday!" Black Monday was a limousine especially equipped to address financial emergencies; it had rocket launchers, machine guns, and could adjust the prime. "We're going to visit the fountainhead of Objectivism."<br />
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"But, Greenspan-san," Cato protested. "She's dead!"<br />
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"That may be an insurmountable barrier for the common man," Greenspan replied coolly. "But that's no problem for the truly gifted individual."<br />
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After a long, perilous journey to Valhalla (New York), Greenspan and Cato found themselves before the tomb of Ayn Rand. Greenspan shivered involuntarily, and not just because they were standing in a deserted graveyard at midnight. He had always felt a little bit intimidated by Rand: that fierce intellect, that voracious sexuality...<br />
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"Quick, Cato!" Greenspan commanded. "Light the offering!"<br />
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Cato placed a basket of securities -- a portfolio of blue-chip stocks handpicked by the Maestro himself -- in front of the tomb and set it on fire. At first, there was no response. Greenspan was just starting to think he should have lit a bond fire instead when, suddenly, there was a loud crack, and the tomb split open. There stood Ayn Rand in all her naked glory. "She never could resist the smell of money," Greenspan muttered.<br />
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"Who dares disturb my timeless sleep?" Rand said. "Don't you know I was an ardent athiest and didn't believe in an afterlife?"<br />
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"It's me, Ayn," Greenspan said. "Alan, your most important disciple. Don't you recognize me?"<br />
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Rand peered at Greenspan closely. "Maybe if you took off that stupid green domino mask I might," she said.<br />
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"Oh, yeah, right, I forgot I had I on," Greenspan said, and removed his mask. "Now do you recognize me?"<br />
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Rand peered at Greenspan more closely. She allowed that he did look like one of the members of the Collective, her inner circle of sycophants. "What do you want?" she said in her customary direct style. "Time is money. Come to think of it, everything is money." <br />
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Greenspan explained to her all that had transpired since she had expired--the repeal of Glass-Steagall, the metastasis of derivatives, the housing bubble, the financial crisis, the government bailouts...<br />
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Rand listened with growing impatience. When he had finished, she stomped her foot and said "You must have done something wrong! Deregulation should have led to perfectly efficient markets, not wild speculation, fraudulent accounting, and bogus stocks. It's in the self-interest of the banks to keep the game competitive but clean."<br />
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"What about the tragedy of the commons?" Greenspan said. <br />
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"The tragedy of the what?" Rand snapped. "Never heard of it. Must be socialist propaganda."<br />
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"You know, Rand-san," Cato interjected helpfully. "It's when each individual acting in his own selfish interests results in sub-optimum results for the group the individual is a member of, including the individual. And that doesn't even get into the Nietzschean fallacy of the superman--"<br />
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"Silence!" Rand commanded. "I'll hear no more of this heresy! Free Markets are perfect, that's all there is to it," she repeated stubbornly; it was her mantra, her anthem. "If you can't handle the job, I've got just the man to replace you. I'll give you a hint: he named his son after me."<br />
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A familiar figure stepped from behind Rand's tomb, where he had been lurking. <br />
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"Ron Paul!" Greenspan exclaimed.<br />
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"You bet!" Paul said. "It's clear you didn't go far enough with deregulation. Now we're going to do away with the Fed altogether and go back to the gold standard. If that doesn't work, maybe we'll try barter."<br />
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"Over my dead cat bounce!" Greenspan said. He hated regulation, but he hated losing his legacy even more. "Quick, Cato! Fire up Black Monday! We're heading back to Washington."<br />
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"Sorry, Greenspan-san. No can do," Cato said. "Enlightened self-interest tells this one Ron Paul-san right horse to back now." Cato detached himself from Greenspan and sidled over to Paul. He was trained in the sophistic martial arts; he could flip sides on a dime.<br />
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"Cato!" Greenspan cried. He started feeling dizzy, like a trader standing on a ledge after a "market correction." "What about personal loyalty?"<br />
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"Personal loyalty is an encumbrance," Rand said. "If you really understood my pilosophy, you'd know that. Lord knows, I screwed over enough of my disciples."<br />
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"So I have no further utility," Greenspan cried, and promptly ceased to be among we the living. The Greenspan Hornet had solved his last case.<br />
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<p>Read more: <a href="/tag/cato-institute">Cato Institute</a>, <a href="/tag/ayn-rand">Ayn Rand</a>, <a href="/tag/ron-paul">Ron Paul</a>, <a href="/tag/federal-reserve">Federal Reserve</a>, <a href="/tag/alan-greenspan">Alan Greenspan</a>, <a href="/tag/atlas-shrugged">Atlas Shrugged</a>, <a href="/tag/bernie-madoff">Bernie Madoff</a>, <a href="/tag/the-green-hornet">The Green Hornet</a>, <a href="/tag/libertarianism">Libertarianism</a>, <a href="/tag/john-galt">John Galt</a>, <a href="/tag/objectivism">Objectivism</a>, <a href="/tag/seth-rogen">Seth Rogen</a>, <a href="/tag/anthem">Anthem</a>, <a href="/tag/the-fountainhead">The Fountainhead</a>, <a href="/tag/we-the-living">We the Living</a>, <a href="/tag/derivatives">Derivatives</a>, <a href="/comedy">Comedy News</a></p>