James Surowiecki and Me

Back when I had time to read The New Yorker, I was a big fan of James Surowiecki. I would always look for his column; if it was there, it was usually the first thing I would read. Unfortunately, he’s no fan of mine.

Surowiecki makes three points about our recent long post on nationalization:

  1. If the government were to take over a large bank like Citigroup, it would not be able to sell it into the private sector quickly, but would most likely own it for several years, which constitutes nationalization.
  2. Recent U.S. history, by which he means the S&L crisis, shows that the right strategy is “exercising regulatory forebearance, cutting interest rates sharply (which raises bank profit margins), and helping the banks deal with their bad assets” – not bank takeovers.
  3. We were misleading in citing the IMF’s $4.1 trillion number instead of the lower $1.1 trillion number for U.S. financial institutions. “I assume they used the $4.1 trillion number because it’s much scarier, and offers a much gloomier picture of the state of the U.S. financial system. Unfortunately, it also offers a much more misleading picture of the system.”

Sigh. I guess it’s impossible to make everyone like me.

I’ll take the points in reverse order.

3. I plead partially guilty to this one (I wrote that section of the post). $4.1 trillion is the IMF’s aggregate estimate of all writedowns by all financial institutions globally. To be honest, I used it because that was the number I remembered, and I was writing fast and late at night. (I do this in my spare time, remember?) The point I really meant to make was that the IMF’s estimate was going up, because the problem had spread into all sorts of lending. You’ll note that I didn’t actually compare the $4.1 trillion to any other number – now that would have been misleading.

When I dealt more specifically with U.S. bank capital levels in another post, I did use the relevant IMF number: $275-500 billion in capital needs. $275 billion is a much bigger number than $75 billion, the bottom-line total of the famous Table 3 of the stress test results. Surowiecki attempts to deal with this in his post called “The Fed and the I.M.F. Agree,” where he reconciles these two numbers. His reconciliation is correct as far as it goes. However, the stress tests were supposed to be for a “more adverse” scenario, meaning more conservative than the expected scenario; the IMF numbers, by contrast, are their expected scenario (see mainly PDF pp. 27-28 and 32-34). Who’s right? Well, Calculated Risk has a chart showing clearly that unemployment is already running slightly worse than projected in the “more adverse” scenario (see the second chart in that post), indicating that the “more adverse” stress test scenario/IMF expected scenario (which are similar, as Surowiecki notes) should be thought of as an expectation, not a conservative forecast. So if you believe that the stress tests were supposed to buffer against the possibility of a worse-than-expected outcome, they aren’t doing it.

There is another major difference between the stress tests and the IMF that deals not with the forecasting question, but with the capital adequacy question. The stress tests calculate capital requirements as a percentage of risk-weighted assets, while the IMF uses total assets (confusingly defined as “total assets less intangible assets” (PDF p. 34, note 39)), which ordinarily will be significantly higher (risk weights are generally less than or equal to one). So 4% of one does not equal 4% of the other. (The IMF’s $275-500 billion range reflects 4% and 6% thresholds.) Citigroup, for example, had total assets, excluding intangibles, of $1,897 billion as of December 31 (the snapshot used by both the stress tests and the IMF), while according to the stress tests it had risk-weighted assets of $996 billion. Who is right I will leave to others to debate, but the stress tests are allowing banks to get by with much less capital than the IMF report implies they should.

2. I am confused by Surowiecki’s interpretation of recent U.S. history. The “regulatory forbearance” he mentions happened early in the 1980s when, among other things, thrifts were allowed to invest in a broader set of assets and were allowed to offer higher interest rates to depositors, deposit insurance ceilings were raised, and capital adequacy requirements were relaxed for thrifts facing insolvency. This may have helped banks survive but, according to a later FDIC report, it also postponed and amplified the later crisis: “With respect to commercial mortgage markets, this legislation set the stage for a rapid expansion of lending, an increase in competition between thrifts and banks, overbuilding, and the subsequent commercial real estate market collapse in many regions.” The early 1990s saw precisely the opposite; the FDIC Improvement Act of 1991, for example, limited regulatory discretion in dealing with struggling institutions.

Forbearance can work, but it is not a cure-all. The FDIC report later contrasts beneficial and harmful forbearance programs, but it criticizes large-scale forbearance programs in no uncertain terms:

Longer-term, wholesale forbearance as practiced by the FSLIC was a high-risk regulatory policy whose main chances of success were that the economic environment for thrifts would improve before their condition deteriorated beyond repair or that the new, riskier investment powers they had been granted would pay off. The latter type of forbearance, which the FSLIC adopted against the background of a depleted insurance fund, is widely judged to have increased the cost of thrift failures.

In addition, the policies of the 1980s played out in a very different economic environment. The assets in question were primarily loans, rather than the complex securities we are dealing with today. And the global economic climate was considerably better than today, which helped banks earn their way out of their problems.

In any case, the bottom line of the S&L crisis was over 1,600 FDIC interventions between 1980 and 1994. (We’ve had 33 so far this year.) The Resolution Trust Corporation was charged with managing the assets of banks and thrifts that had become insolvent, not “helping the banks deal with bad assets.” One can argue about the lessons of the 1980s – particularly about what they mean for large banks – but it’s by no means clear that the policies Surowiecki highlights forestalled the need to take over banks.

1. I think this is one of the more serious criticisms of government takeover of a large bank – namely, that it would take a long time before it could be returned to the private sector.  But that doesn’t mean prolonged political control over lending decisions. The important thing about a takeover is that you can clean up the balance sheet, for example by transferring the toxic assets to a separate entity, without having to negotiate with anyone. Once you’ve done that and the bank is recapitalized (no one is saying this will be free), the government’s stock can be put into a trust with an independent board of trustees with long terms. This would insulate the bank reasonably well from political pressure, since the trustees’ legal obligation will be to run the bank for its own long-term benefit, and to privatize it when possible at the highest possible price for the taxpayer.

There is actually an example of this right now: AIG is majority-owned by the government, but the government’s stock is controlled by three trustees who are independent of Treasury and the Fed. This is why the Treasury is forced to negotiate with AIG like any other private party that is looking out for its own interests. On the other hand, Treasury had zero voting shares in Bank of America back in December – yet it felt able to threaten Ken Lewis with replacement if he didn’t close the acquisition of Merrill. My point is that you get government influence either way, regardless of the legal structure. With Bank of America, the source of the influence was the likelihood that B of A would need assistance from the government in the future. With AIG, the source of the influence was yelling and screaming through the media, plus the fact that AIG also needed additional assistance.

I’m not saying that the AIG situation is perfect, just that it is possible to insulate a government-owned entity from political meddling – as the government found out, to its frustration. The mistake with AIG, I believe, was giving it that independence without having fixed its fundamental problems – the ones that cause it to keep coming back for more money. Were the government to take over a large bank, it should clean up the balance sheet and recapitalize first – without negotiating – and then turn it over to an independent set of trustees.

This “big banks are different” issue is a serious one and worthy of consideration. But it doesn’t necessarily justify the application of a completely different set of principles than the ones that are routinely applied to smaller banks.

Update: There’s another difference between the stress tests and the IMF: the type of capital – TCE (IMF) or Tier 1 common capital (stress tests). I was suspicious of this but didn’t have time to look into the impact.

Update: James Surowiecki’s response below.

By James Kwak

56 responses to “James Surowiecki and Me

  1. Regarding the IMF:
    “Errors in a table in the Global Financial Stability Report were drawn to our attention, and we’re in the process of reviewing the numbers to correct them, and we will release the corrected numbers as soon as they are available.”
    David Hawley, IMF may 7th, press briefing.

  2. Maybe what we need is a word for “nationalization” in the reverse direction – since I’m guessing the same actions and decisions will result whether the government takes over the banks, or the banks take over the government.

    There is a kind of reflexive property of equivalence if the policy is to keep most of the infrastructure of the major banks fully-functional by using as much public money as it takes to overcome their loses on bad loans.

    I think this is the whole “regulatory capture” argument where the financial institutions have turned the economic bureaucratic apparatus into a lax, permissive, never-let-you-fail, safety-net extension of the banks themselves. As opposed to “nationalization” we have “bankification” or “forced provider of reinsurance for catastrophically reckless behavior of gigantic proportions”

    In other words – if we assume the banks will reemerge as private entities with positive net worth, having had their losses borne by the public one way or another – does it really make much difference how that is accomplished since, it now seems clear, the government is able to achieve the behaviors it desires in any event? (see the Oppenheimer/Chrysler example where a firm backs down without even taking any money.)

    If our options are merely to do this quickly, explicitly, and efficiently or by an unpredictable, never-ending sequence of escalating interventions behind some kind of ineffective trustee wall, then “nationalization” is unavoidable, and the choice is reduced merely to picking in which direction the “-ization” is occurring.

  3. Charles R. Williams

    “I think this is one of the more serious criticisms of government takeover of a large bank – namely, that it would take a long time before it could be returned to the private sector.”

    Why must this take a long time? If you have a process in place to sort out and prioritize the claims of the creditors all that remains is to split the assets creating a good bank and a bad bank. This process doesn’t have to be perfect, it just has to be fast and it has to result in a good-enough good bank. As far as the government’s equity stake is concerned, all equity gets converted into a residual claim on the bad assets. To find a CEO you promote an executive from one of the better managed second tier banks and let him build a new management team. This CEO is accountable to the new shareholders – today’s holders of unsecured debt.

    The government should have been working on this process since the beginning of 2008, hiring an army of regulators and collecting whatever data on potentially insolvent banks is required to pull the plug on them overnight.

    The problem of course is that the banks own the political center, which is why neither Bush nor Obama have had the courage to protect the public interest.

  4. “The stress tests calculate capital requirements as a percentage of risk-weighted assets, while the IMF uses total assets (confusingly defined as “total assets less intangible assets” (PDF p. 34, note 39))”
    I suppose you mean “while the IMF uses tangible assets ( NOT confusingly defined as “total assets less intangible assets”

  5. angry liberal

    Calculating total assets as “total assets, less intangibles” should not be too confusing if we pause to consider the nature of “intangible” assets.

    “Intangibles” include things like “goodwill” and “intellectual property”. Though I am a big fan of intellectual property, it’s most realistically assessed as a fence for protecting the present value of forecast revenues – thus weighting the projected revenue distribution more or less toward the optimistic end. “Goodwill” is a euphemism for “we paid too much for that asset”.

    So, taking “intangibles” out of the booked “total assets” just means that the IMF is assessing banks based on their “tangible” assets – i.e. the assets that have intrinsic value beyond the banks’ self-valuation.

    Thus, the IMF calculation should clarify, more than confuse.

  6. I think Mr. Surowiecki is missing the forest for the trees. He says in the article: “What they omit is the important fact that the US has gone through banking crises similar to this one twice before in the last thirty years…” and then goes on to say that the government’s response has been identical in those events to the current administration’s approach. (He omits the collapse of Long-Term Capital Management, which was a stillborn banking crisis but speaks to many of the issues that have surfaced in the current crisis.) Obviously, the magnitude of this crisis is an important issue, but the bigger issue is that we’ve had three banking crises in three decades.

    I’m not sure that we need to be considering a major restructuring of the financial system while we are still in the throes of a crisis (banning securitization, etc.), but we do need to be mindful of whether our current approach is 1) productive, 2) just, and 3) creating bad incentives going forward.

    It seems like Mr. Surowiecki is opposed to breaking up the banks because 1) doing so will be difficult, and 2) the administration has demonstrated that they can be returned to safe capital levels with a little help from their friends. He ignores all of the previous three points. He does not discuss that there are real short- to intermediate-term risks to treating monetary policy as a tool for returning the banks to profitability (especially on this scale). He ignores the fact that the banks have contributed very little in the administration’s current approach, while everyone else in the US has become their indentured servants, either through debt or taxation. And he ignores the fact that, in the absence of some sort of penalty, the end result of this approach is that it happens again. Pragmatists don’t care about these things, however. They merely want to survive to see the next crisis.

  7. gore his ox

    James is touchy. Clearly Grandma’s Swiss bank stuffed her trust with bank bonds.

  8. silly things

    IMF puts out one estimate at the end of last year and only a few months later had to double it! Some how this escapes people that one SHOULD NOT put too much weight in estimates with such a track record! All the pundits just rush to quote IMF to lend weight to whatever point they are arguing (baselinescenario, roubini, etc.). And of course no one bothered to point out the IMF estimates track record to his or her readers.

    I’ve posted here that IMF will prove themselves wrong when they put out yet another new estimates in a few months. I am way ahead of schedule!

    http://baselinescenario.com/2009/05/04/stress-tests-for-beginners/#comment-12972

    James Kwak, I wrote the issue with the IMF estimates for you hoping that you’ll pick it up. My point about the weight to place on estimates is independent of our different viewpoints on the economy and banks. I was hoping you’d get better at doing analysis. I am a bit disappointed. Nassim Taleb, author of Black Swan, would probably call this intellectual fraud.

    I’ll have longer follow up post on the economy and my beef with baseline scenario soon.

  9. James Surowiecki

    James, thanks for the long response (and don’t worry, I like you — we just disagree on this question). A couple of things:

    1) I’ll have a post on this tomorrow, but the “recent history” I was talking about wasn’t the S&L crisis. Instead, I was referring to the Latin American debt crisis of the early 1980s, and the real-estate bust of the early 1990s, both of which left big moneycenter banks insolvent by mark-to-market standards. When I use the word “forbearance,” I mean that the government refrained from nationalizing (or putting into receivership) those banks, and instead allowed them to work their way out of trouble — with government assistance, in the case of the Brady Plan. We can argue about whether this was the right long-term strategy, but in both cases the banks did become well-capitalized again in a reasonably short period of time, at a lower cost to taxpayers than nationalization would have entailed, and, more important, in neither case did the economy suffer a Japanese-style “Lost Decade.” (On a side note, I’m vehemently opposed to the kind of regulatory forbearance that was exercised with the thrifts in the early 1980s, because they had no workable business model and the forbearance simply guaranteed they would take absurd risks.)

    2) I’m confused by the implications of the difference in the definition of assets used by the IMF and the Fed. You say, accurately, that the IMF is using tangible assets as their denominator for measuring adequate capital ratios, while the Fed is using risk-weighted assets. That means, all other things being equal, that if both the Fed and the IMF were trying to get the banks to 4% TCE, the Fed’s capital number would be expected to be smaller than the IMF’s (since the Fed’s denominator would be smaller, too), which could mean that, as you say, the Fed was allowing the banks to get by with less capital than the IMF says they should have.

    But here’s the thing: the Fed isn’t. As I pointed out in that post you linked to, the Fed’s and the IMF’s estimates of the banks’ capital needs are very similar to each other: extrapolating from the Fed’s estimate for the 19 biggest banks, both organizations think the banking system as a whole requires about $275 billion in new equity. And since the IMF’s denominator is bigger than the Fed’s, doesn’t that mean the opposite of what you conclude? (If the IMF’s numerator is so much bigger than the Fed’s, the amount of capital it says banks need should also be bigger. But it isn’t.) I may have gotten the math totally wrong, but I think if you follow this out, it means the Fed is demanding that banks have more equity relative to their measure of assets than the IMF is (if the IMF is, in fact, just using “tangible assets”).

  10. My take on the 3 points:

    1. Long time to sell into the private section. Yes, but the current process (buying time) is going to take longer.

    2. The government took control of over 1,600 US financial institutions (as you state). So that wasn’t nationalization of the S&L industry? There is NO S&L industry today – it was restructured by the government.

    3. Now you are either for globalization (like a Surowiecki) or you are not or you explain yourself We know that the banks are tightly integrated globally – that’s one of the reasons why is “so hard” to nationalize Citibank. So the US banks led the securitization of the asset bubble parade and as leaders they were able to pawn off 3x the exposure to foreign banks. This is supposed to be some comfort? That the strongest banks have a 1/3 of the exposure of the rest?

    It’s easy to be an isolationist when the world is sick with the disease we passed on.

    Ok, so the writedowns were mistakenly assigned to the US banks. Doesn’t mean the US banks weren’t responsible.

  11. Surowiecki tries to be contrarian and he’s good at it, but when I first read his post I thought he was oddly understating the scale of the current crisis, which after all is the heart of the matter. Compared to today’s disaster, the S&L crisis was a picnic, and yet it did involve massive intervention in thrifts.

    What worries me most is that the administration has an interest in understating the severity of the banks’ problems because they need to justify their own policy approach. If the banks are really in much worse shape than the dubious stress tests show, then current policy is probably wrong. And the point that Simon and James make here repeatedly about the financial sector needing major restructuring seems central to all this, and the current muddle-through policy seems designed to preserve the system that created the disaster.

    Just from a political standpoint, the continued arrogance of bank management may come back to bite the Obama administration. Efforts to rein in credit card abuses are a sign of this: on the very day Citigroup’s first bailout was announced, I received notice from the bank that the APR on my Citi card was rising from 7% to 25%, after no misbehavior on my part. I wrote my main man, Vikram Pandit, to protest, and they reversed the increase. You wonder how many consumers will be pushed into default and bankruptcy by such tactics.

  12. thinking_questioning

    In Surowiecki’s post, in point one, the pivotal comment appears to be the longevity of the Continental Illinois takeover. There is no mention as to the success of the C.I. actions or the relative costs and/or benefits to the C.I. takeover. My research into the C.I. episode indicates a positive outcome. Remember, this was the Reagan, Bush era. These pro-business and pro-market administrations would not have “allowed” this longevity unless there was evidence that it was functioning.
    A timeline argument for accepting or rejecting “nationalization” is no more valid than a patient rejecting chemotherapy for cancer treatment because the course lasts for many months. It is the outcome which is important, not the timeline.

  13. I’d be interested in what Mr. Surowiecki thinks of the bigger political questions that really drive all this. The WSJ reported that Treasury “negotiated” with banks regarding their stated capital needs, and this has naturally fueled skepticism toward the stress tests. The administration also has a clear interest in finding the banks to be in better shape than they may really be, in order to justify their current muddle-through policy and because of the political difficulty of doing more big bailouts. One can reasonably debate comparisons to Japan, but many knowledgeable observers have found eerie similarities in the approach to shaky banks.

    I enjoy Surowiecki’s skeptical writing — a recent item disputing a Martin Wolf column about the PPIP was particularly interesting — but I do sense that he gives the Obama administration a little too much benefit of the doubt.

  14. You are right, the IMF is using tangible assets (TA) defined as “total assets less intangible assets”
    James K seems to think that TA means total assets.
    From the PDF, page 34: “To provide a gauge for equity needs, the first calculation in Table 1.4 assumes that leverage, measured as TCE over tangible assets (TA),…”
    also note 39, same page
    http://www.imf.org/external/pubs/ft/gfsr/2009/01/pdf/text.pdf

  15. Today’s crisis was ultimately borne of widespread self-delusion. That’s why bank after bank drove straight off a cliff and consumers borrowed too much. It wouldn’t be surprising if policymakers cleaning up the mess suffered from self-delusion too, especially if they found themselves boxed-in politically.

  16. Who is James Surowiecki, and why is he shilling for the banking industry?

    Regarding his first point, he says, “any bidders who know the government has to sell by a certain date will underbid for the bank’s assets”. This is total nonsense. Auctions are almost always run on a tight schedule — “going ONCE… going TWICE…” — and there is no evidence that this results in underbidding.

    All of these institutions have “good parts” and “bad parts”. The good parts could be auctioned off even in this environment; the bad parts may need to be held until the economy recovers. Of course it will be costly to the taxpayer, but it will be a one-time cost. The alternative of “zombie banks” with all of their assets implicitly guaranteed by the U.S. taxpayer is indefinite both in cost and duration.

    As you mention, his second claim is particularly bizarre. The entire purpose of the RTC — which is widely regarded as the “successful” part of the S&L response — was to liquidate the assets of institutions that had already been seized.

  17. James Sir,
    We all make mistakes and you are correct to amend or clarify some of the figures you made in your original post.
    Like Charles William’s, I do not believe taking these zombie banks into full public control means that the government would have a major issue privatising them a few years henceforth.
    Further, as Institution Risk Analytics continually point out, those banks in receipt of federal guarantees are by a very large degree government sponsored entities, if it were not for these guarantees they would be unable to function, nor raise capital via the money markets.
    If this is indeed the case, then clearly they are effectively nationalised by stealth.
    Further, the word ‘nationalised’ seem to cause major confusion on your side of the water, I think for the sake of clarity, the term ‘public ownership’ should be used.
    Looking at this from a UK perspective, whilst the UK government has taken majority stakes in both RBS and Lloyds, it is trying to ring fence government interference and keep it as low as possible. Perhaps those on this site could look at what the UK is doing and compare it to Fed and treasury actions.
    By the way, please keep up all the good work.
    Without wishing to frighten the readers though, the US government bailout and guarantees amounts to nearly US$12 trillion, rather than US$700 billion as many media commentators keep mentioning, in the UK, our government has either spent or given guarantees approaching a trillion if memory serves me right and in doing so has been forced to raise taxes and increase the national debt.
    hence, the IMF figures you are quoting seem right on the mark – just wait until the Eastern European economies start defaulting and its effects on many banks within the Euzo Zone, now that really is quite scarry and could kick off a third wave panic, something the Bank of England is acutely aware of.

  18. And right now banks are running fire sales of assets and whole divisions. Calculated Risk has run more than one item about banks selling properties in bulk to investors at prices far below any reasonable valuation, apparently to raise cash and because they’re overwhelmed with REOs. For banks on government life support, this amounts to hasty transfer of wealth from taxpayers to buyers of these assets, who will hold them and then turn a nice profit.

    If the PPIP avoids underpricing, then I guess that’s good, but it involves big government guarantees that will distort the vaunted market pricing mechanism. Who would invest in PPIP assets unless they were sold at significantly below reasonable valuation?

  19. “When I use the word “forbearance,” I mean that the government refrained from nationalizing (or putting into receivership) those banks, and instead allowed them to work their way out of trouble — with government assistance, in the case of the Brady Plan.”

    The administration and the Federal Reserve are not merely “allowing” the banks to work their way out though. In addition to providing outright gifts of taxpayer dollars, they are doing everything they can to make this a profitable environment for them, including taking many measures that are without historical precedent.

    Since you are committed to the argument that the market has thus far overstated the potential losses, do you also think that many of the measures proposed thus far (such as the PPIP) are no longer necessary? How can you explain that we have had such dramatic levels of intervention proposed if the banks were already well-capitalized? Do you think that the administration is just now quantifying the problem?

  20. IMHO ownership, private property, and personal responsibility are the requirements of a vibrant market. At this juncture of economic reality government control and interference ‘as opposed to regulation and enforcement’ is bordering on the perverse.

    It could be that Ron Paul or whoever saved the world by negotiating the crisis head on. Establishing a floor under the market is better than letting fall apart from the inside hurting millions. What is not so obvious since pundits and economists so often cite the fact that this is not the 20s ‘see google,craigslist,supermarkets,road systems,electrical systems’ is whether or not economic panic and the unwinding of practical service can repair itself without government at all interfering.

    It seems that government is beyond inefficient at creating a practical market through regulation and enforcement altogether. Positions ON the market are dislocating and winding down balance sheets as the false economic floor that the government let shine down the mirrors apon for so long evaporated.

    As monetary reality becomes the rule of the day in comes the regulators to establish another greater financial illusion. This one less perfect to suit the needs of the people.

    My point being that the people require a market and have the tools to fit one quite easily. Maybe the effect of the argument is its proof, that government is incapable of generating trust. Individuals are the big loosers who have invented their salvation yet to see.

    Keep looking up

  21. silly things

    I’ve just read James Surowiecki’s take on why we are not likely to repeat Japan.

    http://www.newyorker.com/online/blogs/jamessurowiecki/2009/05/are-we-turning-japanese.html

    It is a different view from John Hempton and both are excellent.

  22. Mr. Surowiecki, you have explanations. There are always explanations. Valid explanations? I doubt it. Honestly, I think you are as enmeshed as Timothy Geithner. As an insider, you see the best of the banks and the bankers. As an outsider, I see a tribe of looters, and you a member. If you want to change the world’s view of your tribe, reform your tribe.

  23. James Surowiecki

    Just to pick up on something Bond Girl said earlier, about the fact that it’s a big problem that this is the third major banking crisis in three decades: I completely agree that this is a sign that the system is, as I wrote in a column a month ago:

    http://www.newyorker.com/talk/financial/2009/04/06/090406ta_talk_surowiecki

    “fundamentally unhealthy, too big and volatile for anyone’s good.” The system needs significant reform. And I think there is a real danger that if the banks make it through this okay, the pressure for reform will dissipate. I just think that nationalization is not necessarily the strategy that’s best for an economy in the middle of an economic crisis. And I think regulation can be made to work — we just need the political will to put it in place, and I still believe that will can be mustered.

  24. Sellers in auctions usually set reserve prices too, so even though auctions are “run on a tight schedule,” sellers aren’t forced to sell if the price doesn’t reach the reserve. If the government was forced to sell a nationalized bank by a certain date, it would be a no reserve auction. There’s MOUNTAINS of evidence that bidding in no reserve auctions is lower than in reserve auctions.

  25. Small modification of your characterization of the RTC’s mission – the RTC’s primary mandate was to make good on deposit insurance by resolving failed thrifts, not to manage assets. the OTS determined that the thrifts were insolvent, then the thrifts (conservatorships, and later in the cycle, receiverships) were managed through the liquidation process by the RTC. Sufficient funding came from Congress to top off the coverage of insured deposits. Traditionally, the FDIC’s focus has always been on resolving the thrift. The assets, when RTC began, were a secondary factor, a lesser priority, albeit a large-scale one. Due to the size of the crisis, it became clear that improved, and more aggressive, asset management and sale techniques needed to be used. This happened at the same time as asset sales and securitization were in a growth-and-development phase. The synergy was right for assets to get more resources and attention, and the RTC turned into the largest issuer of mortgage-backed securities during its time, as well as an innovator in packaging and selling assets in a variety of ways. I like to think that my asset sale colleagues did a great job with the assets (and we did, which lowered the amount of funding that was needed to cover insured deposits). However important the asset management and sales were, assets were just an interim part of the job. The main mission remained to make insured depositors whole. I agree with you that this was a different emphasis than today’s greater focus on the toxic assets.

  26. The claim that it will take too long to dispose of any nationalised assets seems to refuted by the ease with which wells fargo sold 6 billion dollars worth of common stock last week,it is currently operating under closer government scrutiny and direction than if it were government owned and run by trustees.And by the way my 18yr old son bought a bagel on his debit card for $1.87 unaware that his balance was below zero.Wells fargo honoured the transaction and tacked on $35 in a fee.When i protested this the branch manager me told $35 was the industry norm and bank of america does charge the same.so much for competative banking practices they are too big to fail and too big to compete.

  27. donthelibertariandemocrat

    The differences boil down to the following ( I don’t believe that we can seize them yet ):

    1) How much common stock should the US govt own.
    2) How much control should the US govt exert.
    3) What to do with the toxic assets.

    Geither’s approach is less, less, and sell them now. Since most people seem to be for more, more, and ?, I’m just going to talk about the main problems of the more, etc. Both approaches are messy govt/private hybrids, and share many of the same problems.

    If we own more stock, we can run the company. We can appoint trustees, a board of directors, etc. The problems are:

    1) We’re no longer creditors, and so could end up losing more money.
    2) Foreign govts and investors will presume that the bank is now completely govt guaranteed, and will deem any other action as a default.
    3) We will run up against problems of our govt owning foreign companies, which some countries limit or disallow.

    Of course, all of these problems can occur under Geithner’s plan as well. I hate to say this, but the more I look at these choices, I realize that they’re more or less the same thing. It’s a matter of emphasis.

  28. James –

    “Too big to fail”, by definition, means operating with your liabilities guaranteed for free by the U.S. taxpayer. I assume we all agree that this is unacceptable (?).

    You say “I think regulation can be made to work”. I might agree if these were small organizations that actually live in fear of their regulators. But the available evidence suggests that these massive financial firms do not fear their regulators at all; on the contrary, they control their regulators through means both blatant and subtle. (The “negotiations” over the stress tests is just the latest piece of this evidence.)

    And so I am left with the simple conclusion that “too big to fail is too big to exist”. Whether these banks should be smashed up now or later is reasonable to argue. But there is no reason at all in leaving them as-is, and I think you have a long way to go to justify your claim that “regulation can be made to work”, given that every step of this crisis has argued for exactly the opposite.

  29. I was recently reading up on Banking Crises and looked up the GAO report on the LTCM crises (the big hedge-fund banking crisis of 10 years ago.) The most amazing thing about the report is that its recommendation echo those of the Geithner plan for regulatory reform. I think this underlines James Surowiecki’s point that fundamental reform is required and that political will is a major problem.

  30. Nemo,
    Check out comments and recent papers by Hoenig of the Kansas Fed on the matter of ‘too big to fail’, which should actually be ‘too big to exist’.
    Also, as I’m now blogging on this site, please checkout http://www.institutionalriskanalytics.com, which James and Prof. Johnson should include in their links. The problems being highlighted here have been covered extensively for four years on that site.
    i also suggest when we refer to ‘regulation’ to read Elliot Spitzer’s last post on on Spade Magazine, basically, under the guise of the New York Fed, Wall Street was effectively regulating itself. Also, with Christopher Cox’s at the helm of the SEC, you had one hell of a mess waiting to happen.
    On a positive note, stringent regulation is now in vogue again, although Geithner’s inclusion in the Obama administration is a major cause for concern, again, read Spitzer.
    I also suggest looking at two recent speeches by Dr. Eric Rosengren on systemic regulation, or the need thereof for a systemic regulator. All interesting stuff, however, as you yourself have pointed out, good regulation and governance goes hand in hand with strong political will.

  31. SvN,
    I’ve spoken to a number of regulators globally and held a conference on Tuesday on this matter. The CEO of Hong Kong’s Securities and Futures Commission, who sits on many global regulatory bodies effectively said that the securities regulators were more concerned about a major hedge fund imploding, rather than a broker-deal bank, hence, in all the doomsday scenario’s they conducted, they missed the obvious ‘black swan’ sitting in the room next to them.
    Much of what has occurred is down to over leverage, both Basel II and the removal of leverage caps in the US played a significant role in the current mess.
    More importantly however, has been the development of the ‘shadow banking system’ and this was totally unregulated, hence the development of SIV’s, explosion in CDS’s and huge growth in OTC derivatives in general, some US$56 trillion at the last count I believe.
    Hence, all financial activity should be regulated, investors protected and deposits – both private and public, assurred – unfortunately, the FDIC does not have the funds to undertake this, even with the active support of the US treasury as US$56 trillion equates to more than the entire GDP for a year of the world.

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  33. “He ignores the fact that the banks have contributed very little in the administration’s current approach, while everyone else in the US has become their indentured servants, either through debt or taxation.”

    HERE HERE BOND GIRL! As I’ve said before, I love your posts….

    Keep it up!

  34. It seems there’s considerable agreement in principle between JS and JK/SJ. Yet there’s a lot of cross-talk in this debate, largely because we continue to avoid detailed discussion of specific actions and timing. Here are some fundamental questions which we need to have answered from those engaging this debate:

    1) How much damage do we think that immediate nationalization and/or aggressive bank restructuring would inflict? It’s easy to raise havoc, but anyone who is advocating aggressive action should offer some prediction about how much damage such action would inflict. Responsibility demands engaging this question – contuing to ignore it is no longer acceptable moving forward.

    (A separate question is how much damage such actions would have caused in January/February.)

    2) What, exactly, is the proposed government action? Early on in the debate, it was acceptable to defer this question and talk in generalities – enough time has passed that it is reasonable to expect the Pro-Action Faction to offer some specific ideas.

    3) What is the political window for action? How much time do we have? If you believe that window is really short, how short? Why is it closing? What would be required to keep it open? Is the driver of this window closing public opinion? Is it stability? Could stability actually enhance latitude for political action? Or is it really “now or never”?

    4) Is breaking up big banks the main issue, or just one of the issues? (What about overall leverage levels? Privatization of money? Velocity? Narrow banking? Restoring regulation such as Glass-Steagal? Trade Policy?) How much priority does fixing Too-Big financial institutions deserve relative to the other issues?

    5) Can we pass laws today that would involve a phased-reduction in bank size? Through what mechanisms? (What about simply increasing the capital-asset ratios for large “systemically important” banks? Or charging them a “systemic risk insurance premium”? _Must_ it really be all-or-nothing?)

    6) How do we handle international banks that do not meet our size criteria? This is a serious issue – much of the current crisis (both banking, but also other aspects) was driven by globalization pressures.

    7) Finally, how do we prevent this from happening again? What political actions can we take to preserve the integrity of the new system against the inevitable challenges when euphoria returns, and banks want to grow bigger again?

    Events are rapidly moving past the pro/anti nationalization debate. We’ve heard from some sources that Treasury says it is sensitive to the criticism, and is trying to stand up for itself against the banks. If so, what should they do now?

    What actions are likely to improve/fix the problem, and stand a reasonable chance of being enacted in the current political environment?

    Perhaps this could be the subject of next week’s comment competition?

  35. To James Surowiecki…

    I am not old, but nor am I young. In my life, I have never, until last fall, heard the US Treasury Secretary tell Congress that unless trillions of dollars were fed to Wall Street firms without stipulation, the US economy would fail.

    I’ve never witnessed a situation where Wall Street firms had accumulated so many “troubled assets” from tossing money to borrowers with no regard to their ability to pay that their distress (and negatvie assets on their books) crashed the economy.

    Huh? Tell me more about the benefits of the “free market.”

    As a non-economist – as a resident of Main Street – what I LOATHE about the current crisis is that people held up to be “the best and brightest” – people who were paid unimaginable sums of money to lead these firms to greatness – these highly compensated, Ivy-MBA educated leaders of Wall Street financial firms earned millions and millions of dollars running up astronomical sums of “troubled assets” on their books.

    If these banks are “well-capitalized” now, it’s thanks only to a government infusion of trillions of dollars in a variety of taxpayer funded programs.

    But despite their catastrophic failures, the “best and brightest” still earn the big bucks.

    Whatever the downsides of “nationalization” (and as the naive Main Street resident that I am, I have no idea how we are not “nationalized” at this point, after the feds have thrown large amounts of money at the capitalists on Wall Street – I guess we’re not “nationalized” yet because, despite the money we’ve tossed their way, we’ve decided it’s best for the nation to let those failures in charge of BoA and Chase and Citicorp, etc. need to remain in control of those companies…)

    Anyway – whatever the downsides of nationalization are, the downsides of Wall Street control of our nation’s economy is that it’s been a total bust thus far. The Wall Street guys have done quite well – but the rest of the economy is in the toilet.

    Let me repeat this – the US economy is in the toilet, with multiple industries facing failure in multiple ways.

    We’re giddy because less than 600,000 people lost jobs in April.

    We’re thrilled that the “stress test” showed that more than half the biggest 19 banks need more capital to withstand the vagaries of an economic downturn.

    That sucks, frankly. I honestly do not understand how “nationalization” would result in a more critically wounded economy.

    What Wall Street has done to America is despicable.

    Share with me your wisdom of how the “best and brightest” are leading us out of the abyss.

    And I’m not talking about just pulling ourselves out of the black hole that is Wall Street. I’m talking about how to pull the US economy (which, in my naive, Main Street state of mind is a far larger geography than found on Wall Street) out of the terrible hole it is in.

    Not seeing it yet myself. Not seeing it at all.

  36. comet schmutz

    “I am not old, but nor am I young. In my life, I have never, until last fall, heard the US Treasury Secretary tell Congress that unless trillions of dollars were fed to Wall Street firms without stipulation, the US economy would fail.”

    Thank you.

  37. comet schmutz

    ““Too big to fail”, by definition, means operating with your liabilities guaranteed for free by the U.S. taxpayer. I assume we all agree that this is unacceptable (?).”

    We agree, left right and center. Thank you for putting it that way.

  38. TonyForesta

    All the message-force multipliers beholden to the finance oligarch and the predatorclass cronies owning or profiting from those oligarchs like James Surowiecki, silly things, Cramer, the entire Obama economic team et al. will have us believe that the current crisis is simply a liquidity problem, – that there was no fraud, collusion, tax evasion, predatory lending, and other sundry acts of financial malfeasance and perfidy that caused the “great unwinding”.

    But, as a mere pedestrian in this horrorshow, I side with Simon, Nuriel, Krugman, Hoenig, and Anne, Nemo, Bond Girl, and Chris Rogers among others on this site.

    Towit –
    “Further, as Institution Risk Analytics continually point out, those banks in receipt of federal guarantees are by a very large degree government sponsored entities, if it were not for these guarantees they would be unable to function, nor raise capital via the money markets.” Those guarantees tally between 10 and 12 trillion dollars, and those are TAXPAYER dollars.

    The socalled mastersoftheuniverse are neithter bright, nor brilliant, nor are they in any way exceptional, or innovative, or toobigtofail, – they are in fact thieves criminals. You can read the several instances of bank who have recieved trillions of dollars in government TAXPAYER funded largess abuses, (ABUSES) of decent law abiding citizens because ‘they can’.

    Do you expect me, or any sentient being to believe Mr James Surowiecki that there will ever be any “significant reform” in the system, or that the oligarchs will allow the government to produce any kind of regulatory changes that will curb or constrain or control the bandit capitalist theivery and systemic lawlessness that makes the oligarchs and the predatorclass cronies who own those oligarchs exceedingly profitable at the TAXPAYERS expense? You are either being intentionally dishonest and deceptive, or you are so entrenched the predatorclass culture of dominance that you are blind to the most obvious and basic facts. Which is it.

    The finance oligarchs, thier managers, and the models FAILED horrifically, – and while they may have survive the crisis and walked away unscathed and unaccountable at the TAXPAYERS EXPENSE – millions of poor and middle class Americans have been severely injured. Lost jobs, lost wealth, lost home, lost futures, lost hope.

    Message-force multiplying for the predator class rings hollow and moot from lowly relms of the unwashed masses. Crimes were committed, – rank financial malfeasance and perfidy, bribery, fraud, tax evasion, predatory lending, abusive (ABUSIVE) credit card practices, and collusion with the regulatory agencies and the obedient spaniels in the government who obdurately bow to, and fork over trillions of tax payer dollars to the predatorclass thieves and swindlers in the finance sector alone, and exclusively.

    The finance oligarchs are already defacto nationalized, sans any voice or upside for the taxpayer. Without the extraordinary government largess and at the taxpayers expense – the finance oligarchs would already be gone.

    You stand with the oligarchs, and may the goddess have mercy on your soul, – the voices you counter stand with the brutalized and savagely victimized American poor and middleclass taxpayer.

    The most significant difference between the great depression and the crisis of 1929 and the crisis we face today, – is that leadership then recognized that there were serious flaws in the system and that criminal, or at least incompetently negligent or reckless conduct caused the crisis – and leadership ACTED to redress those flaws, crimes, incompetence, negligence, and recklessness. Now our leaders are like you Mr. James Surowiecki, in bed with the oligarchs and predatorclass thieves and swindlers who conjured, cloaked, exacerbated and profited wantonly from the most calamitous economic crisis since the great depression and message-force multiply that every thing is fine and dandy and there absolutely nothing to worry about as long the government continues to funnel TRILLIONS of taxpayers dollars into the offshore accounts of the finance oligarchs and the predatorclass cronies who own them.

    Have you no shame sir? Have you no shame?

  39. Chris Rogers;

    If you’re holding conferences with regulators, do you ever ask them for examples of banking systems that weathered a 3-year 30% fall in real estate values *without* serious institutional failures?

    One question that I find gets lost in regulatory debate is the issue of how big a macro shock the system is expected to withstand. It seems that most of the real estate shock we’ve seen so far is a cause of the banking crisis rather than caused by it, yet the discussion of how to avoid national-scale real estate bubbles doesn’t seem to have been linked to the discussion for regulatory reform. Similarly, we hear lots about how financial institutions have to lower their leverage, but much less on the role of high household leverage and the role of regulations in reducing it. (Yes, I know it is falling fast right now. But the debate is about how to avoid the next crisis.)

  40. Tony, is this your label?

    http://www.earache.com/

    If so, heavily ironic. It’s not what you’re saying… it’s how your saying it.

    As to nationalization — let’s nationalize or globalize everything and get it over with. This interminable deckchair fandango must stop.

  41. SvN,
    first and foremost, many thanks for taking an interest in my comments, Secondly, I can only make certain statements of fact if the information is in the public domain, thus I’m afraid, whilst privy to certain information, I’m not at liberty to discuss this – a trust issue between me and those i deal with. i shall request of both James and Simon that we get some links to my own website and journal, where you can actually see a full video recording of the gatherings i organise.
    in response to your question though, and one pertaining in this instance I believe to the recent stress tests, you can first view my comments posted today elsewhere on this site.
    Secondly, you are way off the mark with your claim I’m most happy to announce.
    Let me explain, on last Tuesday evening, the deputy CEO of Hang Seng Bank, in a public forum, attacked both regulators and bankers in the West.
    His argument rested on the following, during both the Asian crisis of 1997, and the huge effects of SARS in the region in 2003, many banks in Asia actually have faced property value declines of more than 50% on their loan portfolio’s, the majority of banks, particularly those in Hong Kong, passed this real life test. indeed, major changes were forced on Thailand, Korea and other Asian countries by the IMF in the late 90′s, these have proved successful, and as a result, unlike their US and UK peers, most Asian banks are able to weather huge changes in their fortunes without calling on government support. Two important notes to remind ourselves of though, Asian save vastly more than their US peers, and what we can term ‘ sub-prime’ lending is usually profitable for the majority of banks in emerging economies in the region, ie, delinquency rates are very low. Also, in many instances mortgage loans exceeding 75% of a property price are unheard of.
    The fact remains though, that Asian banks have weathered this current storm and three others in an 11 year period – thus, what came as a shock to bankers in the US and UK, was no shock at all to those operating in Asia. Indeed, the operations of all zombie banks of the US in Asia are profitable, its also important to note that in terms of securitisation, only 10% of the worlds total ever found its way to Asia, given the region accounts for 2/5ths of the worlds population, this is quite an achievement.
    Further, it must be added that most Asian economies by their very nature are not consumer economies, they are reliant on exports, hence, in economic terms, countries such as Korea, Japan, Taiwan and China are seriously hurt as a result of the US-based banking crisis.
    I hope this in part answers your enquiry, and can honestly tell you banking and regulatory representatives from both Europe and the USA are given an hard time by their peers in Asia – you can ask Roger Cole at the Fed in Washington about this.

  42. TonyForesta

    No Uncle Billy Vs. Mont Pelerin, that’s not my clique. If my delivery bothers you, – a thousand pardons. I am just a dad living in a country whose government is funnelling trillions of taxpayer dollars to .000001% of populations (the predatorclass) offshore bank accounts to bailout a that very population population (predatorclass) for that populations (predatorclass) reckless, criminal, fraudulent, and abusive behavior that caused the worst economic crisis since the great depression, – and wondering how, – as a result of this calamitous economic crisis – it will be possible to pay for my daughters college education, or ever dream of retiring.

    My delivery is a direct reaction the pain and suffering mercilessly hoisted upon me and my child by the predatorclass swindlers and thieves on Wall Street and by the government who obdurately bows to and shamelessly forks over trillions of taxpayer dollars to those predator thieves and swindlers exclusively while IGNORING and DISMISSING the pain and suffering of the other 99.9999% of the population.

    I also issue a warning, that there are limits to the level of abuse the people will tolerate. Slime me if you will, – but trust me, – I am not the only frustrated and angry citizen. The predator class is throwing gasoline on a seething fire.

  43. Thank you again. Comments like these allow me to take a deep, sane breath – an otherwise-rare event!!

    George (fully “qualified” economist), UK

  44. i think we should outlaw self-delusion. then only criminals would be self-deluded!

  45. @StatsGuy — do you blog?

    It would be interesting to go into some of these issues.

  46. StatsGuy. You’re right to ask the questions. The problem remains the same for all points of view: Nobody can get a believable “handle” on the real value of all those derivatives out there. They can’t figure out a darn price!

    From Martin Weiss today at his Money and Markets:
    “Although it’s cut back a bit, JPM still has 43.6 percent of all the derivatives held by all U.S. commercial banks, or $17 trillion more than Bank of America and Citibank combined. Among the 19 bank holding companies in the stress tests, that puts JPM closer to ground zero than any other bank.”

    That’s $17 trillion MORE. Not the total. Goldman Sachs also has huge derivative numbers on the books. Plus it’s unclear whether Treasury or anyone else has a handle on off balance sheet toxic assets.

    This the the real reason the TBTFs still exist. Treasury and the Fed don’t know what it will cost to unwind any of these holding companies. So they prop them up as best they can. They dropped a coin down into the hole, and they still haven’t heard it hit bottom.

    JP Morgan and Goldman, of course, insist they can handle the derivatives, over time. Maybe they can. Treasury sure as heck hopes so.

    But the real fear of Treasury is getting stuck with too much tar from the Wall Street tarbabies.

    Personally, I don’t understand why toxic assets have to be paid for when they are stripped from a bank balance sheet. Just do it. Don’t pay anyone anything until accurate pricing can be determined. If it takes 3 years, so what? The toxic assets will perform, or not, no matter where they are warehoused.

    Then recapitalize. At least at that point you have a number. Right now with the unpriceable derivatives, no one can figure out what needs to be figured out first before you can take decisive action.

  47. superduperdave

    With all due respect, James Surowiecki is a hack popularizer of the conventional wisdom. James Kwak is not.

  48. Bill Gilwood

    “I honestly do not understand how “nationalization” would result in a more critically wounded economy.”

    It wouldn’t, it would just mean that the “best and brightest” got wiped out and kicked out. God forbid that these geniuses/”nobles”/insiders should have to pay for their screw-ups, when us peasants can foot the bill.

  49. Er, no, unless you could some (generally friendly) harassing of other bloggers in comment sections…

  50. >> The administration and the Federal Reserve are not merely “allowing” the banks to work their way out though. In addition to providing outright gifts of taxpayer dollars, they are doing everything they can to make this a profitable environment for them, including taking many measures that are without historical precedent. <<

    In addition, the administration is – and I think this is key to any analysis of the situation – playing politics, as any group of politicians invariably will. Decisions take public opinion and the positioning of political entities into account, and are then presented in a way to underscore the desired impact on voters.

    You have to ignore what politicians say and look more toward what they do in a case like this. Is it just a gift? I think it more likely that the real financial situation has been that much worse than anyone is publicly saying – still.

  51. >> “Too big to fail”, by definition, means operating with your liabilities guaranteed for free by the U.S. taxpayer.<<

    In other words, the cost of nationalization without any of the control.

  52. GotLife Too

    Stating that all this will end badly for the masses is more honest than “whistling in the graveyard.” Many “little people”, including multiple generations of seniors, boomers, and the college bound, are already headed for lower standard of livings in the US, conservatives and liberals alike. Unfortunately, these same people are not suffering or desperate enough to demand real change, although the “tea parties” were a small but promising beginning. In the meantime, we will continue to have one group of environmentalists demanding solar or wind while another files suits to block same on eco grounds. Sure hope those foreign oil economies continue to accept our dollars. Do they really have a better alternative?

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  54. bandarlogician

    James Surowiecki’s discussion of how US banks “earned their way out of” the 1980′s LDC loan crisis, and why the US is unlikely to repeat Japan’s experience in the 1990′s, leaves out four things I can think of:

    First: what’s the difference between banks “earning their way out” of past troubles and earning their way INTO their present ones? The earning power that Mr Surowiecki kind of proudly presents as the stuff of legend is what got us . . . here.

    Second: it’s not clear that banks earned their way out of the 1980′s crisis. Maybe they just spent many years – many more than the “couple of years” Mr. Surowiecki says it took for everything to be fine again – negotiating the transfer of their losses to official creditors. See Prof Michael Dooley’s discussion here:

    http://people.ucsc.edu/~mpd/econ241c/PDFs/RetrospectiveOnDebtCrisis.pdf.

    Third, if the 1980′s is to be the model for rescuing the banking system today, then we’ll probably see some “evergreening”. (C’mon, isn’t that what PPIP is?) As Prof Dooley points out, commercial banks’ “evergreening” of their Latin American loans during the 1980′s was an essential part of the ‘recovery’ process and of the banks’ loss sharing negotiations with their governments. At his presentation at the CSIS last October, Japan expert Richard Koo told the same story about “evergreening” based on his experience at the NY Fed during the 1980′s. And he made the point that such practices may be a necessary and legitimate strategy for banking SYSTEM rescue although contrary to what would be best for any individual bank.

    Finally, whether or not it is necessary/legitimate, if a 1980′s-style multi-year banking system rescue is the strategy chosen, the greatest suffering will occur where the debt overhang remains while that strategy is executed. In the US in the 1980′s, that was offshore. Prof Dooley points out that the Latin American debtor countries suffered most while foreign commercial banks and their governments made rescuing themselves the top priority in ‘restructuring’ negotiations.

    In the US today, as in Japan in 1990′s, the debt overhang is at home. So US businesses and – especially – homeowners and consumers – will suffer while the banks dance with their governments about who takes what losses and when on the old capital structure. Can’t we already see this in the de-prioritization of real debt (e.g., mortgage) restructuring that produces losses for banks but benefits borrowers and resets the cycle?

    So I see more similarities than differences between the US in 2009 and Japan in the 1990′s – epecially if the response to the 1980′s crisis is the model for our response to this one. Where there are differences I think they probably mean today’s US is worse than Japan. For me, the good news is that Japan’s response to the 1990′s, given the problems and the alternative outcomes the Japanese were facing, actually looks pretty good. There are miles to go before we sleep, and as we go we may end up aspiring to “turn Japanese” instead of dreading it.

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