Has Anyone Taken Responsibility For Anything? (Weekend Comment Competition)

With the anniversary of the Lehman-AIG-rest of the world debacle fast approaching, it seems fair to ask: Who accepts any blame for creating our excessively crisis-prone system?

Friends and contacts who work in the financial sector freely discuss their participation in activities they now regret.  But where is the mea culpa, of any kind, from a public figure – our “leadership”?

I suggest we divide the competition into three classes.

  1. Policymakers who now admit that any of their actions or inactions contributed to the Great Credit Bubble.  Blaming China gets a person negative points; this may hurt Fed officials.
  2. Private sector executives who concede they made mistakes or misjudged the situation so as to lose a lot of Other People’s Money.  Blaming Hank Paulson also earns negative points (too obvious).
  3. Anyone charged with safeguarding consumers, in either public or private sector capacity, who now says that they or their organization did a completely miserable job.  My guess is that you will find precisely no one in this category.

You can award points for style, timing, and extent of the apology or near-apology.

Feel free to suggest other categories or to propose additional scoring rules.

By Simon Johnson

116 responses to “Has Anyone Taken Responsibility For Anything? (Weekend Comment Competition)

  1. fiscalliberal

    Regarding category 3 – public sector, I would think the law enforcement community did a miserable job in terms of prosecuting fraud.

    Since California is so prevelant in the default area, why hasn’t thier Attorney General been active for the subprime lenders who falisified borrowers income.

  2. In my mind there’s a 4th catagory; academia’s PhDs and tenured university folks, not all of course, who exist in lofty, rarefied circumstances seemingly detached from the real world. They either need to begin to voice their warnings well in advance or reexamine their positions and be certain that what they are teaching is not creating more monsters. I’m nearly 70 and have watched this high-level financial chicanery occur time and time again. It has cost me and everyone I know dearly. I’m poor now with nothing left to lose so that puts me in the catbird seat where I can at least laugh at it all. ’nuff said.

  3. I’m a nobody when it comes to economics. But I have a raven-like brain which accumulates odd and shiny bits of information and then brings them out to examine now and then. A friend, a solid not to say stolid partner in a financial firm and chief advisor to the investment fund of a major university, was saying loudly and clearly back in the late ’80’s that certain big banks were moving into dicey forms of lending which could bring them down.

    Throughout the ’90’s, even brokers in regional offices of companies like AG Edwards were warning clients about outcomes which, a year ago, the media pronounced startling and unforeseeable. If a kid with some inherited investments and no background in investment banking or economics could have stumbled on “this will end badly”, then, well, what the hey!

    I think the signs were there and plenty of people were pointing at them but we chose to believe only the optimists and the salesmen. Just as the whole nation decided to turn a blind eye to what Bush and Cheney (and, dare I say, Ronald Reagan) were doing, we also decided we didn’t have to pay attention to the people who “exist in lofty, rarefied circumstances” and who had been talking about the poison in the system for over two decades.

    Our willful ignorance is largely responsible for our current discomforts and for the tragic losses experienced by many of our friends and neighbors. From Paulson on down to this two-bit investor, we’ve all been lying to ourselves.

  4. 1. I see no one who has adequately “apologized” even by current standards (which are basically cowardly and geared to justify criminality, because clearly most Americans consider themselves criminals at heart). OTC what stands out brazenly, repulsively, is the unapologetic psychopathy of the entire cadre.

    2. To expand on my pet peeve regarding “apologies”, it’s one thing when someone makes a mistake in his emotional private life. That may be a case where an apology is possible, warranted, and meaningful.

    But where someone engages in a pattern of organized criminal activity, he IS a professional criminal.

    Bankers and “economists” are no different from the thug who ran a dogfighting ring but who also, incidentally, happens to be a pro-level quarterback, and so he has a chorus of flunkies willing to accept his “apology” and say he made a “mistake”.

    Um, no. Being a systematic professional criminal can never be a mistake. The criminal is an existential thug, and his apologists are prostitutes.

    This is not a “mistake”. It is integral and absolutely defining action.

    So no bankster or “growth”-boosting politician can plausibly “apologize”, and anyone who accepts such an apology is a willing victim.

    The only truly remorseful action on the part of such would be to become an anti-system activist.

  5. Well, here’s one for you then:

    British Economists Send Apology to Queen

    http://www.msnbc.msn.com/id/32156155/ns/business-world_business/

  6. Class 3: Office of Thrift Supervision. The This American Life episode “The Watchmen” was an episode many of your readers would deeply enjoy and included someone (I don’t remember who) from the Office of Thrift Supervision who said his own office played a major role in facilitating AIG’s errors.

  7. First – this is an excellent idea. I would give a special award to Lloyd Blankfein, who expressed regret that GS “participated in the market euphoria that led to the financial crisis.” Could you be more disingenuous? I don’t think anyone who was reading the mainstream financial press (NYT, WSJ) (let alone running a top-tier investment bank) was at all “euphoric” about the either the housing or stock market, from ’05 on. Articles and columns expressed growing concern about a housing bubble – and exposed increasingly dubious and risky practices. Also, I would give a special award to anyone who blames FNM or FRE for being too altruistic in trying to fulfill their mission to make home ownership affordable. (See Bethany McLean, Fortune, January ’05 http://bit.ly/2mhcpB).

  8. The crisis was an inevitable consequence of the corporatist ideology which still prevails. It prevails among mainstream economists, including those who think that a world of giant companies can be managed if only the banks are made a little smaller.

    Procter & Gamble was already a great company in 1955. It made $59 million dollars. By the year 2000 it was making $5 billion doing essentially the same things. You can go down the list of the Fortune 500 and see much the same thing. An ever tightening financial noose envelops all those who fail to find a niche in the corporatist system. Credit card usury provides the foundation stone. Real estate and stock market bubbles create a few lucky winners and periodic cascades of impoverished losers. Those who fail to play in the markets are denuded by the destruction of money.

    Making money is not enough in the corporatist system. Companies must make more and more and more and more and more money, year after year after year. The elites must be protected from the consequences of the disasters they engineer. Nobody in authority has anything for which to apologize. They are all simply doing what is necessary to keep them at or at least near the top of a heap which never seems to learn anything from experience and keeps buying bromides from the corporate right and empty promises from the corporate left.

    With each successive election we get another cheerleader whose actions are a reproach to anyone who ever believed a word he said.

  9. Has Hank Paulson said anything about his successful efforts in lobbying congress to relax leverage limits on investment banks, the single most important action that contributed to this crises?

    I didn’t think so.

    Running GS means never having to say your sorry. That’s the *point*, taxpayers. Now shut up and pay the man.

    Cheers,
    Carson

  10. The American Pubic needs to look at themselves, as well. Were we so naive to think that 8-10% yields (whether it be from stocks or housing) grew on trees?

  11. You can Google “Madoff apology” and you get over 900,000 hits…, although there appear to be mentions that his apology was inadequate….

  12. British economists send apology to queen
    British economists apologize, tell Queen Elizabeth II no one saw the financial crisis coming

    http://finance.yahoo.com/news/British-economists-send-apf-784565093.html?x=0&.v=2

  13. I couldn’t care less about an ‘apology’ or an “I’m to blame…” speech, or any of the “Let’s get ‘em!” herd. Let’s just “FIXTH IT!”, as the guy on SNL exclaims. And make sure it doesn’t happen again.

  14. This doesn’t seem to be the right question we should be askig. Bubbles grow on collective folly, through complex dynamics. No single person, or no small group of people, can create bubbles even if they wanted to. Everyone should first look at himself in the mirror before trying to find somebody else to blame.

  15. I will apologize on behalf of all the responsible parties:

    Dear Americans and some folks in the rest of the world,

    While we sit here drinking exotic drinks on the beach of our private islands in the South Pacific being fanned by beautiful attendants with palm leaves, we would like to say we are truly sorry we took your money in a massive fraudulent scheme involving nearly everyone. I hope you will accept our sincere condolences for your misfortune.

    Sincerely,
    The Banksters

  16. when in history has “failed leadership” said “oops”?

    a great many people made a great amount of money worldwide

    everyone knows this

    the ones who made the money are not going to say “oh i apologize for taking advantage of all of you!”

    one of the best things about the internet are blogs like this where these questions can be discussed

    it is impossible for corporate media to discuss it

    their advertisers would never allow it

    and corporate media is probably more dependent on advertisers than ever

  17. Unfortunately, this great county operates on the principle of: One dollar; one vote. Don,t expect any government solutions soon.

  18. Plus 100 points for suicide.

  19. Marie Antoinette

    PW writes

    “From Paulson on down to this two-bit investor, we’ve all been lying to ourselves.”

    Too true. So let me say, as someone who made money in real estate in the 99-04 period, then lost it all (and then some): I did wrong. I overleveraged. Price paid: perhaps three-quarters of our family’s “assets”, a credit rating that will take years to repair–the usual.

    But if we leave it there–individual consumers paying a stiff price for their actions–we get exactly nowhere. On the other side of the table were
    1) my lender
    2) government overseers
    3) elected officials continually rewriting rules

    Which of these actors has atoned for their sins?

    Talk about being left holding the bag!

  20. Greenspan has admitted to being too hands off, hasn’t he?

  21. “two hands off”

    what does it mean?

    how come greenspan did not say he had been
    “one hand off”or “three hands off”

  22. It’s shameful when investment bankers nad government collude in fraud, then declare it nobody’s fault by saying it’s everbody’s fault. RICO anyone?

  23. 8 percent? Hell, the US Treasury was giving us 5% once upon a time, and you could get 6% on Ginnie Maes, even during Greenspan’s time. Uncle Ben’s answer is to take you to a zero percent return. Have you looked at the latest amendments credit card issuers are sending out announcing hikes in rates and fees? They blame it on the economy.

  24. Sidney & Beatrice Webb.

    No, really.

  25. Many of us average, once middle class folks do not want to listen to whinging regrets from wealthy people who have fraudulently pocketed our money. Nor do we want to hear excuses from our governmental employees as to why they could not manage to carry out the regulatory duties that we paid them to perform. We simply want our money back. A little restitution is infinitely superior to a boatload of sorrowful statements. A mere apology does not hold someone truly responsible for actions that are base.

    That being said, I am not naive enough to expect either regret or recompense from anyone associated with causing our current economic miasma.

  26. The system is the problem. The system for widespread (systematic risks) is flawed. The Fed record embraces a policy of non-intervention with the Fed mopping-up problems with taxpayer money. As a result, we have had a succession of Greenspan bubbles now followed by a massive Bernanke bailout with the potential implosion down the road of the associated debt. As a consequence, you have widespread distortion of asset prices, and misallocation of capital resources making it even more difficult for private markets to function
    properly.

    In principle, a good design for widespread financial risks is simple. It consists of an intelligence component for gathering information, feedback with corrective action, and built-in redundancy such as checks and balances. The system should allow for conflicts of interest, behavioral bias, “deep capture” and expect unforeseen problems. The system should have appropriate incentives.

    At first the Fed would appear to be the likely anchor for the information gathering system: they have the resources, staff, and wide-ranging expertise in financial markets and institutions. However, the Fed has conflicts of interest inherent in their congressional mandate of employment and price stability. For example, in the current financial crisis the Fed placed seed capital in strategic financial institutions for the purpose of restoring confidence in their viability as going concerns. As result, the stock market recognized that these institutions were too big to fail and quickly boosted their market prices. Shortly thereafter, these institutions were able to sell stocks and bonds and build their capital base. The Fed’s promotion of these institutions naturally conflicts with transparency and the dissemination of information about their true financial condition.

    Feedback and corrective action: The market is the best regulator when given a chance, and when it has reliable information. The market mechanism will eliminate excesses, and is the quickest way to restore functioning markets. Reliable and timely information will prevent the build-up of excesses and avoid the potential financial tsunami.

    Proper incentives should be incorporated. Moral hazards should be minimized. For example, the Fed does not have enough incentive to anticipate problems and prevent their development. The Fed is comfortable in the knowledge that they have almost unlimited funds to combat financial problems, and they firmly believe they have the skill to successfully navigate the downside risks of their policies. That is a risk the Fed is willing to bet on. Perhaps if the Fed had less power to fund problems, they would be more successful in prevention.

    I am convinced the Fed is a big part of the system problem. I am less confident they are a major component of the solution.

  27. Don’t worry, with Phil Angelides at the helm of the inquiry, I’m sure he’ll find that it was the FIRE economy and the real estate development industry in particular that was most to blame.

    I’m just sure he will. http://en.wikipedia.org/wiki/Phil_Angelides

    “Angelides was appointed president of AKT Development Corp. (a company owned by one of his business mentors, Angelo Tsakopoulos) in 1984. In 1986, Angelides founded his own land development company, River West. Angelo Tsakopoulos, Angelides’ former business partner, has been a major campaign donor to California office-holders, who, together with Angelides as chair of the California Democratic Party in the early 1990s, disbursed millions of dollars to Democratic candidates. Tsakopoulos has donated over $3,200,000 to Angelides’ campaigns beginning in 1993 and for the 2006 gubernatorial race, Tsakopoulos has donated $3,750,000 to Mr. Angelides with his daughter, Eleni Tsakopoulous-Kounalakis donating $1,250,000.

    Angelides’ development firm, River West, is most known for their development, Laguna West, which is located outside Sacramento in Elk Grove, California.”

    Then he’ll apologize.

    Uh-huh.

  28. Apologies would be nice. More satisfying would be crowds in the street, e.g., folks with pitch forks keeping Greenspan under citizens’ house arrest.

  29. Lavrenti Beria

    The question of there being responsibility for the safeguarding of the peoples’ interests by public servants is above all a moral one and one that is remarkably easily assessed objectively. And any facile reduction of the question to legal or rule based categories bears with it almost a kind of intrinsic culpability. It is simply not enough for operatives of public agencies to shield themselves from moral accountability for their acts and omissions by recourse to defenses of the sort, “we-did-the-best-we-could-with-the-facts-as-they-were-then-known-to-us”, or “who-then-could-have-imagined-the-full-extent-of-the-exposure”. The foxes we have charged with guarding the hen-house are most sensibly held to an exacting standard, one perhaps best grasped by Stalin who, in commenting on the responsibility of soldiers then serving in the Soviet military during WWII observed, “In the Soviet Army, it takes more courage to retreat than advance.” Would that history have required a rodent like Bernacke to have accepted even vaguely comparable risks. We might have had the good fortune to have been spared his regular and studied “thoughtfullness”.

  30. Allow me to add a comment that is oblique to the main line of discussion – whose main thrust I totally agree with. It touches on the question of truth telling, i.e. a act of honesty and integrity by whomever before taking the actions that should call for apology. After all, everything being considered here come down to honesty in one form or other. That applies, too, to the intellectual dishonesty (broadly defined) of a large swarth of the economics profession – a pattern that continues.

    As the old saying goes: “there are lies, damn lies, and statistics.” We should add a fourth category – economic models. This last makes use of bowdlerized statistics while spurring their generation in forms that methodologically suit the model. Models lie in three ways. First, they twist reality into modes and shapes that allow for calculation, supposedly the only valid ‘truth,’ i.e. only aspects of reality that can be rendered in digits exist. Immanent in the now discredited efficient market model is the nonsensical idea that humans have only one nature: the utility calculating rational person. In other words, the promoters and adherents to these models are sociological monophysites. Has anyone of you ever met such a person – even among economists? Break out your can-openers.

    The second lie is more subtle. It is in the form of distraction from what is. We are trained, formally or implicitly, not to observe the world critically except through the lens of the model. Hence, we deny the evidence of our senses as to inter alia, income mal-distribution, inflation and ridiculously high real estate prices.

    Finally, it denies the value of reasoning by analogy. Let’s look at the question that was posed in these posts: economic rents in the financial sector associated with innovation and processing. Looked at in historical perspective, we immediately see that never in the world’s history have economic rents been so high AND sustained for so long. In fact, they have routinized. The experience with all other technical innovation – the steam engine, electricity, the automobile, the airplane, the television, the computer – is quite clear. A few people make a fortune from it, a fair number make a lot of money and then its economic benefits are diffused throughout the economy. The exact opposite of what has occurred with financial ‘innovations.’

    In short, when we fight through the tissue of lies (abetted by the economics profession) stark truth hits us in the face. We have experienced the greatest organized theft in history by a factor of 1,000s. Yet, the beat goes on.

    cheers

  31. We should add to the category of economic realities seen but not registered the pervasive and striking phenomenon of ‘productivty’ gains by laying off workers while passing the burden onto customers via lousy service. Been on an airline recently? or tried to get help at a ‘box store’? Which economist or economic model has made the appropriate adjustments in the hallowed productivity statistics?

  32. Think tanks, astroturf or otherwise, spouting all sort of crazy or false analyses, the use of which that can support whatever twisted cause that someone with an axe to grind might wish to forward.

    I swear if I hear another “Senior Fellow” pulled out of the backside of one of these narcissistic “institutions of knowledge”, being used to batter the rest of us into believing our “lesser” opinions hold no weight compared to their academic greatness. I’ll go down and vomit on their stack of self created credentials. I don’t care if it’s the “CATO Institution” or the “Brookings Institution”, I’m sick and tired of hearing these so called experts simulate “expertise” that clearly is subject to as many biases as those lesser people like myself who lack the membership in the church of academia (with all the dogma that implies).

    Yours,

    Matt Fahrner
    Senior Fellow at the Rutrow Institution

  33. Yes, we do exaggerate the value, and objectivity, of what these people say. This is especially true in the domains of economic policy and now foreign policy (which has given rise to ‘wave theory’ as in ‘wind and wave.’) But the processes of ‘group think, group theorizing and group medelling is more subtle.’ As I said yesterday, corruption is multiform.

    I first spent time at the Brookings Institution in the 1970s. There is no doubt that the level of intellectual integrit integrity was far higher than now with think tanks open to corporate capture. The Robert Rubin run Hamilton Project with Summers as his no. 2 and funded primarily by the financial community was inconceivable back in those dark ages.

    I guess our only hope is cycle theory.

    cheers
    Michael Brenner
    U of Pittsburgh &
    Senior Fellow, Center for Transatlantic Relations/SAIS

  34. Did anyone in the Federal Government take responsibility for 9/11?

  35. Lavrenti Beria

    To the extent that these learned gentleman, like the political lice that so eagerly hire themselves out for campaign cash, serve the ends of the lobbying filth that employ them, you can be assured that there will be a corresponding interest in them when the time comes for the mass detentions and interrogations to begin. Then, arrogance will be a much less treasured character trait, trust me.

  36. A lot has been said about economists and their failure to predict the financial crisis. Corporate, government, Wall St, think tankers, regulators,academics…the economists who work within their confines receive remuneration for their labour and the remuneration would stop once they diverge from the playbook of what they can say. Who pays them calls the tune. That being said, enough was known and public for CEOs and management to stop the music and get off the dance floor…one of the CEO banksters admitted that the music played and you had to dance.

  37. #4. Politicians that argued in favor of relaxing GSE standards to make housing more affordable in 2004, when interest rates were already at historic lows (Barney Frank, et. al), thus allowing Fannie & Freddie to compete with subprime lenders – significantly growing the their already risky portfolio.

  38. John Merryman

    It’s the basic assumptions which need to be examined.

    Capitalism has morphed from the efficient allocation of financial resources into the production of exponential notational wealth, to the advantage of those managing the system.

    The function of a central bank, as opposed to the government directly issuing the currency, is that it’s in the bankers interest to keep money scarce enough to prevent inflation, while politicians would rather inflate it for short term gain. Unfortunately it’s in the bankers interest to expand credit as much as possible and so rather than the inflation of loose money, we have the deflation of collapsing credit bubbles.

    Capital is subject to the laws of supply and demand. The lender is supply and the borrower is demand. Since supply is potentially infinite, it is demand which ultimately sets the limits of how much capital can be effectively created. Behind all the blather about government debt, sub-prime mortgages, derivatives, etc. they all serve one over-riding function; To provide demand for capital, so the supply can be expanded. The problem is that they are not stable and sustainable. While the the tech and real estate bubbles have burst, the juggling act of derivatives and the black hole of government debt are still growing. When they detonate, the tech and real estate bubbles will seem like firecrackers.

    Money functions as both a store of value and a medium of exchange. These work at cross purposes, because as a store of value it is a form of private property, while as a medium of exchange it is a form of public utility, similar to a road system. Most people focus on their own wealth in comparison to others and thus think of it as private property. The reality is that the system belongs to whomever guarantees its value. We do possess the money we hold, in the same way we possess the section of road we are driving on. You own your car, house, business, etc, but not the roads connecting them. Money is a similar medium. It was one thing when money signified some commodity you had stored or traded and its value was entirely based on that underlaying commodity, but now the money supply far exceeds the underlaying value of the real economy and so its value is maintained by the ability of the government to support it through taxation.

    Paul Volcker is credited with curing inflation in the early 1980’s, by raising interest rates and reducing the flow of fresh credit into the economy. While inflation may be caused by loose monetary policy, the effect of higher rates is to reward those with money to lend, while punishing those wishing to borrow it. So how did he cure an oversupply of money already in the system, when his method of choice significantly reduced demand for it? The difference between the Federal Reserve selling debt it is holding and the Treasury issuing fresh debt, is that while the Fed retires the money it collects, the Treasury uses the money it gets to fund public spending. Public spending doesn’t compete with the private sector and generally funds projects that enable increased private investment. So not only does this deficit spending directly provide demand for credit, but has a multiplier effect in the private sector, by increasing both its size and profitability. Suffice to say, the rapidly increasing deficits of the early 1980’s had a significant effect on bringing the supply of credit in line with demand for it. The reason a surplus of money increases the expense of borrowing it is because the tendency is to spend it, rather than lend it, so there is actually a shortage of money to borrow and the cost goes up. At the time, economists were concerned that increased government deficits would further raise interest rates for the private sector, but the opposite happened and rates came down. The supply of money is potentially infinite. The issue is keeping it in line with demand, so that its value is stable and people are willing to lend it at nominal interest rates.

    Consider how it would change public perception of monetary wealth, if we were to come to the realization that the monetary system really is now entirely a form of public commons? The practice of hoarding excessive amounts would lack logical justification, so savings would be taxed progressively. This is not to discourage individual effort, but a necessary recognition of the effect of excess savings on a functioning monetary system. If people understood monetary value constituted public property, than they would be far more reluctant to drain value out of their social networks and environment to put in a bank in the first place. We all like having roads, but there is little inclination to pave more than we need. In this situation, the same would apply to monetizing our lives. Other avenues of trust and reciprocation would have the space to develop, which would strengthen communities and their relationship to the environment.

    Political power started as private initiative and eventually grew into monarchy. Monarchists railed against mob rule, but we eventually learned how to make politics a public trust by allocating power where it was most responsive. Why not do the same with the banking system? It’s a hiccup of history that private bankers seized finance from kings shortly before popular uprisings took the rest of their powers, because monarchs were more focused on court intrigue, rather than their responsibilities to society and now it’s the bankers who are more focused self-aggrandizement, than their responsibilities. A public banking system would not be one huge behemoth, but consist of institutions incorporated at every level of governance, so individuals could bank with the ones which funded the services they are most likely to use. Different communities would seek to provide the best services with these funds, otherwise they would lose business and citizens to other communities. As it is, banking doesn’t need the inventiveness for which private enterprise is most suited, but the stability that is the strength of the public sector. Call this the public option.

    This may not be a perfect solution, but than Winston Churchill said of democracy that it’s the worst form of government, except for all the others.

  39. that’s always been their tactic after they have been caught out they get all folksy and democratic and I’m only a humble human being like the rest of you etc. etc.
    – did it after WW2 in Germany with a lot of success (though helped by macro-politics)

    as much as they are after “responsibility” when it upholsters their resumee and thus helps their pay checks as much they deny any responsibility when it would hurt their pay check.

    and here is the latest in pay check design http://www.nytimes.com/2009/08/16/business/16gret.html
    I trust Gretchen Morgenson but if she got it right that would mean the season for plunder is now officially open.

  40. that is not sufficient
    you got to introduce a word about the collusion of the masses and that you forgive them for their sins in tempting even forcing you by their trust to go on and on and on

    because would it not have broken the masses’ heart if you had not let them have that wonderful hilarious experience of riding the wave towards affluence at least once in their life

    now they have all these beautiful memories of up up and away which nobody can ever manage to steal from them

  41. forgot
    … and you should of course be forever grateful to them that they worked so hard even ruined their health were left by their wives disdained by their children and much much more and all that just to give you that wonderful incomparable experience

  42. I like miasma
    it implies the stink that was supposed to be responsible for pest and cholera

  43. “The market is the best regulator when given a chance, and when it has RELIABLE INFORMATION.”

    if that is so then why does it seem to me that people always seem to be more fascinated by/eager on information that has a clandestine insiderish feel to it

    by comparison carefully evaluated public information just seems to feel flat and dull

    either people constituting the market (there are still people?) have a human nature unusually resistant to what “normal” people get seduced by or “reliable information” continues to be an important ingredient but no live-saver

  44. “In the Soviet Army, it takes more courage to retreat than advance.”

    at Stalingrad they sent the poor guys armed with nothing but shovels into the German machine gun fire and had firing squads who took care of those who didn’t run forward and I mean immediate care no questions asked. They sure knew how to keep the forward momentum of an army going. The rational reason was that the tactic would demoralize the Germans.
    The Italians or Austrians had something similar in place at the battle of …ino only there the ones to move forward were a bit better armed.

    I find it highly inappropriate to use callous sayings about the murder of scores of innocents without proper respect.

  45. One of my favorite pasttimes these days is to read the books that are being written about the financial crisis of the past year or so. I’ve probably read twenty-five related to the subject since last November.
    The best one might still be one of the first I read. It was written by two reporters that covered the mortgage industry and is called, “Chain of Blame.” It details just how truly insane the lending practices were, why NO government agencies intervened and how Wall Street just didn’t care about what was going on as long as product was produced. More than one book has been written about Bear Stearns but they all point to how clueless and uninvolved exectives who made $25 million a year were there.
    Recently, “In the Fed We Trust” and “A Collosal Failure of Common Sense” have come out. The first is essentially about Ben Bernanke and explains much except how he missed what was going on for so long before 2008. The second book is about the fall of Lehman Brothers and has to be read to be believed. THESE guys were the totally unregulated masters of the universe?

  46. is there more from you out there? Your name is so common and your university so mum and your link provided leads to nowhere that I would have to dig really hard to find anything on my own – so I’d appreciate a little self-advertising – you make me or rather my world-view feel less alone by having history on your radar

    “we deny the evidence of our senses”

    and we disdain checking again and again whether the model/the theory holds up against real life experiences

    I’ve heard mathematicians say if there is one exception the theory doesn’t hold up – on the other hand I get told again and again that I should not let the great picture get distorted by Einzelfälle-single cases also called good or bad apples

  47. Simon,

    The United States media, indirectly, has not taken responsibility for failing to inform us. The media is the fourth estate and their job is to keep us informed. When Jon Stewart had Jim Cramer on his Daily Show after the crisis Jon let it be known that all the business news programs failed miserably in not telling people about the casino gambling on Wall Street and the risks involved with shadow banking.

    However, cheers does go to the UK Telegraph Newspaper. Here are two newspaper articles where the Bank of International Settlements (BIS) was concerned about another Great Depression:

    June 25, 2007:

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2821629/Crisis-may-make-1929-look-a-walk-in-the-park.html

    December 22, 2007:

    http://www.telegraph.co.uk/finance/economics/2811081/BIS-warns-of-Great-Depression-dangers-from-credit-spree.html

    Half cheers to UK’s bankers who public apologized in a hearing. Real or contrived – they still apologized.

    Europe is frowning at the United States on so many fronts: climate change legislation, health care, and our banks excessive risk taking. Someday, I am hoping that Simon will give us his perspective on what Europe thinks about the United States.

  48. ” Simon will give us his perspective on what Europe thinks about the United States.”

    I like to hear Mr. Johnson’s perspectives and look forward to reading them.

    But what Europe is mostly concerned with is to convince itself that it is and has always been the superior of the United States. Those two desperately kneeded rescue actions in WW1 and WW2 are merely insignificant distorters of the real truth.

    That truth starts from my not being given Mickey-Mouse to read as a child because it was American Rubbish while today the translator is not only generally acknowledged but feted regularly for having been a true and brilliant language innovator. I attribute my inability to find anything in comics (books, movies, the whole art form) to this lack in early training.

    a mere typist with no education beyond basics in the office I worked in in Paris in 1962 was about to marry a professor from a university in Los Angeles. All her colleagues pitied her sincerely and wagged their heads concernedly because how would the poor girl be able to tolerate the horrors of a life without “culture” (pronounce it the French way) the only talk being about sports.

    Mr. Johnson will certainly write about it more seriously but I consider the two above examples as still valid AND typical today.

  49. Lavrenti Beria

    Sorry to offend your delicate sense of right form and your exquisitely tuned sensibilities, Silke. I’ll make sure to submit all future submissions to you for review in advance of posting.

  50. just stop admiring callous killers for their insane utterings

  51. Lavrenti Beria

    I was restrained in my last reply, chief, not so sure I’d be inclined to be so again. Let me simply suggest that you bend over and search around for a place to deposit your moralizing.

  52. Absolutely! The only reason they are tenured is for them to withstand pressures and think independently. They failed utterly as a group and as individuals.

  53. Of course some have taken real responsibility http://bit.ly/yya66 but that kind of ”taking responsibility” is clearly too awkward for those who feel they can get by with an “I take responsibility” and then proceed as if nothing have happened.

  54. Don’t waste a minute on it, someone amoral enough to want his opinions posted under a pseudonym like that the one he uses, is way beyond saving

  55. Yes the simulated expertise in many of these mutual admiration clubs, which qualify as non-profit because there are no profits left over after the management team has taken their bonuses, is most often quite shameful.

  56. well I was curious what kind of irony it was
    – now I know
    – I wish though he had at least offered to pay for the Yoga classes which I will need at my age to be up to the task ;-)
    – … and thanks!

  57. Question: Should not a post of this sort start with the author assuming his own part of responsibility? Was he not in a place of responsibility where he should at least have said something, or does he now feel he freed himself from any responsibility by “so courageously” pointing at the bank oligarchs?

    Of course, if he has done so, and I just missed it, let me apologize profoundly.

  58. Dear Mr. Johnson,

    I’m rather surprised at what I can only call your naivete in asking this question. Of course no one’s going to apologize or admit error, although Greenspan did admit to genuine puzzlement at how markets have acted over the past two years given his strongly held views about “free” markets. But I think that’s really about as much as we’re going to get from out betters.
    So, whatever motivated you to pose this question is more interesting than any answer, in my opinion.
    At the end, who really cares about apologies, admissions of error? As Nassem Taleb points out it’s more important that the people who crashed the schoolbus should be removed forthwith and not allowed to continue to drive.

    Sincerely,
    Ed Beaugard

    Especially given your background at the IMF.

  59. I’ve seen one interview with Greenspan after his admission of puzzlement and he was back to explain everything, know everything always have been in control etc.

  60. Lavrenti Beria

    “Don’t waste a minute on it, someone amoral enough to want his opinions posted under a pseudonym like that the one he uses, is way beyond saving.”

    “I wish though he had at least offered to pay for the Yoga classes which I will need at my age to be up to the task”

    And clearly not wasting “a minute on it”, up from a much welcomed and particularly well chosen obscurity pops that King of Conscience, Per Korowski, the poor man’s – or is it rich man’s – stand-in for St. Thomas Aquinas as moral theologian in residence. Since salvation would seem to be your purpose here, Your Eminence, by all means stand by until Silke manages to arrange funding for his up-coming adventure. Its not that he’ll require the unsolicited critique you’ll undoubtedly be offering his performance but much more to prevent him from falling into a life threatening suffocation. What a match you two make, the perfect union of supercilious mice. Make sure to take a deep breathe, Silke.

  61. Does Dean Baker need to apologize?

    “The Run-Up in Home Prices: Is It Real or Is It Another Bubble?

    August 2002, Dean Baker

    This paper examines whether the increase in home prices can be grounded in fundamental economic factors or whether it is simply a bubble, similar to the stock market bubble. It concludes that there is a housing bubble. While this process can sustain rising prices for a period of time, it must eventually come to an end. (BP200208A)
    Report

  62. I agree that we need the 4th category of economists (introduced much earlier) – The people in the 3 groups in question are educated or guided by economics. Given my experience with economists, it is remarkable that anyone, including Mr. Greenspan and the LSE group, have apologized at all. That’s because in their minds they are just being good team players and leaders – James explains in his post that; “Top business schools screen for the attributes that certain types of companies, including consulting firms and investment banks, value – above-average intelligence, ambition, presentability, ability to get along with others, willingness to follow orders, and a strong streak of conformism.” Over the past decades I’ve observed academics and policy makers in action – as we all know, anyone who rocks the boat too much is invited to leave – It’s as simple as that (and good luck on the job hunt)! It is worth while looking at what the key players did to contribute to the bubble and crash of ’08, because this provides depth in understanding the financial dynamics, facts and socio-cultural history. However, at some point in the process of research, apologies make it appear that an individual could take blame and responsibility and so long as they’re out of the picture things will improve. This approach could lead us to unintentionally ignore some major problems. These include: 1) the fact that liberal political economy needs to evolve; and 2) science is governed by competitive business principles that lead to conformism and discouragement of any serious questioning. If we fail to explore how to push forward economic theory and address its links to science, we may return to the intellectual crisis in the pre-Keynesian era, when post-modernist abandonment of liberal theories (or of the idea of theory in general) had the political effect of encouraging the rise of both far-right and far-left government.

    Of course, I don’t mean to negate the value of your weekend competition question by shifting the “blame” to the power of economic theory as a sort of socio-cultural phenomenon. Your willingness to provoke and invite constant feedback and challenges to your blogs is completely opposite to the problems that I have described and it is very refreshing! I get the feeling that there may be lots of other folks in this virtual peanut gallery who have experienced the issues of conformism in thinking and are thirsty for the exchange of ideas that you have the courage to promote.

  63. You can blame our politicians who combine timidity with the single-minded goal of winning elections rather than improving America. You also can blame the economists, who sell the notion federal debts are unsustainable and cause recessions, inflations, high taxes and high interest rates.

    Sadly, no evidence supports these beliefs.

    –Fact: The U.S. government has the unlimited ability to print money, thus the unlimited ability to “sustain” any size debt.

    –Fact; In only 15 years, from 1979 through 1994, taxes were cut and the federal debt grew an astounding 500%. It did not cause inflation or high taxes. Instead, we entered a long period of economic growth, low taxes and moderate interest rates. An identical 500% growth would yield a $72 trillion debt in 2024, and an average deficit of $4 trillion — and the same kind of economic growth, low taxes and moderate interest rates.

    –Fact: All six depressions in U.S. history immediately followed several years of federal surpluses. All recoveries coincided with increases in debt growth.

    –Fact: All nine recessions in the past 50 years immediately followed reductions in federal debt growth. All recoveries coincided with increases in debt growth, such as we are seeing, today.
    –Fact: There is no historical relationship between high interest rates and slow economic growth. Similarly, low interest rates have not stimulated growth.

    –Fact: There is no historical relationship between deficits and tax rates. Without tax increases, there is no mechanism for our grandchildren to pay for deficits.

    Email me for data to support each of the above, counter-intuitive facts.

    The unsupported fear of federal deficits in the U.S., when compared with the lack of such fear in, for instance, China, is why we will fail and they will succeed.

    Rodger Malcolm Mitchell
    rmmadvertising@yahoo.com

    http://www.rodgermitchell.com

  64. In 1984 I was unbelieveably poor (my income was <$2,000/yr – I lived by caretaking on a ranch). I was a foolish "hippy" who believed national wealth should be shared out equally, etc. I saw that the effect of the 1980-82 recession(s) was the destruction of the labor movement, the subsequent bailing out of giant banks with taxpayers money, and the adoration of Ronald Reagan and "supply-side" (give everything to the rich guys) political economy. I decided to surrender. Since then I have taken every opportunity to advance my own financial position at anyone's expense and invested on the assumptions that: every business cycle will result in wages for the non-elite will be dropping ("productivity" will be rising); inflation will be conquered in spite of money-printing and credit explosions by outsourcing and replacing wage labor with machine labor (more "productivity'); finance will become the primary American eceonomic activity, will be permitted to be as fraudulent as possible, and will be bailed out (again and again) when it crashes; etc. I am now a millionaire. Morally, I'm a sad story, but I wouldn't go back and do it differently. I advise all the bitter idealists out there to get realistic – the system will not change and cannot be beaten.

  65. For me, the best symbol why we are doomed to repeat the same mistakes over and over is CNBC continually putting Diane Swonk (who firmly stated in 2006 “There isn’t going to be a decline in housing prices, I just don’t see the fundamentals for that.”) on their show to firmly tell us now how everything is going to go. If you want to survive and prosper, you have to pay attention, do your own research, and take responsibility for your own choices.

  66. I think Simon is referring to persons with authority to make sure our financial system is used for its intended purpose – efficiently allocate resources. Not for pernicious rent seeking.

  67. The Brits have been better across the board.

    Note John Varley’s (CEO Barclay’s) semi-apologetic stance.

    Barclays boss backs apology

    http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_326288.html

  68. The utterly belligerent stance of the bank execs in the face of direct culpability and huge bailouts signals something…

    And that something is utter and absolute confidence in their control over the political outcome. That is frightfully amazing.

  69. Yes, basically correct.

    In defense of models, I will say that (properly used) they can be quite useful. However, it’s ever so easy to misuse them, whether they are empirical or normative models.

    Moreover, I’ve seen them used as a screening method in economics, whereby if someone cannot express a thought in a model (and, even worse, in a model that is consistent with a set of assumptions that are obscenely tenuous) then the thought is dismissed.

    At a high level, entire “literatures” are built up surrounding a class of models – thousands of hours are spent fine-tuning models that rest on shaky foundational assumptions. And the INCENTIVE structure in the academic universe strongly promotes working within the paradigm rather than outside it.

    On the empirical side, we have problems with data mining, failure to isolate causation, and overreliance on lousy data (among other things).

    Economics deploys tools that are appropriate to physics, thinking itself the equal of that field. Sadly, not so.

  70. How about an apology from the people who set up the Nobel prize for Economics? This has seemed to relegate others who take a somewhat broader view of human culture to (often deservedly) second class citizenship and resulted in second class historians, anthropologists, philosophers, etc. etc. whose only connection seems to be “physics envy” of the second class economists (who may be first rate mathematicians).

    Just a thought from an old guy who thinks it would be a really good idea to encourage thinkers who are charged with dealing with the incredibly complex and difficult political, social, economic, and ethical aspects of the human condition that are critical to the survival and prosperity of our species rather than pretend that economics is like a physical “science”.

  71. Old Lady in Red

    Pat…

    Here is Ambrose Evans-Pritchard’s latest piece in the London Telegraph:

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6035300/Theres-no-quick-fix-to-the-global-economys-excess-capacity.html.

    He has more courage and insight than most other groups. His analysis sometimes scares me, his proposed solutions befuddle me often, but he is very very good and a must read.

    When Evans-Pritchard was the Telegraph’s Washington bureau chief in the 1990’s he covered the Oklahoma City Bombing (a gov’t sting operation gone awry), the death of Vince Foster (a murder) and drug trafficking at the Mena Airport in Arkansas (enough money for Clinton to retire on).

    He even wrote a book about it all.

    Evans-Pritchard was such a thorn in the side of mainstream media — who denied the truth in all these stories — I was surprised he made it back to England without suffering an “accident,” falling off a balcony or taking a curve too sharply.

    And he always believed that, eventually, the American media would come clean, tell the truth.

    Another apology from our collective media is due.

  72. John Merryman

    Stats,

    Are physics models logical?

    Consider that if two physical entities collide, it creates an event. While the material proceeds from past events to future ones, those events go the other way, from being in the future to being past. What is the real direction of time? Are we traveling this dimension from the past into the future, or does the activity of what is present create a series of events which go from being future potential to past circumstance? Does the earth travel the fourth dimension from yesterday to tomorrow, or does tomorrow become yesterday because the earth rotates? Is time really the basis of motion, or simply an effect of it?
    As an effect, time has more in common with temperature, than space. We only exist as independent observers if we think of time as a dimension/path that we travel. Otherwise, as aspects of events which go from future to past, we are integral parts of these events. The problem of quantum probabilities leading to multiple realities is a function of trying to model time as a fundamental dimension along which we travel from past to future. It’s my experience that normal people easily accept this argument, but try pointing out to physicists who have built their careers on some version of block time, that time is a consequence of motion and they seem incapable of even considering the concept.
    So it really isn’t surprising that economists say whatever the people paying them want them to say.

  73. markets.aurelius

    Spot on.

  74. who may be first rate mathematicians

    More like nth rate mathematicians where n >> 10^45

  75. I hope you’re right. I enjoy the optimism of people who think things can’t get worse.

  76. Yes, and the mea culpas should be equally satisfying,

    * I didn’t realize prices could go down
    * I was using the wrong model
    * There was a difference of opinion and I sided with the wrong guys.
    * No one saw it coming
    * I was just doing what everyone else was doing
    * Finance is too complicated these days to understand

  77. If you try to plow a corn field with a mule & you don’t have his attention, you’re wasting your time.

    If we could only get their attention, maybe we could “de-privatize” the banks.

  78. TwilightCartel.com

    http://www.twilightcartel.com

    Awesome site if your already a fan!

  79. Show Me The Money

    I would just like to point out that they are not done fleecing us yet!!!! Until they debase the currency enough that even Joe Sixpack starts to realize what is going on and is talking monetary inflation with his work buddies, they haven’t finished with us.

    So I say hold your judgement and applause for the apologies for a while. The fat lady hasn’t sung yet…

  80. Francisco I.

    I’ve always said if you can’t beat them, then join them.

  81. Francisco I.

    See michael’s comment above about neutralizing most of the debasement through ‘productivity’ gains (i.e. lower wages, outsourcing, and automation). ‘They’ plan to fleece you until the end of time*

    *potentially in another 6 billion years

  82. John Merryman

    chas,

    When the Rothschilds invented private banking over three years ago, they were responsible for the soundness of their currency, essentially gold certificates. While John D. Rockefeller’s influence in creating the Federal Reserve system and making the government responsible for the soundness of the currency, that the private banking system used, looks cunning from our current situation, I think that when the history books of this era are written, it will seem more like a Trojan Horse, by which public banking became inevitable.

  83. John Merryman

    make that three hundred years ago…

  84. John Merryman

    Yes, but it’s based on absolute faith in the assumption there is no alternative to banking being a private sector function. The fact is that banking as public utility does exist in many place and works quite well.

    http://www.opednews.com/articles/THE-PUBLIC-OPTION-IN-BANKI-by-Ellen-Brown-090806-616.html

    By completely bankrupting their business model and eventually the government of this country, it is that very arrogance that is destroying them. Sometimes, what is most rigid, is also most brittle.

  85. there’s Diocletian but I’m not sure he had failed before he said good-bye to all that http://en.wikipedia.org/wiki/Diocletian's_Palace
    some Roman Emperors from Byzantium became monks partially as acts of atonement
    if I can think of more I let you know …

  86. “We have experienced the greatest organized theft in history by a factor of 1,000s. Yet, the beat goes on.”

    I am amazed at how uncommon this observation is. It’s refreshing to see it anywhere at all.

  87. Economics is not a science. Karl Popper established that science cannot claim to prove anything. A hypothesis can only be proven false. All of economics since Marshall has been bunk, but its usefulness to exploiting participants has enshrined it with a relevance which allegedly is above politics. What about Keynes? Keynes dealt with a limiting case (massive underemployment) in which it became possible to create a new bubble only through war. Hitler obliged. After the Second War America created a new bubble based on Permanent Preparation for War, which naturally enough was followed by wars thankfully contained by nuclear menace. What’s the point? Stop listening to economists. Veblen was the last one who told the truth about anything.

  88. To Old Lady In Red,

    Thank you for your reply.

    Additional comments . . .

    In October, 2008 Naomi Klein, journalist and author of “The Shock Doctrine: The Rise of Disaster Capitalism” was asked by faculty at the University of Chicago to come and speak about Milton Friedman. The university wanted to build an economic research center recognizing economist Milton Friedman, who had taught at the university for many years. However, the faculty opposed such a dedication to the very man whose economic theories had brought the global economy to its knees. So the faculty asked Naomi Klein to come speak about Milton Friedman.

    This is an interesting watch that shows how Alan Greenspan and numerous politicians on both sides of the Atlantic got it all wrong by adhering to Freidman’s academic and untested economic theories.

    Here’s the video link:

    http://www.democracynow.org/2008/10/6/naomi_klein

    Also, Niall Ferguson, author, historian and scholar, has stated that financial bubbles have been going on throughout history and will continue. A good read by Ferguson is The Ascent of Money. There is also a DVD and PBS program by the same title.

  89. John Ceneviva

    Apologies? We’re expecting apologies?

    The only culture that believed in sincere apologies used to be Japan, but you don’t hear about CEOs being contrite and leaving the company anymore.

    Western culture never apologies. Except once.

    Jimmy Carter apologized for looking “on many women with lust. I’ve committed adultery in my heart many times. God knows I will do this and forgives me.”

    How convenient. An apology and forgiveness. This kind of nonsense made him a one-term President and a laughingstock.

  90. David Nowakowski

    I would propose Brooksley Born for both #1 and #3. Blaming her is a bit harsh, because she fought the battle and lost (against Rubin, Summers, Greenspan, and Levitt). On the contrary, she’s to be lauded for accepting responsibility, and her loss was our loss too. Give her credit also for resigning in disgust, and add another bit of blame to Bill Clinton for replacing her with a crony from Arkansas. At least that’s better than recently deceased Bob McNamara, who continued to serve and advance a cause he no longer believed in.

    [Some people will probably propose Sheila Bair and while she is in some cases resisting bail-outs that are too risky, in general her career shows that she is a full-time bureaucrat that was an entrenched part of the system as it evolved. In late 2008 she publicly stated that the banking system is well-capitalized, etc., when that was manifestly not true.]

    As for #2, the best mea culpa has to be from UBS’s April 2008 shareholder meeting. It was not produced willingly, but forced by the Swiss National Bank, yet it did a remarkably thorough and honest job. EVERY FINANCIAL/BANKING REGULATOR ought to read it and think hard about the problems, from growth-orientation, to risk-management failures, compensation that favors “carry trades” that blow up every few years, on and on. The blame is widely dispersed but fingers are pointed again and again at management and the board of directors.

    http://www.ubs.com/1/e/investors/share_information/shareholderreport/remediation.html

  91. Very true. But, it gets worse: Friedman pushed an extremely anti-egalitarian political agenda, following his mentor Hayek, in which “freedom” was used as the propaganda code for placing all economic and political power in the hands of corporations and the rent-seeking wealthy. In country after country (culminating in the U.S. with the “Reagan Revolution”) collective bargaining rights, consumer protection, environmental protection, and financial regulation were destroyed while the mushrooming riches of corporations and the wealthy were legally protected from the rest of the population (even the use of that wealth to buy politicians directly was protected by the Supreme Court as “First Amendment free speech”). All they while, Friedman grandly pronounced that his agenda was purely objective “scientific economics” (you know, like his monetary theory that you could control all business cycles through interest rates and his assertions that the marketplace will always self-correct in a safe, gradual, and constructive manner as long as the government has no regulatory power). For this he was given the Nobel Prize and treated like god with endless eulogies upon his death. Maybe we should replace the advice “First, kill all the lawyers” with “First, kill all the economists”.

  92. Bill Gilwood

    1. Except for a very tiny minority, most people do not have any power to change public policy. This includes many people who do know enough to see that an economic policy for instance, is seriously flawed.

    2. The political and economic system, including our media and academic establishment, is too corrupt and controlled by those that benefit (and still do) from the flaws that caused our current crisis. The scoundrels that caused this mess are still in charge, at least in the US.

    3. The closest to a mea culpa that I’ve heard from a major official was from Alan Greenspan who admitted that his model was “flawed”. He didn’t explicitly say how his model was flawed, but I guess one can infer that his “model” did not account for major players acting in their own self-interest regardless of what happend to the institution they worked for (i.e. take-the-money-and-run/milk-it-till-to-death).

    4. I also recall a statement from a professor in North Carolina who had advised the SEC leading up to the crisis, that it had been “foolish” to think that Wall Street money managers could “regulate” themselves. I think even Chris Cox admitted this.

  93. Bill Gilwood

    “then declare it nobody’s fault by saying it’s everbody’s fault.”

    Obama said that in his inaugural speech.

  94. Bill Gilwood

    “then declare it nobody’s fault by saying it’s everbody’s fault.”

    Obama in his inaugural speech said it was everybody’s fault.

  95. Cheers to Brooksley Born, who recently received the John F Kennedy Profiles In Courage Award from Caroline Kennedy for her role in standing up to the banking industry that brought about this crisis. Born wanted derivatives regulated – Greenspan and Rubin did not.

    Cheers to Senator Byron Dorgan who publicly warned us that eliminating the Glass-Steagall Act of 1933, which was done in 1999 with the help of Phil Graham, that Congress would be back in 10 years bailing out Wall Street.

  96. Alan Greenspan, but for reasons different from those usually expressed. When Greenspan “adjusted” the CPI number in the 1980’s to reduce the COLA expenses for Social Security and Medicare he created a tiny “hidden” inflation.

    It is hard to determine what a reasonable number is for inflation and the new calculation was only slightly different and tracked the old method. It also provided a slight reduction in interest rates and a bit of inflation to fuel the economy — all to the good. Professionals stopped worrying about the difference and juat used the new number.

    Like the time-value of money, the small hidden inflation/hidden tax has grown to be a substantial number. This mechanism has driven the huge increase in the financial sector as a percent of GDP as well as the transfer of wealth to the super-rich.

    Our economy is now like a steam locmotive with the throttle wide open and increasing amounts of coal fueling the fires. The only thing keeping it from exploding completely are the exploding bubbles letting off the pressure. That is why Greenspan once said he wouldn’t stop bubbles even if he knew how.

    The whole system is stressed to the bursting point and the people above have done an excellent job explaining the cracks and failures in the system that have been revealed.

    Greenspan held a gun to the government’s head and said, “Give me and my friends all your money or I’ll bankrupt the government!” The government blinked and Greenspan can sit back in comfort continuing his dream that he is an Ayn Rand hero and not just a Looter in Capitalist clothing.

  97. Mea Culpas are long overdue from any and all the participants in the BIS Capital Adequacy Framework project(s). The intitial 88 capital accord was a pivotal event. The subseqent projects, Market Risk amendment and BIS II, promised to provide the optimal regulatory develpomental framework fo support a truly globalized economy.

    It appeared that the development of the framework was broadly inclusive and exhaustingly and prudently vetted. The BIS working groups provided extraordinary disclosure. The debates were conducted in an open forum, and were documented and made readily accessible at their website. Many of the regulatory failings we are railing a about now, were openly considered and debated within the working goups.

    For more than two decades the BISII project appeared to provide the best model for developing an optimal global regulatory framework.

    My personal mea culpa. As an earnest,ambitious late boomer banker, I sincerely believed that Glass Steegal was a blunt instrument that had outlived its
    usefullness. I was thrilled to have the opportunity to run the project (successfuly) that would enable the large European bank I was working for comply with the Market Risk amendment requirement, reduce its capital requirement. and give it’s American competitors a wake up call that universal banking was the new normal.

    Near the end of the project it became obvious to me that my (and other) bank realized that there was a regulatory arbitrage opportunity to use the new rules to move assets into the trading book (less capital) from the banking book (more capital)

    So I don’t have a lot of faith in regulatory reform. I have much more faith in breaking up TBTF institutions and letting their component prop trading parts try to survice i ahedge fund world.

    Universal banking needs to be put to sleep.

  98. Quite a few of the Grand Princes of Moscovy later took jobs being monks.

    Alexander Nevskii is the first that comes to mind.

  99. Ayn Rand hero and not just a Looter in Capitalist clothing.

    the Ayn Rand hero fits in perfectable with the persona he presented in one TV-Show. He was the totally understanding it all wise old wizard – after having read his “puzzled” comments I couldn’t quite believe the cheek of it
    (I only look at Jon Stewart, Colbert, Charlie Rose or the Atlantic sometimes so it must have been one of those)

  100. Russia is considered the true inheritor of the Byzantine Empire after the Ottomans’ conquest of Constantinople in 1453 says John Julius Norwich and the view seems to be widespread among British historians
    that’s why I am always anxiously reading whatever I can find about Putin and his confessor – having just read/learned what a power house the Orthodox Church in the hands of the right emperor can be.

  101. Michael writes “Mea Culpas are long overdue from any and all the participants in the BIS Capital Adequacy Framework project(s).”

    Not only have we not seen those Mea Culpas but they go on as if nothing has really happened with their fundamental regulatory paradigms.

    Michael writes “It appeared that the development of the framework was broadly inclusive and exhaustingly and prudently vetted. The BIS working groups provided extraordinary disclosure. The debates were conducted in an open forum, and were documented and made readily accessible at their website. Many of the regulatory failings we are railing a about now, were openly considered and debated within the working goups.”

    Yes as you say “It appeared” that way but no one was listening. I myself know very well how after having criticized the Basel structure, while being an Executive Director at the World Bank 2002-2004, I was never thereafter invited by the management who are now very short on Mea Culpas and very long on hiding their responsibilities.

    The real problem was that the whole Basel group basically came down to being an incestuous mutual admiration club… and still is!

    Michael writes “For more than two decades the BISII project appeared to provide the best model for developing an optimal global regulatory framework”

    Absolutely not! A regulatory model based on subsidizing perceived low risk and taxing risk is anathema to a world who wants and needs to go forward. Now if you are a baby-boomer and don´t care about what´s coming after “Après mois le deluge” then perhaps it made sense, though unluckily it did not last long enough to comfortably put you in your grave.

  102. 1) Bankers who turned banking into usury and who have used the wealth they’ve accumulated to buy congress/own power.

    2) All members of the American political elite – the governors, the congressmen, the senators who’ve been bought by special interests, forgetting the true reason for political power, to be the voice of the people who elected them.

    3) Economists who develop math models that prop up ridiculous business decisions – say, for instance, the math models that let people believe a housing market that skyrocketed significantly would continue to ascend forever, all evidence and commonsense be damned.

    4) Citizens of this country who appear to have become paralyzed into inaction.

  103. anti_fascist_freedom_fighter

    I like that the transformation is complete: you don’t apologize for being a greedy piece of dung, and screwing over everyone else on the planet, now do you?

  104. anti_fascist_freedom_fighter

    You hit the nail on the head, brother. The government no longer represents the people (nor does it even care to pretend to represent the people)… the government (and maybe all governments) now exclusively represent multi-national corporations – and that, my friends, is called fascism…

  105. Actually they still pretend.

  106. anti_fascist_freedom_fighter, it’s called “the new philanthropy.”

  107. not yet
    – the old aristocrats had a lot more on offer
    – the conspicuous consumption they paddle publicly is pityful
    – that will have to change!!! ;-)
    – but maybe their strongholds are not yet complete and so they do not dare yet

  108. Anne,
    I think you got it spot on. Especially the first point. Also means that as long as lending is an industry (i.e. an activity to profit from) rather than as a benevolent act as it used to be, financial crises will always be with us. And it will get bigger and nastier. Trying to solve the problem by trying to revive the lending industry is like trying to solve traffic congestion problems by encouraging the growth of the car industry. It simply does not make sense.

  109. “rather than as a benevolent act as it used to be,”

    except dealings between individuals I can’t remember that ever having been the case
    – it may have been publicly claimed and a lot of small town bankers may actually have come pretty close to the ideal – acting responsibly towards their community and the borrower at the same time
    – but surely even they had a better income than the average
    – and from what can that have resulted if not from profit.

  110. Did Hank Paulson really cut a deal with George Bush to sell his GS stock and not pay taxes just so he could be our Treasury Secretary? Then he went on to buy treasuries and at the same time sink the american taxpayer- wow that was the greatest trade ever.
    Why was Geitner not paying his taxes?
    If I did’nt pay my taxes would I get the same treatment? Could I tell the IRS I forgot or was to busy meeting with Bernanke.? maybe my dog ate my 1099. At the end of the day – you think you’ve been so smart- your at the top of your game- yet you look around and noboby cares.

  111. In a speech at the Kansas City Fed’s annual retreat in Jackson Hole, Wyo., Bernanke summarized a hellish year and explained modestly how he and his central bank colleagues saved the world from a bigger disaster.

    “The world has been through the most severe financial crisis since the Great Depression,” he said. “As severe as the economic impact has been, however, the outcome could have been decidedly worse.”

    If the Fed, other central banks and other government leaders hadn’t acted in a coordinated and aggressive way in September and October of 2008, “the resulting global downturn could have been extraordinarily deep and protracted,” Bernanke said.

    The policy response “averted the imminent collapse of the global financial system, an outcome that seemed all too possible to the finance ministers and central bankers.”
    This is from Mish, However you could easily change Bernanke’s wording as follows. If the Fed and other central banks had acted in a coordinated and agressive way in September and October of 2005– you get the picture. Bernanke gets my vote because he had worked at the Fed leading up to this and now he is in charge. What a great country!

  112. Your suggestion really divide the competition into three classes.