(Not that I’m about to.)
Brad DeLong: “James Kwak Is Now Grand Heresiarch of the Ancient, Hermetic, and Occult Order of the Shrill!!”
By James Kwak
Before you go we need your 2 cents on the latest Sarah Palin press conference. This is from her bed in the book tour bus. Palin is such a policy wonk, we need you to get to the deeper meaning of this for us.
I read in the New Yorker that Asians make Palin uncomfortable. Her father said she left Hawaii because “They were a minority type thing and it wasn’t glamorous, so she came home.”
Demons be gone!! Demons be gone!!
Konczal adopted into the PR effort named “Roosevelt Institute,” and now Monsieur Kwak seduced, ostensibly, by the king of conservatives in progressive clothing.
DeLong always struck me as the sort of kid that read his tattered Clauswitz by flashlight under the covers, into the wee hours, and rushed home from school to reenact all the big battles of history. People who knew him as a child, please confirm.
Konczal… we still don’t know a lot about him.
Here is the problem with instapundits: Effective PR makes them credible very quickly. They can go to war for months, and even years, attacking the establishment and tearing apart proposed legislation, but unless we know who these people are, and who they work for, we will be tempted to follow them down the wrong path at the critical moments. As our old friend Silke used to remind us… good salespeople elicit plenty of little “yes’s” before they go for the big sell, the final big yes.
Or you could be the paranoid conspiracy type, who sounds the alarm bell every half-minute to the point nobody listens to you anymore. If you see conspiracy everywhere, nobody’s going to listen to you on the legitimate conspiracies occurring currently or around the corner. And that doesn’t help anyone.
I don’t think you’re a bad person Uncle Billy, far from it. But as I’ve told you before even Noam Chomsky doesn’t believe the 911 conspiracy theories. The song and dance gets old.
Eh, hate to break it to you, but Noam Chomsky works for the bad guys. He is one of the major propagandists that work to maintain an atmosphere of fear and mistrust. Being associated with the truthers bodes poorly for credibility, so he avoids it. Naomi Klein does the same thing, as do all the high profile flacks.
Now, open your eyes, your mind, and hit the ignore button. Two village idiots slapping each other in the square is funny, but gets old faster than conspiracy theorizing.
Btw, another of the big heroes of our crisis, William Black, has joined the ranks of the Roosevelt Institute and its faux New Deal too.
Brad DeLong contends that last year’s banker bailouts were necessary to avoid far worse consequences to the real economy. He doesn’t bother to prove this. Apparently, in the world of economics it is only necessary to assert it.
But let’s just suppose AIG had been allowed to fail. The company is recapitalized in bankruptcy. Its insurance subsidiaries are sold off, its unsecured creditors are wiped out. Goldman finds itself exposed on naked CDS contracts. It goes the route of Bear Stearns. Lloyd Blankfein retires to a private island; a few more bankers become waiters. Stockholders and unsecured creditors of GS join the ranks of MadeOff victims. So what?
Morgan Stanley, Citigroup and BofA join the bankruptcy parade. More unsecured creditors are vaporized. Large banks are broken up into smaller units. Glass Steagle is reinstated. We no longer have to worry about American investment banks, because there aren’t any. The US Supreme Court holds that credit default swaps are insurance contracts. Those lacking an insurable interest cannot collect. CDOs are unwound into individual mortgages all of which are acquired by the Fed at a total cost of $1.4 trillion. The mortgages are held to maturity and renegotiated as required to maintain the value of the properties. Housing prices fall. When they fall far enough, those who remained prudent through the bubble step up and buy. Leverage has been removed from the system. You need equity to buy a house but the prices are lower by 60%. The houses are quickly absorbed.
Allowing the banks and bankers to fail punishes those responsible for the disaster, which at least makes the disaster more tolerable for those inevitably displaced temporarily from productive activity. Those most conspicuously criminal go to prison, which helps even more. Prices fall. The fall in prices rekindles animal spirits among businessmen, who now line up to seek loans for productive activity. We have a reengineered and smaller banking system which has no other means of making profits other than making commercial loans. We have no securitization, no credit default swaps, no means of gaming accounting rules or regulator rules or piling up unseen leverage. We have an economy in which the productive dog wags the finance tail, and we have most of the bankers waiting tables to the extent people are still eating in restaurants.
I wish Brad DeLong would explain what is wrong with this scenario. I also wish he would explain how what is now being done can possibly work without a doubling of the price level before all those exposed to 100+ trillion in credit default swaps are wiped out by an unexpected unwind of the dollar carry trade or the collapse of Greece or Turkey.
love the dorky drama (dorky is a compliment in my book)… amazing.
This site was, and I hope, continues to be an objective purveyor of opinion related to the financial crisis.
But lately a political tone seems to be cutting away at this objectivity. This is not a positive development.
tooooo funnnny! ……and Sara’s serious thinking that she’s on parity with Hillary Clinton is even funnier.
In case anyone missed it on 3/3/09, here’s how to turn your Economics wonkishness into a ‘cool and hip’ conversation:
……you can also post videos here if you can’t find baseline scenario’s email @gmail.com
I read that title yesterday and couldn’t make much of it.
It might not be that way, if ONE SINGLE REPUBLICAN had voted on the reform bill in the House of Representatives yesterday. But Republicans voted for more backroom dealing with bank lobbyists and a continued sodomizing of American bank depositors and consumers.
I should say, what was really aggravating was watching Melissa Bean (a “New Democrat”) yesterday piss on her own constituents in Illinois (and other states’ bank customers) by nullifying stricter state bank regulations. I guess Representative Melissa Bean of Illinois felt the large banks have not sodomized the American depositors and taxpayers enough.
I should confess I basically stole this joke from Andrew Sullivan (sssssssshhhhhh!!! don’t tell the others!!)
It is self evident to people in finance that these big bank creditors needed to be “bailed out” to stop bank runs. Depositors were fleeing. A very quick methodology was required. Even the sequence of what happened in securing and using Tarp proves the urgency.
Go back and study the panic of 1907 for starters and utter simplicity. The New York Sub Treasury emptied it’s vault to supply the Trust Companies being run. A ship even carried gold borrowed from the Bank of England for use in providing specie and bullion backing to the banks that in turn had pushed their gold over to the banks being run. Morgan put the screws to the big banker thumbs and finally stopped the run.
The Fed if you look at what it actually is able to do in a massive situation where funds were needed is very little. Study their operations and balance sheet in depth.
Of course there were other solutions. All would have required acts by Congress so far as I can tell. Everyone is all up in arms about the bank employees that run the joints. Time required they be worked with and through. Bernanke has made pithy comments about that process. To use a 1930’s phrase here is a Duese of a an alternate methodology to provide counter point.
Put all the bad banks in special receivership. Terminate all shareholder interests. Freeze deposit withdrawls at higher levels except for payrolls and payments of payables by business. Re-capitalize the banks by taking away a percentage of creditor values and exchanging for common stock. Say 50 % of subordinated debt and non depositor debt. Similarly take away a percentage of deposits above FDIC coverage and exchange for common stock or a preferred stock. The government puts in a small piece to be at risk too. The end result would be banks leveraged at five to one on revalued assets. Would this be politically acceptable to Congress even if they could have absorbed it? No, because it had not yet gone so far as to require the Duesy step. With motivation this could have been done within the framework of what it took to work out TARP.
Were there alternates other than what was done? Time will tell but it looks doubtful under the circumstances of the day and the psychological and ideological state of Congress and the Bush Administration. Remember TARP started out as a way to buy “toxic” assets and circumstances deteriorated so rapidly that a direct investment was needed.
All of this must be taken in conjunction with what the Federal Reserve Banks did using Central Bank Liquidity Swaps and ultimately buying those “Toxic” assets that were originally going to be done with TARP funds.
By the way, those ” Toxic” assets are the American people. The Toxic American? Then just who ran from the ” “Shadow” banking system ? Toxic Americans again and their retirement funds and so forth. Who were the fearful running to Treasuries?
Was the ” bailout” pulling the “Toxic” American’s themselves out of danger? Poorly done under panic though.
At the end of the day the Toxic assets were debts of American’s.
That’s the old Republican trick isn’t it??? Pass weak bank regulations (or no regulations at all), then the banks become so big and powerful that if we don’t pay our taxes to save big banks the whole economy tanks. You privatize profits and socialize losses and then go on tirades about how inefficient government is.
What Newt Gingrich, Mitch McConnell and his friends hope you have CONVENIENTLY FORGOTTEN is that if we had taken Republican’s advice and privatized Social Security, it would have made the last roughly 15 months look so joyous by comparison you’d be thanking God for all the beneficence.
Yesterday, I discovered an economist named Andy Xie. He strikes me as very sensible and reliable. His forecast is a double dip recession and stagflation. We’ve talked about the carry trade on Baseline.
Taks a look at this headline: China has Become a Giant Ponzi Scheme.
Bad guys? Like in black hats and everything? Ooh, scary! And high profile flacks too? Now I don’t dare turn out the light.
And you talk about other people maintaining an atmosphere of fear and mistrust! Come off it! If you want to criticize Chomsky or Klein, get specific, don’t dabble in negative code.
My God! Common sense. Careful, it could spread!
The essence of the moment was that the financial system was sliding under as the Bushites were proposing a toxic asset buyout. At the same time it became obvious that only Bernanke could stave off the slide as of the moment with no tools. Remember the desperate approval of Congress to enable interest to be paid on Reserve Demand Deposits? All the while the slide to oblivion was accelerating the big shots could not understand the need to react in the same manner as a fire company at a major fire. There were times when efforts and only efforts count. So far , only the central bankers had a glimmer of what to do. The ideologues were prisoners of their beliefs. What was proven for me though was that the laissez faire right wingers blinked on their beliefs just in time. When pushed they will naturally embrace their hated socialism to save their elite status. Socialism for the elite’s and capitalism for non elites. In short, any port in a storm, even one they despise to save their personal wealth. Now, true to natural inclination, these same elites revert back to their beliefs and forget their little ideological transgression.
I am enough of an insider about the elite corporate world to understand that Pointy Hair’s is a hollow empty head. The comic strip Dilbert is dead on.
There are many things people don’t understand about China. In my opinion you have to spend AT LEAST 6 months there to truly understand the place, and even then, unless you’re an incredibly perceptive person, you’re just going to scratch the surface. Most of the info we get now is garbage news put out by China’s state media, or garbage news put out by western journalists who stay in 5 star hotels in the more westernized cities for maybe a week tops. And also any dealing as simple as eating dinner with Chinese, they will show only their best face, so you have to be able to read through that. One day they invite the westerner over to their house to eat dinner and it looks like “Ozzie and Harriet” or 1980s “Family Ties” eating a feast. Then the next day they go back to normal eating stale rice and the father of the house is drunk and physically and verbally assaulting his wife for hours. It’s an extremely dysfunctional country. And by that I mean socially dysfunctional AND just about every other form of dysfunction you can imagine. To this day most of them don’t believe in the usefulness of Psychology, so you can guess what that leads to. Only recently are they changing their view of Psychology and that’s at a snail’s pace.
I spent time in China and I don’t talk about it with many people (including my family) because people just don’t believe what you tell them or they think you’re a racist.
Let me make it clear I DON’T like James Fallows or agree with many things he says about China. For example if you look at that dorm in the link I give you below it’s misleading because Chinese are extremely neat/tidy with their personal homes and dorms. It’s in public areas where they act like pigs (women spit on the street, street garbage and public urinating are more common than you might imagine). That’s just a fact. But anyway the link below from Fallows gives a truer picture of China than you will see from “money honey” talking heads like Maria Bartiromo or most of the shabby business news we see nowadays. http://jamesfallows.theatlantic.com/archives/2009/12/forty_four_percent_of_americans.php
And by the way, CHINA IS STILL VERY MUCH A COMMUNIST COUNTRY IN 2009. And anyone who says it’s a capitalist or free market system, doesn’t know what the hell they are talking about.
“I wish Brad DeLong would explain what is wrong with this scenario.”
Unfortunately, the evidence of bubbles, panics, and depressions of the 17th and 18th centuries show that people’s animal spirits do not respond like that. History since then has indicated that bailouts alleviate the problems. Nobody is anxious to perform a scientific experiment that might spell economic ruin for millions of people.
Yay! Just means you’re getting through. Heresiarchy rules.
This is the best.
There are lots of us, like you, rational thinkers, who know that the big Wall Street firms should have been left naked in the storm. Ya make big bets in Vegas and wake up penniless, or with broken knee caps if you exceed the house limit and dont’ have cash to back your losses. That’s life. But noooo! (remember Belushi) If you have Hank, Alan, Ben, and Tim on your side, then the house let’s you ride, because they put up the money to save your sorry ass.
That scenario occurs to me everyday, and I cry for those who were Madoff’s victims (lots of mostly fairly wealthy people), but more for Wall Street’s victims (lots more mostly middle class people). And then I realize, if you harm the wealthy, the Feds will get you, but if you harm the middle class the Fed will back you. Per Robin Williams in Moscow on the Hudson: Eezent theez a grrate contry!!
Furthermore, it has now been predicted by one Russian economist that the ruble (now about 26 to 1 against the dollar) will be the approximate equal of the dollar before too long. You print enough money, this is what happens. Lots of foreign trade, and what they pay you in is now worthless.
In the current climate, the idea of an objective purveyor of opinion is more than ridiculous, it’s positively sublime. Get off you high horse and realize that there is no such thing as objectivity in the market place or the political place. One man’s objectivity is another’s dreamscape. It is important to bring in the kind of irony that speaks so well politically while masquerading as objectivity.
History has indicated that bailouts alleviate the problems?
Don’t think we have any history on 100-1 leverage. As for scientific experiments I am afraid we are now performing an unscientific experiment.
What specifically frightens you about allowing those who took the risk to absorb the loss?
Have you seen the book Poorly Made in China? It suggests Chinese manufacturing for export is one endless scam with infinite variations. Whether this is entirely accurate I have no idea, but the book seems honestly done and quite well written.
It is a problem I’ve been trying to grapple with — how do you counter fearmongers without doing it yourself? If you come up with a solution, let me know.
And yes, Katharine, when you have 1/3 of the population of the largest cities in the united states unable to meet basic needs, and crime stats going off the chart, you need to look for the bad guys (and girls).
“There are many things people don’t understand about China. In my opinion you have to spend AT LEAST 6 months there to truly understand the place.”
TedK, the economist Andy Xie is Chinese. I certainly hope you are not writing him off because of his ethnicity.
There are Asian people who read this blog. James Kwak is of Korean ancestry. Let me guess … you are pro-class warfare and anti-Chinese? If you are, IMHO you are mixing apples and oranges given the history of colonization.
People are just people trying to survive. I’ve reached a point in my life where I view cultural differences (with all its complexity) akin to the clothing we wear.
James Kwak Is Now Grand Heresiarch of the Ancient, Hermetic, and Occult Order of the Shrill!!
While I don’t fully agree with you that the bailouts were unncessary, I gotta hand it to you – your logic rings a very truthful bell!!!
A. I am not so sure that “history has indicated” anything. If anything, bailouts relieve the problem in the short term but make the long term consequences more severe.
B. Even if the bailouts were necessary, there is no reason the taxpayer should get nothing but more debts for saving the world, while the same folks who crashed the world economy get even bigger shinier bonuses for their spectacular performance.
Want to know which member of Congress is putting loopholes in and watering down the banking and finance reforms currently running through Congress (H.R. 4173)??? Click the link below and look for the very homely one. It’s Representative Melissa Bean of Illinois. http://www.swamppolitics.com/news/politics/blog/Melissa%20Bean.jpg
One thing more You should say—Want to know which member of Congress is putting loopholes in and watering down the banking and finance reforms currently running through Congress (H.R. 4173)??? Click the link below and look for the very homely one. It’s Representative Melissa Bean of Illinois. http://www.swamppolitics.com/news/politics/blog/Melissa%20Bean.jpg
You forgot to add—Want to know which member of Congress is putting loopholes in and watering down the banking and finance reforms currently running through Congress (H.R. 4173)??? Click the link below and look for the very homely one. It’s Representative Melissa Bean of Illinois. http://www.swamppolitics.com/news/politics/blog/Melissa%20Bean.jpg
Here it is James, George Orwell style: http://www.youtube.com/watch?v=eumlnmUCbyY
Penguins and the half Eskimo husband, save us from the elmond eye Asians!! Hurry!!! Before the Juris Doctor Asian takes us prisoner!!!!!!
There probably is no single solution, as I’m sure you know, but you could do as I suggested and deal in specifics and not vague talk about bad guys. Are you now suggesting Chomsky and Klein are responsible for poverty and crime in big cities? This doesn’t make a whole lot of sense, and tends to generate heat without light.
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