Bye-Bye, Facebook

By James Kwak

I recently deleted most of my personal information in my Facebook account. (I am keeping the Baseline Scenario page up for the convenience of people who want to read the blog within Facebook, and I need to have my personal account in order to manage that page.) This is only a tiny bit related to the fact that, for several days recently, Facebook was blocking access to this blog. It’s mainly because I’ve decided that the costs of Facebook outweigh the benefits.

First, take a look at this fantastic graphic by Matt McKeon (hat tip Tyler Cowen). You have to click on it to advance through time; it shows what information is, by default, available to whom, and how that has changed over time. (Click on the link to the “image-based version” if you’re having trouble.) Then come back here.

Continue reading “Bye-Bye, Facebook” →

Falling Back On Waterloo

By Simon Johnson, 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown

The bank lobbyists have the champagne out – the Brown-Kaufman amendment, which would have capped the size and leverage of our largest banks – was defeated in the Senate last night, 33-61.  Feeling ascendant, the big banks swarm forward to take on their next foe – the Kanjorski amendment (that would greatly strengthen the power of regulators to break up megabanks), which they plan to gut in the backrooms.

This is overconfidence – because the consensus against them is beginning to shift significantly.  Partly this is the result of great efforts by Senator Ted Kaufman, Senator Sherrod Brown, and their colleagues over recent months and weeks.  Partly this is due to all the people who came on board and pushed hard.

But, as in many such cases, it is also a question of luck – and timing. Continue reading “Falling Back On Waterloo” →

The Agenda For Emergency Economic Strategy Discussions This Weekend

By Peter Boone and Simon Johnson

Europe needs a new recovery plan, bigger and broader than anything put together so far.  This weekend is the perfect time to put such a plan together.  But be wary of committing official resources too early in this market downdraft – smart policymakers will calmly let the markets fall further, in order to benefit from the rebound potential.

In the last few days, bond markets have decided that the deflationary adjustments – cutting wages and prices — needed in large parts of the eurozone are not politically feasible.  The deflationary spiral that will come with fiscal cuts causes political turmoil and reduces revenues – that in turn makes it ever harder to service debt; see Greece this week.  Eurozone countries running large budget deficits with substantial outstanding public debt are finding they are cut off from credit markets as a result.  This is a solvency issue, not a liquidity issue.

But do not rush into this gap.  If the European Central Bank (ECB) were to start buying Spanish debt today, for example, they would find an abundance of sellers because the bonds are fundamentally overvalued.  Continue reading “The Agenda For Emergency Economic Strategy Discussions This Weekend” →

“A Process That Only We Fully Understand”

By James Kwak

Bernie Sanders’s “audit the Fed” amendment, which expands the ability of the Government Accountability Office to review Federal Reserve operations, seems to be gaining some momentum. Opponents, including the Obama administration and Fed chair Ben Bernanke, are mounting a defensive effort. There are two main arguments that I have heard.

The first is that publicizing which banks take advantage of Fed lending facilities will stigmatize those banks and could increase panic in the midst of a financial crisis. I’m not particularly convinced by this argument, since most supporters of the amendment are fine with releasing such information with a delay. Section 1152(a)(2) of the amendment eliminates the provision in 31 U.S.C. 714(b) that shields from audit monetary policy decision-making and financial transactions by Federal Reserve banks, but replaces it with this:

“Audits of the Federal Reserve Board and Federal reserve banks shall not include unreleased transcripts or minutes of meetings of the Board of Governors or of the Federal Open Market Committee. To the extent that an audit deals with individual market actions, records related to such actions shall only be released by the Comptroller General after 180 days have elapsed following the effective date of such actions.”

Continue reading ““A Process That Only We Fully Understand”” →

Brown-Kaufman Amendment: The State Of Play

By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown

When you strip away the disinformation, false promises, and wishful thinking, this is where we are on really reigning in the power of the country’s largest – and most dangerous – banks.

Senators Sherrod Brown and Ted Kaufman have proposed the SAFE Banking Act, which is an entirely reasonable and responsible way of limiting the size of our largest banks.  It should be adopted as an amendment to the main financial reform bill now before the Senate.

As the New York Times points out today, there is growing support for this approach.  But note that this article – while entirely accurate – was relegated to page B3; Sewell Chan’s original piece on this topic was a front page story on April 20. 

The opposition to Brown-Kaufman at the highest levels of government (legislature and executive branches) is so strong that it is increasingly unlikely the amendment will even get an up-or-down vote on the Senate floor. Continue reading “Brown-Kaufman Amendment: The State Of Play” →

It’s Not About Greece Any More

By Peter Boone and Simon Johnson

The Greek “rescue” package announced last weekend is dramatic, unprecedented, and far from enough to stabilize the eurozone. 

The Greek government and the European Union (EU) leadership, prodded by the International Monetary Fund (IMF), are finally becoming realistic about the dire economic situation in Greece.  They have abandoned previous rounds of optimistic forecasts and have now admitted to a profoundly worse situation.  This new program calls for a total of 11% of GDP in terms of “fiscal adjustments” (i.e., reduction in the budget deficit; now meaning government spending cuts mostly) in 2010, 4.3% in 2011, and 2% in 2012 and 2013.  The total debt to GDP ratio peaks at 149% in 2012-13 before starting a gentle glide path back down to sanity.

This new program is honest enough to show why it is unlikely to succeed.  Daniel Gros, an eminent economist on euro zone issues based in Brussels, has argued that for each 1% of GDP decline in Greek government spending, total demand in the country falls by 2.5% of GDP.  If the government reduces spending by 15% of GDP – the initial shock to demand could be well over 30% of GDP.  Obviously this simple rule does not work with such large numbers, but it illustrates that Greece is likely to experience a very sharp recession – and there is substantial uncertainty around how bad the economy will get.  The program announced last weekend assumes Greek GDP falls by 4% this year, then by another 2.6% in 2011, before recovering to positive growth in 2012 and beyond. 

Such figures seem extremely optimistic, particularly in face of the civil unrest now sweeping Greece and the deep hostility expressed towards Greece in some north European policy circles.  Continue reading “It’s Not About Greece Any More” →

Financial Reform for the Long Term

By James Kwak

The news these days is largely about the financial reform bill on the floor of the Senate. I think you know my opinion about that: many good things, not enough to solve the root problems, but still better than nothing.

Here’s a simplified way of thinking about things. There are two general problems with the financial sector today, which were the subject of two consecutive columns by Paul Krugman. The first problem, according to Krugman: “Much of the financial industry has become a racket — a game in which a handful of people are lavishly paid to mislead and exploit consumers and investors.” This is what we see in the SEC-Goldman suit, the Magnetar trade, and so on. The financial reform bill is largely (but not exclusively) aimed at this problem; that’s why there are a consumer protection agency, new trading and clearing requirements for derivatives, etc. These reforms, I think, have a reasonable chance of doing good.

Continue reading “Financial Reform for the Long Term” →

Expect Nothing

By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown

After months of denial, the European policy elite finally begins to understand that something is seriously wrong in the eurozone.

But the prevailing definition of the problem is still too narrow – the consensus in France and, even more, in Germany is that “this is a Greek problem”.  Even the most negative still think that Portugal and Spain can easily escape serious damage.

This is a major misconception, as we pointed out last week – and as we have been emphasizing, to anyone who would listen, for more than a year. Continue reading “Expect Nothing” →

More Ignorant Senators

By James Kwak

So apparently a JPMorgan Chase analyst thinks that senators showed “an unnerving ignorance of fundamental principles of market economics.” Senator Charles Grassley went one better and showed an unnerving ignorance of how the government’s own budget works.

In a hearing on the administration’s proposal to recover the net costs of TARP through a tax on large banks, Grassley said,

“If a TARP tax is imposed and the money is simply spent, that doesn’t repay taxpayers one cent for TARP losses. It’s just more tax-and-spend big government, while taxpayers foot the bill for Washington’s out-of-control spending.”

Grassley apparently thinks that when the government “spends” money, it doesn’t benefit taxpayers. What does he think the government does? Burn it? Give it to Martians?

Continue reading “More Ignorant Senators” →

Mysterious Facebook Problems

By James Kwak

Sometime this morning all of the links from our Facebook page back to the blog stopped working. According to Facebook, “Facebook users” had identified the page as being “abusive.” I didn’t find out until this evening, when a reader emailed me. (I don’t spend a lot of time on Facebook.) When the problem started, it also applied to all of the older links from Facebook to the blog. The problem did not seem to affect links from the Facebook page to 13bankers.com.

Then, in the last half our, the problem went away, and now all the links work.

I have no idea what happened. For background, this is what usually happens. New posts on this blog go into the RSS feed. That feed gets polled periodically by Twitterfeed, which takes the title of the post and the URL (compressed using bit.ly*), appends “#fb”, and creates a new tweet from our Twitter account. (The 13bankers.com feed gets treated the exact same way.) Then the Selective Tweets application for Facebook monitors our Twitter feed; whenever it sees a tweet that ends with “#fb”, it posts it to the Baseline Scenario fan page in Facebook.**

The fact that the links to 13bankers.com continued to work seems to absolve Twitterfeed, bit.ly, and Selective Tweets. However, I have enough software experience to know that things are not necessarily that simple.

So the possibilities seem to be:

  1. Facebook doesn’t like bit.ly — doubtful.
  2. Facebook doesn’t like anything being promoted by Selective Tweets, as suggested by one commenter — quite possible. This could be a flaky problem, meaning it comes and goes.  (It does seem like the problem appeared briefly on April 23 as well.)
  3. Facebook has some kind of algorithm that says, “if the same site gets posted too many times using something that looks like an automatic process, it’s probably spam.” But this seems doubtful, since we are far from the biggest blog that auto-posts to Facebook.
  4. A bunch of pro-Wall Street activists (are there such people? aren’t they called “lobbyists”?) figured out how to report to Facebook that baselinescenario.com is really a religious cult indoctrination site, and therefore someone at Facebook (or some program) shut off access to the site.

If anyone knows, or has better theories, please comment. If it happens again, someone please email us at baselinescenario at gmail dot com.

(Incidentally, ours is not the first blog this has happened to. This happened to Cake Wrecks, a blog that highlights really, really bad cakes.)

* Actually, I told Twitterfeed to use Snip instead of bit.ly, but for some reason it’s using bit.ly. But it’s been using bit.ly since long before this problem started.

** I don’t use the main Twitter app for Facebook because, at the time I was setting this up, it didn’t allow you to post your tweets onto a fan page, only onto your personal Facebook page.

Download the Blog – New and Improved!

By James Kwak

I finally came up with a better way to create a downloadable blog archive (always available via the “Download the Blog in PDF” link under Navigation in the right-hand sidebar). Now the archive is up to date (through April 2010) and you can download it in PDF, Kindle, or EPUB format. And it has clickable bookmarks for each individual post.

Thanks go to Joss Winn, Martin Hawksey, Feedbooks, and Yahoo! Pipes. See the archive page itself for a technical description.

Why Do Harvard Kids Head to Wall Street?

By James Kwak

That’s the title of a post a couple weeks ago by Ezra Klein, in which he interviewed a friend of his who went to Wall Street after Harvard. Having seen this phenomenon from a couple of different angles, I’d say the interview is right on. This is how Klein summarizes the central theme:

“The impression of the Ivy-to-Wall Street pipeline is that it’s all about the money. You’re saying that it’s actually more that Wall Street has constructed a very intelligent recruiting program that speaks to the anxieties of the students and makes them an offer that there’s almost no reason to refuse.”

When I graduated from college, I had no interest in investment banking or its close cousin, management consulting. But I went to McKinsey for reasons that were only slightly different than those of the typical Ivy League undergrad; after getting a Ph.D. in history, I discovered that I was unlikely to get a good academic job and was pretty much unqualified for anything else, and McKinsey was one of the few places that would hire me into a “good” job with no discernible qualifications (other than academic pedigree). Now that I’m at Yale Law School, where maybe 15% of students (my wild guess) come in wanting to be corporate lawyers but 75% end up at corporate law firms (first job after law school, not counting clerkships), I’m seeing it again.

Continue reading “Why Do Harvard Kids Head to Wall Street?” →

Fake Debate: The Senate Will Not Vote On Big Banks

By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown.  This post also appears on pbs.org/needtoknow – as part of that new TV program’s coverage of the week’s issues.

There is widespread agreement that the financial crisis which broke out in September 2008 was our most severe in over 50 years.  There is also a consensus that, whatever other factors may have been involved, the excessive risk-taking and general mismanagement of huge banks at the center of our economy played a significant role in what happened.  (Yes, of course the largest banks themselves deny any responsibility – including most recently using insulting language.)

The financial reform package now on the Senate floor puts surprisingly little constraint on the activities of our largest banks going forward – preferring instead to defer to regulators to tweak the rules down the road (despite the fact that this approach has gone badly over the past 20-30 years).

A growing number of senators insist we should do more to reduce the size and limit the leverage of megabanks (i.e., the amount that banks can borrow), arguing that this would constitute an important additional failsafe – on top of all other efforts to establish “more effective regulation”.

Senator Ted Kaufman (D, DE) has led the charge on this issue, pounding away for months – and giving another powerful speech on the floor of the Senate yesterday.

Yet, astonishingly, it seems increasingly likely there will be no real Senate debate on this issue. Continue reading “Fake Debate: The Senate Will Not Vote On Big Banks” →

Who’s Got Those Pitchforks?

By James Kwak

The Huffington Post Books section is hosting a discussion of 13 Bankers; there are links to all the posts so far here. Mike Konczal, usually of Rortybomb, weighed in with a post that included this chart:

People from the 90th to the 95th percentile make about 11% of total income; people from the 95th to the 99th percentile make about 15%; and people in the top percentile make about 23% (in 2006, presumably). But mainly, look at the way that black line shoots up relative to the others since 1980 (along with financial sector profits and per-employee banking compensation).

Continue reading “Who’s Got Those Pitchforks?” →