Winter for Summers

Larry Summers has withdrawn his name for Chairman of the Federal Reserve.  Yay!

I didn’t oppose him because I care about appointing a woman (although I think Janet Yellen would do a great job, based on her record of correct economic forecasts), I opposed him because he’s an asshole.  He doesn’t have the personality and temperament for the job.

Policy of the One Percent, by the One Percent, for the One Percent

From “The 1 Percent’s Solution,” Paul Krugman, NYT:

“Thus, the average American is somewhat worried about budget  deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face.  And how should the budget deficit be brought down?  The wealthy favor cutting federal spending on health care and Social Security — that is “entitlements” — while the public at large actually wants to see spending on those programs rise.

“You get the idea:  The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor.  What the top 1 percent wants becomes what economic science says we must do.

“[T]he years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers.

“And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make.  To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won’t we just see new justifications for the same old policies?”

 

The New Sheriff of Wall Street

President Obama has made an excellent choice to head the SEC — Mary Jo White.

She is a former federal prosecutor who was the first woman to head the U. S. Attorney’s Office in Manhattan, a really coveted and prestigious job.  Outside of government, she has been a defense lawyer for white-collar criminals, so she knows how their schemes are structured and disguised.

Very smart, very tough, very dedicated.

The buzz is that Obama chose a woman, given that he’s been getting heat for so many male appointments, but to me the important thing is that he picked someone who is really sharp and capable.  My first thought on seeing the news wasn’t “Oh, great, he picked a woman,” but “Oh, great, she’s going to kick some Wall Street ass.”

Maybe We Should Abolish the Fed…

Just kidding!  But they really did miss the Great Recession.

From “Most Fed Officials Saw Economy Weathering Subprime Crisis,” Craig Torres, Bloomberg:

“Federal Reserve officials in August 2007 saw the beginnings of the crisis in subprime mortgages and concluded that the U. S. economy would be able to withstand it, even as some Fed members warned that it could trigger a downturn, transcripts from their 2007 meetings show.

“‘Well-capitalized banks and opportunistic investors will come in and fill the gap, restoring credit flows to non-financial businesses and to the vast majority of households that can service their debts,’ Donald Kohn, then vice chairman of the board, said in Aug. 2007….

The transcripts show the committee’s slow grasp of the enormity of contagion that was to spread throughout global markets as a result of billions of dollars in low-quality housing assets that had been securitized into bonds and sold to banks and investors worldwide.  Several FOMC participants such as then-San Francisco Fed President Janet Yellen sounded alarms in the first half of 2007.  Still, the FOMC…showed reluctance to alter policy until August.

“‘The odds are that the market will stabilize,’ [Ben] Bernanke told the committee in Aug. 2007….

“[O]n June 27028, Yellen said the biggest risk to economic growth was housing, which she called the ‘600-pound gorilla in the room.'”  Emphasis added.

It turns out that housing was more like an entire wildlife preserve filled with gorillas…

 

Don’t Be Fooled By All the Loose Talk of Default

I want to quote from a Politico article about the GOP’s willingness to refuse either to raise the debt ceiling or to pass a continuing spending resolution, but before I do, I want to point out that their discussion of default and pretty much all you’re reading and will read about default is wrong.

In order to default, the government would have to stop paying its “public debts,” which means the servicing of our bonds.  The Treasury takes in about $200 billion in taxes every month, which is more than we need to pay those debts.  We can avoid default without raising the debt ceiling, and there is no real reason for financial markets to freak out or for our credit rating to be downgraded.

On the other hand, Social Security payments are not “public debts,” and failing to send those checks is not a default.

If you don’t have enough money to pay all your bills, but you pay your mortgage and your car loan, you may not have enough to heat that house or put gas in that car, but you are not in default on your home or car loan.

From “Double trouble:  House GOP eyes default, shutdown,” Jim VandeHei, Mike Allen, and Jake Sherman, Politico:

“House Republicans are seriously entertaining dramatic steps, including default or shutting down the government, to force President Barack Obama to finally cut spending by the end of March.

“The idea of allowing the country to default by refusing to increase the debt limit is getting more widespread and serious traction among House Republicans than people realize, though GOP leaders think shutting down the government is the much more likely outcome of the spending fights this winter.

“GOP officials said more than half of their members are prepared to allow default unless Obama agrees to dramatic cuts he has repeatedly said he opposes. Many more members, including some party leaders, are prepared to shut down the government to make their point.”

Prepare to Bump Your Head on the Debt Ceiling

Sen. Minority Leader Mitch McConnell (R-Kentucky) said today:  “The tax issue is finished, over, completed.  That’s behind us.  Now the question is what are we going to do about the biggest problem confronting our country and our future, and that’s our spending addiction.”

Then for good measure McConnell threw in the Greece canard, which is very effective in scaring people, but is irrelevant to our situation.  Greece’s problem is not having its own floating currency and its own central bank.

I agree that we need to cut spending (How about getting out of Afghanistan ASAP?), but you cut spending by negotiating on stuff you haven’t bought yet.  You don’t demand spending cuts by refusing to pay for the things you’ve already bought.  And we need to balance spending cuts by reforming the tax code to get additional revenue.

If the GOP were so concerned about the national debt, they wouldn’t be willing to mess with our credit rating, driving up borrowing costs and throwing away money on interest payments.

 

It’s Nice That Someone’s Looking Out for Our Economy

The Federal Reserve announced significant monetary easing today that will continue until unemployment falls below 6.5% or inflation rises about 2.5%.

Not sure who is happier today, me or Paul Krugman, but this is excellent news for the economy.

 

Krugman Scolds the Deficit Scolds

From “Fighting Fiscal Phantoms,” Paul Krugman, NYT:

“But we’re not  Greece, and it’s almost impossible to see how this [a run on Treasuries, a spike in interest rates and a return to recession] could actually happen to a country in our situation.

“For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars.  So our government, unlike the Greek government, literally can’t run out of money.  After all, it can print the stuff.

“But if the U. S. government prints money to pay its bills, won’t that lead to inflation?  No, not if the economy is still depressed.

“Still, haven’t crises like the one envisioned by deficit scolds happened in the past?  Actually, no.  As far as I can tell, every example supposedly illustrating the dangers of debt involves either a country that, like Greece today, lacked its own currency, or a country that, like Asian economies in the 1990s, had large debts in foreign currencies.

“For years, deficit scolds have held Washington in thrall with warnings of an imminent debt crisis, even though investors, who continue to buy U. S. bonds, clearly believe that such a crisis won’t happen; economic analysis says that such a crisis can’t happen; and the historical record shows no examples bearing any resemblance to our current situation in which such a crisis actually did happen.”

Libor Elicits a Shrug and a Yawn

We’re so used to financial shenanigans that we’ve reached the “So what else is new?” stage.  From “The Spreading Scourge of Corporate Corruption,” Eduardo Porter, NYT:

“Perhaps the most surprising aspect of the Libor scandal is how familiar it seems.  Sure, for some of the world’s leading banks to try to manipulate one of the most important interest rates in contemporary finance is clearly egregious.  but is that worse than packaging billions of dollars worth of dubious mortgages into a bond and having it stamped with a Triple-A rating to sell to some dupe down the road while betting against it?  Or how about forging documents on an industrial scale to foreclose fraudulently on countless homeowners?

“The misconduct of the financial industry no longer surprises most Americans.  Only about one in five has much trust in banks, according to Gallup polls, about half the level in 2007. … Sixty-two percent of Americans believe corruption is widespread across corporate America.

“The inexorable rise of income inequality is also likely to encourage fraud, fostering resentment and undermining trust in capitalism’s institutions and rules.  Economic research shows that participants in contests in which the winner takes all are much more likely to cheat.  And the Unites States is becoming a winner-takes-all economy.”