Something To Think About

From “What If Zimmerman Had Been Indigent,” Matthew Yglesias, Slate:

“What if George Zimmerman had been poor?  What if his legal case hadn’t attracted national attention and raised over $300,000?

“What if Zimmerman, like most criminal defendants in the United States, was relying on a public defender with little emotional or financial investment in winning the case and no resources with which to pursue a robust defense even if he’s been inclined to do so.  Wouldn’t that defender have told Zimmerman that the smart way to avoid a second-degree murder sentence was to plead guilty to manslaughter and work out terms of incarceration that would be less onerous than what he’d end up with if he fought and lost?

“Proof beyond a reasonable doubt is a very difficult evidentiary burden to meet if the state is facing off against a competent, well-financed, and highly motivated defense team.  But all these people sitting in America’s prisons…aren’t losing at trial.  Instead 97 percent of federal cases and 94 percent of  state ones end in plea bargains.  People ask me sometimes why nobody’s gone to jail for crimes related to the financial crisis.  It’s a complicated question, but  obviously part of the answer is that you’re not going to resolve a criminal fraud case against a multi-millionaire by railroading him into a plea agreement.”

A War Between Debtors and Creditors That We Are All Losing

From “Obama’s Fate Rests in Part on Europe,” Eduardo Porter, NYT:

“Battle lines have been drawn across the Continent between a political establishment that defends austerity at all costs in the name of preserving the euro, and increasingly radical oppositions.

“This kind of political polarization may be a standard feature of financial crises.  Economists have noted that such crises naturally widen the chasm between the interests of creditors — like banks, investors and even governments — and debtors, who are suddenly made insolvent by a crisis that takes away their jobs and destroys the value of their homes.

“Creditors push austerity as the best way for debtors to repay their debts.  They oppose efforts to write down or renegotiate loans, or to allow higher inflation to erode their value.  And creditors, better financed and organized, usually gain the upper hand.  Debtors, who are generally poorer, lose.

“This cleavage is evident in Europe, where German voters have staunchly opposed committing more German resources to aid indebted Southern European countries.  It is also evident on Capitol Hill, where Republicans have countered the administration’s stimulus plans with proposals to cut public spending to finance tax cuts that would favor the most affluent Americans.  The ensuing gridlock has paralyzed policy-making on both sides of the Atlantic.  And it could produce a lot of economic damage.

“When Lehman Brothers went bankrupt in 2008, sending the global financial system into a tailspin, its debts amounted to about $600 billion.  Government debt alone in Greece, Spain, Portugal and Ireland…adds up to about $1.9 trillion.”  Emphasis added.

The $14 Million Woman

From Joe Nocera, “Make Banking Boring,” NYT:

“We also know that Ina Drew, a JPMorgan veteran who headed the chief investment office — and who departed on Monday — made $14 million last year.  Wall Street executives who make $14 million are not risk managers.   They are risk takers — big ones.  And genuine hedging activity does not cost financial institutions billions of dollars in losses:  their sole purpose is to protect against big losses.  What causes giant losses are giant, unhedged bets, something we also learned in the fall of 2008.

“Thus, the final thing we know:  At JPMorgan, nothing changed.  The incentives, the behavior, even the trades themselves are basically the same as they were in the run-up to the financial crisis.”  Emphasis added.

It also looks as if that $2 billion loss JPMorgan has acknowledged might end up being more like $4 billion.  And warnings were being sounded about the bets as far back as 2007.

 

Greece — Darned If They Do, Darned If They Don’t

I understand the other euro countries insisting that Greece cut its civil service in return for a bail-out.  About ten percent of the Greek population works for the government (and that’s not of the working-age population, that’s everybody, including children and retired people, so it’s an even higher percentage of those able to work), which is absurd.

But by reducing or taking away those incomes, Greece shrinks consumer demand as those people don’t have money to spend, and Greece reduces its income from taxes, thus shrinking its economy further.  As those people in the public sector get laid off, so will more people in the private sector.  The disease is awful, and so is the cure!