Tag: Economy

Paul Krugman linked to this chart from a paper by Mary Daly of the San Francisco Fed with the comparison of the Japanese economy to the current US economic morass.

Joseph Stiglitz, Nobel Prize winner, doctor of economics and professor of economics at Columbia University, appeared today on the Dylan Ratigan Show and offered his advice for radical surgery to get the money and the jobs flowing again.

Ratigan:

“What is the risk of not dealing with the vicious cycle that is becoming joblessness in America, which leads to foreclosure in America, which leads to bank dysfunctionality, which leads to less investing and that vicious cycle that clearly has tremendous peril? What is that peril?”

Stiglitz:

“Well, I learned years ago that if we didn’t do it, we would be exactly where we are today and if we don’t do it now, we are likely to be entering into a Japanese style malaise, low growth, high unemployment, literally for years to come that should be unacceptable.”

See chart above and listen to Stiglitz offer his “radical surgical” solution.

Monday Business Edition

This is the future Paul Krugman keeps warning us about.

Japan Goes From Dynamic to Disheartened

The Great Deflation

By MARTIN FACKLER, The New York Times

Published: October 16, 2010

For nearly a generation now, the nation has been trapped in low growth and a corrosive downward spiral of prices, known as deflation, in the process shriveling from an economic Godzilla to little more than an afterthought in the global economy.

…

The classic explanation of the evils of deflation is that it makes individuals and businesses less willing to use money, because the rational way to act when prices are falling is to hold onto cash, which gains in value. But in Japan, nearly a generation of deflation has had a much deeper effect, subconsciously coloring how the Japanese view the world. It has bred a deep pessimism about the future and a fear of taking risks that make people instinctively reluctant to spend or invest, driving down demand – and prices – even further.

…

After years of complacency, Japan appears to be waking up to its problems, as seen last year when disgruntled voters ended the virtual postwar monopoly on power of the Liberal Democratic Party. However, for many Japanese, it may be too late. Japan has already created an entire generation of young people who say they have given up on believing that they can ever enjoy the job stability or rising living standards that were once considered a birthright here.

…

Economists said one reason deflation became self-perpetuating was that it pushed companies and people like Masato to survive by cutting costs and selling what they already owned, instead of buying new goods or investing.

“Deflation destroys the risk-taking that capitalist economies need in order to grow,” said Shumpei Takemori, an economist at Keio University in Tokyo. “Creative destruction is replaced with what is just destructive destruction.”

Business News below.

Now with 48 Story goodness.

The US Chamber of Commerce has told unemployed Americans to “stop whining” about job out sourcing to foreign countries. It is here to stay.

Tom Donahue, President and CEO of the US Cahmaber of Commerce:

There are legitimate values to outsourcing, not only jobs, but work.

Yes, there are “jobs and work”, just not for Americans living in the US. Perhaps we should all immigrate to India or Nigeria.

The Chamber of commerce is now putting out ads attacking Democrats who want to stop the bleeding of jobs oversees and close the tax loop holes that make it profitable for companies that out source. The Chamber is also claiming that they are not using foreign funds to pay for theses ads but refusing to open their books to the FEC thus avoiding campaign finance laws which finance law that bans the involvement of foreign corporations in American elections.

This is a battle of wits with the unarmed. Beautiful. President Obama put Stiglitz on speed dial if he doesn’t want to be on your Council.

Unfair fight: Joe Stiglitz versus Dick Armey

The Nobel prize winner and the former GOP House majority leader tangle over Keynesian economics

In the left corner is Joseph Stiglitz, former chief economist of the World Bank, winner of the John Bates Clark award for best economist under the age of 40 and the Nobel prize for economics, boasting a PhD from MIT and teaching stints at Yale, Stanford, Oxford, Princeton and Columbia. On the right is Dick Armey, former Republican majority leader in the House of Representatives, onetime economics professor at North Texas State University and House majority leader for the first two years of George Bush’s first term, during which the “first round of the Bush tax cuts were passed, without any corresponding cuts in spending, with the result that the Clinton-era budget surplus was transformed almost immediately into annual deficits“.

The topic, the current economy and solutions for recovery.

Crossposted at Daily Kos and Docudharma

Bewitched

Christine O’Donnell has wiggled her nose and put a hex on the GOP establishment.  The novice Tea party candidate turned lots of heads, Linda Blair-like…But Karl Rove, the Warlock of W, has been taken aback by O’Donnell’s victory.  Even he thinks this girl is bat$#!+ crazy and that the Republicans have been given a Tea Party roofie.

Personally, I think she’s the best thing to happen to political satirists since her mentor, Sarah Palin. Republicans, on the other hand, are fingering the Yellow Pages looking for an exorcist. And maybe an antidote.

Monday Business Edition

As much as I would like it to be, the chief problem with Barack Hussein Obama is not Civil Liberties on which he is in fact objectively worse than George W. Bush and Dick Cheney.

Nope.

It’s that he’s a coward economically.

We KNOW! what works and policymakers have willfully choosen to avoid it for the sake of academic reputation and neo-liberal policy purity.

The latest symptom in our economic fever is Title Fraud.  If you’ve financed or re-financed your home in the last 10 years (and who wouldn’t with the interest rates so low?) your title is now in doubt.

Not that this is a problem for you personally or, it shouldn’t be. You’ve maintained your good faith payments to your servicing company which they’ve presumably used in a rational manner to keep that 2nd derivative universe (of which they are Masters ‘Elanie‘ O’Donnell) cranking around.

In translation masturbatory fantasies of value created by leverage.

My ancient Economics 101 Perfesser (twisted and wizend from long years surviving an actual Depression) told me- “It’s only paper profits until you sell it.”

Your good old mortgage should protect your serfdom to your property, but the people who’ve placed their bets on black are going to be exceedingly disappointed when the wheel stops on double zero.  This market has a long way to crash.

And we’ve done nothing at all about it and the economic team (with the exception of Geither) jumped ship to avoid accepting responsibility for this disaster.

Except of course the buck stops at that Oval Office desk Obama occupies.

Government had been warned for months about troubles in mortgage servicer industry

By Zachary A. Goldfarb, Washington Post Staff Writer

Saturday, October 9, 2010; 10:11 PM

Consumer advocates and lawyers warned federal officials in recent years that the U.S. foreclosure system was designed to seize people’s homes as fast as possible, often without regard to the rights of homeowners.

In recent days, amid reports that major lenders have used improper procedures and fraudulent paperwork to seize properties, some Obama administration officials have acknowledged they had been aware of flaws in how the mortgage industry pursues foreclosures.

…

Housing advocates and government reports gave several reasons why servicers try to foreclose so quickly.

In general, servicers make more money when they foreclose on a loan than when they find a better arrangement for the borrower. That’s because the payments to the servicer decline when a loan is modified. But if instead the borrower is in default, the servicer adds fees on the account and can collect when the house is sold, even at foreclosure.

In addition, servicers are under pressure to continue to transfer the money paid by the borrower to the investor in the loan. When a borrower isn’t paying the loan, the servicer has to cover the difference.

Moreover, servicers can expect to charge more if they receive higher ratings from credit rating agencies. And the faster a servicer forecloses when loans are in default, the higher the rating they stand to receive.

Business News below.

Usually on Fridays, Atrios at Eschaton posts the lists of banks that have been taken into receivership by the FDIC.

Now the FDIC is going to hold the bank executives of these failed entities to count to the tune of one billion dollars. According to Bloomberg

The potential lawsuits would help the FDIC recover more than $1 billion it lost during the credit crisis, which has forced the FDIC to take over 294 lenders since 2008. So far the FDIC, which, according to Bloomberg, doesn’t sue unless it believes the defendant is able to pay up, has only filed one lawsuit related to the credit crisis, against IndyMac executives in July.

FDIC May Seek More Than $1 Billion From Failed-Bank Executives

The Federal Deposit Insurance Corp. has authorized lawsuits against more than 50 officers and directors of failed banks as the agency aims to recoup more than $1 billion in losses stemming from the credit crisis.

The lawsuits were authorized during closed sessions of the FDIC board and haven’t been made public. The agency, which has shuttered 294 lenders since the start of 2008, has held off court action while conducting settlement talks with executives whose actions may have led to bank collapses, Richard Osterman, the FDIC’s acting general counsel, said in an interview.

“We’re ready to go,” Osterman said. “We could walk into court tomorrow and file the lawsuits.”

The FDIC, which reviews losses for every bank failure, has brought only one case against officers or directors tied to recent collapses — a suit filed in July seeking $300 million in damages from four executives of IndyMac Bancorp Inc.

When a bank fails, the agency’s investigators take about 18 months to complete their autopsies, meaning most of the probes stemming from the financial crisis are ongoing, Osterman said.

If FDIC investigators determine litigation is possible early in their review process, they send letters to officers and directors alerting them that a suit may be coming to recoup a portion of the losses to the agency’s insurance fund.

FDIC Chairman Sheila Bair has said 2010 will be the peak year for failures, and the agency’s list of so-called problem lenders suggests banks will keep collapsing at an accelerated rate in coming months. The confidential list had 829 banks with $403 billion in assets at the end of the second quarter.

Unbelievable that anyone thinks that TARP was a success. If the FDIC can recover that one billion it will be only .05% of what was actually given the the banks and the financial industry by the Treasury and the Federal Reserve which may have been upwards of 2 TRILLION DOLLARS.  

In the cover of night just before it left DC until after Nov 3, the Democratically held Congress passes a bile that would make it easier for banks to foreclose on homeowners. The White House has said they are reviewing the legislation. Nancy Pelosi and Harry Reid have a lot of explaining to do.

Foreclosure Cover for Banks Seen in Bill at Obama’s Desk

A bill that homeowners advocates warn will make it more difficult to challenge improper foreclosure attempts by big mortgage processors is awaiting President Barack Obama’s signature after it quietly zoomed through the Senate last week.

The bill, passed without public debate in a way that even surprised its main sponsor, Republican Representative Robert Aderholt, requires courts to accept as valid document notarizations made out of state, making it harder to challenge the authenticity of foreclosure and other legal documents.

The timing raised eyebrows, coming during a rising furor over improper affidavits and other filings in foreclosure actions by large mortgage processors such as GMAC, JPMorgan and Bank of America.

Questions about improper notarizations have figured prominently in challenges to the validity of these court documents, and led to widespread halts of foreclosure proceedings.

The legislation could protect bank and mortgage processors from liability for false or improperly prepared documents.

The White House said it is reviewing the legislation.

My money is on Obama signing this into Law and screwing Main St. one more time.

h/t Atrios and Big Tent Democrat

Up Date: h/t to Edger in comments who has the link to Big Tent Democrats News that the President was considering vetoing this bill. Since then the White House has released this statement:

   Today, the White House announced that President Obama will not sign H.R. 3808, the Interstate Recognition of Notarizations Act of 2010, and will return the bill to the House of Representatives. The Interstate Recognition of Notarizations Act of 2010 was designed to remove impediments to interstate commerce. While we share this goal, we believe it is necessary to have further deliberations about the intended and unintended impact of this bill on consumer protections, including those for mortgages, before this bill can be finalized.

   Notarizations are important for a large range of documents, including financial documents. As the President has made clear, consumer financial protections are incredibly important, and he has made this one of his top priorities, including signing into law the strongest consumer protections in history in the Wall Street Reform and Consumer Protection Act. That is why we need to think through the intended and unintended consequences of this bill on consumer protections, especially in light of the recent developments with mortgage processors.

   The authors of this bill no doubt had the best intentions in mind when trying to remove impediments to interstate commerce. We will work with them and other leaders in Congress to explore the best ways to achieve this goal going forward.

I don’t know whose “best intentions” Congress had in mind but it certainly wasn’t the Homeowners who are being defrauded out on the street by the banks.

Thank you, Mr. President, for proving me wrong.

h/t Davis Dayen at FDL

Monday Business Edition

Economics isn’t much of a science.

Sure they try and dress it up with the maths and produce the pretty graph, but in the end the letters are all just acronyms designed to make words look like numbers and somehow impart the dignity of 2 + 2 = 4 to arguments considerably more specious (a hard currency pun).

Take for instance Keynesian.  Today it’s being thrown as a slur and adopted to include almost anything that’s not related to Monetary policy and a Friedmanite/Greenspan fantasy land where government employment doesn’t produce anything of value (otherwise Capitalists would be doing it, by definition) and the concept of ‘public good’ is unknown.

The 2 leading schools of economic thought in the United States are the Freshwater School centered on the University of Chicago where Friedman taught and the Saltwater School which would be every one else.  Krugman has an essential summary.

But they’re both Monetarist Schools and Monetary Policy prescriptions don’t work when you have zero interest rates and incredible liquidity but your problems are under capacity utilization, over supply, and lack of aggregate demand.  You can’t push a string.

Then you need Fiscal Policy and deficits don’t matter.  We’ve grown or devalued our way out of every deficit we’ve ever had, our Currency is Sovereign (when I pay off my T-Bills I give you nice shiny greenbacks and tell you they taste great in a vinagrette), and who gives a rat’s ass about devaluation anyway, the only people it hurts are bankers and billionaires and they both deserve a spanking (some prefer the haircut metaphor).

My point about labels is this-  my views about macro economics, political economy, are what is properly called Neo-Classical Synthesis believe it or not because they’re grounded in Samuelson’s seminal 1948 Economics.  Krugman, DeLong, Stiglitz, Reich, etc. get called Neo Keyesians but that’s not what they’re really about, they’re all Samuelson Neo-Classicists.  Part of the problem with academic debate is that there has to be some otherwise you might lose your phony baloney job or, even worse, go out and teach some smelly undergraduates instead of sitting in your office writing papers.

Neo Liberal is an entirely different philosophy, but because lazy and stupid media people think anything new is Neo even though they live in the matrix and Liberal is Goldwater and Nixon, that one gets thrown around a lot too.

Krugman–

The point is that we have perfectly good models  for thinking about the state we’re in – models in which we can describe what all the agents are doing and why, models that have done a very good job in terms of predicting how events have proceeded. Moving back and forth between simple new Keynesian models and their IS-LM translations, it was straightforward to show that a huge expansion in the monetary base could and would go along with continuing disinflation, that massive government borrowing would not cause an interest rate spike, and so on.

So what’s wrong with my “one model to rule them all”? Well, it doesn’t easily translate into anything that looks like monetarism – for a good reason: when short-term interest rates are near zero, the distinction between the monetary base, which the central bank controls, and the much broader class of safe short term assets, which it doesn’t, more or less vanishes. That’s not a bug, it’s a feature; it says that when you’re in a liquidity trap, thinking in terms of the supply and demand for money is just not a helpful way to approach the issues.

More Krugman–

But maybe this is an opportunity to reiterate a point I try to make now and then: economics is not a morality play. It’s not a happy story in which virtue is rewarded and vice punished. The market economy is a system for organizing activity – a pretty good system most of the time, though not always – with no special moral significance. The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty; nonetheless, we accept a system with considerable inequality because systems without any inequality don’t work. And before the trolls jump in to say aha, Krugman concedes the truth of supply-side economics, that’s not an argument against progressive taxation and the welfare state; it’s just an argument that says that there are limits. Cuba doesn’t work; Sweden works pretty well.

And when we’re experiencing depression economics, by which I mean a situation in which it’s hard to create sufficient demand to achieve full employment – mainly because short-term interest rates are up against the zero lower bound – the essentially amoral nature of economics becomes even more acute. As I’ve said repeatedly, this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn’t particularly wise.

The trouble in practice is that conventional modes of thought tend to prevail even when they shouldn’t; in particular, public spending on the scale needed never seems to happen. That’s why Keynes facetiously proposed burying bottles full of cash in coal mines, so people could dig them up again: since any proposal to spend money on things we need got shot down on grounds of prudence and efficiency, he proposed completely pointless spending instead.

Still More Krugman–

What I’d say about America now is that we have big problems, very much including too much talent going into financial fiddling, too few people who actually make stuff – actually, I worry as much or more about machinists as I do about scientists and engineers. But that observation has virtually no bearing on high unemployment right now. So I’d hope we can walk and chew gum at the same time, appreciating the structural problems but not letting that understanding get in the way of fighting the immediate jobs crisis.

Robert Reich–

My argument is just to opposite. For three decades American consumers managed to maintain demand despite flat real wages. They did this by sending women into paid work, working longer hours, and then borrowing to the hilt. But all these coping mechanisms have come to an end. So it’s only now that we have to face the reality that most Americans have not shared in America’s prosperity.

Now with 26 Stories from Yahoo Business News.

President Obama, this is the man who should head your Economic Council along with Robert Reich, Paul Krugman and Nouriel Roubini. Watch the entire video, it is an education in the current economic situation and how we got here.

Complete video at: Joseph Stiglitz: Freefall Commonwealth Club

What would Nobel Prize-winning economist Joseph Stiglitz say at a Tea Party convention? Stiglitz says he would defend the role of government in economic affairs, positing that the bank bailout saved the country from depression.

Joseph Stiglitz, winner of the 2001 Nobel Prize Winner for Economics and author of Freefall sits down with Andrew Leonard, Senior Technology and Business Writer for Salon.

Stiglitz argues that America exported bad economics, bad policies and bad behavior to the rest of the world. Stiglitz outlines a way forward building on ideas that he has championed his entire career: restoring the balance between markets and government; addressing the inequalities of the global financial system; and demanding more good ideas (and less ideology) from economists. – Commonwealth Club of California

Joseph Stiglitz was chief economist at the World Bank until January 2000. Before that he was the chairman of President Clinton’s Council of Economic Advisers. He was awarded the Nobel Prize in economics in 2001. He is currently a finance and economics professor at Columbia University. He is most recently the author of Freefall: America, Free Markets, and the Sinking of the World Economy.