New Deal 2.0 Sun 2010-07-25 16:08 EDT

Marriner S. Eccles: Keynesian Evangelist Before Keynes

Henry C. K. Liu

...From direct experience, [1930s Federal Reserve chairman Marriner S. Eccles] realized that bankers like himself, by doing what seemed sound on an individual basis, by calling in loans and refusing new lending in hard times, only contributed to the financial crisis. He saw from direct experience the evidence of market failure. He concluded that to get out of the depression, government intervention, something he had been taught was evil, was necessary to place purchasing power in the hands of the public. In the industrial age, the mal-distribution of income (which was hugely unequal) and the excessive savings for capital investment always lead to the masses exhausting their purchasing power, unable to sustain the benefits of mass production that such savings brought...By denying the masses necessary purchasing power, capital denies itself of the very demand that would justify its investment in new production. Credit can extend purchasing power but only until the credit runs out, which would soon occur without the support of adequate income...Eccles, who never attended university or studied economics formally, articulated his pragmatic conclusions in speeches a good three years before Keynes wrote his epoch-making The General Theory of Employment, Interest, and Money (1936)....Eccles' transformation from a businessman, brought up to believe in survival of the fittest, to his belief in government spending on the neediest can teach us many lessons today...The solution is to start the money flowing again by directing it not toward those who already have a surplus, but to those who have not enough. Giving more money to those who already have too much would take more money out of circulation into idle savings and prolong the depression...Eccles promoted a limited war on poverty and unemployment, not on moral but on utilitarian grounds.

0; Keynes; Keynesian Evangelist; Marriner S. Eccles; new dealing 2.

New Deal 2.0 Thu 2010-07-22 15:54 EDT

The Summer(s) of Our Discontent

Marshall Auerback

Virtually every profile on Larry Summers tells us that he is one of the most brilliant economists of his generation...Only Robert Rubin and Alan Greenspan played a more important role than Summers in promoting the deregulation and lax oversight that laid the foundations for the current crisis...the latest FT defense reflects Summers's fundamental lack of understanding of modern money. Contrary to his view, the late 90s surpluses was not the reason for that period's prosperity. The surpluses are what ended the prosperity. And until the public understands this, we should expect no fundamental improvement in economic policymaking from the Obama Administration...he violates one of Abba Lerner's key laws of functional finance: a government's spending and borrowing should be conducted ``with an eye only to the results of these actions on the economy, and not to any established traditional doctrine about what is sound and what is unsound.'' In other words, Lerner believed that the very idea of what good fiscal policy means boils down to what results you can get -- not some arbitrary notion of ``fiscal sustainability''...The government budget surplus meant by identity that the private sector was running a deficit. Households and firms were going ever farther into debt, and they were losing their net wealth of government bonds. Growth was a product of a private debt bubble, which in turn fuelled a stock market and real estate bubble, the collapse of which has created the foundations for today's troubles...

0; discontent; new dealing 2; s; summer.

billy blog Thu 2010-07-15 16:58 EDT

We have been here before ...

The daily rhetoric being used to promote fiscal austerity maybe couched in the urgency of the day but we have heard it all before. In this blog I just reflect on history a little to remind the reader that previous attempts to carve public net spending, based on the ``expectations'' belief government was not going to tax everybody out of existence, failed to deliver. The expected spontaneous upsurge in private activity has never happened in the way the mainstream macroeconomic supply-siders predicted. Further, the chief proponents usually let it out in some way that the chief motivation for their vehement pursuit of budget cuts was to advance their ideological agendas. Of-course, the arguments used to justify the cuts were never presented as political or class-based. The public is easily duped. They have been in the past and they are being conned again now. My role is to keep providing the material and the arguments for the demand-side activists to take into the public debate...

Billy Blog.

billy blog Mon 2010-06-14 18:13 EDT

The OECDs perverted view of fiscal policy

...the big neo-liberal economic organisations like the IMF and the OECD are trying to re-assert their intellectual authority on the policy debate again after being unable to provide any meaningful insights into the cause of the global crisis or its immediate remedies. They were relatively quiet in the early days of the crisis and the IMF even issued an apology, albeit a conditional one. It is clear that the policies the OECD and the IMF have promoted over the last decades have not helped those in poorer nations solve poverty and have also maintained persistently high levels of labour underutilisation across most advanced economies. It is also clear that the economic policies these agencies have been promoting for years were instrumental in creating the conditions that ultimately led to the collapse in 2007. Now they are emerging, unashamed, and touting even more destructive policy frameworks...

Billy Blog; fiscal policies; OECDs perverted view.

Thu 2010-06-03 17:42 EDT

World Order, Failed States and Terrorism, Part 3: The Business of Private Security

Henry C K Liu

...Social order is the main component of domestic security. Social security is the foundation of social order. Henry J Aaron of the Brookings Institution calls the US Social Security system "the great monument of 20th-century liberalism". Privatization of social security is not a solution; it is an oxymoron. It merely turns social security into private security. Neo-liberal economics theory promotes as scientific truth an ideology that is irrationally hostile to government responsibility for social programs. Based on that ideology, neo-liberal economists then construct a mechanical system of rationalization to dismantle government and its social programs in the name of efficiency through privatization. Privatization of social security is a road to government abdication, the cause of failed statehood...In the era of financial globalization, nations are faced with the problem of protecting their economies from financial threats. The recurring financial crises around the world in recent decades clearly demonstrated that most governments have failed in this critical state responsibility. The economic benefits associated with the unregulated transfer of financial assets, such as cash, stocks and bonds, across national borders are frequently not worth the risks, as has been amply demonstrated in many countries whose economies have been ravaged by external financial forces. Cross-border capital flows have become an increasingly significant part of the globalized economy over recent decades. The US depends on it to finance its huge and growing trade deficit. More than $2.5 trillion of capital flowed around the world in 2004, with more than $1 trillion flowing into just the US. Different types of capital flows, such as foreign direct investment, portfolio investment, and bank lending, are driven by different investor motivations and country characteristics, but one objective stands out more than any other: capital seeks highest return through lowest wages. The United States is not only losing jobs to lower-wage economies, the inflow of capital also forces stagnant US wages to fall in relation to rising asset values.

business; failed state; Part 3; private security; terror; World ordering.

New Economic Perspectives Mon 2010-05-24 10:52 EDT

The Coming European Debt Wars

Michael Hudson

Government debt in Greece is just the first in a series of European debt bombs that are set to explode. The mortgage debts in post-Soviet economies and Iceland are more explosive. Although these countries are not in the Eurozone, most of their debts are denominated in euros. Some 87% of Latvia's debts are in euros or other foreign currencies, and are owed mainly to Swedish banks, while Hungary and Romania owe euro-debts mainly to Austrian banks. So their government borrowing by non-euro members has been to support exchange rates to pay these private sector debts to foreign banks, not to finance a domestic budget deficit as in Greece...No one wants to accept the fact that debts that can't be paid, won't be. Someone must bear the cost as debts go into default or are written down, to be paid in sharply depreciated currencies...The question is, who will bear the loss?...There is growing recognition that the post-Soviet economies were structured from the start to benefit foreign interests, not local economies. For example, Latvian labor is taxed at over 50% (labor, employer, and social tax) -- so high as to make it noncompetitive, while property taxes are less than 1%, providing an incentive toward rampant speculation...Future relations between Old and New Europe will depend on the Eurozone's willingness to re-design the post-Soviet economies on more solvent lines -- with more productive credit and a less rentier-biased tax system that promotes employment rather than asset-price inflation that drives labor to emigrate...

Coming European Debt Wars; New Economic Perspectives.

Sat 2010-05-22 21:16 EDT

CFEPS Research - L. Randall Wray

L. Randall Wray is a Professor of Economics at the University of Missouri-Kansas City, a Senior Research Associate at the Center for Full Employment and Price Stability [CFEPS]...A student of Hyman P. Minsky while at Washington University in St. Louis where he earned his Ph.D. in economics (1988)...Professor Wray has focused on monetary theory and policy, macroeconomics, and employment policy. He is currently writing on modern money, the monetary theory of production, social security, and rising incarceration rates (Penal Keynesianism). He is developing policies to promote true full employment, focusing on Hyman P. Minsky's "employer of last resort" proposal as a way to bring low-skilled, prime-age males back into the labor force. Wray"s research has appeared in numerous books and journals...

CFEPS Research; L. Randall Wray.

naked capitalism Fri 2010-03-19 16:10 EDT

Lehman: Regulators Chose to Deny, Extend and Pretend

The Lehman Examiner's report gives an unintentionally damning portrayal, both of the the structure of financial regulation in the US and how regulators failed to use the powers they had effectively...the authorities recognized Lehman had a large negative net worth. Yet rather than move decisively towards an unwind, they proceeded inertially. They urged Lehman CEO Dick Fuld to find a rescuer (who would invest in that garbage barge, particularly when Andrew Ross Sorkin's account makes clear that Fuld's moves were so obviously desperate and clumsy as to be certain to fail) and also promoted the notion of an LTCM-style ``share the pain'' resolution. Yet with the rest of the industry weak, and the magnitude of hole in Lehman's balance sheet a mystery, these courses of action had low odds of success from the outset (indeed, the ``Lehman weekend'' in which the authorities almost bulldozed through a deal, seemed designed to avoid sober analysis of how bad things were at the failing investment bank)...As much as the SEC did not cover itself with glory in this exercise, its lapses are somewhat comprehensible. By contrast, the Fed's are much harder to explain or excuse. And guess who is about to be given more oversight authority?

denied; extends; Lehman; naked capitalism; Pretends; Regulators Chose.

Thu 2010-01-07 19:04 EST

Andy Xie: Why China and Japan Need an East Asia Bloc

By promoting ideas that lean toward Asia, DPJ's leadership is signaling that Japan wants less dependence on the United States. This position offers a hope for the future to Japanese people, whose economy has been comatose for two decades. Closer integration with Asian neighbors could restore growth in Japan...The best approach would be for China and Japan to negotiate a comprehensive FTA that encompasses free-flowing goods, services and capital. This task may appear too difficult, but recent changes have made it possible. The two countries should give it a try.

Andy Xie; China; East Asia Bloc; Japan needs.

Thu 2009-11-19 10:26 EST

How Goldman secretly bet on the U.S. housing crash | McClatchy

Greg Gordon

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting. Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies. Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk...

Goldman Secretly Bet; McClatchy; U.S. housing crash.

Thu 2009-11-19 10:14 EST

Business & Technology | Part two | WaMu: Hometown bank turned predatory | Seattle Times Newspaper

David Heath

What few people knew was that bank executives crafted a radical new business strategy in 2003 that was intended to boost profits. The new WaMu used huge sales commissions and misleading marketing to hawk risky and overpriced loans to borrowers. In short, WaMu became one of the nation's biggest predatory lenders. The strategy eventually failed, not only bringing down Washington Mutual but deceiving borrowers, costing thousands their homes. In particular, the bank promoted as its "signature loan" a complex product known as the option ARM. This adjustable-rate mortgage, much like a credit card, gave borrowers the choice of making low minimum payments. But that option didn't cover the interest and only dug them deeper into debt.

business; Hometown bank turned predatory; part; Seattle Times Newspaper; Technology; WaMu.

New Deal 2.0 Tue 2009-11-03 20:07 EST

Roosevelt Institute Director and Senior Fellow Rob Johnson will lead Soros' $50 Million Effort

Rob Johnson, Director of the Economic Policy Initiative of the Roosevelt Institute, has been pegged to lead financier George Soros' $50 million effort to create an ``Institute for New Economic Thinking'', which will fund research, convene symposiums, and establish a journal -- all in the name of promoting free market skeptics and creating a new economic paradigm. To this end Soros is gathering market-skeptics this week, including Roosevelt Institute Braintruster and Nobel Prize-winner Joseph Stiglitz, George Akerlof, Michael Spence, and Sir James Mirrlees to start the conversation. ``Economics has failed not only to predict and explain what happened but has also failed to protect society,'' said Johnson in an article in Newsweek. ``That's what the crisis revealed. The paradigm has failed. There is no guidance.''

0; 50; effort; lead Soros; new dealing 2; Roosevelt Institute Director; Senior Fellow Rob Johnson.

zero hedge Tue 2009-10-27 11:50 EDT

Freddie Mac Annualized Defaults Hit Record High At 7.3%, Even As Lending Increases Once Again

With the US government now having taken over the functions of such pristine subprime lenders as New Century, with the provision that it not only is not checking borrowers' credit scores, income potential, or other "facts" that the mortgage lenders at least pretended to care about, but also giving away massive incentives to promote housing bubble V2, it was only a matter of time before the taxpayer's balance sheet would start looking like an Angelo Mozilo wet dream. Today, Freddie Mac released its September Monthly Volume Summary and, as expected, it is beginning to look just like the subprime debacle is among us, only this time all of America is on the hook thanks to a brilliant Fed and the even more brilliant geniuses in D.C.

3; 7; Freddie Mac Annualized Defaults Hit Record High; lending increasingly; Zero Hedge.

Satyajit Das's Blog - Fear & Loathing in Financial Products Fri 2009-10-23 09:44 EDT

OTC Derivative Regulation Proposals ? Neat, Plausible and Wrong!

Satyajit Das

Proposals for over-the-counter (OTC) derivative regulations are consistent with H. L. Mencken?s proposition that: "there is always a well-known solution to every human problem--neat, plausible, and wrong." A central omission is the speculative use of derivatives. Industry lobbyists focus on the use of derivatives to hedge and manage risk promoting investment and capital formation. While derivatives can play this role, the primary use of derivatives now is manufacturing risk and creating leverage.

fears; financial products; loath; neat; OTC Derivative Regulation Proposals; plausible; Satyajit Das's Blog; wrong.

Fri 2009-10-23 08:30 EDT

How Moody's sold its ratings - and sold out investors | McClatchy

Kevin G. Hall

As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression. A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings. Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk. Such products have another name now: "toxic assets."

Investors; McClatchy; Moody's Sold; rate; SOLD.

Calculated Risk Fri 2009-10-23 08:29 EDT

McClatchy: "How Moody's sold its ratings"

CalculatedRisk

Kevin Hall at McClatchy Newspapers writes: How Moody's sold its ratings -- and sold out investors (ht Atrios) A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings. Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk.

Calculated Risk; McClatchy; Moody's Sold; rate.

Jesse's Café Américain Tue 2009-10-13 20:27 EDT

Consumer Credit Contracting at Record Levels

Jesse

...The challenge facing Bernanke and the Obama economic team is how to get the US consumer spending again, if they cannot be paid a living wage, and if they can no longer be encouraged to borrow beyoned their means, by using their homes as a cash machine with variable interest rates, as they were encouraged to do by Fed Chairman Greenspan...There can be no denying that the Fed is promoting money supply growth in ways never seen before in the US. Whether they can be successful is open to question. We think they will keep at it until they break something.

consumer credit contracting; Jesse's Café Américain; record levels.

Tue 2009-09-22 08:17 EDT

Guest Post: Sarkozy, Stiglitz & capitalism's inherent contradictions

Swedish Lex

The French Commission on the Measurement of Economic Performance and Social Progress presented its final Report written by Stiglitz and other leading economists at an event at la Sorbonne earlier today. The contents of Report is already being discussed widely but at least as relevant are the politics surrounding the Commission's Report and how France intends to use it to spearhead economic reform at home and abroad...at least in France, the financial crisis is alive and will be used to promote reform...Governments need to modify their behavior, first by changing how they account for the situation in society by including questions about the overriding purposes of society and public policy; ``our certitudes have evaporated, everything has to be put into question and re-invented''. Current methodologies fail to take externalities into account with the risk of booking developments as progress while, in reality, the opposite is true. Growth has in some regards destroyed more than it has achieved.

capitalism's inherent contradictions; Guest Post; Sarkozy; Stiglitz.

naked capitalism Sun 2009-09-20 09:48 EDT

Guest Post: ``Assessing the Recent Performance of the Fed''

Richard Alford, former economist at the New York Fed

...the current Fed: 1) actively promoted the asset bubbles which precipitated the most costly business downturn since the Great depression; 2) passively sat by ignoring its regulatory and supervisory responsibilities allowing the growth of imbalances that led to the worst business downturn since the Great depression...the economic and financial imbalances that built up between 2000 and 2007 will generate the opportunity costs in terms of lost output and idle and misallocated resources that will exceed the costs inherent in the economic and financial imbalances reflected in the most expensive anti-inflation fight ever fought by the Fed (1980-1983). The US financial system remains on life support. Furthermore, the Fed has played a part in allocating credit and in engineering redistributions of wealth on a scale that is likely to on the same scale as the redistribution of wealth from the household sector to government during the inflation ridden 1970s. The independence of the Fed has been compromised. Many in the Congress want to audit the Fed and limit its ability to make loans in future emergencies. The Fed is seen by many as an agency of the Treasury.

assessment; Fed; Guest Post; naked capitalism; recent perform.

Thu 2009-09-17 10:36 EDT

Milton Friedman and the Economics of Empire

Greg Grandin

Excerpt from Greg Grandin's Empire's Workshop. (Milton Friedman, Chile, Arnold Harberger, General Augusto Pinochet's military government, shock treatment) Not only had Nixon, the CIA, and ITT, along with other companies, plotted to destabilize Allende's "democratic road to socialism," but now a renowned University of Chicago economist, whose promotion of the wonders of the free market was heavily subsidized by corporations such as Bechtel, Pepsico, Getty, Pfizer, General Motors, W.R. Grace, and Firestone, was advising the dictator who overthrew him on how to complete the counterrevolution -- at the cost of skyrocketing unemployment among Chile's poor. The New York Times identified Friedman as the "guiding light of the junta's economic policy," while columnist Anthony Lewis asked: if "pure Chicago economic theory can be carried out in Chile only at the price of repression, should its authors feel some responsibility?"

economic; Empire; Milton Friedman.

Credit Writedowns Thu 2009-09-17 09:49 EDT

China issues bonds to ``promote the RMB in neighbouring countries''

In the latest move toward China's long-term strategy of internationalising its currency, the Chinese Ministry of Finance announced today it will issue government bonds valued at 6 billion yuan in Hong Kong. [dollar losing reserve status]

China issues bonds; credit writedowns; Neighbouring Countries; promote; RMB.

Sat 2008-05-24 00:00 EDT

The price of everything: Power failure on Wall Street

unsupportable commodity valuations promoted by discredited Wall Street establishment

power failure; Price; Wall Street.