The New Deal in Reverse

Looking at the financial crash and the deepening jobs crisis, Steve Fraser of TomDispatch compares President Obama’s increasing tilt to the wrong-wing with Franklin Roosevelt’s tilt to the left, and offers a few explanations for why the stark contrast.

First, externally, there are “precious few” social insurgencies now, as there were in the 1930s. Fraser ticks off a handful of social insurgencies that helped propel Roosevelt to the left, including Upton Sinclair’s 1934 “End Poverty in California” campaign for governor; Huey Long’s “Share the Wealth”; a militant labor movement; and the Farmer-Labor Parties of the upper Midwest.

Internally, Roosevelt’s Democratic Party gained strength in mid-term elections, becoming more progressive and militant, whereas today “the Democratic Party has spent the past 30 years emasculating itself” to become what Fraser calls “Republican Lite.” Roosevelt, a born patrician, did not have to prove himself, and readily accepted the social dynamics of the day, seeking to align himself with these rising social insurgencies. Obama, on the other hand, “looks for friends where there aren’t any.” And the teams of advisers each President surrounded himself with were markedly different in temperament and proclivity to radical thinking.

Finally, Fraser notes, the depths of the crisis today simply is not as severe as that in the 1930s, with its widespread Hoovervilles and malnutrition, with thousands literally dying of starvation. Fraser does not mention it, but the severity of the crisis today is mitigated by what’s left of the social welfare programs that were established during the New Deal. Imagine how much worse the situation in the U.S. would be if there were no Social Security, no unemployment benefits, and no food stamps.

The result is that President Obama is moving in a different direction than Roosevelt did. In the interview, Fraser confronts the orthodoxies of economic thinking by directly attacking the idea that a modern nation can get along with a manufacturing base. “It’s striking that [Obama] hasn’t talked about industrial recovery. That was the centerpiece of the New Deal.”

In the article itself, How the Obama Administration Ended Up Where Franklin Roosevelt Began, Fraser notes that this wrong-ward drift of the Obama administration is forfeiting populist anger at an imperious, greedy, and arrogant financial system to the teabaggers.

Would the Republican right and its tea-party populists -- marginal, mockable political freaks less than a year ago -- have enjoyed their current growth spasm if the administration hadn’t been committed to bailing out the very institutions most people considered the villains responsible for running this country into a ditch? Would the Democratic Party have been in imminent danger of losing its faltering grip on Congress had it found the will to pursue serious health-care reform and environmental legislation, or wrestled the financial oligarchy to the mat as Roosevelt did? A long generation spent cowering in the shadows of the conservative ascendancy has left the newly empowered Democrats congenitally incapable of seizing their own historic moment.

After a year of feinting to the left without meaning it, how seriously is anyone going to take the administration’s latest call to tax the banks or break their addiction to reckless speculation?

Fraser ends by noting that Roosevelt’s willingness to embrace the left was rewarded by voters with stunning mid-term electoral victories of the Democratic Party.

Exactly because the New Deal showed itself ever readier to junk the ancien régime, break with economic orthodoxy, and above all say goodbye to its erstwhile corporate friends, it was rewarded handsomely at the polls.

According to the Wikipedia page on the party composition of Congress , the Democrats went from 217 seats in the 72nd Congress, to 313 seats in the 73rd Congress! The Republicans were decimated, losing nearly half their 217 seats in the 72nd Congress to only 117 seats in the 73rd Congress! And it got even better in the Presidential election cycle: 322 Democrats in the 74th Congress, versus the Republicans at 103 seats.

The same trend occurred in the Senate: the Democrats grew from 47 Senators, to 59 Senators, to 69 Senators, while the Republicans shrank from 48, to 36, to 25.

Steve Fraser discusses his latest article, "The New Deal in Reverse."

Play:
For cable:
For dial-up:

Download: MP3 File

Go vote for the Dynamite Prize in Economics !

The Real-World Economics Review blog is holding a poll to select The Dynamite Prize in Economics, to be awarded to the three economists who contributed most to blowing up the global economy. The short list of contestants thus far includes:

* Myron Scholes and Fischer Black
* Eugene Fama
* Milton Friedman
* Alan Greenspan
* Assar Lindbeck
* Robert Lucas
* Richard Portes
* Edward Prescott and Finn E. Kydland
* Paul Samuelson
* Larry Summers

There's a short explanation of what each candidate did to help destroy the existence of hundreds of millions of people around the globe. Here's the one on Richard Portes:

As Secretary-General of the Royal Economic Society from 1992-2008, he helped suppress worries expressed by non-mainstream economists about developments in the financial sector. In 2007 he wrote a Report for the Icelandic Chamber of Commerce giving a clean bill of health to Icelandic banks only a few months before they collapsed. When investigators called attention to the real state of Icelandic banking, he wrote a series of letters to the Financial Times defending the soundness of Icelandic banks and imputing professional incompetence to those who doubted it.

Take the time to read through all the linked explanations, especially for economists whose names you might not be familiar with.

President's golfing buddies are banksters

That picture a few weeks ago of the President playing golf included in the the President's group UBS Americas president Robert Wolf. UBS, formerly Union Bank of Switzerland, is the outfit that hired former Texas Senator Phil Gramm, who shepherded through the now infamous December 2000 deregulation of financial derivatives markets. It was also UBS that last year cut a deal to reveal the names of 4,500 of its American clients that had used UBS to hide money from the IRS - leaving untouched about 45,000 others tax evaders and tax cheats.

It amazes me that this golf outing did not cause a lot of outrage.

Worst winter games ever?

It is generally conceded that the Winter Olympics in Lillehammer Norway were the best.  The facilitates were spectacular--for example, the speed skating oval was housed under a gorgeous wooden roof that looked like an inverted Viking longboat.  The weather was delightful--snowing many nights so folks could wake up to a gleaming landscape and skiing events that were run under ideal conditions.  The Norwegian hosts made everyone feel welcome and one of their gold-medal speedskaters named Johann Koss raised a bunch of money for Sarajevo relief.

So now let us compare that to the 2010 Vancouver games which are rapidly turning into a fiasco.  In the run-up to the games, the Canadians have generally acted like "iceholes" in the immortal words of Stephen Colbert.  For example, the hockey federation was forced to agree that their tournament would be played on the 200x85 NHL ice sheet rather than the 200x100 surface of international play.

Those 3000 square feet make a HUGE difference in how the game is played--Czech superstar Jaromir Jagr once claimed that because of that huge size difference, the international and NHL styles amounted to "two completely different games played by the same rules."  Of course, the real reason for insisting on the small sheet of ice is that it favors the crash and bang version of hockey so beloved by the Hosers.  Hey, maybe the floundering Canadians can actually medal on the little ice--if they do, the records should have an asterisk.

Then the day of the opening ceremonies, a luger is freaking killed when his sled leaves the track and he hits an unpadded steel support.  The guy died instantly.  There are videos of the accident.  I cannot seem to get an embedded one to work very long (I've tried) but they can be found.  They are a clear indictment of the track's designers and builders so the butt-covering has begun bigtime.  The tort lawyers are probably lined up around the block already.

The opening ceremony was unbelievably dreary.  It was held indoors--so no sprinkling of new snow.  Of course, it was raining outside.  Then the device that was supposed grow out of the floor to become the Olympic flame malfunctioned.

And there has been no snow at the major venues.  The mountainsides are green from spring-like rains.  So they are trucking snow and of course, making machine snow whenever it gets cold enough.

(sheesh)

Day brightener

Nice to know USA can still do something very well.  I mean, just take a look at this.  Considering the 747 first flew in 1969, this might be called just another evolutionary step.  Yeah, and my Lexus is just like a model T.

I mean--just look at those wings.  I wonder how many hours in the wind-tunnel were spent on those winglets, or pylons, or the nacelles.  This should just blow away the Airbus A380 which is stupid and UGLY by comparison. (or not)  I mention UGLY because aerodynamics is one of those places where aesthetics are a reliable indicator of performance.  And just remember, Boeing is one of those places that underwent a concerted Predator assault following the SPEEA strike in 2000.  And they still did THIS!

and the A380

Boeing's 747-8 vs A380: A titanic tussle

What is the better option – the Airbus A380 or the Boeing 747-8? We consider the two giants’ pros and cons as the airframers square up at Asian Aerospace

© Flight International

With Asia set to be a key driver of ultra-large-aircraft demand, Airbus and Boeing will be using Asian Aerospace as the ideal showcase for their offerings. Until the emergence ofBoeing’s 747-8 as a firm programme last year, Airbus had the 400-plus-seat market all to itself with its 550-seat A380, but now faces a serious challenge in both the passenger and freighter sectors from the 450-seat 747-8, so expect the two sides to exchange blows as they explain why their offering is the right solution for the world’s congested passenger and freight routes.

The 747-8 family was launched in November as a major derivative of the 747-400, on the back of 34 orders from cargo carriers Cargolux and Nippon Cargo Airlines. Powered by a bleed-enabled version of the 787’s General Electric GEnx, the new family incorporates a slight stretch, increased weights, revised wing with raked wingtips and upgrades to the cabin and flightdeck. Compared with the 747-400, the changes provide the 747-8 Intercontinental passenger model with 34 more seats in a three-class layout (to 450 seats), increased range – to 14,800km (8,000nm) – and improved efficiency, with a 16% lower fuel burn per seat and 8% lower operating cost per seat. The -8 Freighter provides 16% more revenue volume than the 747-400ERF, while revenue payload increases by almost 20% to 133.9t (294,900lb). more

More on Greece

According to the New York Times, everything is now just fine and we can go back to trusting the folks in charge.

Europe Commits to Action on Greek Debt Crisis

By STEPHEN CASTLE

Published: February 11, 2010

BRUSSELS — European leaders, facing a crucial test for the credibility of their common currency, promised “determined and coordinated action” to safeguard the euro as they sought to persuade jittery bond market investors that Greece would not be allowed to default on its government debt.

Herman Van Rompuy, president of the European Council, also said that the European Union would monitor closely Greece’s pledges to reduce its alarming budget deficit, and would propose measures for Athens drawing on the expertise of the International Monetary Fund. more

The reason Greece is important to the Eurozone if the that there a many other countries with similar problems.  As reported in Spiegel:

An EU Protectorate

How Brussels Is Trying to Prevent a Collapse of the Euro

By Armin Mahler, Christian Reiermann, Wolfgang Reuter and Hans-Jürgen Schlamp

Is Germany to Blame?

The Commission has recommended that Spain, booming until recently, radically restructure its economy. Spain must significantly shrink its bloated construction sector and focus on economic sectors with higher productivity.

France and Italy have been given homework assignments of their own. Both countries are being asked to apply austerity packages and increase labor-market flexibility. France must also get its significant welfare and unemployment expenses under control.

Resentment is growing in the countries most directly affected. But that frustration is not directed, as might be expected, toward the Commission. Instead, it is increasingly surplus countries coming under fire -- with Germany at the forefront. more

Far from announcing the problems in the Eurozone have been solved (like the NYT) Spiegel thinks there are still a BUNCH of problems remaining.

Germany and France Take on the Euro Speculators

By Susanne Amann

EU member states have agreed to come to Greece's aid -- but only if in the case of a complete emergency. First of all the country has to make significant spending cuts. The euro zone states have little choice. Neither Germany nor France can afford to see Athens go bankrupt -- that would end up costing them billions.

Not hurting anyone, not risking anything, yet still coming to a decision -- it was a very European solution that Herman Van Rompuy announced after the special summit of EU leaders on Thursday. The countries belonging to Europe's common currency zone declared their willingness to come to Greece's aid in the case of an emergency, in order to prevent the country from going bankrupt, the European Council President said. But there would not be any financial aid, he stressed, because the Greek government had not asked for it.

That was all the more astounding as there had been wild speculation about what the meeting would produce: direct EU aid, a European bond issue, bilateral loans, help from the International Monetary Fund -- almost every conceivable instrument was brought up as a way to help get the highly indebted country back on its feet. Even an expulsion from the euro zone was discussed. more

And then there are the folks who believe, as I do, that what is being proposed as a solution for the mess in Greece will be an utter disaster--not only just for Greece but as a model "solution" for those other countries (including USA) that have MANY problems similar to hers.

Greece Signs its National Suicide Pact 

Thursday, 02/11/2010 - 12:56 pm 

by Marshall Auerback  

Weighing in on Europe’s new “rescue” package for Greece, Marshall Auerback warns that deficit-bashing is an increasing threat the global economy.

Agreement has been reached in Europe on a “rescue” package for Greece. But it’s no cause for celebration. It’s the kind of “rescue” sensation one experiences after paying out what’s left in one’s wallet when confronted with a robber with a gun. The insanity of self-imposed budgetary constraints will be manifest to all soon enough. Economists and the EU bureaucrats who advocate a slavish adherence to arbitrary compliance numbers fail to comprehend the basis of government spending. In imposing these voluntary financial constraints on government activity, they deny essential government services and the opportunity for full employment to their citizenry.

Score another one, then, for the high priests of fiscal rectitude. Harsh cuts, tax increases — this is by no means a recovery policy. The capital markets have got their pound of flesh. But Greece is no more able to reduce its deficit under these circumstances than it is possible to get blood out of a stone. Politically, it means ceding control of EU macro policy to an external consortium dominated by France and Germany. Greece becomes a colony. more

On religion and values

Between being a Lutheran preacher's son and a K-6 Mennonite education, I had WAY too much religion stuffed up my nose in my youth.  In fact, I spent about 30 years of my adult life reading many big fat history books about religion and the Protestant Reformation trying to make sense of what had happened to me.  What I discovered was that stripped of the mumbo-jumbo, religion is a pretty interesting subject.  (It also makes me armed and ready for any sort of debate with religious nuts.)

What makes it interesting is that before widespread literacy and especially the printing press, religion played a significant role in education and values transmission.  If someone wants to know what a culture thought important for young people to learn, look at their religious teachings.

Elizabeth Warren is one of the few people who understands the NEED for financial regulation.  I included a speech of hers in an earlier post. Turns out, she is a good Methodist who learned a bunch of useful values from her upbringing.

Elizabeth Warren and Goliath

Jim Wallis

Founder of Sojourners; speaker, author, activist 

Posted: February 11, 2010 04:28 PM

I had a most instructive conversation this week with Elizabeth Warren, the Harvard economist who is also the Chair of the TARP Congressional Oversight Panel. Warren has a way of cutting through the jargon and confusion of many economists and of this economic crisis -- right to the moral core of the issues at stake. I knew her for her keen insights, but I didn't know she was from, as she puts it, a "mixed marriage from Oklahoma" -- Baptist and Methodist -- and that she is a former Methodist Sunday school teacher. In the interview I did with her for Sojourners, her moral and even theological comments were as impressive as her economic analysis of our present crisis. She said the battle for financial regulatory reform is like the battle between David and Goliath. (You can read the interview in the April issue of Sojourners magazine, which comes out in early March.)

Warren's narrative of the U.S. economy, and the banking industry in particular, was very clarifying. For most of U.S. history, our country went through repeated periods of boom and bust, with all the consequences of those cycles. But after the Great Depression, a number of new financial regulations -- rules for the road -- were put into place that were designed to protect average Americans in particular from the continued abuses of the big banks and the often terrible results in bad times for ordinary people. Two important examples were the FDIC (Federal Deposit Insurance Corporation) to protect people's savings and the Glass Steagall Act of 1933 to prevent banks from speculating with depositors' money. And the new rules worked for several decades, creating both prosperity and security for many American families and an emerging middle class. But starting in 1980, the rules were first watered down and gradually removed, and banks were free again to engage in both the abusive and very risky speculative behavior that helped to bring on the Great Depression, and resulted again in the current Great Recession. more

To read another Theological Reflection on the Economy, see this. (pdf alert)

On healthcare

What I don't get is how health-care reform in USA became a "lefty" cause in 2010.  I mean, aren't there small business owners who need affordable health insurance, and aren't these precisely the sort of folks that once constituted Republicans in this country?

Furthermore, Krupp, the guy who proposed the first national social security system to Bismarck in 1889, was a steelmaker.  Of all the forms of industrial tycoons of the 19th century, they were considered the toughest.  Read up on the Homestead Strike 1892 if you don't believe me.  Yet Krupp wrote that things like publicly administered health care were necessary "for the prevention of socialist error."

And in England, that mother of the right wing Margaret Thatcher, never moved a muscle to dismantle to national health care system.

So why is taking control of health care costs not a primary aim of Republicans?  It's just insane.

The Eurozone financial crises

This story is pretty easy to understand.  European banksters, who are at LEAST as greedy and foolish as their American or British counterparts, have managed to stampede everyone into hopeless debt.  When folks can't pay off these loans, governments are being asked to pay them off instead.  Quite naturally, governments if they have any pretense of being representitive democracies are balking at the idea of cutting pensions and health care to bail out crazy banksters and their equally crazy assumptions.

We start with a background story:

Europe Risks Another Global Depression

The entirely pointless G7 meeting this weekend only served to underline the fact that Europe is again entering a serious economic crisis.

At the end of the meeting yesterday, Treasury Secretary Tim Geithner told reporters, “I just want to underscore they made it clear to us, they the European authorities, that they will manage this [the Greek debt crisis] with great care.”

But the Europeans are not being careful – and it’s not just about Greece any more. Worries about government debt and associated public sector liabilities (e.g., because banking systems are in deep trouble) have spread through the eurozone to Spain and Portugal. Ireland and Italy are next up for hostile reconsideration by the markets, and the UK may not be far behind. 

What are the stronger European countries, specifically Germany and France, doing to contain the self-fulfilling fear that weaker eurozone countries may not be able to pay their debt – this panic that pushes up interest rates and makes it harder for beleaguered governments to actually pay? more

Here we see this crises covered on BBC complete with a greedy bankster from central casting and Joseph Stiglitz--a Nobel Memorial Prize winner.



Then we see some of the "debates" being inflicted on sovereign governments by the banksters who are willing to try anything EXCEPT for having the crooks take a haircut.

Berlin looks to build Greek ‘firewall’

Published: February 9 2010 22:58

Financial markets surged on Tuesday on hopes of a European rescue plan for Greece, as officials in Berlin admitted it was looking at how to construct a “firewall” to prevent the debt crisis spiralling out of control.

A German government official said that the steep decline in the euro and pressure on bond prices had forced Berlin to ”take a significant step” in how to deal with the crisis.

Germany is worried that any flight out of Greek assets, especially government bonds, could hit its banks and those in other eurozone countries.

As the eurozone’s dominant economy, Germany would be expected to take the lead in marshalling financial support for a Greek bail-out. There are fears the crisis could spread to other eurozone states with big deficits such as Spain and Portugal.

”We’ve had to face up to the fact that what is now a Greek problem could turn into a European one,” the official said. more

Lots of folks out there scrambling to find a solution.

Darkness Falls Over A Europe In Chaos, As German, Swedish, And UK Leaders Have Different Ideas For Solving Greece

Gregory White | Feb. 9, 2010, 5:33 PM

Germany came out today saying they are not going to back stop Greece, and now they want to build a "firewall" around it so it doesn't hurt its neighboring countries, according to the FT.

While the Germans are talking about containing the problem, The UK and Sweden want to call in the big guns.

"The IMF has the technical knowledge,"said a Swedish official to the FT. Their UK equivalent agreed, “The fund has the expertise and the resources.” more

Here's Stiglitz's solution

Greek crisis intensifies as Joe Stiglitz calls for Europe to 'teach the speculators a lesson'

Pressure on the Greek government to put its books in order or face a bail-out intensified as investors continued to flee its debt, pushing the country further towards a possible debt spiral.

By Edmund Conway, Economics Editor

Published: 9:05PM GMT 08 Feb 2010

Yields on Greek debt rose by 14 basis points, as investors digested the fact that G7 and eurozone finance ministers refused at their weekend summit to provide more detail on a rescue package for the troubled economy.

Alongside Portugal, Spain, Italy and Ireland, Greece has been the focus of widespread market selling over the past few weeks, with investors fearing the countries may be unable to repair their balance sheets alone. The interest rate on Greek 10-year benchmark debt is now 6.75pc, compared with fellow euro member Germany’s rate of 3.14pc.

Suspicions that the Greek crisis could give way to a full-blown attack on the euro have been reinforced as it emerged that currency speculators have increased their bets against the currency to the highest level since its creation. more

Finally, the view of the poor Greek citizens who are being asked to lower their living standards so the bankers can continue their plunder.

Greek unions launch 1st assault on austerity plan

By ELENA BECATOROS (AP) 

ATHENS, Greece — A civil servants' strike grounded flights and shut down public services across Greece on Wednesday, as labor unions mounted their first major challenge to austerity measures in the debt-plagued country.

Air traffic controllers, customs and tax officials, hospital doctors and schoolteachers walked off the job for 24 hours to protest sweeping government spending cuts that will freeze salaries and new hiring, cut bonuses and stipends and increase the average retirement age by two years.

"Today, the workers give their reply," loudspeakers blared in the capital's central Syntagma Square, where hundreds of pensioners and striking workers began gathering ahead of demonstrations planned later in the morning. The strike has left state hospitals working with emergency staff only, while national rail travel was also disrupted, although urban mass transport was unaffected.

"It's a war against workers and we will answer with war, with constant struggles until this policy is overturned," said Christos Katsiotis, a representative of a communist-party affliated labor union. more

John Pilger - Obama Is A Corporate Marketing Creation

Yes indeed, Uncle Barry is the perfect shill for the Predator Classes.  They have always been good at this sort of thing--watch the Christmas Eve service from the Vatican sometime if you think there is anything new about high-priced dramas in the service of Predator power.  But Obama is even better because he fulfills all the "liberal" demands for social change.  Of course, folks who believe that it is more important that he is black than he believe in economic policies that would benefit the vast majority are precisely the sort of clueless individuals who drove me to start this blog in the first place.

The economic news just keeps getting worse

When you put thieves in charge of the economy, the results are utterly predictable.  A few folks get rich and the rest struggle to survive.  And in spite of the fact there is just a mind-numbing amount of work that needs doing, unemployment and underemployment hovers at disastrous levels.

US recovery risks being hobbled by growing army of long-term unemployed

The US economy's recovery risks being hampered by the creation of a new army of long-term unemployed, whose number has more than doubled in the past 12 months.

By James Quinn

Published: 3:26PM GMT 05 Feb 2010

Although a widely-watched monthly jobs report on Friday showed that the unemployment rate fell to 9.7pc in January from 10pc in December, the report also revealed that 41.2pc of those without work - or 6.3 million people - have now been so for more than six months and are officially classed as long-term unemployed.

Statistics released earlier this week showed that 4.6m Americans continue to claim long-term unemployment benefit, signalling 1.7m of those defined as long-term unemployed either do not want to claim or are no longer eligible.

These figures are important, as those out of work for significant periods typically find it harder to find work even once a robust recovery begins, and because they can create a drag on their wider families’ economic output, restricting consumption. more

The Superbowl and the Winter Olympics

Went to an absolutely lovely Superbowl Party.  Lots of folks there with creative video and graphics skills--and no one had any money on the outcome.  I used to be a pretty serious football fan, but because I live in Minnesota, the very idea of the Vikings sort of put an end to that. So I watched pretty half-heartedly while judging both the game and those legendary Superbowl commercials on their aesthetic appeal.

Veblen once wrote that team sports are primarily the way the Leisure (Predator) Classes teach the arts of force and fraud to their young.  This is especially true of football.  The forces on display are brutal enough to cripple world class athletes on a regular basis.  There is no doubt that football players are trained to seriously injure their fellow human beings.  The fraud is even easier to see.  Every play is a series of fakes, misdirections, and deceptions--and that's not counting the rule stretching and outright cheating.  Since football is so obviously a manifestation of the Predator classes, watching it for me is something of a guilty pleasure.

Thought for the day

Of course, the economy has been the prime issue in USA for at LEAST 35 years.  But my, how easily distracted we can be when economics doesn't affect us directly.

The Producers are being shelled

Whenever the banksters run amok, the Producers get hurt.  And its MUCH more than folks losing jobs and facing financial ruin, it is people with highly useful skills who risk losing those skills.  This is a social disaster.

The Great Recession: Will Construction Workers Survive?

By KEVIN O'LEARY / LOS ANGELES Saturday, Feb. 06, 2010

The middle and working-classes have been hammered by the Great Recession and no industry has taken it more on the chin than construction. Nationally, unemployment fell to 9.7% in January, but in construction it jumped to 24.7% from 18.7% in October. In many regions, union officials report 30% of their members are unemployed or "riding the bench." "In the previous 14 years, I had not been out of work for more than one week," says Pat O'Connor, 57, a Connecticut carpenter. With no work since July, O'Connor says, "It is a bad dream turning into a nightmare. Is construction dead? It's just horrible right now. No one expected this. It's a depression." He has a mortgage and is worried he will fall behind and lose his condo. "When I go to bed, I keep the TV on just so I have the noise. If it gets silent, I get a panic attack." more

Roberts on the efficient markets theory

Whenever you see an academic theory that is both utter insane AND has remarkable staying power, chances are someone is making a fortune and this fortune is mostly undeserved.

Garbage In, Garbage Out

The Free Market Fetish

By PAUL CRAIG ROBERTS

Former Federal Reserve chairman Alan Greenspan answered that he had placed his trust in a flawed theory when he was called before Congress to explain why he, Goldman Sachs Treasury Secretary Robert Rubin and Deputy Treasury Secretary Larry Summers, prevented Brooksley Born, head of the Commodity Futures Trading Corporation, a government regulatory agency, from doing her job of regulating over-the-counter derivatives.

The efficient markets theory is that unregulated markets are efficient and rational. According to this theory in which Greenspan placed his trust, unregulated markets produce the best possible result. Any regulatory interference worsens the outcome.

Greenspan blamed his own bad judgment on a theory. The theory, or Greenspan’s understanding of it, nevertheless still holds sway as Congress has proved impotent to re-regulate the gambling casino that is Wall Street. Clearly, the theory serves powerful interests. more

Banksters ready to side-step new credit card rules

This is interesting on two levels. First, the obvious level that the banks which issue credit cards are, as dakinikat writes, "taking steps to ensure we continue our indentured servant status." But the second level I want to point out is how discipline is imposed within the economics profession to ensure the continued apologia for the banksters and their financialization of the economy.

I became aware of all the issues surrounding the unbanked, predatory lending practices, check cashing companies, and abusive credit card fees when I spent 5 weeks in Omaha right after Hurricane Katrina. A very old friend of mine–a math teacher at the community college I once taught at for a few years when my eldest was a toddler–took me to a seminar filled with social workers who were complaining how many of their clientele were being gamed by fraudulent lending practices. I returned to New Orleans to spend a lot of time researching things and predicted it was one big house of cards that would bring down the economy eventually. The research was interesting but turned out to not be ‘glamorous’ enough for publication. The other thing was I was told was that my assertions that these practices would bring down the economy was over the top because, well you know, financial innovation is such a handy dandy thing and these sweethearts were just offering up much needed services to under-served consumers. Yeah, right.

So, this study from the Center for Responsible Lending showed up in my email this morning. I admit to having spent a huge amount of time looking at their studies about 4 years ago, but was told to quit the line of research by my peers. I switched to something more marketable.

There's lots of great graphs and discussion, including a list of which banks are the largest credit card issuers, and how many billions the took in from the financial "bailout."

Read more.

Hudson on the Bernanke reappointment

Hudson thinks Bernanke will probably ruin the Democratic Party for a generation. He may be right.  On the other hand, the Democratic Party has great ability to destroy itself without any help from the central bank.

The Bernanke Reappointment: Be Afraid; Be Very Afraid

By Michael Hudson

If the economy deteriorates in the L-shaped “hockey-stick” rut that many economists forecast, what political price will President Obama and the Democrats pay for having returned the financial keys to the Bush Republican appointees who gave away the store in the first place? Reappointing Federal Reserve Chairman Ben Bernanke may end up injuring not only the economy but also the Democratic Party for years to come. Recognizing this, Republicans made populist points by opposing his reappointment during the Senate confirmation hearings last Thursday, January 27 – the day after Mr. Obama’s State of the Union address.

The hearings focused on the Fed’s role as Wall Street’s major lobbyist and deregulator. Despite the fact that its Charter starts off by directing it to promote full employment and stabilize prices, the Fed is anti-labor in practice. Alan Greenspan famously bragged that what has caused quiescence among labor union members when it comes to striking for higher wages – or even for better working conditions – is the fear of being fired and being unable to meet their mortgage and credit card payments. “One paycheck away from homelessness,” or a downgraded credit rating leading to soaring interest charges, has become a formula for labor management. more

So it begins, 2: Moody’s warns US of credit rating fears

From The Financial Times (of London) - Moody’s Investors Service fired off a warning on Wednesday that the triple A sovereign credit rating of the US would come under pressure unless economic growth was more robust than expected or tougher actions were taken to tackle the country’s budget deficit. Read more.

The big collapse begins

This could get VERY ugly, VERY quickly.  "Nascent economic recovery" my left butt cheek.

It Begins: Cash Strapped Cities Begin To Crumble

John Carney | Feb. 4, 2010, 10:25 AM 

Our nascent economic recovery may come too late to save many American cities from bankruptcy, which in turn will deal heavy losses to municipal bond investors and the companies that insure munis.

The latest fright comes from Harrisburg, the capital of Pennsylvania. The city is considering seeking bankruptcy protection—as well as tax hikes and asset sales—to address $68 million in debt service payments due this year.

Harrisburg does not stand a chance at making its payments. The $68 million in debt service payments is four times what the city expects to raise through property taxes and $4 million more than the city’s entire operating budget. more

Baker is right

The path back to some reasonable sort of prosperity has been effectively blocked by politics.  I would argue it is also blocked by other cultural manifestations.

Roadblocks on the Way to Recovery

No Way Out

By DEAN BAKER

Ever since Keynes wrote The General Theory in the 30s economists have understood the mechanism for escaping the sort of slump the economy faced in the Great Depression. The key point was to generate demand. The government had to do something – anything - that would increase demand for goods and services.

This depression problem was the exact opposite of the normal economic problem of scarcity, the problem created by insufficient supply of resources like land, labor and capital. The problem of scarcity is in principle difficult – we have to either take something from someone to make anyone better off or find some way to make the economy as a whole more efficient. However, the problem of lack of demand should be simple: we just have to increase demand in aggregate. This is possible without making anyone worse off.

Remarkably, even though we know how to solve the problem of inadequate demand, the United States appears unable to do it because all the potential routes for increasing demand are blocked politically. As a result, the country seems destined to repeat the suffering of the Great Depression, although on a smaller scale, even though we know better this time around. more

Dean Baker on taxing speculation

As far as I am concerned, what Baker is proposing here is the absolute MINIMUM reform necessary to pull out of this economic mess we are in.