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Paul Krugman: Defending the bankers

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GeezerMan said:
The problem is confusing crony capitalism with a fairly regulated market economy. The past few years has taught us that we need glass steagall

Love this guy here, Jim Grant....let's try capitalism for a change...

http://www.tomwoods.com/blog/jim-grant-capitalism-worth-a-try/



When you get 200 million in a bonus, do you care if you bankrupt your employer?

Brilliant idea right here...:
In the same spirit, suggests the New York investor Paul J. Isaac, let the bankers forfeit a portion of their past compensation—say, that in excess of 10 times the average manufacturing wage—if they steer their employer on the rocks. And let them surrender not just one year's worth but rather seven year's worth—after all, big banks don't go broke all at once. Proceeds would be distributed to the creditors, as in days of yore. Bankers should not only take risks. They should also bear them

http://stuartschneiderman.blogspot.com/2012/04/lets-try-capitalism-for-change.html
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The issue was not with the repeal of Glass Steagall itself but with the government mandates for loan qualifications and Feds policies of insurances which backed the losses by these mega banks.

Hence the behavior seen was primarily a result of the Fed mandating banks to lend out money to those who banks themselves would of normally disqualified and banks realizing that their role in our economy and monetary system would ensure that their loses would be compensated by the Feds.

Remove the loan mandates by feds and their role in saving banks from their own mistakes and you can bet most of banks would not be willing to take the risks they have taken which lead to the quick collapse of the housing bubble that itself had already existed for a few decades.
 
senseamp said:
Krugman was right in predicting austerity would fail. Rightwingers bashed him and were wrong.
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How was he right? Exactly how would not enacting austerity measures get them better results? Can you prove that they wouldn't be in a much worse situation had they not enacted them?
 
DucatiMonster696 said:
The issue was not with the repeal of Glass Steagall itself but with the government mandates for loan qualifications and Feds policies of insurances which backed the losses by these mega banks.

Hence the behavior seen was primarily a result of the Fed mandating banks to lend out money to those who banks themselves would of normally disqualified and banks realizing that their role in our economy and monetary system would ensure that their loses would be compensated by the Feds.

Remove the loan mandates by feds and their role in saving banks from their own mistakes and you can bet most of banks would not be willing to take the risks they have taken which lead to the quick collapse of the housing bubble that itself had already existed for a few decades.
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That is completely false.

First of all, without the repeal of glass stegal we most certainly would NOT have had even remotely as big of a problem with the to big to fail assholes. Secondly, it was a huge con job done deliberately by the banksters that had nothing to do with any mandates to loan to riskier people. If that was the case then "liar loans" wouldn't have been so prolific.

There is a plethora of information and proof about this out there but if you still believe the above at this point than I doubt it would do any good.
 
sMiLeYz said:
The Federal Reserve isn't money printing, when the Federal Reserve buys treasuries through QE through open market operations. What does it give to the Banks in exchange? Reserves. Since treasuries are liquid assets that are close substitutes to actual cash, and they pay interest... the Feds are taking the these assets off the balance sheet off banks and sucking them into the blackhole of the Federal Reserve balance sheet.

Hence, essentially it is a tax. I mean if QE were a money printing operation, then where is the huge surge in inflation?

Krugman is right, and my original point stands... Austrians are crackpots.
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What do banks use reserves for?
 
Darwin333 said:
How was he right? Exactly how would not enacting austerity measures get them better results? Can you prove that they wouldn't be in a much worse situation had they not enacted them?
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Austerity led to a double dip recession, which means less tax revenue and more debt. Just look at the UK.
And look at Spain too. Austerity measures lead to higher bond yields, not lower. Bond investors know that cutting spending in the middle of recession is counterproductive, when will Republicans get a clue?
 
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senseamp said:
Austerity led to a double dip recession, which means less tax revenue and more debt. Just look at the UK.
And look at Spain too. Austerity measures lead to higher bond yields, not lower. Bond investors know that cutting spending in the middle of recession is counterproductive, when will Republicans get a clue?
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Ok, so where is your proof that the bond investors where not worried about the extremely high debt/GDP and continuing deficits which led to the higher bond yields?

Fact is that it is mathematically impossible for them to do anything but expand their debt while maintaining the existing promises. It truly is absurd to think that you can borrow your way out of a severe debt problem.
 
Darwin333 said:
Ok, so where is your proof that the bond investors where not worried about the extremely high debt/GDP and continuing deficits which led to the higher bond yields?

Fact is that it is mathematically impossible for them to do anything but expand their debt while maintaining the existing promises. It truly is absurd to think that you can borrow your way out of a severe debt problem.
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First, Spain and UK don't have an extremely high debt to GDP ratio. It's lower than the US in both cases.
Second, the bond investors are more worried about austerity than the debt. What's my proof? They are demanding higher yields after the austerity programs have been passed.
 
senseamp said:
Austerity led to a double dip recession, which means less tax revenue and more debt. Just look at the UK.
And look at Spain too. Austerity measures lead to higher bond yields, not lower. Bond investors know that cutting spending in the middle of recession is counterproductive, when will Republicans get a clue?
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You just keep ignoring that $15,000,000,000,000 Elephant in the room. Your bond investors do not like the fact that an increasing percentage of our total tax revenue goes to just interest alone.
 
Matt1970 said:
You just keep ignoring that $15,000,000,000,000 Elephant in the room. Your bond investors do not like the fact that an increasing percentage of our total tax revenue goes to just interest alone.
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You are the one ignoring it.
Austerity programs undermined investor confidence in a recovery and resulted in higher interest rates for countries that attempted them. So austerity increased those countries borrowing costs.
 
senseamp said:
You are the one ignoring it.
Austerity programs undermined investor confidence in a recovery and resulted in higher interest rates for countries that attempted them. So austerity increased those countries borrowing costs.
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Nope, all you are doing is puting a band-aid on the problem and it is even debateable if that is doing any good. Eventually those band-aids are not going to stick.
 
Krugman was on Charlie Rose (he's promoting a new book, so perhaps the column OP linked was intentionally inflammatory to create publicity for his book): (video is not on Charlie Rose website yet, but I'm guessing it should be there in a day or two)

Anyways, ignoring Democrat vs. Republican, Liberal vs. Conservative, etc, he does more fully flesh out his arguments in the one hour interview.



A few tidbits:
- $15 trillion debt is not necessarily outrageous (at least temporarily) for $15 trillion economy. He said Britain had debt to gdp of 100% for most of 20th century (as an aside, I remember reading article on Morningstar website that stock market returns in Britain were same as in US over 20th century, even though growth rate in Britain was half that of US (I think that is what article said, though not completely sure).

- negative economic effects of austerity can't be offset by lowering interest rates now because we are already near zero bound

- he says China and South Korea had appropriately sized stimulus and have emerged from recession, but U. S. stimulus was so watered down as to be ineffective

- he argues that stimulus in terms of reversal of austerity forced on states and local governments (rehiring 600,000 fired teachers and hiring the 700,000 that should have been hired because of growth of population) could be effective stimulus that brings down unemployment rate to 7% in 18 months to 2 years

- he thinks economy is in very slow healing, but there is long-term damage from just letting it sluggishly recovery over time




edit: haven't watched this yet, but Krugman debated Ron Paul on Bloomberg TV yesterday: http://www.bloomberg.com/news/2012-...uld-allow-inflation-to-rise-above-2-goal.html
 
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I am glad he doesn't think $15 Trillion is so bad, he sure as hell doesn't have to pay it. Stimulus in itself isn't necessarily bad but it's all about delivery and how you are spending it. Just creating more Government jobs is never fixes anything. Typicly those joibs end up in deparments that just create reasons to exist (Regulations) that hurt businesses.
 
GeezerMan said:
http://market-ticker.org/akcs-www?post=205405

Idiocracy On Display (Again): Krugman
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Wow, now this is an incredibly interesting interview. Krugman wipes the floor with Paul of course, but what's interesting is that Paul claims that the Fed "either does too much or too little" because it "can't" know better than the market. That's really interesting, I don't think I've ever heard Paul say the Fed didn't do enough at any point in his career because he has been a consistent advocate of abolishing the Fed over time. Which just shows the depth of his contradictory thinking.
 
DucatiMonster696 said:
Failed how? Austerity itself is a drawn out and slow cure for a debt problem that has been in the works for decades. If you are looking for over night cures for the massive amount of unsustainable debts without consequences then you are not going to find it at all in any of the economics theory that have not been hijacked by political ideologues looking to justify the growth of government and its polices who hinge on such views.
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It's failing because the unemployment rate is rising and the gdp is falling in those countries that are implementing austerity measures. Also, during the great depression, all the countries who tried to do austerity failed. All those countries which solved their economic crises back then had expansionary policies and money printing.

Ultimately, the only way to solve too much debt is to DEFAULT. After enough defaults occur, the debt load becomes manageable and all that defaulted money then becomes m1 reserves which can then re-enter the banking system to fuel the next expansion. Theoretically, money printing could also work so long as the money printing was not debt based money.
 
Matt1970 said:
Nope, all you are doing is puting a band-aid on the problem and it is even debateable if that is doing any good. Eventually those band-aids are not going to stick.
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Eventually, maybe. Right now they are sticking, but putting Austerity salt on the wound is causing unnecessary pain with no gain.
 
senseamp said:
Eventually, maybe. Right now they are sticking, but putting Austerity salt on the wound is causing unnecessary pain with no gain.
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The problem is without Austerity we keep adding a heft tax burden on society which makes climbing out of the next recession even more difficult. We already had our credit rating knocked down a peg due to our Government not being responsible. Kinda hard to borrow with a crappy rating.
 
Matt1970 said:
The problem is without Austerity we keep adding a heft tax burden on society which makes climbing out of the next recession even more difficult. We already had our credit rating knocked down a peg due to our Government not being responsible. Kinda hard to borrow with a crappy rating.
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Last year's downgrade has had literally no affect on the U.S.' ability to borrow.
 
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