Herbert Hoover, redux

Quote of the day:

I’m not an economist, but we’ve got five applicants for every single job opening. If you tell me that the best response to that situation is to lay off hundreds of thousands of teachers, I will not accept that this means that you’re smarter and more expert than I am. I will instead conclude — regardless of your prestige or position or years of study — that you’re a moral imbecile.

— Fred Clark at Slacktivist
Those who voted for Cameron in the UK: is this really what you want?

The extraordinary cluelessness of the Republicans

When politicians use mutually incompatible arguments to attack the same proposal, it’s safe to say that they are more interested in scoring political points than actually participating in a meaningful debate. Here’s Andrew Sullivan on RNC posturing about the stimulus bill:

On the one hand, they seem to be saying (a la McCain) that this is long-term spending, not stimulus; then they are complaining it’s a short-term stimulus that will not create long-term jobs (a la Steele). One can only presume this is mainly about politics, not governing. Like so much of the last eight years.

And the public seems to have rumbled them. Sully cites Gallup:

Gallup on the Stimulus

Gallup on the Stimulus

Daniel Larison, himself deeply skeptical of any stimulus proposal, skewers the consistency of the RNC’s stupidity:

During the bailout debate, the House Republican leadership voted for creating the TARP, which was also bad policy, and they were oblivious to the political toxicity of that measure among their own constituents. It’s not as if the leadership had some deep reservoir of populist credibility before the bailout. Even if the TARP had been a good idea and even if it had already had some success, it would still be perceived as nothing more than the scam and the giveaway to banks that it actually was. Even though the stimulus bill will probably have no desirable effects and will add vast sums to the debt, the stimulus and its supporters are going to continue to be perceived as acting on behalf of the public. Boehner and Cantor have twice managed to put themselves on the wrong side of public opinion on major pieces of legislation in the last five months, so again I have to wonder why it is they remain in the leadership. I have to assume it is because the members of the conference are as politically clueless as they are.

Spookily quiet

I just got back from a morning’s Christmas shopping at Bellevue Mall. It was eerily quiet, with the kind of traffic that I would have expected to see on a typical Saturday in March. I walked by several high-end shops (jewelry, perfume, that kind of thing) that were empty except for a couple of worried-looking sales assistants.

Apportioning responsibility

Yglesias skewers the notion that nobody is especially to blame for the financial crisis, that it’s just “human nature”. (And Ta-Nehisi Coates really ought to know better.)

After all, the underlying premise of our finance-led rush to hyperinequality has been that the rich are very very very very different from you and me and that it’s so excruciatingly important that we maintain adequate incentives for them to ply their trade that we should ignore the immense damageimmense damage rising inequality does to middle class well-being.

One we realize that that’s not the case, that there’s no “magic” at work in the financial field and people are just mucking around I think that has quite radical implications. If nothing the CEOs and top fund managers are doing makes them worthy of taking the blame when the crash hits, then they also don’t deserve nearly the share of the credit — and money — that they got while things were going up.

And Ross makes the “proportionality” point nicely:

But at a same time, our hypothetical homebuyer had very different responsibilities than a hypothetical Wall Street banker. His decision to buy at the height of the bubble put him at risk to lose, say, tens of thousands of dollars and perhaps the roof over his head. Those are high stakes, obviously, but they’re high stakes for him and for his family. Whereas the risky decisions being made the people running, say, Citibank had serious consequences for millions of people, in America and around the world. And this distinction ought to matter, both to how people should be expected to behave, and how they should be judged.

"We are not amused"

Leave it to the Queen to ask the obvious question:

The latest Occam’s razor award goes to Her Majesty the Queen. In the unlikely surroundings of the London School of Economics, she last week cut to the quick. Describing the credit crunch as “awful”, she tapped a gilded economist on the proverbial shoulder and asked: “Why did nobody notice?”

Aha, ahem, said the director of research, Professor Luis Garicano. He had clearly been briefed to chat about the weather, corgis and perhaps the Grand National. He had certainly not expected an upper cut to the jaw. Monarchs are not supposed to ask leading questions, even when the nation is screaming for an answer.

With his vocation suddenly on trial, the professor stammered, “Someone was relying on somebody else,” adding, as if in moral afterthought, “and everyone thought they were doing the right thing.” It was the authentic cry of the blame-shedder down the ages. It wasn’t us, ma’m, we were only obeying orders and collecting salaries.

UPDATE: In today’s Guardian, Professor Garicano rejects the suggestion that he was blind-sided, and insists that he was glad of the opportunity to discuss the crisis with HRH. Unfortunately he only succeeds in confirming our impression that, whatever they may have believed or feared, most academic economists simply failed to speak out. Note the way in which he tries to hide his apology by juxtaposition with an even more heinous bunch of absentees:

But we economists and academics should have been louder in our warnings and more proactive in suggesting solutions. Particularly problematic and subject to a serious rethink are the short-term and one-sided incentives prevalent in the financial industry – and the failure by those who took the risks to bear the risks. The public is right to be outraged.


"That could never happen. Impossible."

Nils Gilman discusses how he and some colleagues spent a day last March discussing financial scenarios. By the end of the day…

…we had laid out a scenario whereby the money center banks […] could end up insolvent, necessitating a wholesale nationalization of the banking sector. We then looked around the table at each other and tried to imagine what this would mean for Western capitalism and democracy, and it just seemed too crazy to even consider […] and then finally one of us […] uttered the most taboo words in scenario planning: “That could never happen. Impossible.”

(Via Global Dashboard.)

The financial crisis and your kid's education…

For those short-sighted people who think that this financial crisis is all about punishing fat cats on Wall Street, think again. Via the Leiter Reports

Wachovia bank has frozen the accounts of nearly 1,000 colleges, leaving institutions unable to access billions of dollars they depend on for salaries, campus construction, and debt payments.

The freeze, which affects most institutions that invest their endowment income and other assets through Commonfund, has some colleges worried that they won’t be able to make payroll this period…

Take an hour to understand what's going on

A group of Princeton economists look at the causes of the financial crisis, and what should be done about it. (And when!)

(This is also available on iTunes U.)
It looks as if the really urgent steps have already been taken – nationalizing Fannie, Freddie, and AIG – and we can afford to spend a few days getting the next steps right. As Paul Krugman observed, we actually have a fair amount of experience in dealing with financial crises, and we ought to relate the current events to known patterns and solutions, rather than making things up as we go along.

Term of art: "fraudulent conveyance"

Andrew Sullivan posts some thoughts by a reader on the proposed financial bail-out.

Third, the administrations proposals continue a process of socializing loss and preserving profits and distributions, many of which were made with full knowledge of the pending losses. When management distributes illusory profits to insiders in full knowledge of a massive loss, this is called a fraudulent conveyance, and in equity proceedings such distributions are routinely recovered for the creditor mass. There should therefore be a careful scrutiny of distributions of profits and bonuses by failed firms.  The bailout we now see may mean effectively that taxpayer money is subsidizing the purchase of macmansions and Bentleys by investment managers who behaved irresponsibly. 

First thing we do is shut down the rating agencies

Wisdom from Michael Thomas in Forbes.com today:

As I pondered, the thought came to me that if there are particular culprits who are conspicuously and flamingly behind Wall Street’s unholy predicament, and who bear continuing responsibility for its day-to-day worsening, they are the rating agencies. Which leads to the logical conclusion that perhaps the best thing Paulson, Bernanke, Geithner, et al., might do in the present crisis would be to shut down Moody’s and Standard & Poor’s.

Going back three years, at a minimum, any reader of my idol James Grant would have been struck by the undisguised scorn he heaped on the two agencies’ ratings of various structured debt instruments–ratings that were based on “models” that premised that in a ziggurat of crap, the highest layer deserved an AAA rating because it would be the last to stink up the joint.

Ignored was what seemed to me self-evident: Crap is crap wherever and however you stack it. And yet, having gulled both the innocent and greedy into massive purchases of this “AAA” (sic) garbage, they still rule. From day to day, markets convulse in anticipation of, or reaction to, the agencies’ changes in the ratings of AIG and others.