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Technorati"What were they smoking?" asks the cover of the current issue of Fortune magazine. Underneath the headline are photos of recently deposed Wall Street titans, captioned with the staggering sums they managed to lose.
The answer, of course, is that they were high on the usual drug — greed. And they were encouraged to make socially destructive decisions by a system of executive compensation that should have been reformed after the Enron and WorldCom scandals, but wasn't.
In a direct sense, the carnage on Wall Street is all about the great housing slump.
This slump was both predictable and predicted. "These days," I wrote in August 2005, "Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn't seem like a sustainable lifestyle." It wasn't.
But even as the danger signs multiplied, Wall Street piled into bonds backed by dubious home mortgages. Most of the bad investments now shaking the financial world seem to have been made in the final frenzy of the housing bubble, or even after the bubble began to deflate.
In fact, according to Fortune, Merrill Lynch made its biggest purchases of bad debt in the first half of this year — after the subprime crisis had already become public knowledge.
Now the bill is coming due, and almost everyone — that is, almost everyone except the people responsible — is having to pay.
The losses suffered by shareholders in Merrill, Citigroup, Bear Stearns and so on are the least of it. Far more important in human terms are the hundreds of thousands if not millions of American families lured into mortgage deals they didn't understand, who now face sharp increases in their payments — and, in many cases, the loss of their houses — as their interest rates reset.
And then there's the collateral damage to the economy.
You still hear occasional claims that the subprime fiasco is no big deal. Even though the numbers keep getting bigger — some observers are now talking about $400 billion in losses — these losses are small compared with the total value of financial assets.
But bad housing investments are crippling financial institutions that play a crucial role in providing credit, by wiping out much of their capital. In a recent report, Goldman Sachs suggested that housing-related losses could force banks and other players to cut lending by as much as $2 trillion — enough to trigger a nasty recession, if it happens quickly.
Beyond that, there's a pervasive loss of trust, which is like sand thrown in the gears of the financial system. The crisis of confidence is plainly visible in the market data: there's an almost unprecedented spread between the very low interest rates investors are willing to accept on U.S. government debt — which is still considered safe — and the much higher interest rates at which banks are willing to lend to each other.
How did things go so wrong?
Part of the answer is that people who should have been alert to the dangers, and taken precautionary measures, instead blithely assured Americans that everything was fine, and even encouraged them to take out risky mortgages. Yes, Alan Greenspan, that means you.
But another part of the answer lies in what hasn't happened to the men on that Fortune cover — namely, they haven't been forced to give back any of the huge paychecks they received before the folly of their decisions became apparent.
Around 25 years ago, American business — and the American political system — bought into the idea that greed is good. Executives are lavishly rewarded if the companies they run seem successful: last year the chief executives of Merrill and Citigroup were paid $48 million and $25.6 million, respectively.
But if the success turns out to have been an illusion — well, they still get to keep the money. Heads they win, tails we lose.
Not only is this grossly unfair, it encourages bad risk-taking, and sometimes fraud. If an executive can create the appearance of success, even for a couple of years, he will walk away immensely wealthy. Meanwhile, the subsequent revelation that appearances were deceiving is someone else's problem.
If all this sounds familiar, it should. The huge rewards executives receive if they can fake success are what led to the great corporate scandals of a few years back. There's no indication that any laws were broken this time — but the public's trust was nonetheless betrayed, once again.
The point is that the subprime crisis and the credit crunch are, in an important sense, the result of our failure to effectively reform corporate governance after the last set of scandals.
John Edwards recently came out with a corporate reform plan, but it didn't receive a lot of attention. Corporate governance still isn't regarded as a major political issue. But it should be.
Paul Krugman is Professor of Economics at Princeton University and a regular New York Times columnist. His most recent book is The Conscience of a Liberal.
© 2007 The New York Times
76 Comments so far
Show AllGood idea MARCO, it probably wouldn't fly though, I mean who could ever get it started.
Mr. Krugman styles the current crisis as mainly a matter of greed - excessive executive compensation - "corporate governance."
But -even though his latest book portrays him as a "liberal," there is no hint of a suggestion on his part for DIRECT relief for the tens thousands of people lured into buying homes whose monthly payments they could not afford as their monthly mortgage payments escalate due to interest rate adjustments.
Dean Baker has suggested a government program to permit such homebuyers to stay on as renters at a market rental. A better idea is a federally-guaranteed emergency loan program with locked-in, lower-than-market interest rates.
Such a program would, of course, amount to rewarding such homebuyers for bad home purchase decisions - a "moral hazard." And, it would probably have to be be devised so as also to underwrite the holders/seller of these endangered mortgages, in the "sliced-and-diced" CMO form (and other forms) in which they've been marketed worldwide - another moral hazard, on top of the direct bailout of the banks and speculators (hedge funds,e.g.) given thus far by the federal reserve.
But such steps will probably have to be taken to avoid the millions - perhaps billions - of dollars in direct economic costs and in social disruption would result from the predicted defaults of so many homeowners.
I don't wish to seem rude, but liberalism is more than "I-told-you-so" Chicken-Little ranting in newspaper columns and on the internet by academic or media-bound lukewarm neo-Keynesian economists like the estimable Paul Krugman and Robert Shiller.
Liberalism -at its most potent, as in the FDR-"New Deal" version which saved the U.S. from class warfare in the 1930s - that New Deal liberalism -- warning, what follows here is a dirty word, even to many liberals at the New York Times - means "PLANNED," directed intervention in a modern economy in such a way that said economy functions in an equitable, efficient and non-self-destructive manner. It functions with capitalist means but a socialistic aim: "business and finance and ecnomomics AS IF PEOPLE MATTER.("Regarding "non-self-destructive" - i.e., modern interventionist liberalism gains an insight from both Marx and from Keynes - and others - that the "price system" [alternate tag for capitalism, courtesy of Thorsten Veblen] can and does inevitably function in ways both directly destructive to itself - and indirectly destructive to itself - in the second case, by destroying the socio-political systems in which all centralized, instituionalized controlling operations, be they government, business, finance, the mass media (in our culture) - even religion ( in some societies) - are embedded.)
"Oversight," "transparency," "corporate governance reform," even "regulation" - they are not enough, however badly deficient the current highly financialized version of capitalism we are now stuck with needs all four of them. "Planning" as described above is essential to avoid a major socioeconomic crash in the U.S. in the next generation.
Tese guys for the most part don't worship Mammon...It's Baal. The moneychangers from Christ's day have only become more hitech. Same tribe
In spite of what caused these banks, bankers and mortgage brokers to take an immoral plunge into this debacle, a small but growing number of people are leaning toward a negative growth economy.
A negative growth economy makes sense in many ways, if the idea won't please any of these typically Libertarian economists today.
A negative growth economy would eventually end the war, if the demand for oil declined considerably, and if the demand for everything else went down too. A negative growth economy would end much of the greed is good paradigm of our existence. There would be an end to bubble economies.
Still, the most appealing aspect of the movement toward a negative growth economy is that we all would be taking a moral step toward preserving something of this world for the future.
Don Robertson, The American Philosopher
Here's a great idea... Let's outsource millions of jobs to Asia and import tens of millions of "non documented workers" to take whatever jobs Citizens still have left then we can blame the Citizens of being bad credit risks as they default on their loans... Meanwhile, the banks can repo restate and get free cash from the Fed to further drive down the dollar so we can make the case for a new currency! We can call it the Amero!
Can you get behind the spirit of this wonderful idea?
While many of the still blind and ignorant stab fingers at the opposing political party in blame...a world government is being created all around them. Those who are bouncing endlessly off the walls of an illusion fail to see the false left-right paradigm that has been manufactured for them.
This manufactured and prepackaged illusion is like a cage suspended in the middle of a house of mirrors that reflects only images created by the corporate controlled media for their sponsors at the military industrial banking complex.
Everything that is happening is an illusion designed to rattle the cage of the false paradigm. The sheeple who live in the cage will react like lab rats and scurry through a prefabricated maze of staged events like 9/11, sub-prime and my favorite, the devaluation of the fiat dollar by a pain/reward response of less freedom more security.
Like all creatures who avoid pain the sheeple or lab rats, blindly stampede through the maze never knowing that their course was pre-mapped, pre-scripted and post-produced by their cage builders with lights, sound and the all inspiring music bed.
The poor and unsuppecting creatures or "useless eaters", as our cage builders like to call us, will be forced to race insanely through their gauntlant of perilous props until we all screech to a halt in a frozen awe and wonder at the glimmering spectacle and pageantry of our new cage of security...the AMERO and the North American Union. All bought to you by...our fine sponsors, world government Inc.
americas debt is a burden for the whole world
the sooner this rotten system collapses the better
Golden opportunities await those who know where to dig
For my bull or Bushs'?
Got shovel?
UhhHH FAZSHA,___ you forgot to post your address.
Anyone attempted to sell their house lately? The selling market is not real good at the moment and likely won't be good in the next four years, it's worse than 1982. For a goodly number, one half actually, they now owe more for their five bedroom, four baths, formal dining, bay windows, three car garage, with a tiny yard, than they could possibly sell it for. Over half of the adjustable rate mortgage holders are three months behind on their house payments.
Perhaps the best thing to do, is insure you have adequate insurance and pray for a tornado or forest fire. Take the money the insurance company finally offers, buy a tent and some sleeping bags, a fishing rod and run for the hills before the depression hits. No torando or forest fire, the prayers didn't hack the mission? Find some empty refrigerator boxes, stuff em with newspapers and get some candles at the dollar store. ___ Then pray again, ___ pray harder, Bush says it works. You can trust him.
I still like the idea of owning property to bury that gold under.
If we rent a house we can have both, and all of those attachments did need to go regardless.
Namast
Fazsha, by 'good capitalization' you mean no exposure to SIV's CDO's MBS's etc? Thanks!
I work in corporate accounting. More regulation doesn't work - we have regulation coming out our ears, and it didn't stop the derivatives mess. They will put in regulation, but negotiate language just vague enough to cause things like the derivatives mess.
So what do you do now, as an individual and as an investor. Here's my list:
1. Sell your home now, and rent. I promise you, you will be able to buy a home much cheaper in 4 years. Plus, you'll need to move anyway.
2. Liquidate your IRA and 401K to cash, and pay the taxes and penalty. If you don't, it will be sucked into a banking crisis eventually.
3. With your cash, have 15% in cold hard $20's in a safe in your house. Have another 50% in American Eagle gold coins, in a safe, in your house.
4. Take the other 35% and put it in two brokerage accounts, either Fidelity or Schwab for one (good capitalization) and a foreign brokerage like Europacific Capital for the other. Buy Proshares Ultrashort Financial ETF's with the Schwab account. Invest the Europacific account in Singapore Petroleum and Asian utility stocks.
5. Relax. You have now bulletproofed your portfolio. Live frugally and watch everyone else go through the carnage of bank runs, frozen brokerage accounts, repossessions, and hyperinflation. It will be ugly.
Hi RSJ. Dennis? not very likely unless the press faired up 1,000% and that is not likely either. (I never remember how to spell special K's his last name ether.)
Bet that sky diver was hoping. Of course it wasn't hope that saved him, ___ it was luck.
Kem, it's always possible we'll get lucky like that New Zealand sky diver and hit a bramble bush, breaking our 5,000-foot fall. I definitely know that no allegedly human named Bush will save us, so we'll just have to count on vegetation. (I know, it's sometimes hard to tell the difference.)
We can only hope Hillary, Barack or John Boy will transmogrify into FDR when they hit the Oval Office. Dennis is primed and ready, but can he get the votes?
Likely a lawsuit avoidance approach, which is in some ways IS good, to allow this site to stay open - for less controversial postings.
Please consider use of indirection, or leading similarly minded ones to a common electronic meeting place elsewhere, to be un-impeded.
Namaste
To site monitor:
You took down my noon posting. This is amazing. Common Dreams is now deleting posts that call for passive resistance in the face of this current bushco nazi régime. Amazing.
Right on AWAKEN, which is really a damn shame. Based upon the signs, I figure it will hit us about March or April of next year. I sincerely do "hope" we are both wrong. Hope is a nice word, and a necessity, when one's chute doesn't open.
ME ALSO TOO,
Please consider letting down the burden of pessimism, as there may be much BE'ing that we can accomplish without access to wealth, power and privilege. The HAVING and DOING portions of existence are floating upon the context of BEING - which we all have intrinsically. We need all hands "on deck".
The criminal enterprises bringing suffering to ALL can only have existence out of each us individually granting them acceptance, of their massive media distortions, propaganda, authoritarian control, fluff, materialism, and attachments. We do create our own world(s), in every moment and because its the overwhelming majority that suffer, we also DO have the power to make changes - all that it takes is BEING connection, abundance, and LOVE - and the rejection of the myths of scarcity and separation.
When we each move forward in committed action, aligned with a consensus and context of peaceful living, discounting the naysayers and dross of DARKNESS, we will gradually enlighten our load and lead each other to the LIGHT. Remember that we are HUMAN BEINGs 1st and foremost, spiritual souls living a physical existence.
We have a proposal to greet each as a blessing, celebrating and acknowledging each other's light, and this BEING in the ONENESS of the LIGHT. Please follow this link here to learn more about my salutation Namaste below.
Namaste
Its not that complicated.....this happens when government doesn't do its real job. It happens when you let buffoons like Cheney, et al deregulate business and cripple oversight. These regulations were put in place after the Depression for a good reason.
Goliath is falling.
What will happen when masses of people realize they can, or because of circumstances must, stop paying bills to the banks and creditors? There will be a meltdown that makes the Great Depression seem like a mild "correction". This is the looming crisis that will bring big changes. There are not enough bill collectors in the world to convince people to pay bills they don't have the money to pay. Credit ratings are meaningless to folks in that position. As long as the illusion of endless credit and the need to pay on it exists the bubble continues. I think it is about to burst. The housing crisis was just the first little pop in the big bang.
Kem wrote: "We need a king or a queen. Or, one who could handle both roles. As long as we have one who isn't evil, selfish, a damn crook and stupid."
Kem, if it's any King besides B.B. or Queen besides Latifah, we're in for trouble. Of course, electing the Queen of Mean, Leona Helmsley, as our first US Queen-For-Life has certain entertaining aspects to it, now that she's dead, especially changing the national motto from "E Pluribus Unim" to the more truthful, "Only Little People Pay Taxes!" -- why, just think of all the defaced statuary!
OneParty wrote: "Reading the fine print might work if most people could understand it. Most people cannot. The Corporate Party (most Dems and most Repubs)could change this, if only they wanted to."
Years ago in my Age of Computer Innocence, I signed up for a free trial of AOL. I read the fine print where it said your credit card would not be charged for service unless you authorized the charge. I never authorized any charges and, when the free trial was up, I tried to cancel my account at the AOL home page, AKA the Orwellian Nightmare. Every time I clicked on the button to cancel, it sent me to a page thanking me for choosing AOL and listing all the benefits of AOL membership. I finally called the miscreants. Two shaves later, I got someone on the line from Billing and told them to cancel the account; they told me I had to go online to cancel. (See above.) Ultimately, after much frustration, Mrs. Himmler in Billing said she would cancel my account. A month later a charge was on my credit card bill for a month's AOL service. After much wrangling with my credit card company, they finally refused to pay AOL. Then the calls started from AOL Billing, trying to get me to either pay for a month of service I didn't want or to upgrade my account. I won't bore you further, but reading and understanding the fine print often means nothing. I'm not the only one who has had these kinds of experiences with AOL and other US businesses not living up to their end of the bargain.
"I think the solution to the world's problems is to shoot everyone wearing a necktie, but be sure to get the red neckties first. Try it, and you'll see that I'm right!"
Grousefeather, good idea, but I'd go after the yellow 'power tie' club first. Personally, I only wear a necktie when attending weddings and funerals which, if you think about it, are eerily similar events.
I think the solution to the world's problems is to shoot everyone wearing a necktie, but be sure to get the red neckties first. Try it, and you'll see that I'm right!
The last/'great' Depression was rigged, also -- and 'equalized' the massive war&NewWorld-profits back-overseas (along with most of our gold, made available by the blackmailed-Wilson -- forced to support both the FedReserve-scam and our entry into a 'Balfour-inspired'-war). But that depression served many-purposes, otherwise -- including laying the groundwork for entry into the next/'great'-War (serving same-Interests, btw), as a revitalized/massively-'energized', and focused war-machine/economy -- as the world had never-seen.
So, don't look for 'one/primary-Motive/beneficiary' back any of 'This' or 'That' that rightfully-disturb you. Look for 'many' -- as most Policy and bad-Governance is at a Nexus of disparate (but surely Interest-serving) Machinations.
http://www.ahealedplanet.net/savings.htm#enron
The-above gives real-insight into the fraud behind most-changes/Deregulation since WW-II (especially when coupled with the man's Historical-insights/interpretations -- see Index and Links). A long-read, but part of the grounding needed to actually 'understand' what has happened within our once-comfortable 'World' -- and our place-in-it.
The Complexity behind 'neo' Politico/Economic-steering is part of what enables-it. Most Americans are too-engaged on their 'treadmills' (or have too-much to 'lose' by any struggle-against), and/or are too 'dumbed-down' or confused/divided to unbalance their over-simplified 'world-view'/self-image -- the Public, therefore, cannot Unify to defeat changes that already have 'great Inertia', and work in-concert. And, all these 'changes' are so-rapid, that once one 'responds' to One, Two-others are already 'sneaking-through'.
What is 'wrong' is, essentially, what is also 'right' -- Capitalism, and its corporate-enactment. But, a Capitalism that is now controlled/steered due to its 'Checks/Balances' and needed-Regulations having been long-gutted. This allows a tiny-minority (if/when acting with deliberateness and in-concert) of the 'already-Empowered' to tilt the playing-field in any direction serving their Interests. 'They' are now unfettered by past-needs to serve any Public-Interests proportionate to their-own, and that has 'given wings to their dreams' (leaving the rest of us to die in the Dust).
Solutions generally-forwarded here range from the naive/partial to the ridiculous. I believe that is primarily due to the extremes of 'divisionary-tactics' that this System has deliberately-fostered (with our 'two-party'-joke, demise in Education, MSM-input, Propaganda, injected 'Generational-Gaps', etc.). The 'Interests of the Many' simply have no-chance for being addressed -- although far-Greater/more-Legitimate, their strength is their-weakness. This is because they cannot Unite into a cohesive/shared 'force' in exerting/obtaining their Will (while the tiny-'Them' can easily decide on their-Interests and manipulate all-others into inadvertent 'cooperation').
I can't imagine what it would take, at this juncture, to 'turn the tide'. Mass-education and a cooperative/unified-Demand for the return to an acceptable-degree of 'Public-Interests, Served' seems like an 'impossible dream'. Results for the "American Experiment" are in -- the People have long-lost and will "inherit the wind", and a few/new aristocrats and corporate-Interests will then move-on to join old-Peers in leading the masses with the 'actualized'&tired Old-'Mythos' ('Enlightenment' has ended).
[It could/should have been 'different', methinks...we Americans failed in 'guarding-well our real-Inheritance'...]
Link to the following article written in September.
http://articles.moneycentral.msn.com/Investing/SuperModels/AreWeHeadedFo...
NSPIRE Well said and more succinct than I can get. shall take some lessons from you and GEOFF29. Blessings to all!
Last time I read the fine print it was for the asthma medicine I was prescribed, and that was pretty insomnia inducing.
That is right. It is very fine and gobbly guke to all but an experienced attorney.
Reading the fine print might work if most people could understand it. Most people cannot. The Corporate Party (most Dems and most Repubs)could change this, if only they wanted to.
My cousin did that and made his payments at the local bank every month. After about a year he made a payment on a Saturday, the day BEFORE it was due. However the payment wasn't posted to his account until Monday, and so he had a LATE payment. Due to that late payment, they upped the 1.5% interest, to 24.9% and he never could get it straightened out. It also showed up on his credit report, which lowered his credit 'score'. Another perfect example of, READ THE FINE PRINT.
The executive elites, corporate cronies, speculative manipulators of massive funds, are the tips of a bigger iceberg. If the top exec gets multi-millions, what about the boards of directors and top ranking officers who select him? Each of these must expect big slice of the pie, and certainly expect that the top exec will reward the people that he politically depends on. So its a pyramidal gravy train a fair way down. The question is, what is the total administrative renumeration. And then there is the question of insider knowledge, the information network within and between corporations, the deals gossip that is not shared with the media till later. Probably the laws on options and share trading, are both lax in coverage and enforcement. Be sure that no one is going to go hard on CEO remuneration when their many hands are also grasping in the pie. The victims are those on whom the system is designed to prey on to feed the hungry maw of the top end. Designed, as in consciously, callously and criminally. No one on the receiving end of the money conveyer belt could have any doubts about what the system is for.
Kem, don't buy a piggy bank, buy euros - it's probably a better investment at this point then burying your money in the back yard. Also, when you are forced to emigrate looking for some kind of safety/security, you'll be carrying convertible cash rather then junk bonds...
On the original subject tho of banks being in real trouble and the credit crunch that is bound to follow the housing market bust, I have a big question:
How come I cannot pick up my mail without finding credit offers of 0% interest credit, sometimes for as long as a year? I know they are gambling that I will run up a large balance that will exist forever - long after the original 'free money offer expires.
Yet, the smart shopper might be advised to use the banks free money while buying euros with their own hard earned cash. At the end of the 'free money' offer, they can pay off the loan with devalued dollars, and make a few buck on the transaction.
The kicker is to pay off the loan when the 0% ends, and not to use the card for daily living expenses
That may be easier said then done!
Dear Paul Krugman:
How about the fact that the US government charged with providing American citizens with a "useful" currency, a kind of technical financial tool or technology, is providing them with money that is not holding value in world markets?
Don't you think it is about time that international treaties were made, controlling the speculation on foreign currency markets in order to protect consumers, who have to use the convenience of currency, from what is now shaping up to be a large scale currency fraud actually spawned by the government itself - a government that keeps lowering rates to encourage just the kind of usurious money market that has caused the tragedy in the housing market.
At the heart of this problem is the abuse of currency technology and government banking in order to finance the business dealings of a limited class of supercapitalists on wall street. The "trickle down" phenomenon was passed on to unsuspecting homeowners in the form of usurious loans. But at the top huge amounts of "funny money" were dealt out to fatten the hands of powerful interests who are most likely busy propping up or creating monopolies across the world financial landscape.
Of course, little matter if these "rubes" who took out mortgages are ruined. Pharoah will come back to soak up all useful capital assets with another round of funny money printed by Pharoah for Pharoah and his buddies.
Just as the advent of a person such as Hitler makes it ridiculous to talk about government, when in reality you now have criminality taking government's place, so the abuse of the American financial system by crooks makes it absurd to talk about "economics" or "capitalism" or "free markets," etc.
This game is rigged by crooks. When a game is rigged, it's no longer a game. Actually, it's a war. You can't bet in a rigged Casino. You can call it a bet, but it's not a bet.
Paul Krugman: There is no real economy. There is no banking system. There are no free markets.
Right now, there is only one party, just as there was in Iraq. And the leaders of that party are living in houses where the faucets are made of gold, paid for by the funny money that has been printed up at the treasury and fed into their bogus businesses. American taxpayers have been providing the collateral for the bogus loans that the uni party system has been paying to its bosses to help them dominate world capital and world power.
This entire enterprise has a name: "The War on Terror."
We need a king or a queen. Or, one who could handle both roles. As long as we have one who isn't evil, selfish, a damn crook and stupid.
Added thought...."that affect the wallets of us regular folks vs the high ranking hignly paid corporate bosses" OR THE POLITICIANS WE ELECT THEMSELVES?
Broader than this particular subject, but includes it. Is there a real difference between the Dems and the Repubs on many, or any, subjects that affect the wallets of us regular folks vs the high ranking hignly paid corporate bosses? Have the Dems done anything but make promises and "called for" reform? Have they achieved the votes and put into effect any of the reforms suggested by Paul Krugman or others with sensible solutions? Are the Dems really legislatively "outmaneuvered" by the Repubs, or do they just play act to keep those of us hoping for real reform voting for them while they too pocket dollars from the megacorps?
Hi KEM,
Please don't "temp the Gods" with such sarcasm, not only is there always room for hope, but contrary to naturally imposed limits in the positive directions - there has never seemed to be any 'door stops' when going the OTHER way.
And besides,'always and never are two words that we should always remember never to use'.
Namste
Hi RSJ, paper ballots too, paper and pencil only with two of every side counting every sngle ballot.
It couldn't possibly get worse.
herbert r chersonsky-it's not just the multi-national corporate oil profits that are soaring, it's our money flying to foreign oil producing countries (and mostly to their rich elites). T Friedman was right about one thing: we should impose a dollar tax on every gallon of gas sold in America. And as I see it, that tax should go higher in the near future. At the same time, the income tax on incomes of less than about $100,000 should be eliminated. Energy and pollution should be taxed, not the work of average Americans.
It also explains the nexus of bedfellows: endless contracts for the m.i.c., security for AIPAC's interests, and new fields for Big Oil/Energy. And each of these controls its share of the MSM as well.
curmudgeon99: One could almost make the case that the continuing war in Iraq's is driven by the greed of the military-industrial complex.
Almost? Greed was clearly the reason for starting it, and is absolutely the reason for continuing it.
Kem, I agree with your proposals, except I'd pick the candidates for office out of a hat. For the GOP, conservatives would toss their names in that hat; Dems would toss their names in another, and Independents in a another. (Perhaps we could even have a fifth hat for crazies.) No campaign donations allowed and the candidate could only spend $100 of their own money on campaigning.
Once the candidates for office had been selected from the various hats, they'd have a month of free TV time (maybe a half-hour for each candidate every other day) to promote their ideas. No slick campaign ads, they'd have to speak for themselves before a black background, but they would be permitted to use charts and graphs to make their point. The day before the election -- Election Eve, a national holiday along with Election Day itself -- there would be a marathon five-hour debate between all of the candidates with the questions coming from citizens around the country and the candidates themselves.
How could we do any worse under this system than what we have now?
Corporate Devaluation Tax.......
Since 2003, the American Public has been paying a "Corporate Devaluation Tax" at the gas pumps.
The U.S. dollar was traded at $.89 for 1 Euro in 2001. Today the value is $1.48 for 1 Euro......a drop of $.59 that is a devaluation of over 60% and the dollar is expected to sink to $1.60 for 1 Euro by the end of the year.
Oil companies did not absorb that devaluation and their profits are so obscene that they keep quiet. Yet, Americans go to the pumps and pay that new tax, "Corporate Devaluation Tax".
Oil will soon go over $100 a barrel and the corporate profits will soar too.
Mr. Krugman points to "Greed" as a root cause of many economic failures. Yet the designers of those failures all walked away with fortunes.
The American Corporate Capitalist could care less about the "People of the United States". "Greed" has taken over the government and all policy making groups. Democrats and Republicans who wish to remain in Iraq want to continue the theft of the Middle East´s Oil and the expansion of the Military Industtrial Complex so that they are guaranteed a continual flow of money. They all want Dick Cheney´s "Consultant" Fortune that he will receive once he is out of office.
Over 4,000 Americans have died supporting a policy of "Greed and Theft".
Over 1.2 million Iraqis have died since 2003 and over 4 million Iraqis have left their country and sought refuge in neighboring countries (British Studies).
The Invasion of Iraq was proposed and begun after a series of lies by noted conservatives and government officials. The Invasion of Afghanistan was planned after the Taliban, who were supported by the United States, decided to give the oil pipeline contract to Bridas Oil Company of Argentina.
If anyone researches "Operation Cyclone", they will discover that the United States and Saudi Arabia did the initial recruitment of 100,000 Islamic Militants in the 80's and 90´s and continued to pay, arm, and train them long after the Russians left Afghanistan. WHY ?
Two cents is about what it is worth.
With all things considered. I would vote for a Ron Paul/Dennis Kucinich ticket. I think Paul wants us out of Iraq immediately, and he wants to abolish the Federal Reserve (The originator of this whole financial mess). I bet he'd even go after the CEO crooks. And I doubt he'd pardon Bush. Of course Kucinich would fix our dismal health care system and I think the combination of the two (Republican/Democrat) would somewhat unite our country.
But if they weren't available, I'd consider Clinton/Gore. Clinton's useless other then the press is in her lap, but Gore would bring back the electric car and I'd bet we would all have solar on all our roofs by the end of their administration.
~ My 2 Cents.
Wish George Washington had taken up on the offer to be the king. Can you image him as our king, with Betsy in the Philadelphia castle sewing his britches and Martha sitting in the mansion widow's nest in Virginia.
No, we never achieved a full Democracy, but for awhile, it was perhaps far better than the rest of the world's governments. When Bush stole the first election it was still not half bad. He sure screwwed up the other half in a hurry.
We should be so lucky if it were aristocracy (in the Greek sense). That is, government by the experts. Rather, we have a largely hereditary plutocratic oligarchy, backed up by an autocracy.
Democracy never was. All forms of representative democracy ceased being "democracies" (in the sense that it is government by the many...the people) when suffrage was expanded beyond propertied white men.
IMO, what's sad is that Americans have been led to believe they have a democracy when you've had an aristocracy at best. Don't certain families dominate the polity (Adams, Roosevelt, Kennedy, Bush, Clinton)? Aren't incumbents most likely to regain election? So, if there is little opportunity for the renewal that democracy calls for, how can it be called "democracy"?
Saddest of all, is the almost century-long quest to export this aristocracy in democratic clothing to the rest of the world.
I didn't mean to be a downer. Although that's kind of a funny apology to be making to folks on this site.
I agree. I agree.
And we really need some serious election reform. We need to create a national fund for campaigns, everyone gets the same amount of cash, totally ban TV commercials completely, and pass legislation requiring all media outlets to devote so many public service hours each week to debates and election coverage of each candidate.
I'm old fashioned, but I also can't give up on the idea that Democracy could work, if only we could respect it.
That was really sad......
Democracy could work. For starters we would have to prohibit lobbying at all levels of government. Next initiate a Quality Control Division instead of a corrupt FEMA. Quality Control would answer to only 'we the people', our Supreme Court and the President and our press with monthly reports. They would have the highest security clearances and nothing could be hidden from their eyes.
Then we must revise our election process and insure no one anywhere could serve more than eight years in public office. No one. Revise our election campaign contributions and all of Congress would pay into social security and their health care benefits would be the same as all. It would not take long for them to insure we all had a decent health care program.
I'm gona stop, before I bore everyone to death. Anyway, if we wished it to be, Democracy could work. We never gave it a decent chance, since about 1790.
I'm feeling it coming.
On Thanksgiving day, my dad, a conservative who had previously voted for Bush, told me he thought the whole government, democrats and republicans alike needed to be thrown out. My dad, a McCarthy-era guy, my own dear dad who I rebelled against as a kid, said a thing to me that made me very sad. He said: "Democracy isn't working anymore. This system just doesn't work." And he was sad.
My conservative aunt agreed, so did mom, who's not so conservative. It wasn't like the 1960s, no generation gap. Nope. It was a completely new kind of gap. We all sat there for a moment in silence, the young, the old and the sort of old, and felt a collective sense of loss.
Rick, you're right and I forgot to add that to my post concerning the origins of our downhill slide. Reagan's deregulation of the banks and S&L's also contributed as well as the slash-and-burn corporate raiding of Dunlap, Henry Kravitz, et al, and the junk bonds of Michael Milken and Ivan Boesky and their ilk. (BTW, Milken spent some soft time in a country club jail for his crimes, but still had $400 million when he came out. Meanwhile some poor putz who embezzles a few hundred from the company cash box does hard time and loses everything. Go figure.)
Our current economic and investment system is built on worthless paper, for the most part, and it has lasted this long because insidious happy-talk liars like Greenspan continued to inveigle lower rank investors to keep sinking their money into CDOs, hedge funds and the like, all the while knowing that eventually they would lose out when the house of cards blew over. A gale force wind just hit it but, as Kem pointed out, the useless dimwits who provide economic news are loathe to use the 'D' word -- they couldn't even bring themselves to call the last recession a recession until it was over. (Except it never really ended -- just more little fish threw themselves into the Wall Street frying pan and more people bought homes and ran up credit they couldn't afford.)
China and Europe have begun taking quiet steps to try to insulate themselves against the massive 'realignment' of the US economy, but I don't think that will save them from the backwash. We're simply too big a market and even our badly weakened dollar still has some influence.
It will be interesting to see the reaction of the Dem presidential candidates when the effects of a full-blown depression hit Main Street, as they already have in many places.
A disabled Vet is ordered by the Army to return portions of a signing bonus; but, a hapless nincompoop CEO keeps what he gets from pretending to be a competent manager. Seems odd!
Incompetence is only a conclusion one would draw if he were entertaining a cognitive dissonance of sorts. For instance, if we assumed that the derelict politicians and corrupt/greedy bankers were trying to engage in a sustainable economic model, keep the engine humming, etc. then yes -- we might conclude that something went horribly wrong.
But if we suspect that they were just fattening the pig, as they did prior to the '29 collapse, and prior to the S&L collapse (deregulated by Bush, Sr. under Reagan -- search on the "Council on Competitiveness"), then we are not obliged to conclude that they were incompetent, derelict, etc.
On the contrary, we're led to conclude that they are running the US like a pirate "runs" some unsuspecting/ill-defended village. It's a pillage & burn operation -- economic sustainability doesn't enter into consideration.
They let me out Pacplayer, I yelled out that I loved Cheney and that was enough for them. They said I must be crazy and they feared for their safety.
Right on REDJEFF, of course oil is now over $99.00 a barrel and rising. The price of food is a real biggee too. When the cost of necessities rises sharply, shelter, fuel and food, and they sure have, and not just risen, they have nearly doubled in the past 18 months or so, then we are in big trouble. Add in the continual drop of the dollar's value, the enormous credit card debt, loss of jobs and we are on the verge of a depression. Not a recesion, a depression.
Of course the 'smart money gang' don't want to publically use that big 'D' word. Ever see three or four money wizards discussing it on TV? Three wizards, three opposing opinions, but they are all very concerned and their false smiles are painfully obvious.
The problem for homeowners is not just the skyrocketing mortgages, not just their deep consumer debt, but also an oncoming avalanche of gasoline and home heating prices. Also, everything else is going up in price because of $90/barrel oil.
Wait til all this hits the fan just as the primaries and caucuses begin. 2008 will be an interesting year.
Really KEM? Talk about a violation of the first amendment!
War is peace
Crazy is normal
normal is crazy
Give us the address and we'll bust you out buddy.
I believe you, I'm putting my piggy bank out in the cave with my other supplies, ___if and when they let me out of this stinkin padded cell.
I know the banks are in BIG trouble, all of ours were closed up tight yesterday. I stood out in the street yelling at the top of my lungs, __ DEPRESSION-DEPRESSION, __ some cops picked me up and took me to this hospital.
The current financial debacle, is the result of the deregulation of the banking industry which Reagan oversaw, many of those regulations were put in place after 1929 crash to prevent it from happening again. Guess what?
Recently, an executive from Wells Fargo, made the statement, "that the housing collapse we are presently experiencing is the worst since the depression."
The media keeps referring to it as the sub prime mess, but it is much more then that.The subprime housing market is just weakest link in the chain, so it started collapsing first.
What is at the heart of it is SIV's ( Structured Investment Vehicles) ,CDO's and MBS's and other acronyms, which some have estimated to be somewhere in the area of $485 to $500 trillion dollars worth world wide and with only about $60 trillion in worldwide
GDP to back it up, you do the math. You got a real problem on you hands.
There is about $900 billion worth of credit card debt which a lot is also backed by SIV's,just wait till that starts to go south along with the subprime loans.
The banks are in serious trouble..
Buy a piggy bank.
THE AMERICAN CORPORATE MANAGEMENT LABOUR MARKET IS A CARTEL.
And it has been such since the arrival of Ronald Reagan and his neo-conservatism in 1980. I do not know whether Paul Krugman has said this so bluntly elsewhere, but it is only hinted at here.
See, the corporate management cartel fights like starving tigers for "globalization" and "global free markets". That justifies outsourcing and open borders to depress wage demands for the working and middle classes.
But when it comes to top executive labour such as CEO's, vice-presidents etc., American management demands ten times the pay of European CEO's and hundred times as much as Singapore, Hong Kong and Indian (all english speaking) CEO's. In truly free markets such differentials in price of truly mobile human labour with identical talents is impossible. Ergo, upper level mamnagement labour in America are protected as an implicit CARTEL by laws passed by their cronies in Congress from the discipline of "free markets" that they foist on the mass middle class labour markets.
All this corporate fraud such as the current subprime housing crisis, financial crisis etc. created by top level golf-playing, mostly know-nothing CEO'S since 1980 can be resolved easiliy if American Executive markets open up to competition from Europe and Asia.
Without that all fraud and mismangement regulation is nothing but pieces of paper and an invitation to foist more sophisticated con games on a financially illiterate public.
Yes Paul, corporate management should be THE central political issue since it produces incredible financial turmoil and worse, spits out alumnii such as Bush and Chenney.
I hope you Paul follow this up in future articles. You have the podium.
Another Economist with a conscience
Much of what Krugman alludes to started back in the days of 'Chainsaw Al' Dunlap and his ilk, parasites who made a career of taking over companies (or being hired by them), slashing employees, and selling off whatever was in the warehouse. For a couple of quarters, the company made obscene amounts of profit and the shareholders were happy but, by the time the Dunlaps had moved on, the company was gutted and went under. Short-term gains were king, and that's the basic model these modern conglomerates operate under. The long-term health of the company, and our economy, was not their concern.
As I see it, we need five things to start to change this downward spiral:
1) Regulations to prevent parasites like Dunlap from ruining our economy by cutting jobs and destroying businesses. This could partly be accomplished by items 2 and 3 below.
2) Open elections for seats on corporate boards and an end to the practice of holding stockholders' meetings in strange locations and at odd hours. In this electronic age, there's no reason all of the stockholders of a corporation cannot vote by email or through a website to elect corporate officials and the salaries to be paid them. This would help end the practice of stuffing boards with the CEOs golfing buddies and help cap excessive executive pay and benefits, as well as enforce accountability in other areas of corporate board perks.
3) Reward via tax cuts companies that stay in business and provide jobs; for any company that is put out of business and left a shell by the Dunlap types, those in charge of ruining the company will pay a tax penalty out of their salaries.
4) Stricter corporate charters mandating that any company doing business as an American company be required to pay taxes here. No more off-shore havens to hide profits.
5) And this is the hardest one: Impose tariffs on foreign goods and services equal to what the company would have paid to hire an American company or worker at the prevailing US wage to do. This would reduce slave labor in other countries and only raise the price of our purchases marginally.
As far as the health care system, I see no recourse to junking the for-profit system that serves the big corporations but not the patient. Universal health care is the only workable answer, and the Canadians and Europeans have given us the blueprint for how it is done. If some Americans also want to pay for high-priced HMOs or private doctors, that's their affair, but the basic health care system must be open and available to every citizen, regardless of income.
I could smell this disaster coming when our government sided with the moneylenders to gouge the public with the new 'bankruptcy' laws. The claim was that some people might fail to repay their credit cards after paying for exorbitant healthcare bills. Now these filthy rich billionair loansharks want to stick the public for their billions. Thanks congress! When's election day?
Greg R
You're right about one thing and one thing only. The politicos will never stand up to the private insurers. Insurance companies deal in one thing and one thing only - money. This vast pool of cash is funneled into the equities market. Perhaps you've heard the term "institutional investor." They are all either insurance companies or their twin sisters, pension funds. To deprive the insurance companies of their huge asset base would cause a panic on Wall Street and send this phony economy into a tailspin. To think these companies are going to wither away under pressure from Federally subsidized plans is ridiculous.
The state of Massachusetts' insurance-based healthcare plan, which is similar to those proposed plans, so far has failed those it was most intended to serve.
According to statistics the families and individuals who couldn't afford insurance are still not buying their "mandated" insurance either. Because they still cannot afford it.
greg R.
Allow me to politely disabuse you of one bizarre notion.
Federally mandating that people pay "free market" companies for healthcare will not drive private insurance companies out of business.
Not sure how you came up with that one. There is no logical basis for it to happen. It never has and never will.
Personally, I always love a new law intended to force the individual to pay for profit companies money.
I am not speaking from "left" field. It's just that you can't fix a problem with the same problem. That is absurd.
I agree with this. Limited government is indeed baloney!
Americans do pay taxes. If you get a paycheck you notice a considerable chunk missing right? Our taxes are not that low. We don't have small government. We have an expensive, corrupt and incompetent government.
We now have government spending that exceeds what it was at any time in our history. And we are getting less and less for our tax money. More and more of our taxes get reappropriated to bribe foriegn leaders to serve corporate interests in the oil industry, the big Ag industry, etc.
And billions are now spent fighting wars that are basically corporate-motivated, although we are "told" we need the wars for our "protection". Really what we are getting is our own bankruptcy. We are getting into record debt as a nation.
On top of all of it, we will have to devote more tax money to helping injured and traumatized vets when they come home from Iraq and Afganistan. We spend billions so they get maimed and messed up, then billions more trying to remedy what we've done to our own people.
All of this costs tax money, from that standpoint we have one of the most bloated, ill-concieved spending policies ever known to mankind.
We already pay a lot of taxes, shouldn't the people who earn the money decide what it buys?
We are getting ripped off. Better to have programs for the poor, programs to benefit U.S. convicts, for Christsake reform freakin drug dealers, whatever. Instead of spening our money outside the interests of this country, buying Israel a military, paying off dictators overseas, funding the Blackwater CEOs, and the money-making war machine.
Why do we think we can afford keeping this up?
seriously, the big impediment to renewable energy is investment money. see the connection?
perhaps soon there will be a whole new category of job: food taster (poison tester) not to the king but to the ceo. great work creating jobs, repubs!
auspiciousbunny-most people on this site are waaaay out in left field. And many times my heart is in the same place. But, try to keep it real; Krugman does. We can all pretend that there's a chance that we could tell the health insurance industry that their time has come and gone, thanks alot, you can disappear now. Not a chance in hell. As Krugman states, getting a bit of public financed health care in place could eventually drive the private sector out of health care. Alternatively, the private plans would have to improve to survive.
We are now reaping the benefits of Reagan and Bush`s "limited government" baloney. Our federal agency`s charged with oversight in almost every area have been severely curtailed so we can enjoy freedom and taxes will remain low. Our rich rulers have taken care of their every want and guaranteed it will continue with total control of government functions and a rubber stamp supreme court to make it all legal. Of course, in case someone has been convicted as a criminal or traitor, there is immunity or pardon waiting. Just don`t think you can snitch a loaf of bread or get caught with a little dab of marijuana or you will get what is coming to you and will probably see the inside of a cell. Great country for CEO`s and politicians, right?
Good article.
Although this is off topic, I don't trust Krugman much after he devoted his time on Democracy Now the other week to trumpeting for insurance based healthcare reform ala Clinton & Co.
He should give some positive pen service to Kucinich. Maybe they won't let him there at the NYT?
Prof. Krugman is absolutely right that unless we reform corporate governance, we as a society are just going to keep getting in trouble. However, I think the problem is deeper than just corporate governance, it's not just executive pay and greed that is the root cause of this and many yet unforeseen economic disasters, it is the corporate structure itself.
We have created an entity with the sole purpose of maximizing profits and have this entity a role to play in our representative democracy. Sure, the corporations can't vote in our elections, but they are the biggest influence in Congress. Greed itself was the tinder, but the so-called "free speech" (campaign contributions) is the match. And with this mix, we can only expect more economic firestorms to come.
Gee. all they did was what any good ol' US of A CEO would do:
Worship at the feet of their god - Mammon!
Paul states so clearly - GREED, GREED
One could almost make the case that the continuing war in Iraq's is driven by the greed of the military-industrial complex.