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Tremble, Banks, Tremble
The key to financial recovery: restoring the rule of law on Wall Street.
The financial crisis in America isn't over. It's ongoing, it remains unresolved, and it stands in the way of full economic recovery. The cause, at the deepest level, was a breakdown in the rule of law. And it follows that the first step toward prosperity is to restore the rule of law in the financial sector.
First, there was a stand-down of the financial police. The legal framework for this was laid with the repeal of Glass-Steagall in 1999 and the Commodities Futures Modernization Act of 2000. Meanwhile the Basel II process relaxed international bank supervision, especially permitting the use of proprietary models to value complex assets-an open invitation to biased valuations and accounting frauds.
Key acts of de-supervision came under Bush. After 9/11 500 FBI agents assigned to financial fraud were reassigned to counter-terrorism and (what is not understandable) they were never replaced. The Director of the Office of Thrift Supervision appeared at a press conference with a stack of copies of the Code of Federal Regulations and a chainsaw-the message was not subtle. The SEC relaxed limits on leverage for investment banks and abolished the uptick rule limiting short sales to moments following a rise in price. The new order was clear: anything goes.
Second, the response to desupervision was a criminal takeover of the home mortgage industry. Millions of subprime mortgages were made to borrowers with undocumented incomes and bad or non-existent credit records. Appraisers were selected who were willing to inflate the value of the home being sold. This last element was not incidental: surveys showed that practically all appraisers came under pressure to inflate valuations in order to make deals happen. There is no honest reason why a lender would deliberately seek to make an inflated loan.
Mortgages were made with a two-or three-year grace period, with a low, fixed interest rate called a "teaser." These were not real mortgages; they were counterfeits, whose value would collapse when exposed. As with any counterfeit, the profits came early, when the bad paper was first sold. After the grace period, rates would reset, and the lenders knew that the borrowers, who were already stretched by their initial payments, would either refinance or default. If they refinanced, that would mean another mortgage origination fee. And if they defaulted, well ... on to step three.
Third, the counterfeit mortgages were laundered so they would look to investors like the real thing. This was the role of the ratings agencies. The core competence of the raters lay in corporate debt, where they evaluate the record and prospects of large business firms. The value of mortgage bonds depended on the behavior of tens of thousands of individual borrowers, whose individual quality the ratings agencies could never check. So the agencies substituted statistical models for actual inquiry, and turned a blind eye to the fact that the loans were destined to go bad.
Fourth, the laundered goods were taken to market. The investment and commercial banks transformed the bad mortgages into bonds, obtained the AAA ratings, and sold the stinking mess to American pension funds, European banks and anyone else who took the phrase "investment grade" at face value. (Later chumps would include the Federal Reserve.) The European crisis now underway is a direct result, as their banks and investors, stung by losses on American mortgage bonds, are dumping their risky Greek public debt and seeking the safety of U.S. Treasury bills.
When the crisis went public in August 2007, Henry Paulson's Treasury took every step to prevent the final collapse from happening before the 2008 elections, extracting billions from the Federal Housing Authority and from Fannie Mae and Freddie Mac to relieve the pressure on bank balance sheets. It worked until it didn't. In September 2008 the collapse of Lehman triggered the collapse of American International Group (AIG) and the steps that led to the Troubled Assets Relief Program (TARP) and to the effective nationalization of the commercial paper market, meaning that the Federal Reserve has become the primary short-term funder of major American corporations.
Upon taking office, President Obama had a chance to change course and didn't take it. By seizing the largest problem banks, the government could have achieved clean audits, replaced top management, cured destructive compensation practices, shrunk a bloated industry, and cut the banks' lobbying power and therefore their capacity to obstruct financial reform. The way to write-downs of bad mortgage debt and therefore to financial recovery would have been opened.
None of this happened. Instead the Treasury administered fake "stress tests" and relaxed mark-to-market accounting rules for toxic assets which permitted the banks to defer losses and to continue to carry trash on their books at inflated values. This reassured the banks that they would not be permitted to fail-and so back to bonuses-as-usual they went. The banks survived, and the administration today claims this "proves" they didn't need to be taken over. But to what end did they survive? The banks are bigger, more powerful, and moer obstructionist than ever-and largely uninterested in making new commercial, industrial, or residential loans.
Today the former middle class is largely ruined: upside down on its mortgages and unable to add to its debts. With housing prices low and falling, banks are delaying foreclosures because they don't wish to recognize their losses; it is a sick fact that the cash homeowners conserve by non-payment is one source of the anemic recovery so far. But construction remains depressed, state and local budgets continue in a death-spiral of spending cuts and tax increases, the stimulus will soon end, and exports may soon fall victim to international austerity and the rapidly declining euro. Meanwhile the deficit hysterics seem determined to block unemployment insurance and aid to states today, and to cut Social Security and Medicare tomorrow.
In this way, the financial sector remains a fatal drag on the capacity for strong growth. And the financial reform bills about to clear Congress will not cure this. The bill in conference has some useful elements but it is neither sufficient nor necessary to clean up frauds, which have always been illegal. Nor will it clean up private balance sheets and permit lending to restart. Still less will it set a new direction for the financial economy going forward.
What to do? To restore the rule of law means first a rigorous audit of the banks and of the Federal Reserve. This means investigations-Representative Marcy Kaptur has proposed adding a thousand FBI agents to this task. It means criminal referrals from the Financial Crisis Inquiry Commission, from the regulators, from Congress, and from the new management of troubled banks as they clean house. It means indictments, prosecutions, convictions, and imprisonments. The model must be the clean-up of the Savings and Loans, less than 20 years ago, when a thousand industry insiders went to prison. Bankers must be made to feel the power of the law in their bones.
How will this help the economy? The first step toward health is realism. We must first stop pretending that bad assets can be made good, that bad loans will someday be repaid, and that bad people can run good banks. Debt crises are resolved when debts are written down and gotten rid of, when the institutions that peddled bad debts are restructured and reformed, and when the people who ran the great scams have been removed. Only then will private credit start to come back, but even then the result of bank reform is more prudent banks, by definition more conservative than what we've had.
So yesterday's borrow-like-there's-no-tomorrow America is done for in any event; there will not be another bank-sponsored private credit boom. The housing crisis (and therefore the middle-class insolvency) won't go away soon. There is no cure for falling housing prices except time and patience; debt relief will at best stabilize the middle class. It follows that the private banks and dealers and borrowing by households are not going to be at the center of the next expansion.
We are in the post-financial-crash. We need to do what the U.S. did during the New Deal, and what France, Japan, Korea, and almost every other successful case of post-crash (or postwar) reconstruction did when necessary. That is, we need to create new, policy-focused financial institutions like the Reconstruction Finance Corporation to take over the role that the banks and capital markets have abandoned. Thus, as part of the reconstruction of the system, we need a national infrastructure bank, an energy-and-environment bank, a new Home Owners Loan Corporation, and a Gulf Coast Reconstruction Authority modeled on the Tennessee Valley Authority. To begin with.
A reconstructed financial system should finance the reconstruction of the country. Public infrastructure. Energy security. Prevention and mitigation of climate change, including the retrofitting of millions of buildings. The refinancing of mortgages or conversion to rentals with "right-to-rent" provisions so that people can stay in their homes at reasonable rates. The cleanup and economic renovation of the Gulf Coast. All of this by loans made at low interest rates and for long terms, and supervised appropriately by real bankers prepared to stay on the job for decades.
The entire host of neglected priorities of the past 30 years should be on the agenda now. That is the way-and the effective path-toward prosperity.
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66 Comments so far
Show AllThere is no such thing as non-rogue, non-criminal capitalism.
Yes, this is what should be done. Will it be? Not until we revisit Monty Python's " bring out your dead " on every street in every town, suburb and city in America. Then the trail of the dead will lead us to a new country. Economists don't know. Nobody knows with any certainty but the dead know what and who killed them. It was the cold, cruel calculus of the corrupt Corporate state. They are the entity that never dies, and, therefore doesn't give a damn about anything but profit. " By any means necessary " has been turned on its' head. By a black president no less. Oh, the irony!
There is a deeper issue. Growth itself is not sustainable. Not growth in production. Not growth in population. The planet is headed towards a cataclysmic retraction.
Can a fractional reserve system and private bankers ever work for the good of our society? It seems not, and they haven't yet. The Federal Reserve should be nationalized, first and foremost. That would be step one, in my book. Eliminate the money changers.
Ron Paul and others have tried to end the Fed. but it looks like it will never happen. Your right about the fractional reserve banking. I think we're seing a collapse of the financial system.
Nationalizing the Fed. is pretty much the opposite of abolishing the Fed as the libertarian kooks like the two Pauls propose.
Also returning to the gold standard as they propose WOULD be fractional reserve banking considering the small amount on the planet. I don't see why even a public sector bank would need full reserves but I'm open to be schooled.
Congress has the authority to issuue money.
Galbraith's perscription seems unlikely to be followed: both parties are to some extent captured by the banks they are supposed to be regulating. To end this capture, its politics that must first be remade, and then the finance sector. Campaign finance reform (fixcongressfirst.org) is a good idea, but I like better Dylan Ratigans four step plan to remake our democracy even better (http://www.huffingtonpost.com/dylan-ratigan/fix-america-fix-the-polit_b_633052.html)
There's been a lot of talk on CD lately, and even on this thread about popular protest demanding change. I'm trying to identify the unifying item we should be protesting: political reform. Nothing: not healthcare, not the wars, not the debt, not the finance sector, not the oil spill, not lack of climate change legislation, Nothing doesn't owe its crisis to our broken political system, which rewards logjam and punishes substance. From what I've read on the subject, I think Dylan Ratigan's four step 'fix it' is the right path, and that's the thing we must make happen. Make that happen, and all the rest of it falls into place, because we'll finally be represented once more by our representatives. Otherwise, they'll continue to represent whatever money can buy.
Fail to fix congress, and no finance sector reform will hold. Likewise healthcare, global warming, etc.
Well, I think we're saying the same thing. Ratigan suggests that 'if enough people push for it', the system would have to change. I agree, but am suspicious. When you say 'overthrow the present system' what are you talking about?
We've all been betrayed by our representatives. They need money to get reelected and we don't have any. But we still vote. I hate to call for 'single issue' voters, but I really believe this is the single issue people should be voting on. If a representative promises to enact the 'four steps' in our constitution, by amendment if necessary, then we vote for him or her. If he/she doesn't, then we don't. This is much bigger than gay marriage, or abortion, or healthcare, etc: all the other 'single issues' people have wasted their votes on in the past. We've gotten 30 years or more of stupidity because we failed to realize this is the issue that must be fixed. One way or another, we must remove money from our representatives thinking. I think Ratigan is on the right path by his four suggestions. But how to get there from here is the question.
I'd like to see campaign finance reform too but an educated populace wouldn't be suckered by advertising. There just seems to be an elitist attitude when it comes to this issue that assumes millions would've voted Nader if he had better production values (which maybe true unfortunately) .
Don't take this poorly, but the elitist attitude is assuming Naders reasonable opinions are going to sway public opinion in these United States. People with money win elections. Corporations have money (indeed, they were invented to aggregate investor capital). So get Nader money, or remove money as a reason people win elections. I think Radigans four steps are the right direction for doing the latter. This will get more people into politics who care about the direction of the country, and less who care about the payoff.
Not sure why I'd take that poorly-especially since it doesn't make any sense. How would it be elitist to expect the general public to vote in their interests without being suckered by advertising campaigns?
I really wish that instead of getting articles about what needs to be done to clean up all of the huge problems we face these days on CD, that we might hear more ideas on how to get rid of the people who will never allow those changes to happen. It is painfully obvious that everyone from Obummer down through both stinkingly corrupt parties will go to the ends of the earth to just maintain the status quo to the bitter end and that if they are replaced, the next bunch to promise "change" will only give us more of the same. Until we correct this problem, we aren't going anywhere and all the ideas about how to fix this broken country are just meaningless pipedreams. Stop putting the cart before the horse!
No, the first step is educating the electorate. It might sound like beating a dead horse to regular readers of this site but most people are suckers for rightwing economics and that's why they vote for these guys.
If a large majority were firmly on the left and things still refused to change, more millitant approaches would be appropriate but there's plenty of oppurtunity for reform even in the current system. The challenge is for the left to present a unified front with clear policies and clever arguments, then convince a majority.
People like Mightymite should read this several times over as he STILL does not get how the EU banking systems that got in trouble arrived at that point.
It was NOT Socialism. It was Capitalism and the fraud of those securities was made in the USA.
If I print up a million dollars of counterfeit currency and go to the USA to buy land in Texas with it , bringing with me all manner of financial experts who claim it REAL currency , is it the fault of the person who is defrauded when he turns over real assets for counterfeit?
This is a really good article. People seem unwilling to admit how much false value WallStreet hatched by which to take over or take down foreign and domestic economies.
The article does a great job of describing the disasters Big Banks have caused on the US and Europe but nowhere is there a mention of CREDIT UNIONS which the author's solution towards the end of the article could have at least mentioned. The solution mentioned sounded like trying to work within the same system that is broken. A better solution would be to encourage more people to join a credit union or at least a small local bank given the current economic disasters. People during the Great Depression switched from bank accounts to credit unions. Even today, getting people to switch from banks to credit unions is usually not as difficult compared to getting them to think differently on other issues. While at it, we will need to come up with ways for not ourselves but also others to withstand customer seduction from Big Banks in the event that they view credit unions as "threats".
Just be on the lookout for credit unions starting the same scams as banks. I know one starting low-activity fees for checking. They are also inviting members to dump their coins in a machine, to be exchanged for paper, "for a small fee". These might be considered small costs, but they are borne most by entry-level members, and the principle is the same "fist up the ass" that should not be tolerated from the banks in the first place.
I haven't seen my credit union planning on any such thing but I will check to see as well as check some other credit unions in my area. As for dropping coins in the machine, I have only seen that in a grocery store. Getting into a credit union usually isn't hard but it can be for some depending upon the requirements. I switched to one in 2008 but would be surprised to see them copying the banks. However, I have heard of a few credit unions being prone to takeovers or similar from big banks but they are nowhere as vulnerable to takeovers compared to small banks.
My credit union is no different than a bank. Ten years ago, I gutted my home and refinanced it to pay for the renovations. They required me to pay for an appraisal (by THEIR guy) to justify the new mortgage. No surprise - the appraisal more than covered the new amount financed, and I was urged to add on a home equity line of credit, too. Fast forward to today, when my home has lost almost 30% of its value, according to the county assessor. Now all of a sudden, the credit union is all about "prudent lending practices," and wants to use an even more stringent valuation formula that puts me underwater on my loan. Needless to say, they're busy "re-evaluating" my account and have begun shutting me down.
At the same time, they want me to sign up for a NEW(!) program that awards points every time I tell a merchant to treat my debit card as if it were a credit card. After I accumulate about a bazillion points, the credit union gives me a couple bucks. Nice, right? The only thing is, I'm being used as a dupe to squeeze a higher merchant fee out of the retailer because I've made a "credit" purchase instead of a "debit." The credit union even admitted this was so when I questioned the practice.
Bottom line, whether it's a bank or a credit union, we're nothing more than revenue streams. When we're squeezed dry, they dump us and move on.
There is still likely a couple large differences between your credit union and a bank, even though the credit union will take advantage of you where it can.
1. They generally do not take part in lots of dangerous investments, so money in portfolios and special savings accounts is generally safe. They do not do so because their management is not in a position to get rich quick off of running big risks with other people's money, as are so many investment bankers.
2. Most credit unions are in no position to purchase elected officials. So the money the financial institution makes from your patronage does not buy your Congressfiend to perpetuate Financial Vampirism.
I should think this is enough to make the shift to credit unions, just not enough to trust.
Galbraith is indeed beating a dead horse. Fascists don't care about 'fixing' the economy - they are criminals, and only interested in looting. Until Americans demand freedom, justice, and human rights - by getting out in the streets by the millions - nothing is going to change (except to get worse).
I think we both know America's not ready for a "radical" "socialist solution." This is a well laid out article by Galbraith. Add Krugman's new charts showing inflation falling toward deflation (and pointing us to the conservative John Makin's deflation warnings) and a dreary few years look more and more likely.
One thing that has lately been encouraging me about the many 'small changes' that we so desperately need, is that I've increasingly seen conservatives saying things that often make sense. I believe our nation's many problems and the weirdos and anger from tea-party types is encouraging true conservatives to focus their thoughts on better outcomes than simply giving the rich everything they want and stealing freedoms for security.
Change always has, and always will occur. You are impatient for major change. I don't blame you. But changes in small doses are the most likely outcome. One other point: I believe you are too ready to lump all "rich" into one basket when in reality there is quite a cornucopia of differing views. I grant you that certain limbaugh/republican talking points often hold the floor, obscuring many thoughtful ideas and indoctrinating far too many. Personally, I'm wondering if the tea party types are not making some of the elites a bit nervous. I believe more and more conscientious conservatives will see the safe route to be a bit more truth and fairness as a better alternative to lunatics with their own politicians and plenty of ammo.
" . . . the first step toward prosperity is to restore the rule of law in the financial sector."
Obama and his gang of greasy thumbs would rather die than ever see this happen.
Atually, I think you have it exactly backwards. They know they *would* die if they ever tried to make it happen.
http://www.sott.net/articles/show/211851-Waltzing-at-the-Doomsday-Ball-Capitalism-is-Dead-But-We-Still-Dance-With-the-Corpse
I liked this article.
Excerpt.
>>Capitalism is about one thing: aggregating the surplus productive value of the public for private interests. As we have said, it is about creating state sanctioned "investments" for the workers who produce the real wealth. Things like home "ownership" and mortgages, or stock investments and funds to absorb their retirement savings. That crushing 30-year mortgage with two refis is an investment. So is that 401K melting like a snow cone the beach.
>>As the people's wealth accumulates, it is steadily siphoned off by government and elite private forces. From time to time, it is openly plundered for their benefit by way of various bubbles, depressions or recessions and other forms of theft passed off as unavoidable acts of nature/god. These periodic raids and draw downs of the people's wealth are attributed to "business cycles." Past periodic raids and thefts are heralded as being proof of the rationale. "See folks, it comes and goes, so it's a cycle!" Economic raids and busts become "market adjustments." Public blackmail and plundering through bailouts become a "necessary rescue packages." Giveaways to corporations under the guise of public works and creating employment become "stimulus." The chief responsibility of economists is to name things in accordance with government and corporate interests. The function of the public is to acquire debt and maintain "consumer confidence." When the public staggers to its feet again and manages to carry more debt, buy more poker chips on credit to play again, it's called a recovery. They are back in the game.
Capitalism is dead it's time to bury the corpse!
Gee, I thought people voted for "change we can believe in" when Obamageddon was elected.
Didn't people believe from Obama campaign that he would make all the necessary reforms to help bring America back from the brink?
Sure he did. But, he is a lying psychopath working for his corporate masters.
Good Grief.
And don't forget where these problems originated.
1) Impeachment was off the table.
2) Toga boy spent 1/3 of his 8 years on the reservation in Crawford, Texas mumbling.
3) Every repub made out like Dillinger's gang.
Prosecution for war crimes was off the table too.
The 'regulators' better get on with it, because the next step to be taken will bear a striking similarity to guillotines, lengths of rope and summary executions. Don't think so? We have an entire class of people inhabiting Wall Street and D.C. who are saying as much, 'let them eat cake.' We all know how well that turned out for the powdered wig gang.
Nothing will change until the gangsters who caused this disaster are either imprisoned or dead. No amount of handwringing on Commondreams will make one iota of difference.
Here's an idea for you: How about no payment of taxes of any kind, until the government stops lying to us about what they've really been up to, all these years? All the assassinations, meddling in other countries, murdering untold millions of people for empire's purposes? The US is ruled by monsters. Let them hang.
".. there is no cost worth the price of human blood." -Rousseau. Let me quote Mr. Galbraith. "The cause, at the deepest level, was a breakdown in the rule of law." He's is right and wrong here. Let me say that the root cause is not the reprobates. That we should look deeper and see that this has to with our entire economic-political system. This is something I'm sure the professor should be aware of.
First, Saint Just- you are so right. I've just come to understand a more in depth( far from expert) understanding of finance, credit, economic theory, and how capitalism works,( or works for some at the expense of others). I agree. Like, these pigs would actually do the right thing or could regulate themselves.
Human behavior, I'm also coming to understand more fully. I've always been the very trusting one, believe me. But now I see that there are people who truly value money, lots and lots of it, over anything else. For instance. If you work so many hours of a day and week and month, not so that you can put food on your table for your family, but so you can buy expensive suits, an oversized houses, luxcury items of all kinds, and well, you get the picture, BUT you never take time to sit in nature or take a walk or exercise on a regular basis, you gain weight get really out of shape and eventually get heart trouble etc. This shows you do not appreciate the health and life you have. Then you also probably did not take time for your family, but made plenty of time for your crony business buddies, playing golf, throwing dinner parties and what not, you didn't actually even know your kids or your wife after a time.
Now, I know I'm being anecdotal here and stereotyping the rich ( ha). Well, do you get my point. I mean,it's one thing to over work when it means making ends meet But another when you are doing it to keep up with the Jones'
and to live in the life of luxury.
There are some professions, I understand that require a bit more than 9-5. Like doctors and lawyers, but that can get out of hand also.
All this may sound corny, but if you think about it, it really does show how some people think. Being rich and making all the dough you can, despite what it does to your health and personal life, is what some people consider to be 'being responsible" I think it is sick, psychopathic and just plain sad.
Can we draft this gentleman for president? We need a true leader. Very illluminating. Just wonder if the BP terror is the hex that Europe put on us in return.
Michigan woman, either that or have him on an important position in a Nader administration (because frankly, the election campaign may be too much for such honest intellectuals).
James K. Galbraith's father, John Kenneth Galbraith, worked in the Kennedy administration as an adviser, and as the US Ambassador to India from 1961-63. He was highly respected in India - which was under a clearly socialist-leaning leader, Jawaharlal Nehru. John Kenneth Galbraith and Nehru got along very well. Nehru was a great guy with a great vision and heart. Although very close to Gandhi, he tried to blend his own socialist vision as he took over as the first Prime Minister of independent India. Although some in India think that Nehru's policies back then slowed India's growth, it also laid the foundation in those years for a more inclusive development. Nehru was somewhat of an idealist and was seen as a role model by other leaders of former colonies in those days. Both JFK and Nehru died within six months of each other - under different circumstances, of course. India was generally perceived to be closer to the Soviet Union at that time. But during the short period when JFK was President, with Galbraith as the U.S. Ambassador to India, things looked really interesting and overall, very positive. For a brief period of time.
It is refreshing to hear the Truth being told, clearly and sensibly.
Jamie reminds us here that the word "deregulation" is nothing more than a euphemism for "decriminalization." Take note. It has been said that every racketeer's dream is a world without any police; but Wall Street has gone those pallid dreamers one better -- no laws!
Which reminds me of a favorite quotation from "A Man for All Seasons":
William Roper: So, now you give the Devil the benefit of law!
Sir Thomas More: Yes! What would you do? Cut a great road through the law to get after the Devil?
William Roper: Yes, I'd cut down every law in England to do that!
Sir Thomas More: Oh? And when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down, and you're just the man to do it, do you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake!
All it took was a little bit of bipartisan elite consensus for deregulatory "reform" and... Voila! Regulators who had once borne the stick that made the elephants dance, were in an eyeblink transformed into the hapless roustabouts who merely follow the elephant's parade with buckets and shovels to tidy up after their gargantuan messes. To the tune of trillions of our, and our children's, and their children's, tax dollars, I might add.
Jamie is right. Heads must roll, and the rule of law must be restored. Are we not men?
No, of course we're not men. Half of are whiners and the other half are dupes. How do yu think we got here, anyway?
An earlier poster, Foxx, says: "There is a deeper issue. Growth itself is not sustainable. Not growth in production. Not growth in population. The planet is headed towards a cataclysmic retraction."
Growth is the mantra. Yes we can! The debt crisis we're in is never examined. Galbraith here just takes it for granted. His solution recognizes it, though. The new banks he proposes offer credit at low interest rates.
The great debt accumulation might then be assumed to have been caused by high interest rates. No, it is said, the Fed created the debt bubble with low interest rates. True. To bankers. But to consumers, retail credit has never been cheap. Bankers & investors always make their money on the spread between what they pay for credit, and what the general public pays.
The debt crisis was caused by two factors. The deep one being some unquantifiable limit to growth referred to by Foxx and others who feel in their bones that unlimited growth simply can't happen. And the immediate factor of high interest rates and the miracle of compound interest that ultimately ensnare the public when GDP numbers are flat. When the real economy isn't growing, interest continues to compound anyway. Reagan deregulated to compensate for anemic GDP. Real growth remained flat, so new financial assets were created. They grew very well and to compensate for real growth in wages & GDP consumers went on a debt binge.
Voila! The debt crisis as we know it. We are in a deflation that could take the country down. Galbraith suggests new credit sources to loan capital at low interest rates. That is the only solution that will save us from a deflationary spiral.
But it is not a cure for what ails us deep down. We have to accept the limits to growth and reconfigure our financial system. The primary thing is to adjust interest rates, retail rates, to realistic levels that allow consumers to retain more of their earnings. Right now there are no savings because no one has anything left over to save! No investor should expect to earn 20% return on investment. Nothing like that should be permitted to happen.
Exactly!! Very good post.
Thanks James for a great article and everyone for terrific comments. The moneyed interests are terrified of a economically literate populace and that's why they call Obama a socialist-they're trying to set the bounds for what is acceptable opinion.
Spread the word that most economists vote Democrat and the only one's that warned of the crisis were on the left.
Make'em understand that they're voting against their interests.
Perhaps if James K. Galbraith or Joseph Stiglitz had been placed in the position of U.S. Secretary of the Treasury, our nation would have been in a far better position (or on the road to change so desperately needed). In the meantime, "we the people" need to work towards electing people who would "appreciate" their opinions.
Which is why they weren't. The kind of change you're espousing would have been the end of the banking gravy train, and probably the end of the banks themselves. As it is, they have a "discount window" they can belly up to and collect 3% interest on money that costs them close to no interest at all to borrow. Or perhaps it's better to view their 3% take as a "service charge" for laundering the Fed's counterfeit currency.
Last month, the total came to 3% of something around $200 billion, or something in the neighborhood of $700 million -- absolutely FREE MONEY! And you think they're going to let some pipsqueak President put the brakes on that kind of gravy train? $700 million per month? In perpetuity? Wake up! Obama would have "met with an accident" before the his first year was over.
Not that the likes of Steiglitz would have been confirmed by the Senate anyway. We don't want insightful analysis or shrewd policy. We want someone who will play ball, or at least look the other way!
Please. We're talking about power here. The only "appreciation" of concern to power is acquiescense. Which is exactly what we're getting.
So, with over 307 million people in this country, why are we giving all this power to 1% of the population?
Anyone who decides to become President of the United States and doesn't understand potential threats to their life and instead decides to cower in fear based on threats should not become President.
You are correct about the "free money" being received by banks thanks to the Federal Reserve. Where is our "free press" in educating the public on this or many other matters? We have lost our "free press" to monopolistic corporations, we have lost any semblance of a two-party system thanks to the corporate Democrats and corporate Republicans, and now we our evolving away from any semblance of a democracy thanks to voter apathy. Are "we the people" going to let this corporatocracy continue? History has shown that the middle class in our country can rise up and demand better - American Revolution, Great Depression. Will this be the tipping point in the United States for the failure of democracy?
>>>speakout2 wrote: Anyone who decides to become President of the United States and doesn't understand potential threats to their life and instead decides to cower in fear based on threats should not become President.
Sometimes I wonder if the suicide bombers are more "honorable" than the politicians - simply because they are willing to die for what they believe in - even if it's a delusion.
We need to go back to Bretton Woods and hash out a new social contract - the one we had was demolished on the alter of on unfretted markets and greed. Look at the results!
The most unequal distribution of wealth since the 1920's. A middle class decimated on the alter of globalization. All to uphold the most damaging law ever passed.. One that states that: “ that a CEO must to all he can to maximize shareholder return.” It seem it doesn’t matter how damaging it is to a society in general.
The returns for the investment class must be maximized.
Boy you boys on Wall street must be proud of what you have done to America with your financial innovation. Put million out of work,causing some to lose their homes, their children's educations funds, and retirements gone.
Harvard and Yale must damn proud to have turn out such a bunch of psycho-paths with their MBA's proudly in hand. Setting out to wreak havoc on society for the firm and themselves. And they have tried over the years, to convince us that class war is dead! Nice job! You have won big for your class!