Political Economy category archive

A fable of our times.

Via Susie.

Here’s the Big Picture of How They Did It.

Back in the Olden Days, the United States suffered financial “panics” every 20 years or so.

Yes, that’s what they were called. “Panics.”

From 1929 through 1931 came the biggest panic of them all. It was termed the “Great Depression.” (The term “Depression” was adopted to avoid using the term “panic.”)

In its post mortem, it was discovered that the financial system of the 1920s was based on air.

Financiers were buying and selling air.

As long as no one noticed they were selling air, prices and “wealth” continued to increase.

Once the air was discovered (the stock market crash of 1929), the whole damn pile went to hell.

In response, the United States created watchdogs (“regulatory agencies”) to ensure that, when someone bought a box of “financial instruments” (aka, stocks and bonds), there was something in the box other than air.

Under regulated capitalism, the United States economy flourished. Yeah, there were speed bumps from time to time, but it was basically sound from the end of World War II until today. Well, yesterday. Well, a few years ago.

(By the way, the term “recession” was coined to avoid having to use the term “depression.” Recession = Depression = Panic.)

In the mid-1980s, the Republican Party began to castrate the regulatory agencies.

In the late 1990s, they accelerated their actions; in the early 2000s, they reached their political climax of releasing wolves in the hen house.

They used two primary strategies.

In some cases, they exempted certain types of “financial instruments” and financial organizations from regulation.

In other cases, they reduced the size of the agencies’ staffs and restricted their activities so that they were unable to discharge their duties.

Once again, air returned to the markets.

And, once again, this fall, persons finally opened their boxes of stocks and bonds and “securitized” “financial instruments” and found their boxes, well, full of air.

The Great Crash of 2008 is not an accident.

It did not result from some mystical inevitable “business cycle.”

Republicans did it.

And they did it to all of us.

And to the rest of the world. Q. E. D.

———————–

Also posted at the Great Orange Satan.

Merry Christmas,

In the United States, consumers cut spending for a fifth successive month during November and their incomes shrank, according to a Commerce Department report that pointed to deepening recessionary pressures.

It said spending contracted by 0.6 percent after falling even more steeply by 1 percent in October. Incomes contracted by 0.2 percent after a slight 0.1 percent gain in October.

New U.S. orders for long-lasting manufactured goods fell 1 percent in November, a less severe drop than anticipated.

The number of U.S. workers filing new claims for jobless benefits jumped by 30,000 to a 26-year peak last week. Initial claims for state unemployment insurance benefits rose to a seasonally adjusted 586,000 in the week to December 20 from a revised 556,000 the prior week, the Labor Department said.

(signed) George W. Bush and the Republican Party

The future of your economy.

They’re headed for the Bushborough.

Bye bye Wachovia.

Not a good idea to buy a fly-by-night mortgage company at the height of the bubble.

Addendum:

In the Guardian, Duncan Campbell describes modern banking:

One popular scam (in the UK in the 1970s–ed.) was the long firm fraud. It works thus: you set up a business in a warehouse using a bogus name, you order goods and pay on time; repeat, for a much larger number of goods and pay again on time; repeat for a much, much larger amount and disappear.

In many ways, some of our financial institutions have in effect been carrying out a fantastically sophisticated long firm fraud, although that may not have been their intention at the outset. They asked people to give them their money, they paid out on time; they asked for more, and paid out again; then they asked for even more – and announced that they had nothing left. Essentially, a long long firm fraud.

Read the whole thing.

Over at TPM Muckraker.

And Josh Marshall sees an issue:

But as I watch this unfold I feel increasingly concerned that the people controlling the money are using the complexity of the situation and the public’s difficulty in understanding it to use public money to shield very wealthy institutions and individuals from the inherent risks of their chosen line of work.

Addendum:

Noz is resigned to the worst:

apparently paulson had the authority to dispense money only on the condition that the institutions account for the money, but he decided not to. i don’t know why i keep expecting the bush administration to not horribly botch everything it does. you’d think after eight years i would have learned by now.

After all, isn’t it always the fault of the workers for expecting things like a safe working environment, reasonable hours, a paycheck, health care, and retirement income?

How dare they!

Toyota Motor Corp forecast a first-ever annual operating loss, blaming a relentless sales slide and a crippling rise in the yen in what it said was an emergency unprecedented in its 70-year history.

John Cole has another take.

The Guardian. The writer is discussing accountancy in the UK, but the same thing applies here:

The deepening financial crisis is indicative of the crisis of democracy. Corporate elites have hijacked too many public policymaking arenas and show no shame, or remorse for legitimising poor practices. Even worse, as the recent House of Commons Treasury Committee
hearing on the role of accounting in the banking crisis shows, they are not being called to account. It is salutary to look at how the elites disarm legislators and journalists to advance their interests.

The global rules, or accounting standards, for company financial statements are made by the International Accounting Standards Board (IASB), a private organisation financed and dominated by corporate elites. The UK’s accounting regulator, the Financial Reporting Council (FRC), is also dominated by corporate elites. It appeases its controllers by adopting international accounting standards drafted by the IASB, but without ever explaining the social and economic consequences of its acquiescence.

And this surprises us how?

Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.

(snip)

The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.

If I did my arithmetic correctly, that works out to about $2,666,666.00 per incompetent empty suit.

So much for “pay for performance.”

Second Son is on his way to the show with a donation of canned goods.

Rich folks invest in hedge funds:

Hedge funds will be allowed to borrow from the Federal Reserve for the first time under a landmark $200bn programme intended to support consumer credit.

And the monied classes take care of their own.

Via the Booman Tribune.

When I had to refurnish my house after getting divorced, I refurnished it from resale stores.

Hunting through resale stores is fun. One doesn’t know what kind of treasure is lurking in that pile of stuff leaning against the wall over there.

Hunting through Raymour and Flannigan is not fun.

Now, everyone else loves resale stores too.

The disciples of Republican Economic Theory get to stand up in the dock for their faith.

And their behavior.

A former Lehman Brothers broker who gleaned tips about pending mergers from his wife, a partner at a high-powered public relations firm, was charged Thursday in a wide-ranging insider trading scheme that earned $4.8 million in profits for several people including a former Playboy model and two lawyers, authorities said.

No doubt there will be more to come.

Sadly, Alan Greenspan and the entire rotten Republican Party, their enablers, won’t be among them.

Dammit, this is why we need government.

Government is not the problem.

Republican government is the problem.

Competent government is the solution.

Bonddad (follow the link for the full analysis):

There is no good news in any of these releases. Simply put, manufacturing is in terrible shape.

No, not that green door, you lech you.

This green door.

Another wave, courtesy of the failed stewardship of the Republican Party:

Facing a drastic falloff in donations this year, the Philadelphia-area Toys for Tots campaign announced an “emergency toy rush” yesterday.

Contributions are down by nearly 20,000 toys compared with last year at this time, when about 40,000 toys had been collected, said Gunnery Sgt. Robert Putney, who leads the local effort for the U.S. Marine Corps Reserve.

Read about Philadelphia having to close libraries because, well, no income, no business transactions, no real estate value, no taxes. No taxes, no services.

Republican Economic Theory: Taxes are evil, therfore, let us screw the people so we can have our Bentleys.

Oh. Wait.

No Bentleys in the Big House.

Disgusting, sleazy, selfish, disgusting excuse for a political philosophy.

Pah!

Bonddad:

1.) The Fed has no interest rate moves left. This is it.

2.) The Fed is terrified about the economy.

Robert Reich, discussing the deflationary trend:

Rational consumers are starting to save whatever they can because they’re understandably worried about the future.

The sooner we have a major stimulus package, the better. The danger is that it will be too small.

Republican Economic Theory triumphant.

Housing stopped:

New starts dropped an eye-popping 18.9% to a seasonally adjusted annual rate of 625,000, the lowest since the Commerce Department began keeping records in 1959. According to similar records kept elsewhere, it’s the slowest pace of construction in the post-World War II period.

Starts were far lower than the 740,000 that economists surveyed by MarketWatch had been looking for. The monthly percentage drop was the most since a 26% decline in March 1984.