Talk of the recession

John Cassidy up front in this week's New Yorker puts the pox on both (and neither of) the houses:

In an election year, politicians can’t be expected to acknowledge their powerlessness. Nonetheless, it was disheartening to see the Republicans exploiting the current crisis to try to make the President’s tax cuts permanent, and the Democrats attempting to pin the economic downturn on the White House. For once, Bush is not to blame. His tax cuts were irresponsible and callously regressive, but they didn’t play a significant role in the housing bubble.

If anybody is at fault it is Greenspan, who kept interest rates too low for too long and ignored warnings, some from his own colleagues, about what was happening in the mortgage market.

Really, though? Is this crisis truly devoid of any partisan responsibility? In something like a mathematical sense, I'm prepared to pin most of the blame on Greenspan. But isn't at least some of this political and cultural in origin? To me it seems very much as if the Bush administration and Congressional Republicans (and plenty of Democrats) have done everything they can--through bankruptcy legislation and various other regressive policies--to assure creditors of all species that the government stands firmly behind predatory lending, consequences to the poor and uninformed (and, of course, to the economy) be damned. That must have had some impact, yes?

Comments

What the media lack in analysis and the public lack in understanding is that economy (including government taxes and spending) is big, interconnected machine, now worldwide. You can get on the merry-go-round anywhere and will be touching all the bases eventually.

Overview hints: Tax policy (including trade issues) is reflected in the current budget surplus/deficit and GDP growth, and exporting jobs under globablization, and national debt, and national savings/borrowing from other nations, and employment, and income growth from productivity, and availability of credit and integrity of the dollar as international measure of value, and oversight/regulation of markets, and financial derivative instruments (CDOs, unregulated hedges, etc., etc., etc.

Bush looked at only fragments of this puzzle and the GOP followed him along - including the Federal Reserve and many of the world's other central banks. Even today the media frame is the 'subprime crisis' when that is only a bit actor in the drama. We had a bubble of credit availability and we spent more than we earned - both as a nation and as individuals. That bubble, like them all, has to result in asset price adjustments to work out the fake value/wealth that was 'created' out of thin air. Major financial institutions (Citi, Credit Suise, etc.) are essentially bankrupt because their reserves are not large enough to back out the mistakes made. This is a very big deal - big enough to set off a worldwide depression (letter D not R).

Bush fought a war financed by the Chinese instead of the American people. He cut taxes and created huge budget deficits and a multi-trillion national debt. He neglected oversight over financial markets. He rode roughshod over the FED and the Congress. He told us to buy buy buy instead of save save save.

Just look at today's (Jan 30) postings at Calculated Risk.
- S&P says financial institutions may face $265 billion mortgage risk (only about $100 of which has been owned-up to).
- S&P says a half-trillion $ of mortage debt ratings need to be cut.
- Fourth largest bond insurer (of mostly state/government bonds, along with residential mortgages most recently) has its rating cut to less than top quality (and two other bond insurers, MBIA and AMBAC face even bigger problems).
- Consumers walking away from their homes.
- FED cuts fed funds rate by one-half percent (to 3%, making credit easier and inflation more likely). Considering inflation (over 4%) US money is now free at 3% for borrowing.
- Residential investment as a percent of GDP is now below the median of the last 50 years.
- GDP growth in 4th Q 07 was 0.6%, but considering inflation, it is negative even though the 4Q numbers were inflation-adjusted (but excluding energy and food).

With little growth in GDP, residential asset prices cliff-diving (perhaps to be followed by non-resident commercial construction as well, early indicators suggest), banks protecting their cash to meet reserve requirements so they are not lending, and reporting negative earnings in big numbers, while facing financial derivative repricing that could get to 30 cents on the dollar, we are in 'deep deep doodoo' - GHW Bush's term of art. Even voodoo economics can't fix these problems.

So anyone who says the tax cuts by Bush were a good thing, and that unfinanced wars are ok, and that markets will regulate themselves, and that stagant incomes for 80% of our citizens is fine because they can borrow, is a deluded fraud or worse. Its time for eyes wide open, and looking at the overall picture. In some respects, the 1930's depression might look good compared to what could be ahead. Is anybody looking?

Posted by: JimPortlandOR on January 30, 2008 10:21 PM

zayıflama biber hapı

Posted by: biber hapı on August 26, 2009 03:55 AM

Posted by: Rap on September 5, 2009 08:10 PM

Talk of the recession

Comments

Post A Comment

About

Recent Entries

del.icio.us

Articles

Recent Comments

Blogroll

Search

RSS Feed