Over the past 48 hours, I don't believe I've ever read so many economic pundits all saying, essentially, the same thing. When so many people whose opinions I respect all start saying--at almost the exact same moment--almost the exact same things, it's time to take notice.
1.) Little or nothing--substantial--is being done to address the root causes that have gotten us into our current economic mess. We're addressing the symptoms, not the illnesses. (The argument that the administration was too busy putting out fires leftover from the previous administration is no longer sufficient, IMHO.) And, the next financial crisis will be pretty much the same as the current financial crisis. In fact, we may just segue into a deeper problem directly stemming from our current problems over coming months.
2.) The appearance of an economic upturn may be what happens over the next few months, in some areas/business sectors, but, it will be short-lived, at best, if it happens at all. After that, we'll end up in a "ski-jump" recession/depression, or a double-dip recession/depression...or somwhere in the not-too-distant future in a place where the crashing and burning of our economy that we've witnessed over the past two years will pale in comparison to what lies not too far ahead.
3.) Most of American society will not experience any upturn in their economic well-being during the "recovery." Essentially, we'll be in an economic malaise, where the regular growth of the population will outstrip job creation. Already, the latest Census Bureau numbers from 2008--never mind the economic hell we've been through in the first two quarters of this year--tell us we've been seeing our incomes drop, poverty increase and health insurance coverage diminish over the past decade...and then some.
4.) Wall Street (i.e.: the status quo and corporate America) totally owns our government. Any effort at true regulatory reform (see every other piece of legislation in Congress right now, IMHO, too), will be watered-down to the point of really not solving much, near term. Hell, even the Supreme Court--by sheer misfortune or otherwise--is getting into the anti-Main Street meme!
5.) And, nowhere is the truth that our status quo owns our government more apparent than in the revolving door policies that are still in place throughout D.C. today.
So, yes, I'm going to come out and say it: Please, do NOT tell me about "evolving change." We are facing virtually insurmountable problems in our society right now. By definition, this calls for bold responsiveness from our government, not watered-down legislation written by the corporate sector and their legal minions--two groups that have appeared of late to be gaining even more influence over our government, not less, with every passing day--which do nothing but pulverize everything meaningful that needs to be accomplished now!
# # #
And, then I made the "mistake" (IMHO, an excellent--but mostly unnoticed/critically panned/totally ignored--flick from late '07/early '08, w/Kate Beckinsale, Matt Dillon, Alan Alda, Vera Famiga, David Schwimmer and Noah Wylie) of renting this from my local movie joint this weekend...
Alan Alda in the movie, "Nothing But The Truth" (2007), addressing the Supreme Court...
Alda quoting Justice Stewart's dissenting opinion in the 5-4 decision on Branzburg v. Hayes (1972):
"As the years pass, the power of the government becomes more and more pervasive. Those in power, whatever their politics, want only to perpetuate it. And, the people are the victims."
--SNIP--
Alda: We, as a nation, will no longer be able to hold those in power accountable to those whom they have power over. And, what then is the nature of government when it has no fear of accountability? We should shudder at the thought...
Okay, so much for my brief excursion into la-la land...back to the reality...ummm...la-la land. (Didn't I just say that?)
# # #
THE OVERVIEW
As I was saying, the voices are increasing in number this weekend, and they're all pretty much saying the same things...
Two pieces from Peter Boone and Simon Johnson, the first from last week's The New Republic: The Next Financial Crisis: It's coming--and we just made it worse.
The Next Financial Crisis September 5, 2009 | 12:00 am
Peter Boone and Simon Johnson
The New Republic
To many observers, the Federal Reserve has never looked more heroic than it does right now. This past winter, America's financial system faced the prospect of utter ruin. And, while the economy has suffered plenty in 2009, the worst did not come to pass. The banking system that lends to our employers, thereby allowing our economy to function, never did collapse. Now, many of the accolades for averting catastrophe are going to the Fed. President Obama himself ratified this analysis last week when he renominated Fed chairman Ben Bernanke for a second term. Bernanke, the president told reporters, had marshaled "his background, his temperament, his courage, and his creativity" to help prevent a second Great Depression.
What these words of presidential praise obscured was that the Fed may well have mitigated our current crisis by sowing the seeds for the next one. All modern economies need a financial system that can connect people who want to save with those who have good investment projects. This is essentially what banks do. But, unfortunately, this process often goes wrong. And that is precisely what is happening now. Our banks have gotten into the habit of needing to be rescued through repeated bailouts. During this crisis, Bernanke--while saving the financial system in the short term--has done nothing to break this long-term pattern; worse, he exacerbated it. As a result, unless real reform happens soon, we face the prospect of another bubble-bust-bailout cycle that will be even more dangerous than the one we've just been through.
If you've studied U.S. economic history, none of this will come as a surprise. We have seen this spectacle--the Fed saving us from one crisis only to instigate another--many times before. And, over the past few decades, the problem has become significantly more dire. The fault, to be sure, doesn't lie entirely with the Fed. Bernanke is a prisoner of a financial system with serious built-in flaws. The decisions he made during the recent crisis weren't necessarily the wrong decisions; indeed, they were, in many respects, the decisions he had to make. But these decisions, however necessary in the moment, are almost guaranteed to hurt our economy in the long run--which, in turn, means that more necessary but harmful measures will be needed in the future. It is a debilitating, vicious cycle. And at the center of this cycle is the Fed...
And, the same dynamic duo...Simon Johnson and Peter Boone at Baseline Scenario (and also in the Sunday Times of London), today: "Economic Donkeys."
Economic Donkeys
Baseline Scenario
Peter Boone and Simon Johnson
...Today, a year after global financial collapse and the ensuing tragedy for millions, our economic leaders are lining us up to suffer again (and again) through the same horrible experiences...
--SNIP--
...We need leaders, both in the financial world and in public service who recognize that our financial sector too often causes social harm. There is no doubt that it also provides valuable services that are vital to the well-being of our pensioners and savers, and help manage and mitigate risk for our corporations. Yet too often these activities cause losses, which, either directly or indirectly, become a burden on the rest of society...
--SNIP--
...The danger we face is that, by bailing out these institutions and rewarding failed managers with new powerful positions, we have now created a much more dangerous financial system. The politically well-connected, knowing they will most likely do fine in the next crisis, is now highly incentivized to take even greater risk.
Once we admit this profound problem in our system, we can begin to think of the radical measures needed to solve it. There is no doubt these solutions will include much greater capital requirements, so that bank shareholders know that they face substantial losses if their ventures fail.
But, we also need to ensure that our regulators are not captured by the banks that they are meant to oversee. This means we need to put checks on financial donations to political parties, and we need to buttress our regulators with more intellectual firepower and financial resources, along with rules that ensure independence, in order to be sure they can act in the interests of the broader population.
We also need to close the revolving door, through which politicians and regulators leave office to earn their nest eggs in finance, and "financial experts" move directly from failing banks to designing bailout packages. The conflicts of interest are abundant and most dangerous...
# # #
THE REAL PROBLEM
So, let's talk about that revolving door for a minute, shall we? It's a freakin' joke! Never mind Paulson, Geithner, Summers, Emanuel, et al...all having taken huge paychecks from Wall Street in some way, shape or form over the past few years...let's go granular and see how this is affecting "the news," quite precisely, this year, from Yves Smith, over at Naked Capitalism, focusing upon a piece by Pam Martens at CounterPunch.org:
The Real Regulatory Revolving Door
Naked Capitalism
Yves Smith
September 2, 2009
A reader who has first hand knowledge of some of the major US financial regulators flagged a CounterPunch article by Pam Martens as the best discussion of the "revolving door" problem that he had ever seen.
The interesting thing about this article is that it highlights a problem that is not widely recognized and therefore has no safeguards against it. As our correspondent explains:
From Yves' correspondent...
The most important aspect of this is that the "revolving door" problem is most acute, not with the actual regulated firms, but with the professional firms that provide services to regulated entities, especially law firms (it is also a serious issue with compliance consulting firms, although that is something of a separate issue.)
One reason for that is that the standards are different for lawyers than for financial professionals. Financial professionals are forbidden from joining any company they have recently examined; but lawyers are forbidden only from working on cases they have had contact with-there are no specific prohibitions on working for law firms that have cases that they have had contact with, as long as they don't work on those cases (as if that could ever be enforced.)
From Pam Martens, at CounterPunch.org:
Will the IG Report Cover the Role of White Shoe Law Firms?
Madoff and the SEC's Revolving Door
CounterPunch.org
By PAM MARTENS
August 31, 2009
For the ten years leading up to July 2007, J. David Fielder worked for the SEC as a Senior Counsel in the Division of Enforcement. In February 1999, he moved to the Division of Investment Management, first as Senior Counsel on the Task Force for Adviser Regulation, then as Advisor to the Director. In November 2000, SEC Chairman, Arthur Levitt, appointed Fielder Counsel to the Chairman.
In July 2007, Mr. Fielder was invited to join the corporate law firm, Haynes and Boone LLP, as a partner. In other words, Mr. Fielder's government issue rolodex filled with the names, home numbers and email addresses of his colleagues at the SEC along with the investigatory matters in his head is deemed fungible currency among corporate law firms and can be freely exchanged for partner status, instantaneously moving one from the lowly wages and attendant lifestyle of public servant to the rarefied bracket and luxuriant trappings of corporate law firm partner.
But what happened next is where things get interesting. In March 2009, just as the SEC Inspector General was hot in pursuit of Madoff aiders and abettors, Mr. Fielder gave up his lucrative partner status at Haynes and Boone to accept the lowly post of Assistant Inspector General of Investigations, working under a boss from the Peace Corps. In other words, he gave up big bucks for a demotion at the SEC.
What Mr. Fielder did might not raise alarm bells were it not happening on a regular basis throughout the corridors of Washington and Wall Street. To understand the implications, this maneuver deserves an appropriate name. A revolving door is assumed to mean one gets all the right connections as a public servant and cashes them in to the highest bidder in private industry. That concept doesn't typically entertain the door revolving back to public servant status. On Wall Street, they call a maneuver like that a round trip: you buy 100 shares and eventually sell the same 100 shares. You end up back where you started: a round trip.
Just how many lawyer round trippers are involved in the Madoff investigation? Enough to raise a strong stench of circular corruption...
While Yves highlights the example pertinent to the Madoff case, make no mistake that the intent of her coverage of this is to highlight what's considered to be standard operating procedure throughout our government, even now. And, as far as the whole conflict-of-interest thing is concerned, and the big "to-do" that was made by the current administration with regard to closing the revolving door discussed herein, apparently, as Yves and Ms. Martens both note, this doesn't apply to lawyers.
# # #
THE VOICES GROW LOUDER, AND THEY'RE TELLING US:
"IF WE KEEP DOING WHAT WE'RE DOING WE'RE GOING TO KEEP GETTING WHAT WE'VE GOT"
Whether it's unethical lawyering vis-a-vis the Bernie Madoff case, Wellpoint drafting Max Baucus' version of our corporatized health care plan, or Goldman-Sachs having no business being in the room when the AIG bailout decisions were made, the point is, our elected officials aren't calling the shots, the corporations, the status quo and their respective lawyers are running the show.
So, here we are today...and, tell me, exactly what real problems have been solved (I don't want a list, just give me three examples) as far as our economy's concerned? I'm asking this question, because it sure as hell looks like business as usual out there.
All from the past 24-/48 -hour, weekend news cycle...
Joe Stiglitz, in Paris, today: "Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman."
Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman
By Mark Deen and David Tweed
Sept. 13 (Bloomberg) -- Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.
"In the U.S. and many other countries, the too-big-to-fail banks have become even bigger," Stiglitz said in an interview today in Paris. "The problems are worse than they were in 2007 before the crisis."
Stiglitz's views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama's administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing "excessively."
A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.'s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.
While Obama wants to name some banks as "systemically important" and subject them to stricter oversight, his plan wouldn't force them to shrink or simplify their structure.
Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult...
The New York Times' Gretchen Morgenson, also on Sunday: "But Who Is Watching Regulators?"
Fair Game
But Who Is Watching Regulators?
Article Tools Sponsored By
By GRETCHEN MORGENSON
Online: September 12, 2009 In Print: September 13, 2009
...Even though calamitous lending practices laid waste to the nation's economy, surprisingly little has changed about how the financial arena operates and is supervised. Sure, a couple of venerable brokerage firms have vanished, but many of the same players remain on the scene, in the same positions of power.
Senior regulators who stood idly by for years as financial firms built their houses of cards have been rewarded with even bigger jobs or are jockeying for increased responsibilities. The Federal Reserve Board, for example, wants to become the financial system's uber-regulator, even though its officials did nothing as banks made deadly decisions to lend recklessly and leverage themselves to the max.
--SNIP--
Yet those in the public sector ask us to believe that regulators who snoozed during the credit bubble will be alert to emerging problems on their beats when the next mania begins.
--SNIP--
Edward J. Kane, a professor of finance at Boston College and an authority on the ethical and operational aspects of regulatory failure, has some ideas about how to do this and right our damaged system in the process. He outlined them in a recent paper titled "Unmet Duties in Managing Financial Safety Nets."
This ugly financial episode we've all had to live through makes clear, Mr. Kane says, that taxpayers must protect themselves against two things: the corrupting influence of bureaucratic self-interest among regulators and the political clout wielded by the large institutions they are supposed to police. Finally, he argues, taxpayers must demand that the government publicize the costs of efforts taken to save the financial system from itself.
"That authorities and financiers could so callously violate common-law duties of loyalty, competence, and care they owe taxpayers and financial-institution customers is evidence of a massive incentive breakdown in industry and government," Mr. Kane writes. "This breakdown cannot be repaired merely by replacing the governing political party or by changing the jurisdictions and mission statements of regulatory agencies."
From Alex Berenson, at the AP: "A Year Later, Little Change on Wall St."
Also from the AP, this time from Business Writer Stevenson Jacobs: "Risk-taking is back for banks 1 year after crisis."
Agence France Press: "US financial regulatory reform remains work in progress."
Frank Rich, also in Sunday's NY Times: "Obama's Squandered Summer."
And, when I say it's a large group of folks and media outlets all saying the same thing at the same time, I'm not kidding, and neither is the NY Times' "Room For Debate Blog," including Yves Smith and Edward Harrison (both of whom I quote often in my own diaries), in a list of seven economic pundits all telling us the same thing this weekend, too: "Why Wall Street Reforms Have Stalled."
I cut about four or five other links from this diary, since I think the list above more than supports my comment that: "A large group of pundits and media outlets are all saying the same thing at the same time."
# # #
THEN THERE ARE THOSE THAT KEEP DOING WHAT THEY'VE DONE, HOPING WE CONTINUE TO GET WHAT WE'VE GOT...
While the group grows larger that's telling us to beware of what lies ahead, some at our highest levels of government still want to keep doing what they've done so we will all continue to get what we've got. So...they keep on spinning it: "Summers Touting Signs of Recovery."
Summers Touting Signs of Recovery
He Says Obama Deserves Credit
By Michael D. Shear
Washington Post Staff Writer
Saturday, September 12, 2009
A top economic adviser to President Obama began a concerted White House effort on Friday to claim credit for the improving economy, declaring that the turnaround is "not, in our judgment, an accident."
Previewing a speech that Obama will give on Wall Street Monday, Lawrence H. Summers compared the government's actions to a successful but evolving response to a natural disaster.
Larry, you really should get out more often! Or, at the very least, give some lip service to folks around you in the administration, and listen to (or read) what they're saying...because they're beginning to say the same things that many other pundits are all telling us now, as well.
While many are saying it may take a decade or more for us to reclaim the numbers we had in 2007, even the head of the National Bureau of Economic Research is saying at least another year: "Hall Says May Take More Than a Year to Deem U.S. Recession Over."
Hall Says May Take More Than a Year to Deem U.S. Recession Over
By Steve Matthews
Aug. 10 (Bloomberg) -- Declaring the U.S. recession over may take more than a year because of the risk that recent signs of stabilization will prove short-lived, according to the head of the group charged with making the call.
"We are serious about being sure that the apparent upturn is not just a part of a longer decline," Robert Hall, who heads the National Bureau of Economic Research's Business Cycle Dating Committee, said in an interview. The group will "wait for activity to surpass its previous peak," which may take 18 months or more to determine, he said.
Hall's comments signal he's less willing than other members of the committee to soon say the recession, which began in December 2007 and is the worst since the 1930s, has ceased. Fellow panel member Jeffrey Frankel last week said the smaller drop in employment and decline in the jobless rate indicated the slump may have ended in July.
"For an exceptionally deep recession, a longer waiting period makes sense," Hall said. This time around, it is "more important" for the group to adhere to the principle of not calling an end to the recession until after economic growth has surpassed its previous peak, he said.
And, if the head of the government's own National Bureau of Economic Research's contradiction of Larry Summers' comments isn't enough, how about the Managing Director of the International Monetary Fund also making Summers look like a spinning fool on Sunday: "IMF Head Says Crisis Set to Continue."
IMF Head Says Crisis Set to Continue
Yves Smith
Naked Capitalism
Sunday, September 13, 2009
Just as Larry Summers is pushing the message that the crisis is over and Team Obama deserves credit, IMF managing director Director Dominique Strauss-Kahn is telling the media the reverse, that the crisis is far from over. From Reuters:
"The global economic crisis will continue, even if Germany and France had some good figures in the second quarter,"...Strauss-Kahn said he wanted to see more action from nations to curb bankers' pay and tighten capital requirements in the banking sector.
"It is right to say that not enough has happened. I hope the Group of 20 meeting in Pittsburgh will bring new momentum," he said. Leaders of the G20 meet later this month to try to agree on measures to help stop a repeat of the financial crisis.
Yes, with President Obama giving a major speech on the economy on Monday, I sure hope he's not getting his talking points from Larry Summers...