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Todd Suomela's List: Economic Crisis

Firedoglake » It Takes The Village To Raze the Economy: Some Notes On Krugman and the Return of Keynes

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economics the-fed policy interest-rates money finance banking on 2009-08-18
- So far, so good. Except, there's a hole. That hole is that the Fed hasn't followed the simple "Taylor rule." In fact, there's been a significant gap between Taylor rule and interest rates. Or more exactly, two of them.
  
  The first was between 1994 and 1998 -- the Fed was consistently above the Taylor rule. This lead several more left-leaning economists to call for lower interest rates to get more growth. The second was between 2001 and 2008 - the Fed was consistently below the Taylor rule. What a coincidence. So the argument that the Fed was a transparent carrier of the economic demand for funds breaks down. The other point is that there is a simple explanation for all three - short term rates, inflation, and budget deficits moving in tandem over the last 10 years, namely that they represent the same thing, not a market that is clearing, but three different forms of the same thing, namely, risk aversion.
- The reality is that Federal Reserve interest rates, government bond auctions, and federal budget deficits all have one thing in common: they aren't markets in the sense of "many independent actors making independent decisions." The Fed's decision is in the hands of a few people, most of the buyers of government treasuries is a small number of large players, and of course, the Federal budget deficit is written by a few hundred people and their staff members. These are not large markets, but small ones. Hillary was pilloried for saying that it takes a village to raise a child; but the evidence here -given that the results of the last 10 years have been a market crash, a terrible recovery, and a massive global downturn- is that it took "The Village" to raze the economy.
Lucas roundtable: Ask the right questions | Free exchange | Economist.com

But all the tools in the world are useless if we lack the imagination needed to build the right models. Models are built to answer specific questions.

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economics macroeconomic recession failure model questions modeling on 2009-08-10
- We need to take a close look at how the sociology of our profession led to an outcome where people were made to feel embarrassed for even asking certain types of questions. People will always be passionate in defense of their life's work, so it's not the rhetoric itself that is of concern, the problem comes when factors such as ideology or control of journals and other outlets for the dissemination of research stand in the way of promising alternative lines of inquiry.
  I don't know for sure the extent to which the ability of a small number of people in the field to control the academic discourse led to a concentration of power that stood in the way of alternative lines of investigation, or the extent to which the ideology that markets prices always tend to move toward their long-run equilibrium values caused us to ignore voices that foresaw the developing bubble and coming crisis. But something caused most of us to ask the wrong questions, and to dismiss the people who got it right, and I think one of our first orders of business is to understand how and why that happened.
The Fog of Numbers - Clusterfuck Nation

The number problems we face are now hopeless. America will never be able to cover its current outstanding debt. We're effectively finished at all three levels: household, corporate, and government.

kunstler.com/...the-fog-of-numbers.html - Preview

gloom-and-doom economics number numeracy environment america on 2009-08-10 and saved by 3 people
- ity to really care about the place they called home.
  It's especially ironic that given our preoccupation with numbers, we have arrived at the point where numbers just can't be comprehended anymore. This week, outstanding world derivatives were declared to have reached the 1 quadrillion mark. Commentators lately -- e.g. NPR's "Planet Money" broadcast -- have struggled to explain to listeners exactly what a trillion is in images such as the number of dollar bills stacked up to the planet Venus or the number of seconds that add up to three ice ages plus two warmings. A quadrillion is just off the charts, out of this world, not really subject to reality-based interpretation. You might as well say "infinity." We have flown up our own collective numeric bung-hole.
- While extremely allergic to paranoid memes and conspiracy theories, I begin to wonder about the impressive volume of World Wide Web chatter about an upcoming bank holiday -- meaning that the US government might find itself constrained to shut down the banking system for a period of time to deal with a rapidly developing emergency that might prompt the public to make a run on reserves. God knows, there are enough black swans crowding the skies these days to blot out the sun. I hesitate to suggest that readers who are able to should consider stealthily withdrawing a month's worth of walking-around money from their accounts.
  The week past, some so-called "conservative" political action groups (read: brownshirts pimped by corporate medical interests) trumped up a few incidents of civil unrest at "town meetings" around the country, ostensibly to counter health care reform ideas. The people behind these capers may be playing with dynamite. It's one thing to yell at a congressman over "single payer" abstractions. It'll be another thing when the dispossessed and repossessed Palin worshippers, Nascar morons, and Jesus Jokers haul the ordnance out of their closets and start tossing Molotov cocktails into the First National Bank of Chiggerville.
Book Review - 'The Myth of the Rational Market,' by Justin Fox; and 'The Sages,' by Charles R. Morris - Review - NYTimes.com

THE MYTH OF THE RATIONAL MARKET A History of Risk, Reward, and Delusion on Wall Street.By Justin Fox
THE SAGES Warren Buffett, George Soros, Paul Volcker, and the Maelstrom of Markets By Charles R. Morris

www.nytimes.com/...Krugman-t.html - Preview

book review finance market-failure markets efficiency mythology ideology free-markets on 2009-08-09
Don't Dismiss Taibbi : CJR

Mainstream financial journalism is doing its level, eye-rolling, heavy-sighing best to stuff Matt Taibbi back into the alt-press hole he came from, but he’s not going along with it, and the mainstreamers in any case are making a big mistake.

The Rolling Stone writer cemented his status as the enfant terrible of the business press with “The Great American Bubble Machine,” a 10,000-word excoriation of Goldman Sachs, a muckraker’s-eye view of Goldman history, exploring the bank’s and Wall Street’s contributions to various financial disasters

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journalism banking crisis recession norms behavior on 2009-08-08 and saved by 6 people
- The Atlantic’s Megan McArdle, who doesn’t lay a glove on Taibbi in this attack, is unintentionally revealing of a certain strain of financial journalism thinking:
  
  Taibbi is a gifted narrative journalist, whose verbal talents I greatly admire. But financial meltdowns don’t offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.
  
  “Financial meltdowns don’t offer villains?” Does anyone believe that?
  
  And wait a minute: Are we really so sure that “one group,” Wall Street, was not central to this crisis and that its increasing influence over government at all levels—what gives, for instance, with ex-Goldmanite Neil Levin deciding as New York State banking commissioner in 2000 not to regulate credit default swaps as insurance?—was not decisive? And isn’t Goldman Wall Street’s leading firm?
Goldman Sachs, the lords of time By Julian Delasantellis Asia Times Online :: Asian news and current affairs

Good explanation of Wall Street trading and impact of high frequency trading.

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high-frequency-trading finance banking wall-street on 2009-08-05 and saved by 2 people
Reforming Credit | The American Prospect

by Robert Kuttner

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economics debt consumer credit money income reform on 2009-08-04 and saved by 2 people
Op-Ed Columnist - Rewarding Bad Actors - NYTimes.com

It’s hard to imagine a better illustration than high-frequency trading. The stock market is supposed to allocate capital to its most productive uses, for example by helping companies with good ideas raise money. But it’s hard to see how traders who place their orders one-thirtieth of a second faster than anyone else do anything to improve that social function.

www.nytimes.com/...03krugman.html - Preview

wall-street banking financial-services high-frequency-trading benefits economics on 2009-08-04
Zero Hedge: The End Of The End Of The Recession

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economics recession growth future on 2009-08-04
The case for wiping out American debt » New Deal 2.0

www.newdeal20.org/?p=3512 - Preview

american economics debt on 2009-08-04
FT.com / Comment / Opinion - Debt is capitalism’s dirty little secret

The answer is capitalism’s dirty little secret: excessive lending was the only way to maintain the living standards of the vast bulk of the population at a time when wealth was being concentrated in the hands of an elite.

www.ft.com/...9d-11de-8e34-00144feabdc0.html - Preview

debt capitalism money wealth income-distribution on 2009-08-03 and saved by 9 people
Ah, Wall Street. Seeing the real you at last. » New Deal 2.0

Financial innovation was presented to us in a way that suggested that great things were happening for mankind. The presentations were usually vague. To understand them, we had only the power of our own imaginations, or perhaps, failing that, our awe in the face of this powerful expertise, confidently propelling us to a greater future....

Malarky. This is all code for defer to the wishes of those who make money from these techniques.

www.newdeal20.org/?p=3476 - Preview

finance financial-engineering financial-services banking money mythology religion capitalism innovation gloom-and-doom regulation on 2009-08-03
Edge 295

THEORY OF GAMES AND ECONOMIC MISBEHAVIOR
By George Dyson
An Edge Original Essay

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economics game-theory recession crisis behavior on 2009-07-31 and saved by 4 people
The Way We Live Now - The New Joblessness - NYTimes.com

The U.S. economy is not only shedding jobs at a record rate; it is shedding more jobs than it is supposed to. It’s bad enough that the unemployment rate has doubled in only a year and a half and one out of six construction workers is out of work. What truly troubles President Obama’s economic advisers is that, even adjusting for the recession, the contraction in employment seems way too high.

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economics unemployment labor jobs work recession abnormal on 2009-07-27
- In the 1960s, Arthur Okun, a prominent economist, claimed to have discovered a mathematical relationship between the decline in output (that is, goods and services produced) and the rise in unemployment. It held up pretty well until recently. But this time around, although the decline in output would have predicted a rise in unemployment to 8 percent, the actual jobless rate has soared to 9.5 percent. So this recession is killing off jobs even faster than the things — like automobiles, houses, computers and newspapers — that jobholders produce.
- Explanations for the collapse of the great American job machine begin with the marked absence of what is called labor hoarding. Usually during recessions, firms keep most of their employees on the payroll even as business slows, in effect stockpiling them for better days. In the current downturn, hoarding seems to have gone into reverse. Not only are firms laying off redundant workers, but they seem to be cutting into the bone.
- 1 more annotations...
- - But layoffs are only part of the story. The problem isn’t just that so many workers have received pink slips but also that companies are failing to hire. And this, unfortunately, has been a trend for most of the past decade (unnoticed, perhaps, because the mortgage bubble was papering over latent weaknesses). At the end of the Clinton era, which also marked the end of a decade-long boom, companies that were opening or expanding operations added nearly 8 workers for every 100 already on the payroll. During the recession of 2001, the figure dropped to 7 per 100: optimistic firms were a bit less optimistic. The surprising fact is that when the recession ended, the percentage stayed at 7. “We never got our groove back,” asserts Mark Zandi of Moody’s Economy.com. In the current recession, the rate has fallen to 6 per 100.
This epochal crisis requires us to resolve the paradox of capitalism | Timothy Garton Ash | Comment is free | The Guardian

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economics politics crisis recession capitalism reform on 2009-07-25 and saved by 5 people
FT.com | Willem Buiter's Maverecon | Islamic finance principles to restore policy effectiveness

Ideas about converting debt to equity.

blogs.ft.com/...o-restore-policy-effectiveness - Preview

economics debt equity crisis recession on 2009-07-23 and saved by 2 people
The Failure of Macroeconomics « ThinkMarkets

it is not simply a matter of finding the right explanation of the recent financial meltdown and recession. The search by most macroeconomists is constrained by a certain set of unquestioned methodological precepts. These precepts go to the heart of the conception of Economics as a Science.

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economics macroeconomic methodology ideology scientism certainty mathematics modeling on 2009-07-22 and saved by 2 people
Stumbling and Mumbling: Macroeconomics & the black box

Macroeconomics has traditionally ignored the inner workings of all companies. It has seen non-financial firms as mere production functions, transforming inputs into output in a stable (and smoothly differentiable) way. Regarding banks as black boxes for converting savings into loans is a natural consequence of paying insufficient heed to institutions.

stumblingandmumbling.typepad.com/...roeconomics-the-black-box.html - Preview

economics macroeconomic failure institutions on 2009-07-21
- Herein, though, lies a quirk of history. There’s one significant figure who cautioned against this error - Marx. In Capital (ch 6) he criticized orthodox economists for ignoring “the hidden abode of production.”
  But mainstream economists - including Keynes - ignored him. They did so, in large part, because they were not especially interested in Marx’s question of how income was distributed between profits and wages.
  So, could it be that a by-product of a lack of interest in this question has been “black box” thinking that’s proven very costly for mainstream economics? The amazing thing is that macroeconomics managed so well for so long with this omission.
Felix Salmon » Blog Archive » Financial innovation | Blogs |

I think that the case for the positive effects of financial innovation is yes pretty strong if you roll back the clock to 1200 or 1900 or 1950. But over the past 25 years or so, the claim is much harder to make stick.

blogs.reuters.com/...financial-innovation - Preview

finance innovation economics crisis on 2009-07-21 and saved by 2 people
Paranoids have enemies too | TPMCafe

There is no lack of irrationality on offer in the behavior of those who make up "the market." And the consequences certainly entail chaos. But the historical record of bubbles is too long and repetitive to ascribe behavior to individual deficiencies...
What's missing from the meliorist framework of my fellow bloggers is the concept of Power. We're getting progressivism when we need populism.

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economics crisis power money finance politics on 2009-07-17

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Todd Suomela

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Links on the meltdown of financial and economic markets.

Updated on 2009-08-18
Created on 2009-02-14

Category: Business & Finance

economics crisis 2008 2009

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Todd Suomela's List: Economic Crisis

Firedoglake » It Takes The Village To Raze the Economy: Some Notes On Krugman and the Return of Keynes

Lucas roundtable: Ask the right questions | Free exchange | Economist.com

The Fog of Numbers - Clusterfuck Nation

Book Review - 'The Myth of the Rational Market,' by Justin Fox; and 'The Sages,' by Charles R. Morris - Review - NYTimes.com

Don't Dismiss Taibbi : CJR

Goldman Sachs, the lords of time By Julian Delasantellis Asia Times Online :: Asian news and current affairs

Reforming Credit | The American Prospect

Op-Ed Columnist - Rewarding Bad Actors - NYTimes.com

Zero Hedge: The End Of The End Of The Recession

The case for wiping out American debt » New Deal 2.0

FT.com / Comment / Opinion - Debt is capitalism’s dirty little secret

Ah, Wall Street. Seeing the real you at last. » New Deal 2.0

Edge 295

The Way We Live Now - The New Joblessness - NYTimes.com

This epochal crisis requires us to resolve the paradox of capitalism | Timothy Garton Ash | Comment is free | The Guardian

FT.com | Willem Buiter's Maverecon | Islamic finance principles to restore policy effectiveness

The Failure of Macroeconomics « ThinkMarkets

Stumbling and Mumbling: Macroeconomics & the black box

Felix Salmon » Blog Archive » Financial innovation | Blogs |

Paranoids have enemies too | TPMCafe

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