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05 Oct 09

Realign the interests of Wall Street—By Joseph E. Stiglitz (Harper's Magazine)

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stiglitz capitalism's failure cap v cap

15 Sep 09

For all Obama's talk of overhaul, the US has failed to wind in Wall Street | Joseph Stiglitz | Comment is free | The Guardian

www.guardian.co.uk/...lehmans-one-year-after1 - Preview

stiglitz Obama-Wall Street sleight of hand cap v cap year later and the beat goes on

I fear that our collective response has been mistaken and inadequate – that we may just have made matters worse.
The financial sector would like us to believe that if only the Federal Reserve and the Treasury had leapt to the rescue of Lehmans all would have been fine. Sheer nonsense. Lehmans was not a cause but a consequence: a consequence of flawed lending practices, and of inadequate oversight by regulators.
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- Financial markets had lent on the basis of a bubble – a bubble in large part of their making. They had incentive structures that encouraged excessive risk-taking and shortsighted behaviour. And that was no accident. It was the fruit of vigorous lobbying, which strived equally hard to prevent regulation of changes in the financial structure, new products like credit default swaps – which, while supposedly designed to manage risk, actually created it – and ingenious devices to exploit poor and uninformed borrowers and investors. The sector may not have made good economic investments, but its political investments paid off handsomely.
- Lehmans was allowed to fail, we were told at the time, because its failure did not pose systemic risk. The systemic consequences its failure entailed, of course, were used as an excuse for the massive bailouts for the banks. Thus the Lehmans example became at best a scare tactic; at worst it became an excuse, a tool, to extract as much as possible for the banks and the bankers that brought the world to the brink of economic ruin.
- Bailing out the US banks need not have meant bailing out the bankers, their shareholders, and bondholders. We could have kept the banks as ongoing institutions, even if we had played by the ordinary rules of capitalism which say that when a firm can't meet its obligations to creditors, the shareholders lose everything.
- Unquestionably we should not have allowed banks to become so big and so intertwined that their failure would cause a crisis. But the Obama administration has created a new concept: institutions too big to be resolved, too big for capital markets to provide the necessary discipline.
- We have not circumscribed their gambling – indeed, they have access to funds from the Fed at close to zero interest rates, and it appears that "trading profits" have (besides "accounting" changes) become the major source of returns.
- Indeed, it has allowed the big banks to become even bigger – just as it has failed to stem the flow of profligate executive bonuses.
- Lehman Brothers was a symptom of a dysfunctional financial system and regulatory failure. It should have taught us that preventing problems is easier, and certainly less costly, than dealing with them when they become virtually intractable.

20 Jul 09

Morning Joe - Paul Krugman Blog - NYTimes.com

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Obama as a conservative and the beat goes on stiglitz

The point is that even if you think the leftish wing of economics doesn’t have all the answers, you’d expect some people from that wing to be at the table. Yet I don’t see Larry Mishel, or Jamie Galbraith … Jared Bernstein is it.
Joe Stiglitz stands out because in addition to being on the progressive wing, he’s also, as I said, a giant among academic economists. But I think the real story is more about excluded points of view than excluded people.

05 Jul 09

29 Jun 09

One small step forward | Joseph Stiglitz | Comment is free | The Guardian

www.guardian.co.uk/...ph-stiglitz-un-economic-crisis - Preview

Stiglitz globalization

It also demonstrated why it was important to have an inclusive process: the G192 were willing to raise key issues that the internal politics of the G20 may have made too sensitive. For instance, while the G20 focused attention on the role of bank secrecy in tax evasion, the UN agreement highlights corruption.
One of the factors contributing to the crisis was longstanding global imbalances, and one of the sources of these was the dollar-based global reserve system. This contributes to an insufficiency of global aggregate demand, as countries divert purchasing power into precautionary savings – and such an insufficiency may impede the world's ability to regain robust growth. While the UN meeting was not the occasion to devise a new system, it acknowledged calls for "further study of the feasibility and advisability of a more efficient reserve system". Unsurprisingly, some countries with large dollar reserves were concerned about the current system, the low returns and high risk – increasing with America's rising debt and the Federal Reserve's ballooning balance sheet.
- N.B. - on 2009-06-29
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- Perhaps the most important conclusion was the most obvious: "The ongoing crisis has highlighted the extent to which our economies are integrated, the indivisibility of our collective well-being, and the unsustainability of a narrow focus on short-term gains." We have allowed economic globalisation to outpace political globalisation – we do not have the institutions or the mindset to respond collectively in ways that advance the wellbeing of all. The UN meeting represented a small, but important, step forward.

28 Jun 09

A Global Recovery for a Global Recession

www.thenation.com/...stiglitz - Preview

Stiglitz credit crisis

24 May 09

Gloomy About Globalization - The New York Review of Books

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Stiglitz paradoxes Social Democrat

Making Globalization Work is the third of Joseph Stiglitz's popular, and populist, books.^[1] Like Jeffrey Sachs, Stiglitz is an economist turned preacher, one of a new breed of secular evangelists produced by the fall of communism. Stiglitz wants to stop rich countries from exploiting poor countries without damaging the springs of wealth-creation. In that sense he is a classic social democrat. His missionary fervor, though, is very American. "Saving the Planet," one of this new book's chapter headings, could have been its title.
- Stiglitz as Social Democrat - on 2009-05-24
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