Paul Krugman: Another Temporary Fix

Paul Krugman says "financial regulation needs to be extended to cover a much wider range of institutions" if we are to avoid "even bigger future disasters":

Another Temporary Fix, by Paul Krugman, Commentary, NY Times: So the big housing bill has passed Congress. That’s good news: Fannie and Freddie had to be rescued, and the bill’s other main provision — a special loan program to head off foreclosures — will help some hard-pressed families. ...

But I hope nobody thinks that Congress has done all ... of what needs to be done.

This bill is the latest in a series of temporary fixes to the financial system ... that have, at least so far, succeeded in staving off complete collapse. But those fixes have done nothing to resolve the system’s underlying flaws. In fact, they set the stage for even bigger future disasters — unless they’re followed up with fundamental reforms.

Before I get to that, let’s be clear...: Even if this bill succeeds..., it ... will, at best, make a modest dent in ... foreclosures. And it does nothing ... for those who aren’t in danger of losing their houses but are seeing much if not all of their net worth wiped out — a particularly bitter blow to Americans ... nearing retirement...

It’s too late to avoid that pain. But we can try to ensure that we don’t face more and bigger crises in the future.

The back story to the current crisis is the way traditional banks — banks with federally insured deposits, which are limited in the risks they’re allowed to take and the amount of leverage they can take on — have been pushed aside by unregulated financial players. We were assured by the likes of Alan Greenspan that this was no problem: the market would enforce disciplined risk-taking, and anyway, taxpayer funds weren’t on the line.

And then reality struck.

Far from being disciplined in their risk-taking, lenders went wild. ... Lenders ignored ... warning signs because they were part of a system built around ... heads I win, tails someone else loses. Mortgage originators didn’t worry about the solvency of borrowers, because they quickly sold off the loans they made, generally to investors who had no idea what they were buying. Throughout the financial industry, executives received huge bonuses when they seemed to be earning big profits, but didn’t have to give the money back when those profits turned into even bigger losses.

And as for that business about taxpayers’ money not being at risk? Never mind. ...

Meanwhile, those traditional, regulated banks played a minor role in the lending frenzy, except to the extent that they had unregulated, “off balance sheet” subsidiaries. The case of IndyMac — which failed because it specialized in risky Alt-A loans while regulators looked the other way — is the exception that proves the rule.

The moral of this story seems clear...: financial regulation needs to be extended to cover a much wider range of institutions. Basically, the financial framework created in the 1930s, which brought generations of relative stability, needs to be updated to 21st-century conditions. ...

If the government is going to stand behind financial institutions, those institutions had better be carefully regulated — because otherwise the game of heads I win, tails you lose will be played more furiously than ever, at taxpayers’ expense.

Of course, proponents of expanded regulation, no matter how compelling their arguments, will have to contend with very well-financed opposition from the financial industry. And as Upton Sinclair pointed out, it’s hard to get a man to understand something when his salary — or, we might add, his campaign war chest — depends on his not understanding it.

But let’s hope that the sheer scale of this financial crisis has concentrated enough minds to make reform possible. Otherwise, the next crisis will be even bigger.

Comments

[Winslow R.]

Pk wrote: "Before I get to that, let’s be clear...: Even if this bill succeeds..., it ... will, at best, make a modest dent in ... foreclosures. "

From what I understand $25 billion is a 'placeholder' amount not a limit. At best this bill could turn the housing market around in a few hours after the President signs it. Not that it will, it is a blank check depending upon what Paulson decides to do.

Give McCain a chance in November, don't give McCain a chance?

The Treasury is borrowing at 10 yr tsy rate at 4.1% and buying Fannie and Freddie stock, not MBS. They are making a loan at 0%.

Paulson could allow Fannie and Freddie to lower mortgage rates to 2% by Friday and the housing crisis would be over, at least past the election.

[bullbust]

If the government is going to stand behind financial institutions, those institutions had better be carefully regulated — because otherwise the game of heads I win, tails you lose will be played more furiously than ever, at taxpayers’ expense.

Ha Ha Ha. HA HA HA HA.

Krugman and Co. cant yet bring themselves to say 'moral hazard'. For a year they have been calling all kinds of names, those who dared to bring that up. 'Moral fundamenatalist', 'gluttons for punishment'...

HA HA HA HA.

it’s hard to get a man to understand something when his salary — or, we might add, his campaign war chest — depends on his not understanding it.

Here, let me correct that. 'Hard to get a neo-liberal economist to understand something, when his preaching and pulpit is based on not understanding it'

Eat you own medicine, Krugman. The neo-liberal crowd that supported this mess are the worst kind.

Austrians, understandable. They want a 'everyman for himself world. The liberals, understandable. They want a regulated world. The corporatists, understandbale. They want the govt to work for the sole good of corporations. All of them are understandable - their aims are consistent with their actions.

The neo-liberals? They think that corporatist system can be made to work to achieve liberal outcomes. Either they are outright crooks, or they are Upton Sinclair's words personified.

Neo-liberals like Delong, Krugman and Thoma should simply join their peers like Mankiw, Samwick, JD Hamilton et al, and leave liberalism to Baker, Galbraith, and co. But it's hard to get them to understand that ....

[HH]

"generally to investors who had no idea what they were buying."

We're rewarding idiots now?

[Reality Bites]

Yep. The bailouts will work, temporarily. At least long enough for the man or woman on the street to forget what the problem was. K-Street probably already has the talking points ready to squelch any campaigns for banking reform from the few politicians who might be brave enough to put forward any meaningful reform effort. Obama or McCain, either way it won't matter. The "too big to fail" bailout bandwagon will roll on to the next crisis, ready to disperse its billions (trillions even by the point?) to the crooks and cronies of the next crisis. The wagonmaster might be another Paulson, or a Rubin or a Summers, but it won't matter cause there's hogs to feed.

[Cyrille]

Calling Paul Krugman and Mark Thoma neo-liberals is rather strange (or have I never understood the name?).

Neo-liberals are, as far as I understand, the apologists of current Republican policies. Few people have as consistently analysed their failures as Paul Krugman and Mark Thoma. I don't read enough of Brad DeLong to be affirmative, but from what I've seen he's, in balance, more or less on the same side.

But most of all, to claim that Krugman supported this mess, when he's been the first audible voice to warn about a housing bubble, over five years ago, is mind-boggling.

[hari]

I'm sorry - it was not Paul who first warned about housing bubble. It was none other than the *shril* GRE Minitor issued by Prof N Roubini - according to whom US is already in recession.

Deregulation was, of course, the mantra of libertarians for too long. However, as indicated by many before, hi fi sector was takenover by a cabal lead by Citi & Merrill, etc and their beltway lobby.

It's no idea looking backward now because the policy malise -as Paul indicates rightly - is the political responsibility of Congress. They have to finally admit their own responsibility and specially on F&F - it's not funny how US Congress is manifestly run by special interests - if taxpayers are to have any trust in their Reps in Congress.

[Cyrille]

I said the first audible voice.

The problem with Roubini is that he seems to constantly preach that USA is already in a recession -I think he is right at the moment.

He does make quite a lot of sense, but he is not balanced, and for that reason his opinions are usually set aside -although most of the time they shouldn't be.

Krugman is EXTREMELY balanced, even though Rightists paint him as an extremist, and has a tribune at the NYT. He is far more "audible" than Roubini for most (I do read Roubini at times myself, but I don't think he has anywhere near as much diffusion).

[Linda]

Calling Paul Krugman and Mark Thoma neo-liberals is rather strange (or have I never understood the name?).

I'm with Cyrille on this. Isn't neo-liberal economics more akin to the Chicago school? Aren't they the ones who basically think the faster money moves, the more transactions you can create, the better? Isn't that what got us to this place?

Ask an old style conservative if neo-conservatism has anything to do with conservatism, and they'll shake their head. Ask a liberal about neo-liberalism and you'll get the same response.

Speaking as a taxpayer, I agree that bailouts need to be accompanied with more standards to meet and scrutiny to see that those standards are met. I do believe that mortgage lenders still require borrowers to carry fire insurance.

[save_the_rustbelt]

Ohio and Michigan started having record numbers of foreclosures as early as 2002, due to the dismantling of our manufacturing sector, but that was acceptable collateral damage in the drive to globalize the economy.

Let the foreclosures reach the east and west coast, where people were drunk on the housing bubbly, and that is a crisis (and it is).

Regulation does not cure everything.

[Alex Tolley]

So shouldn't PK now be arguing for a return of Glass-Steagal which which was repealed during the Clinton administration?

[Joe]

bullbust

When you try to dig down and really attempt to understand the world in which you live, you'll find that a general mode of perception is worthless. The world is nuanced and you need a an appreciation of subtleties.

It's hard tedious work.

Obviously you have never endeavored to do anything hard.

[anne]

http://krugman.blogs.nytimes.com/2008/07/28/bens-got-the-whole-world-on-a-string/

July 28, 2008

Ben’s got the whole world on a string
By Paul Krugman

I can’t get no … sense of traction [Figure]

Unfortunately, he’s pushing on it. I find this figure amazing: thanks to the credit crunch, a stunning decline in the Fed funds rate has had no effect at all on mortgage rates and borrowing rates for many businesses — the interest rates that matter to the private economy.

[Mbuna]

Generally I agree that Krugman's preaching ultimately does nothing and his ideas are not enough. The idealism of updating the financial framework from the 1930's can never mesh with the reality that whoever does the updating will simply do so to favor the greed of their constituents, period. It is simply not possible to construct a "fair and balanced" financial framework at this place and time because THE CULTURE OF THIS PLACE AND TIME LACKS THE WISDOM TO SO.

Speaking of lack of wisdom, the creators of the Federal Reserve planned for the socialization of losses in 1910 and here we all still lay like lapdogs at their feet 100 years later. Krugman and everyone else are still caught in the trap set at that time. Where is the vision (let alone the will) to transcend the thinking of a bunch of greedy bankers from 1910?

[ken melvin]

Repubs love simple arsed dogma. Trouble is, simple arsed doesn't lend itself well to solving complex problems. The congress of Reagan and Newt Gingrich is the dumbest since reconstruction; maybe ever. Half of them don't think there is a problem and even if they do, they're barking up the wrong tree.

[robertdfeinman]

I wonder if "deregulation" is actually what we have been seeing for the past few decades. Perhaps what we have seen instead is neo-regulation. Some traditional constraints have been removed or gutted operationally while a new type of constraint on action has been added elsewhere.

For example, financial institutions have had usury limits removed as well as capital requirements, anti-trust laws are no longer operative and neither are laws promoting the right for workers to organize.

In their place we have preferential tax breaks for certain industries, subsidies and bi-lateral trade agreements. A subsidy in the form of an oil depletion allowance or a waiver on emissions by a refinery is an implicit "regulation" on wind energy producers. It tilts the playing field. Similarly a bi-lateral agreement over US beef with Korea is a constraint on Argentinian beef, it is now "regulated".

In a capitalist society firms do not want a free for all, they want preferential things for them. This is exactly what has happened, the level of real competition has decreased and the ability of new firms to enter the market or new technologies to compete has been diminished. That's regulation in favor of the status quo and big interests.

If we really wish to open up the market to innovation and competition we have to think about where the constraints are now, and just trying to restore the old ones may not be the best course of action. I suggested that we look at the idea of limiting the absolute size of firms, regardless of their market share as a new type of regulation.

[btg]

I also think that the term "neo-Liberal" means those who, like the Chicago School, tend to believe in market-bassed solutions for most problems. Neo-Liberal is a term with the same meaing that is used in Britiain and Europe - like for Maggie Thatcher - in the sense that Adam Smith is seen as a classic liberal.

Neo-conservative was the North American equivalent term, but with some additional baggage attached because it went beyond just economic policy and was really identified with Ronald Reagan and to some extent, his conservative social policy.

In the last year or two, "neo-Con" has been used to mean those who were part of the whole "Project for a New American Century" types - for foreign policies (mainly Iraq) of the Bush administration - Fukuyama and others have used it in this context.

So the term Neo-con, which was once almost identical in meaning to Neo-Liberal, is now meaningless because it has been useed to cover so many things identified with the political right.

Also related - is "Washington concensus" as the international application of the same economic theories by the World bank and IMF.

[Bruce Wilder]

I am disappointed that Krugman doesn't connect more of the dots.

STR: Ohio and Michigan started having record numbers of foreclosures as early as 2002, due to the dismantling of our manufacturing sector, but that was acceptable collateral damage in the drive to globalize the economy.

Let the foreclosures reach the east and west coast, where people were drunk on the housing bubbly, and that is a crisis (and it is).

That's certainly part of it. People talk about the "housing bubble" as if it were just wild and crazy stuff happening in San Diego and Las Vegas, but, long before that, there was widespread lending predation across Michigan and Ohio, with no run-up in housing prices.

Like rdf, I wonder why Krugman doesn't do more to draw attention to the 30-year conservative project buidling Casino America. The S&L crisis was a shakedown focused on the government deposit insurance guarantee. But, it was also a first step, clearing away a whole set of thrift institutions that protected people against financial predation: they occupied a financial space that has since been filled by payday lenders, high-rate credit cards, and unscrupulous mortgage brokers. Can we say it? This was by design.

[bullbust]

I'm with Cyrille on this. Isn't neo-liberal economics more akin to the Chicago school?

The gang of Krugman, Delong, Thoma, Summers, Rubin et al - these are the people who went along with the Chicago mafia, worshipping Alan Greenbum. Salvation for the masses through free market and no regulation. The Chicago mafia at least has its actions-aims matched up. This clueless ivory tower gang of Chicago apologists, on the other hand...

These ivory tower nuts in cushy tenured jobs goes "The problem is not with markets, regulations. Its with the regulators not doing their job, the govt not doing their job".

Yeah right. The fox got the chickens, not because we removed the hen house door. No, sir. It was because the dog did not do his job.

These Chicago apologists can't stand Roubini - he's always calling recession, and like a broken clock, he is now right, because he does not subscribe to this myth. A sane man would call Roubini correct, NOT because his recession/ crisis call is right at present, BUT because his prediction about WHY there would be this crisis - the credit bubble and its fruits - was exact.

Roubini is right because of his reasoning, his WHY, not timing. But then the bunch of people whose models will never admit the basis of his reasoning- manias, bubbles, and busts - will never give him that credit. Even today, they pretend he is a broken clock.

No, this crisis just came along. No one could have predicted it because OUR Homo economicus models do not predict it. Whocoodanode!

It is as if the Wingnuts claiming that the consequences of going into Iraq was not predictable. No sir, things is Iraq just happened. No one could have forseen that. Whocoodandode!

Joe says..

It's hard tedious work.

Obviously you have never endeavored to do anything hard.

Everyday. By the sweat of my brow do I earn my bread. Making something that is top of the line, and widely sold, beating the crap out of the competition, day in, day out, in the real world. Not in hare-brained utopia, making models and theories of Homo economicus, the mythical rational economic man, or trying to con the public pushing bad debt and useless paper

[paine]

am i wrong to boil down krug
to old regs for new markets ???

if so
then how did we get back here from the triumphs of 1936 ???

and what MORE must we do to make the reg system unsinkable this time

paul...got any memes on this
for us groundlings of THE SCIENCE

[paine]

METAPHOR
back in those same 30's
folks started transplanting human hearts
they quickly learned about rejection
the immune systems reaction
when some goo goo tried hooking
just any old dgf
"alien organs" into live but dead hearted human body systems

similarly
corporate capitalism's immune systems
eventually rejected reg hook ins
just took a little longer to kill off
"the alien organs"

[paine]

bullbust
take mark off that hate list
and i'll agree
with the rest
one thousand percent

cyrille
now after 8 years of free range
limited liability corporatism
neo lib is a mark of cain
not a 90's type brand name
for gub-corp do good biz detente "realism"
turned out do good biz wasn't do biz good eh ??

so folks like krug and delongeurs
have been rowing away
from their brand
as fast as they can

err once they caught the full whiff
some quicker and earlier then others ...obviously

regardez:

paul's elfin nose
was clearly way more sensitive
then brad's snout

[anne]

BB:

"A sane man would call Roubini correct, NOT because his recession/ crisis call is right at present, BUT because his prediction about WHY there would be this crisis - the credit bubble and its fruits - was exact.

"Roubini is right because of his reasoning, his WHY, not timing."

Interesting.

[paine]

"The world is nuanced and you need a an appreciation of subtleties."
joe
prufrocks don't rock
nuance like seance
is a word
fit only for darkened front parlors

[paine]

"Where is the vision (let alone the will) to transcend the thinking of a bunch of greedy bankers from 1910?"

the monster bankers blue print of 10
got built in 13
to "on the fly " congressional orders
and obviously not to wall street's coherent priginal
specs..

uses drifted bank side entirely for thru the post great war years till....

frankenstein's monster roamed the landscape from 30-33

there have been both way reconstructions
ever since

but me hopes
i smell not an austria here

if so

crew
prepare to repell
flying gold bug invaders

[paine]

rf
naked corporate welfare plans
need no other clever name
like invisible regs

programs which
allow pri-sec profiteers
to collect their entitled "rents " from uncle
is called pork
no matter what you call it
pork is another dimension of "state failure"

[paine]

" I suggested that we look at the idea of limiting the absolute size of firms "

that aim is worthy of mr weaver's populists
reminds me of
congressional term limits
the balanced budget amendment
and other such pop movements
based on the Lord above
and confident ignorance down here

[paine]

"the 30-year .... project buidling Casino America"

lovely bw ..as edited ...it was after all bi partisan

nb carter/clinton

[bob]

Anne: "Interesting"

Would you care to expound? Are you skeptical of Roubini's view of the crisis? Your comment repetition followed by a one word verdict from the all-knowing Anne is getting annoying.

[paine]

"The gang of Krugman, Delong, Thoma, Summers, Rubin et al - these are the people who went along with the Chicago mafia, worshipping Alan Greenbum"

go get em bull's eye

nuance is for guys with rolled up trousers

[Cynthia]

Bullbust,

Since the term "neoliberalism" is a bit of a fog to me, maybe it's really true that there are enough similarities between "Delong, Krugman and Thoma" on the one hand, and "Mankiw, Samwick and JD Hamilton" on the other -- thus making them all members of the same species of economists called "neoliberals." But to me, there are enough differences between the two sets of economists that they oughta be further subdivided into two distinct subspecies of "neoliberals."

[paine]

"Everyday. By the sweat of my brow do I earn my bread. Making something that is top of the line, and widely sold, beating the crap out of the competition, day in, day out, in the real world"

that's one way to see thru
the less then worthless
negative long run sum paper demons (big and small)

there's another way

be one ..be a paper demon ..
that is one with a working bathroom mirror

anne :
attendez vous

[paine]

"two distinct subspecies of "neoliberals."

yes
repentent and non repentent

says...

I seldom, very seldom, use the terms neo-liberal or neo-conservative, since like post-modernism, the terms are confusing and even self-contradicting. Neo-liberals are wildly conservative, neo-conservatives are old-conservatives, and modernism is what we "got" now.

The point is that American social-economic and foreign policy has been wildly conservative through this Administration and was only less so by degrees for many years before, and the question is whether significant change in policy direction is actually possible no matter the coming Administration.

[anne]

Darn, that was my fault entirely.

[Francois]

"Krugman and Co. cant yet bring themselves to say 'moral hazard'."

Like uttering the "moral hazard" mantra would change the situation one bit.

HAHAHAHA!

"Eat you own medicine, Krugman. The neo-liberal crowd that supported this mess are the worst kind."

But they were not alone in supporting that mess weren't they? Politicians ("campaign war chest") and CEOs of all stripes ("salary"...and bonuses) eagerly refused to understand too. That was Krugman's point. Plus, if ALL economists had called the situation for what it was, do you seriously think it would have changed behavior?

"The neo-liberals? They think that corporatist system can be made to work to achieve liberal outcomes."

Of course it can be made to do just that...with a good dose of oversight and regulation.

Show me instances where Krugman didn't advocate just that: "Let the markets play in the park, while making sure there is adult supervision".

Can't wait.

[save_the_rustbelt]

From The (Toledo) Blade today

GOING, GOING...
Manufacturing losses exact rising toll in northwest Ohio and southeast Michigan

But they can always work at Wal-Mart!

[Francois]

""generally to investors who had no idea what they were buying."
"

"We're rewarding idiots now?"

Why don't you read a bit about the role of the Rating Agencies in all this mess?

http://bigpicture.typepad.com/comments/2008/04/taking-moodys-t.html

Furthermore, if you think investors of all stripes had the means to do their due diligence, here's a shocker about valuing CDOs, RMBSs and the likes:

http://tinyurl.com/6yws9k

[ Original URL: http://www.nakedcapitalism.com/2007/06/worries-on-valuing-repackaged-debt.html ]

A sample [emphasis are mine]

"And there are a few other barriers: you can't get the deal documents. No kidding. The Fed can't even get them because it isn't a "qualified investor." (Should the Fed start a hedge fund so it can study this problem?). From "Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions," by Joshua Rosner and Joseph Mason (pages 83-4):

At present, even financial regulators are hampered by the opacity of over-the-counter CDO and MBS markets, where only “qualified investors” may peruse the deal documents and performance reports. Currently none of the bank regulatory agencies (OCC, Federal Reserve, or FDIC) are deemed “qualified investors.” Even after that designation, however, those regulators must receive permission from each issuer to view their deal performance data and prospectus in order to monitor the sector.

So if regulators can't get the description of the securities, market participants certainly won't. So what good is a price if you aren't really certain what is being traded?"

Pretty rich huh?

Now, we could make the point that investors should've steered clear of opaque financial instruments like these.

Easier said than done. Say you're the head of a big pension fund. Everyone else is buying those (in)securities, they get awesome yields compared to anything else available at the time. You are well aware that pension obligations just keep growing and returns are mandatory.

But, you're a tough cookie and just won't buy the stuff, precisely because you want to invest only in what you understand clearly. You stick to your guns and unfortunately, your relative performance to peers is suffering badly.

Care to guess what will happen at the next meeting on performance evaluation?

That's right! Unless you can make a VERY compelling case that this whole shebang is a time bomb ready to blow-up at any time, AND you can convince the Board, you're looking at the pink slip.

No pressure there, of course!

[Joe]

To all those who attempted to correct bullbust misconceptions, commendations.

I confess that I in the past have been adamant about something only to later find I was wrong or mispercieved what a label meant or some other thing.

With the internet, it is not necessary to make such mistakes for it is relatively easier then in the past to check our premises. I try to be careful.

Real communication is frought with peril and all fields try to reach some consenus on labels that encompass a whole systems of thought. As an analogy reference Galbraith's notion that economics is best presented in prose versus Krugman's contention that it is more efficently presented with mathematical equations.

I find Krugman to be an honest broker and one that doesn't buy the whole "neo liberal" bill of goods. On the other hand I haven't found Mankiw to ever deviate from neo liberal prescriptions as far as I know, but I probably don't know enough about him because I have him pigeon holed and only read him ocassionally to devise counter arguments in order to refine my own ideas.

Regarding Krugman's column, it rings true and he was prescient in predicting the current state in which we find ourselves. On the other hand, Mankiw cheered the inovations that have landed us in this mess. I find neoliberals, monetarist and mankiw and his ilk to be simple minded. Unable to do the tedious hardwork to notice subtleties and nuance

Oh by the way, when I said "do something hard", I didn't mean repetitive I meant complex or something that takes deep thought over a long time, examining all relavant aspects, even tangential ones, as well as reconciling counter indicators. Pardon me for being careless with my adjectives (labels).

[Francois]

About investor's due diligence "obligations". Forgot to mention another often overlooked aspect: the so-called monoline insurers.
(Hat tip SR)

Comments are [] and emphasis are mine

"Wall Street used ACA to hide loads of subprime risk. It worked—until the tiny company collapsed.

by David Henry and Matthew Goldstein

Here's another secret behind the mortgage mess: It turns out that Wall Street generally didn't buy insurance on subprime bonds to protect against default. Instead, many big banks used the policies to play one set of accounting rules against another. [now, what a shocker: bankers doing something sly...tsk tsk tsk! whocoodanode?]

The results of the game were bigger profits for banks, more money to continue cranking out securities built on risky subprime mortgages, and far less clarity about the banks' true exposure to the toxic investments. The mess left by insurer ACA Financial Guaranty (ACAH), which collapsed in December, is now revealing just how critical the bond insurers' role was in the mortgage market. In essence, ACA and the rest of the industry helped spur the boom to new heights, extending it far beyond its natural end point. cont...
http://www.businessweek.com/magazine/content/08_15/b4079024463824.htm?campaign_id=rss_daily

BTW, let's remember how servile the rating agencies were when came the time to properly evaluate the monolines insurers. They just wouldn't do the obvious a.k.a. downgrade to absolute junk.

So long for market self-discipline.

[paine]

"i find neoliberals, monetarist and mankiw and his ilk to be simple minded. Unable to do the tedious hardwork to notice subtleties and nuance"

joe you need to postulate a notion
of "enlightened self interest" here

mankiw is a master of both hard work and your beloved nuance
but he's "hired" and rewarded handsomely
by..the dark side

okay so its a bounded enlightenment
but if thee's no life after this one
maybe its not bounded enough to cause greg's comeupence

[paine]

francoise

you make a delightful cocktail party companion

keep up the chatter its tres koool

[Chris]

Brokerage houses and investment banks need to be as closely regulated as banks, very definitely. Of course according to Nouriel Roubini not many investment banks are going to survive. They will be merged or bought out by foreign financial institutions. Wait and see.

[kthomas]

Market self-discipline? There's no such thing. There's just greed and more greed, while Unlce Sam gets left with the bill.

[paine]

the definition of market self discipline
one pigs dinner is limited by the rest of the pigs

who limits the slop supply??

farmer brown

[ken melvin]

"Market self-discipline? " A term for the ages.

[paine]

"Brokerage houses and investment banks need to be as closely regulated as banks"

this time round
lets regulate the regulators too

[Joe]

Thank you Paine. The world and humans are complex entities.

Here's one, perhaps Mankiw is unwittenly deluding himself.

Is Mankiw being totally honest with Mankiw.

In the end though does it matter. With the dawn of each new day we again purpose ourselves to seek justice forevermore, regardless of what are our expectations of the extent of forevermore.

Any other pursuit, in the end, is a waste of a life.

Those who seek justice will have their fill.

[paine]

to design a proper
never again mechanism
after the present credit crisis

its prolly okay
to follow
that nazarene guy's
"love thine enemies" bit
so long as you don't
throw in his "resist not evil"
figure
there
but for the grace of being a loser
go i

don't make sense
blaming pigs for being pigs
hell forgive em if you must
just don't think they're
convertable into angels

course i'd carve up into hocks and chops myself

[paine]

i agree joe

u can live life as an ox or a bull

your choice
but becoming an ox
isn't like getting a vaaaaaaasectomy
it ain't reverse-able

[Cynthia]

...So the neoliberals can be divided into those who repent and those who won't...

The fog of paine has suddenly lifted from my eyes so that I can finally see him loud and clear.;^)

[Joe]

We are getting a little far afield here and I was not entirely precise because I am in the middle of a work day.

To clarify though, doing justice, to me, means enviserating the arguments of Mankiw.

Hope that's clear

[paine]

"eviserating the arguments of Mankiw"

by any and all means availible !!!!!

if he proves to thickly hided
or his gut to leathery

use an axe and a shovel
if he proves too slippery to hold in place

nail him to the table

if he has cast a magic spell
and you can't get within ten feet of him

torch the whole building he's in

[Joe]

I want to enviserate his arguments not his body. I'll be happy when he throws in the towel and slinks off.

A total win is when he renounces his position and supports true free market economics and democracy as opposed to crony capitalism ruled by a avarice plutocracy.

[im1dc]

I commend Our Professor Krugman for his Editorial today:

Another Temporary Fix, by Paul Krugman, Commentary, NY Times:

"So the big housing bill has passed Congress. That’s good news: Fannie and Freddie had to be rescued, and the bill’s other main provision — a special loan program to head off foreclosures — will help some hard-pressed families. ...

"But I hope nobody thinks that Congress has done all ... of what needs to be done.

"This bill is the latest in a series of temporary fixes to the financial system ... that have, at least so far, succeeded in staving off complete collapse. But those fixes have done nothing to resolve the system’s underlying flaws. In fact, they set the stage for even bigger future disasters — unless they’re followed up with fundamental reforms."
===============================================================

Following on the heels of PK's editorial today yet another FedRes Bank President said that the "US economy is under performing".

Prices usually GO DOWN in such an environment? Wouldn't this indicate that residential RE prices have further to fall?

[im1dc]

FYI: The new new thing 'COVERED BONDS' for RE:

http://www.ustreas.gov/press/releases/hp1101.htm

July 28, 2008
HP-1101

Secretary Henry M. Paulson, Jr.

Statement on Covered Bond Best Practices

Washington - Good afternoon. Thank you all for coming today. Joining me on stage are FDIC Chairman Sheila Bair, Federal Reserve Governor Kevin Warsh, OCC Comptroller John Dugan and OTS Director John Reich. We also welcome representatives from Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo. I will make a few remarks, my colleagues will also address you and then Jeff Brown with Bank of America will speak.

As we are all aware, the availability of affordable mortgage financing is essential to turning the corner on the current housing correction. And so we have been looking broadly for ways to increase the availability and lower the cost of mortgage financing to accelerate the return of normal home buying and refinancing activity.

The housing government-sponsored enterprises, Fannie Mae, Freddie Mac and the Federal Home Loan Banks, and the Federal Housing Administration are funding more than 70 percent of residential mortgages during these months of market stress. They must continue to be active here.

At the same time, private-label securitization, another important source of mortgage finance, has become severely strained and credit conditions have tightened. In addition to securitization done by housing GSEs, private mortgage-backed securitization benefits the American consumer and our markets. The private-label market will evolve in response to current challenges, and I expect it to return with greater risk-awareness and investor discipline. We also believe it is useful to explore additional mortgage financing options to complement more traditional funding models.

One option we have looked at extensively is covered bonds, which are a $3 trillion market used widely in Europe for mortgage funding. I believe covered bonds have the potential to increase mortgage financing, improve underwriting standards, and strengthen U.S. financial institutions by providing a new funding source that will diversify their overall portfolio.

Treasury has been working with our regulatory counterparts to look at ways to support the emergence of the covered bond market in the United States. We consulted with our European counterparts, including the UK Treasury. We also spoke with potential U.S. market participants, including issuers, investors, underwriters and ratings agencies. While many European countries have dedicated covered bond legislation, the U.S. regulatory environment is different. Covered bonds are a promising financing vehicle and we believe this market can grow in the United States absent federal legislative action.

To help achieve our goal of broader choices in mortgage finance, today Treasury is publishing a Best Practices guide for U.S. residential covered bonds. This document is intended to outline practices that will promote covered bond market simplicity and homogeneity, using high quality mortgages as collateral. It is a starting point and complements the FDIC final policy statement of July 15th.

I appreciate the FDIC's strong leadership in advocating covered bonds and providing clarity to potential investors. Together, the FDIC final policy statement and a Treasury Best Practices guide should give market participants the tools to build a market that will benefit U.S. families and the U.S. economy. A U.S. covered bond market also will present new opportunities for further international investment in the United States.

We knew that this initiative would be successful only if the largest banks paved the way. And so I welcome the announcement by America's four largest banks, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, that they intend to establish covered bond programs and kick-start this market in the United States. And, I am also pleased to know that the two existing domestic issuers of covered bonds intend to align their programs with these new practices.

We applaud these banks for their leadership and for recognizing an opportunity to help increase mortgage funding availability and strengthen our financial system. We are at the early stages of what should be a promising path, where the nascent U.S. covered bond market can grow and provide a new source of mortgage financing.

Covered bonds are simply one tool for mortgage financing and will not, alone, complete the housing correction. We will continue to pursue our efforts to avoid preventable foreclosures and to speed, without impeding, the necessary course of this housing correction. Thank you and now Chairman Bair will say a few words.

Other interesting links at: http://www.ustreas.gov/

[paine]

"true free market economics"
does this operationally tanslate as
a state with a constitutional
total hands off the market policy ???
if so
can you safely claim
by abolishing even the possibility of "state failure"
wrecking market function
you can expect
given reasonable time frames
spontaneous market agencies
will cure enough market failures
to say ....out perform
any state centered jobs
still around over a .....three decade production race

[kthomas]

the fog of paine, indeed. Dastardly, fellow, but nearly always right.

[paine]

"I want to enviserate his arguments not his body. I'll be happy when he throws in the towel and slinks off"

you're a scholar and a gentleman sir joe

and kthomas is
of course...a genius

[Joe]

Market parameter = many buyers and sellers = competition = need for antitrust enforcement

Has nothing to do with countercyclical monetary or fiscal policy.

Any other necessary regulations apply to all buyers and sellers and can be incorporated into the market structure without changing its basic character. All the many buyers and sellers will have to play by the same rules.

Products that require relativly high capital investment (see history of railroad industry) need particularly high regulation (remember utillty commissions) or nationalization(Europe, Conrail, Amtrak) because competition in these industry produce financial disaster.

Non-profit institutions (regulated)also have been a good deal for wage earners (blue cross/blue shield (before privatization), mutual insurance companies, mutual saving banks)but they are competiton for capitalist who saw to it that these institutions were privatized.

The above a brief list of some aspects of market structure. Consider it and explore further. An example of how different markets use to be, until avarice capitalist started bribing venal right wing deluded politicians who possessed limited vision.

A less efficent economy? Maybe, but perhaps more stable. I refer you to the current situation as an example. Oil shocks have been traumatic either way as we now know.

You remember how America use to be?

[Patrick]

Nothing less than the end of the Gilded Age 2.0. Good riddance. The flawed assumption here is that America is somehow entitled to an orderly transition. Not so. There is no quick housing fix, credit fix, money supply fix, energy fix, inflation fix, deflation fix, productivity fix, debt fix, or environment fix. Except, of course, for many years of honest toil to unscramble the policy, legal, regulatory, fiscal, and monetary eggs. That's not yet on the table though. Not yet. We'll get there. Eventually. Maybe.

[paine]

pat

"Nothing less than
the end of the Gilded Age 2.0.
Good riddance"

here's hopin yer right pard

obama
leader of our job nation
on the rise ????

says...

bullbust says...
Austrians, understandable. They want a 'everyman for himself world. The liberals, understandable. They want a regulated world. The corporatists, understandbale. They want the govt to work for the sole good of corporations. All of them are understandable - their aims are consistent with their actions.

The goal of liberals is not "a regulated world". The goal of liberals is a just, humane world. Sometimes regulation is a necessary tool for that goal.

It's the conservatives who want to regulate people. Like that out-of-work truck driver sicko who shot up the Unitarian-Universalist Church in Tennessee because he doesn't like liberals, who are for the right for people to be different, as long as they aren't huring other people. The really ironic thing is that apparently the trigger for the violence was that he was on the verge of losing his food stamps. Of course, it's because of the liberals that food stamps were available at all. And liberals want help for those like him. I'm sure you conservative thugs, including Pat Robertson and Rash Limburger, are rejoicing about this shooting that you helped bring about with your lies about liberals.

[Patricia Shannon]

That was my comment.

[Joe]

I think the liberal part of neoliberal confused bullbust. He made some pretty adamant statements but his arguments were wrong, misconceived, based on misperceptions, not to mentioned not throughly considered and in general incoherent.

We haven't heard back from him.

Of whom does this remind me? Oh yea, The whole radical right wing that inhabits the political spectrum of this country.

Point out the obvious fallacies in their arguments and they slink off in search of some unaware person to buy what their selling. That Rush Limbaugh's, et al mission in life. Their product stems more from ego then any systematic thought.

When events illuminate contradictions in their view of the world, they go into denial and change the subject or look for a ghost to blame. I don't think the roots of this modus operandi stem from lack of courage of their convictions, cowardice, but more an effort to soothe their own egos. At the end of the day they have a high opinion on themselves and maintaining it is paramount.

They need a little to do a little self reflection, be honest
with themselves and realize they are subject to the same perils the rest of us face. Yes their food stamps could be cut off or they could become addicted to oxycondon. Then they need to do the hard work to figure out their place with the rest of humanity.

Getting Bullbust to slink off could be accomplished by anyone who thinks just a little bit, Mankiw is a more formable challenge.

[bullbust]

I think the liberal part of neoliberal confused bullbust.

Not at all. As I said, the whole Krugman-Delong-Summers et al. crowd - the Clinton camp, were water-carriers for The Chicago mafia.

He made some pretty adamant statements but his arguments were wrong, misconceived, based on misperceptions, not to mentioned not throughly considered and in general incoherent.

See above re. Roubini-is-a-broken-clockers and whocoodanoders

Getting Bullbust to slink off could be accomplished by anyone who thinks just a little bit, Mankiw is a more formable challenge.

Getting bullbust to slink off is pretty easy - because bullbust is really busy with work nowadays. (Search this blog comments for bullbust in the past)

Mankiw is a more formable challenge
See "Sickness unto Death: Soren Kierkegaard. SK, when he goes through the despairs, has an example about a man who builds an elaborate system - supposed to be SK commenting on Hegel. Ditto getting Mankiw to slink off.

When events illuminate contradictions in their view of the world, they go into denial and change the subject or look for a ghost to blame.

I would put up your ripostes, and rest my case

[CathyG]

"The fox got the chickens, not because we removed the hen house door. No, sir. It was because the dog did not do his job."

No, sir. The chickens were eaten because the "adults" in charge shot the dog and tore down all the fences.

There will be plenty of time for the historians to apportion blame for this fiasco. But the people who are furious with the administration are furious because they see this debacle as, primarily, the result of an abject failure of governance.

Regardless of the political labels one might use, average Americans have been rode hard and put away wet and the vast majority who did NOT cash out/refinance/buy what they couldn't afford have done little to deserve this treatment, yet are being handed the bill.

For 8 years we've had an administration that has been ideologically hostile to governing, has refused to regulate in favor of the unfettered free market, has appointed department heads based on cronyism rather than ability, has under-funded regulatory agencies and has politicized appointments, promotions and retention to a degree never seen before.

For examples see Brownie of FEMA, layoffs of OTS regulators, the politicization of the Justice Department (see commentary by Jeffrey Toobin), and Paul Krugman: http://krugman.blogs.nytimes.com/2008/07/13/look-whos-talking/

For results of this approach to governing see the financial crisis, the environmental record, increased food poisoning incidents, increased near misses at airports, etc.

My question is: at what point is an ideologically driven, tragically wrong bet on governance so destructive that it goes beyond "Oops, my bad."?

Actions that imperil the economic sovereignty of my country also imperil its security. Actions that threaten the security of my country constitute treason. The people who deliberately looked the other way while the economy of the richest country in history was being systematically looted are traitors.

In Russia it was called kleptocracy: rule by thieves.

After 9/11 Bin Laden said that one of his goals was to bring down the U.S. economy. Now that this unholy alliance between Washington and Wall Street has caused so much more economic damage than he was ever able to, shouldn't the people involved be identified and punished for what they are: enemies of the state?

Seems fair to me.

[Cyrille]

"Not at all. As I said, the whole Krugman-Delong-Summers et al. crowd - the Clinton camp, were water-carriers for The Chicago mafia."

Just repeating a lie won't make it true you know.

[Lafayette]

In fact, they set the stage for even bigger future disasters — unless they’re followed up with fundamental reforms.

OK, for starters, how about making the five Fannie’s top directors who pocketed, between 1998 and 2003, 199 megabucks as compensation … for what? Expanding banking operations into unchartered waters, that is buying mortgage SIVs that were established by the private sector (with the lax controls the consequence of which we know only to well.

Here is the report from the Economist (19th July): A brief family history
Toxic fudge
Jul 17th 2008
From The Economist print edition
Chartered by Congress; out for themselves

ADAM SMITH thought that private companies chartered to fulfil government tasks had “in the long run proved, universally, either burdensome or useless”. That has not stopped them thriving. America has five government-sponsored enterprises (GSEs), set up to subsidise loans to homeowners or farmers. (Sallie Mae, which deals with students, gave up GSE status in 2004.) Because they count as privately owned, GSEs are kept off the government’s books. For politicians that has made them irresistible ever since the Farm Credit System’s creation in 1916.

Fannie Mae and Freddie Mac dominate the GSE system, accounting for four-fifths of its total credit portfolio. Fannie was created in 1938 as a government corporation. In 1968 the Johnson administration decided to list its shares to reduce the budgetary pressures created by the Vietnam war, according to Thomas Stanton, of Johns Hopkins University. Freddie was born in 1970 and listed in 1989. Both companies aim to support the secondary mortgage market. They have succeeded all too well: they own or guarantee about half of all mortgages.

Their supremacy reflects their privileges. As well as an implicit state guarantee, which allows them to fund themselves cheaply, they enjoy exemption from some taxes. They run with far less capital than banks and have more latitude to include as capital dubious items such as preference shares and tax assets. The capitalised value of these privileges is huge: between $122 billion and $182 billion, according to a 2005 study by the Federal Reserve.
It gets worse. The same analysis concluded that shareholders, who enjoy turbocharged gearing without higher borrowing costs, siphoned off about half of the subsidy. Managers trousered an unseemly sum too: between 1998 and 2003, Fannie’s top five executives received $199m.

With so much at stake, no wonder the companies built a formidable lobbying machine. Ex-politicians were given jobs. Critics could expect a rough ride. The companies were not afraid to bite the hands that fed them: in 2004, the day before a congressional committee discussed the regulation of Fannie, the company ran a television advertisement attacking the committee. Their regulator, the Office of Federal Housing Enterprise Oversight, says its powers were weakened during its creation in 1992: for example, its budget must be approved annually by Congress and thus depends on political goodwill.

Accounting scandals in 2003-04 (the two firms restated earnings by a total of $11.3 billion) led to a change of management, and, supporters argue, of culture. The pace of balance-sheet expansion and accumulation of risky private-label securities has slowed. Yet neither company can be accused of anticipating the housing crash. An end to GSE status looks unlikely: as truly private companies Fannie and Freddie would require unrealistically large injections of equity. The government wants to avoid nationalisation. That leaves the status quo, the public subsidy of private profit: a combination as toxic as it was in Smith’s day.

[Lafayette]

In fact, they set the stage for even bigger future disasters — unless they’re followed up with fundamental reforms.

OK, for starters, how about making the five Fannie’s top directors who pocketed, between 1998 and 2003, 199 megabucks as compensation … for what? Expanding banking operations into unchartered waters, that is buying mortgage SIVs that were established by the private sector (with the lax controls the consequence of which we know only to well.

Here is the report from the Economist (19th July): A brief family history
Toxic fudge
Jul 17th 2008
From The Economist print edition
Chartered by Congress; out for themselves

ADAM SMITH thought that private companies chartered to fulfil government tasks had “in the long run proved, universally, either burdensome or useless”. That has not stopped them thriving. America has five government-sponsored enterprises (GSEs), set up to subsidise loans to homeowners or farmers. (Sallie Mae, which deals with students, gave up GSE status in 2004.) Because they count as privately owned, GSEs are kept off the government’s books. For politicians that has made them irresistible ever since the Farm Credit System’s creation in 1916.

Fannie Mae and Freddie Mac dominate the GSE system, accounting for four-fifths of its total credit portfolio. Fannie was created in 1938 as a government corporation. In 1968 the Johnson administration decided to list its shares to reduce the budgetary pressures created by the Vietnam war, according to Thomas Stanton, of Johns Hopkins University. Freddie was born in 1970 and listed in 1989. Both companies aim to support the secondary mortgage market. They have succeeded all too well: they own or guarantee about half of all mortgages.

Their supremacy reflects their privileges. As well as an implicit state guarantee, which allows them to fund themselves cheaply, they enjoy exemption from some taxes. They run with far less capital than banks and have more latitude to include as capital dubious items such as preference shares and tax assets. The capitalised value of these privileges is huge: between $122 billion and $182 billion, according to a 2005 study by the Federal Reserve.
It gets worse. The same analysis concluded that shareholders, who enjoy turbocharged gearing without higher borrowing costs, siphoned off about half of the subsidy. Managers trousered an unseemly sum too: between 1998 and 2003, Fannie’s top five executives received $199m.

With so much at stake, no wonder the companies built a formidable lobbying machine. Ex-politicians were given jobs. Critics could expect a rough ride. The companies were not afraid to bite the hands that fed them: in 2004, the day before a congressional committee discussed the regulation of Fannie, the company ran a television advertisement attacking the committee. Their regulator, the Office of Federal Housing Enterprise Oversight, says its powers were weakened during its creation in 1992: for example, its budget must be approved annually by Congress and thus depends on political goodwill.

Accounting scandals in 2003-04 (the two firms restated earnings by a total of $11.3 billion) led to a change of management, and, supporters argue, of culture. The pace of balance-sheet expansion and accumulation of risky private-label securities has slowed. Yet neither company can be accused of anticipating the housing crash. An end to GSE status looks unlikely: as truly private companies Fannie and Freddie would require unrealistically large injections of equity. The government wants to avoid nationalisation. That leaves the status quo, the public subsidy of private profit: a combination as toxic as it was in Smith’s day.

[Lafayette]

Typo: OK, for starters, how about making the five Fannie’s top directors who pocketed, between 1998 and 2003, 199 megabucks as compensation … for what?

Should read: OK, for starters, how about making the five Fannie’s top directors -- who pocketed, between 1998 and 2003, 199 megabucks as compensation -- reimburse the payments; which were made … for what?

[Lafayette]

Life imitates art

CathyG: Now that this unholy alliance between Washington and Wall Street has caused so much more economic damage than he was ever able to, shouldn't the people involved be identified and punished for what they are: enemies of the state?

We have met the enemy ... and he is us. (Pogo by Walt Kelly)

And then there's that lingering smell of 1984 by George Orwell, where BigBrother insisted that our enemy was constantly menacing us on "our frontiers".

Life imitates art, in all its ugliness. Have we learned nothing about totalitarianism, especially the kind the plutocrats have brought us in the guise of "Democracy"?

[Joe]

bullbust

It appears you haven't the slightest conception of the different schools of economic thought, particularily as they pertain to monetary and fiscal policy prescriptions and also market structure

You need to do the hard work of studying at least part of the history of economic thought. I'll give you a clue so you can cut to the chase. Study the classic school then Keynes was the line of demarcation when the classic "Say's Law" was
dismissed unequivically. The next step is to study the inovations since Keynes which consist of the right's attempts to impugn Keynes, which for the most part and in any significant way, fell on their face, and the sane economist response to the right's assaults. In sane I would include Krugman and DeLong but I am not so sure I would include Mankiw though it would probnably more work then I'll ever be able to accomplish to prove that definitivly.

It's hard work and requires an open and engaged mind. I wish you well in this endeavor and hope you achieve success.

[Joe]

One other thing bullbust. You seem to intimate that you are very busy. I hear you. That is is the life sustenance of the kleptocracy.

In the end if you prick their arguements they naturally go in to doublespeak mode to try and confuse you.

I refer you to Limbaugh, Hannity, et al. They also have other tricks in their bag.

In the end they are confidence men. The goal is not to edify but to fleece.

[Lafayette]

Political skeleton

Patrick: There is no quick housing fix, credit fix, money supply fix,... Except, of course, for many years of honest toil to unscramble the policy, legal, regulatory, fiscal, and monetary eggs. That's not yet on the table though. Not yet. We'll get there. Eventually. Maybe.

For a patient to remedy their illness, they must first recognize the fact that they are sick. I don't think America is prepared to do that to the extent necessary.

In a repeat of Bush 2004, but with different actors, Americans are quite capable of finding it insurmountable to elect a black man as PotUS.

So, if McBush makes it through 8 years, America will have spent another decade wandering about in the desert before the question of profound reform ever poses itself once again. McBush is Business As Usual, meaning, the Federal Government is the private preserve of Business Interests. McCain will cease being the maverick and tow the Republican line.

If BO remains with the "Change Strategy", he is done for. No country elects a leader without the Vision Thing. BO must translate "change" into some lose details that put some meat on a very thin political skeleton.

People must believe in the possibility of change, not just the word itself.

[hp]

What is wrong with you people (ie Joe, Cyrille)?! "Limbaugh, Hannity, et al"?! I don't see what about bullbust's post is so inflamatory? Is it that he's calling out PK and LeDong for spouting the standard doctrine of free markets/free trade/balanced budgets (might as well call it the Chicago school) during the Clinton years?
It's psychos like you who give us liberals a bad name.

[hari]

Marquis - for the sake of argument - let's accept your scenario and allow McBush to win.

What's likely to follow?

My succinct instincts foretells:-

* end of American hegemonic political-economic power;

* Mainland China's emergence as global power - by default;

* FTA -> Asean, India, China, Japan, S Korea (and Taiwan);

* EU-27 emerging with *soft power*; and,

More peaceful cooperation than conflict world-wide.

[Joe]

hP

Taking bullbust sentiments, as posted here in their entirety I don't disagree with everything he is trying to posit.

My problem is as he is drawing lines where they don 't go which leads to confusion.

See my previous comments about communication and standardizing labels so we are all reading off the same song sheet and have the story straight

Psycho is a strong, stark epithet, I suggest you refrain from using it in discourse lest others think your a little unbalanced

[Cyrille]

hp, it rarely hurts to check your facts:

"Is it that he's calling out PK and LeDong for spouting the standard doctrine of free markets/free trade/balanced budgets (might as well call it the Chicago school) during the Clinton years? "

From Wikipedia:
"The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of University of Chicago, some of whom have constructed and popularized its principles. The school emphasizes non-intervention from government and rejects regulation in laissez-faire free markets as inefficient. It is associated with neoclassical price theory and libertarianism and the rejection of Keynesianism in favor of monetarism until the 1980s, when it turned to rational expectations."

So, already, we see that balanced budget is not a feature of the Chicago school.
Then, we notice that the Chicago school rejects regulation an promotes laissez-faire, when Krugman keeps coming with examples of market failures and promotes sensible regulation.
The epitome, of course, is that the Chicago school was pretty much devoted to rejecting Keynesianism. Yet we should read that Krugman, an avowed neo-Keynesian, is a propagandist for the Chicago school and not react lest we be called psychos?

I realise that blogs have a tendency to bring a lot of good-sounding one-liners, but once again, there is something to be said for actually thinking and checking facts.

[bullbust]

It appears you haven't the slightest conception of the different schools of economic thought

Really?

Delong himself here

http://www.project-syndicate.org/commentary/delong51

Intellectually, this is a great puzzle: we believe in market forces, and in the benefits of trade, specialization, and the international division of labor. We see the enormous increase in Mexican exports to the US over the past decade. We see great strengths in the Mexican economy – a stable macroeconomic environment, fiscal prudence, low inflation, little country risk, a flexible labor force, a strengthened and solvent banking system, successfully reformed poverty-reduction programs, high earnings from oil, and so on.

Yet successful neo-liberal policies have not delivered the rapid increases in productivity and working-class wages that neo-liberals like me would have confidently predicted had we been told back in 1995 that Mexican exports would multiply five-fold in the next twelve years.

His attempt to define neoliberal principles here..
http://www.j-bradford-delong.net/Politics/neoliberal_principles.html

Krugman is so easy to find, I'll leave it to you and Google. But he's got a better nose -see paine above.

Sure these people differ from Mankiw et al. - differences without distinction.

One other thing bullbust. You seem to intimate that you are very busy. I hear you. That is is the life sustenance of the kleptocracy.

I dont think you get that. Try doing something you really want to do, not something you have to.

[Patricia Shannon]

CathyG, great comments

[hari]

The problem with (above) discourse on *ideology* of academic economists reminds me of the tale of an idiot...looking for his ...wife.

Can you imagine what a bloody waste of space/time discussing such nonsense - while the economy is tanking?

Who'd care in future if the socalled pundits lived or not?

[Patricia Shannon]

I agree with hp. At this point, I don't see the justification of piling onto bullbust, even though I think he's wrong on some points. Being wrong doesn't mean being evil. Not having all knowledge of economic history doesn't mean someone is evil. Being too busy at work to participate much in this forum is hardly a reason for being attacked. I am in the same situation recently.

[Patricia Shannon]

hari, my own sentiments. Of even more concern to me the damage we are doing to the environment. Much of this quarreling about schools of economic thought remind me of the middle-ages, where people argued heatedly about how angels could dance on the head of a pin.

[hari]

Right you're!

[Lafayette]

Hari:

* end of American hegemonic political-economic power;

* Mainland China's emergence as global power - by default;

* FTA -> Asean, India, China, Japan, S Korea (and Taiwan);

* EU-27 emerging with *soft power*; and,

* More peaceful cooperation than conflict world-wide.
Interesting propositions. However, regarding the :

First – this is unlikely given its dominant status. No PotUS would care to see it diminished. There is nothing to take its place. Europe is not yet ready, due to internal disinterest in a common Foreign Policy.

Second – China cannot armed project power, which is the key definition of a “World Power”. And, would they show the intent to become one, McCain’s military chiefs would advise him to “contain China”. He’d follow their advice. Besides, China is doing what it needs to do commercially by coming in unseen by the back door.

Third - I doubt McCain would care all that much about an FTA that does not include the US.

Fourth - McCain doesn’t believe in “soft-power”, but military supremacy; so he wouldn’t care a bit about Europe’s desire to ask questions first and fire away afterwards.

Fifth - That’s possible, but after this disastrous administration, ANYTHING that McCain (or Obama) does in Foreign Policy will be considered “more peaceful cooperation”.

[macburger]

hari:
>Can you imagine what a bloody waste of space/time discussing such nonsense - while the economy is tanking?

No. Its well worth discussing, because of exactly that. To put it in base terms-- Was Clinton just a stop on the road to Chicago or not? ballbust says it is, Joe says it's not.

That is a real question, and instead of calling bullbust names, and asserting that he's wrong -without ever stating why, its given - I would like to see a good answer. Is the core basis of neoliberalism wrong?

Wikipedia: This term also refers to a political movement in which prominent members of the American left (such as Michael Kinsley, Robert Kaus, Mickey Kaus, and Randall Rothenberg) embraced some conservative positions such as anti-unionism, free market economics, and welfare reform.

In many respects, the term is used to denote a group of neoclassical-influenced economic theories and libertarian political philosophies which believe that government control over the economy is inefficient, corrupt or otherwise undesirable. Neoliberalism is not a unified economic theory or political philosophy — it is a label denoting an apparent shift in social-scientific and political sentiments that manifested themselves in theories and political platforms supporting a reform of largely centralized postwar economic institutions in favor of decentralized ones. Few supporters of neoliberal policies use the word itself.

Delong, as ballbust claims, unabashedly calls himself a neo-liberal. That's as Clintonite as you get.

Krugman has been the free-trade evenagelist (though lately he's having second thoughts).

So do all of Krugman -> Mankiw share the same faulty philosophical errors, such that their differences are irrelevent to the eventual outcome? Is'nt this what the heterodoxy debate was about? That economics has reached its Fukuyamki end, and the differences are between Mankiw and Krugman, as opposed to Mankiw, Krugman et al. vs the ostracized?

[macburger]

http://news.bbc.co.uk/2/hi/business/7531099.stm

World trade talks 'failed again'

An official announcement is expected later

Marathon talks in Geneva aimed at liberalising global trade are reported to have ended without agreement.

The trade talks collapsed after China, India and the US failed to agree on import rules, trade officials told news agencies Reuters and AP.
....

The US says they are being overly protective towards their own farmers and are failing to do enough to open their markets.

India's Commerce Minister Kamal Nath rejected the charge, saying: "The US is looking at enhancing its commercial interests whereas I am looking at protecting the livelihood of farmers."

Chinese Commerce Minister Chen Deming echoed Mr Nath, saying the US was "asking a price as high as heaven".

[Joe]

Again, these "labels" or schools of economic thought usally entail a whole set of policy prescriptions or more generally a philosophy.

Language or words have meaning which conjure images, feelings, concepts,ect..

In economics as in most fields of human endeavor these labels are useful and allow us to communicate more efficently.

They are a shorthand that allow us to assume a whole set of premises so we can get to examining the matter at hand. For instance, what to do about our current economic situation addressed in Krugman's column.

The neoliberal school (Seems to me) WAS the consensus orthodoxy and the benchmark or framework from which to begin a discussion about specific policy prescriptions. My sense was that it was never totally accepted and more or less accepted by different practitioners. Mankiw would be more. DeLong would be substantially but not entirely, Krugman would be less, Stiglitz would be a lot less. That is not based on what those people have declared about what school to which they belong but my subjective opinion based on reading these fellows opinions over the years. The ideas encompassed by this school have steadily lost their sheen. Just reading what bullbust has posted w/o actually finding the article you'll notice that DeLong say the views he held in ***1995*** haven't panned out the way he would have predicted.

Nonetheless it was/maybe still is the paradigm from which we begin our discussion of economics. This paradigm dictated the parameters of the current form of the economy in the developed world

It is important to note that the neoliberal premises flowed from earlier schools of economic thought tempered by subsequent experience and ideological warfare. Hence my recommendation that the study of the history of economic thought is a prerequisite to discussing economic coherently. If we don't know the definitions of words, we are going to have hard time understanding each other.

Mankiw and the political right wing in this country went beyond neoliberalism and advocated policies that DeLong and Krugman consider wrong or even stupid.

The Chicago School backed up the right wing and threw in Monetarism also; until the Friedman (father of monetarism) repudiated his own theory.

It's important to precisely understand the distiction between these different schools of economic thought. If you don't you shouldn't cite them them when discussing economics because you'll just confuse those that do have a correct understanding.

Further, if you don't precisely understand what the label means then it wouldn't be possible to apply that label to a particular person.

[Lafayette]

Drop the labels

Joe: Further, if you don't precisely understand what the label means then it wouldn't be possible to apply that label to a particular person.

Ergo, let's drop the name-labels.

They mean absolutely nothing and are a poor excuse for substantive debate on a subject with as great a diversity as political economy.

Labelling people because of their opinions is an ad hominem shortcut and therefore inadmissible in serious debate. One defends one's idea/notions/opinions not one's label.

The divide between Right and Left is an integral part of modern political and economic parlance. So, let's learn to defend ideas and not parties or labels -- which are always beside the point.

There is nothing as boring as "the Republicans did this" and the "the Democrats did that" or "the Chicago school this" or "the Cambridge school that" in argumentative discussion. What are we, children in the supermarket of Political Economy that need labels to assist in our purchasing decisions? let's should hope not -- how puerile.

Rather, lets look closely at the "content-labelling" of the merchandise.

[Joe]

Go to disguide 2008 (google) and look up neoliberalism 101.

I looked into the matter a little more and neoliberalism is not considered a school of economic thought by some practitioners, but nonetheless does seem to be a consensus paradigm ????

I guess that possibly the depth of my knowledge perhaps isn't sufficent enough to understand the distinction. Perhaps the people who don't ascribe the status of "school of economic thought" think in more general philosophical terms of utility and welfare. To my mind though, if neoliberalism is not a school of economic thought then how do we ascribe "school of economic thought" to keynesian, monetarism, marxism, merchantilism, Austrian....?

Regardless, neoliberalism encompasses a set of ideas'

Is a label.

Labels are to some degree useful in communication just like Oh I don't know """"words""""

Before we use """"words"""" in communication, we should understand what the """"words"""" mean.

Labels (schools of economic thought in the present case) may be more complex concepts then the mere definition of a word but if we intend to use labels in communication then we need to understand the concept as generally accepted by our fellow human beings. Just like Oh I don't know""""words"""" perhaps.

This would be particularly important when ascribing a label to a person.

For instance you may like money but that may not mean you are venal

If you think about it for a second, communication is a complex undertaking.

To circumscribe "labels" from our communication is, on it's face, as ridiculous as circumscribing oh I don't know""""words""".

I stand by all my previous comments in this thread and maintain that before bullbust tries to communicate and edify us with his ideas, he should at least understand the definition of the words and labels he is using.

Further before he should ascribe a label to a person he should understand the label and have grounds for the accusation.

Otherwise, in general, ogga booga supercalafragalistic would be equally useful to those that are trying to mutually grapple with and discuss the subject matter under consideration. Further we wouldn't have to get distracted by correcting his carelessness and could move on to resolving the issue.

As ideas batter against each other perhaps we may find our way to the truth. Its a messy process. I wish you all the strenght to persist.

I will say I am human and consequently very imperfect but endeavor to humbly submit to proper correction so as to move on to untangling the knotted cords.

[Lafayette]

Miscommunication

Joe: I stand by all my previous comments in this thread and maintain that before bullbust tries to communicate and edify us with his ideas, he should at least understand the definition of the words and labels he is using.

That goes for all of us.

However, this is forum on economics, not semantics. For a treatise on semantics, go here.

As you will note, perhaps, "labels" are figurative meanings, not literal. Which is why, for literal meanings, we have ... dictionaries!

For instance: neoliberalism = an outgrowth of the U.S. liberal movement, beginning in the late 1960s, that modified somewhat its traditional endorsement of all trade unions and opposition to big business and military buildup

When a language substitutes figurative meanings for literal meanings, which American English has done to a great degree, then it invites open interpretation of words. The language becomes less precise, which invites "sound bite logic", which is the résumé of complex ideas/notions in one trite little saying. The meanings of words "morph", depending upon usage and not fixed definitions.

The result, I suggest, is not communication but miscommunication.

[Joe]

I'll concede we are arguing semantics for the moment, but

there is allways a but.

Here's my point

We need to codify our language (that is an endeavor undertaken in all fields of human activity) as some people will have the time and persistence to understand the precise meaning while others will only have the time and attention to accomodate a sense of our words.

The ultimate goal would be to approach a situation where are words can convey a whole complicated picture (communicating efficently)like Madison Avenue does when they are selling us a dream in a six pack in 30 seconds.

It came to mind while I was typing those words that there is possible danger (torches and pitchforks anyone)inherent in this stragedy, but it is the pursuit of all attempts to sway any large group of people. I refer you to any political campaign. I will say the danger is mitigated if our aim is to be truthful.

Perhaps it was a conceit to take the political out of political economy

[Joe]

One other thing, I can note it but that doesn't mean I agree.

[Lafayette]

Joe: as some people will have the time and persistence to understand the precise meaning

You are spot on, as regards American English.

As soon as a people take shortcuts with languages, "to save time", then it is entirely possible that what happens is not communication but miscommunication.

The vulgate, more widely understood, nonetheless degrades the language and language is the vehicle of culture.

PS: I wonder if this is not the reason that a great many people are impressed with Obama. He is a refined orator. He knows the meaning of words and employs them precisely. And his jargon is limited. It's a very impressive "show". He's as good as lead-head was bad at speach-making. It could just get him elected. People have decided presidents on lesser grounds.

[Joe]

OK nuff said or in the immortal words of Forrest Gump, "that's all I got to say about that"