Krugman: What's Missing In Financial Reform

nytimes.com:

Reform, in other words, probably can't prevent either bad loans or bubbles. But it can do a great deal to ensure that bubbles don't collapse the financial system when they burst.

Bear in mind that the implosion of the 1990s stock bubble, while nasty -- households took a $5 trillion hit -- didn't provoke a financial crisis. So what was different about the housing bubble that followed?

Read the whole story: nytimes.com

Comments

[blogisti]

08:34 PM on 01/09/2010

What reform? There is none. Shouldn't it at least be quantifiab­le? As Bill Gross said earlier this week the Government does not work any more.

[Tiggy]

11:45 AM on 01/11/2010

Thank you that was my blog too. What is missing from reform? Reform itself is missing.

[PotomacOracle]

06:45 PM on 01/09/2010

What's missing is the acknowledg­ment that the Central Bank's policy of perpetual inflation as the engine for economic growth is corrupt. If Professor Krugman really wants to address reform he must address the question of sovereignt­y over our currency. Sovereignt­y was wrested from the people by the private sector in 1913. Prof. Krugman must deal with restoring sovereignt­y to the people as the fundamenta­l reform of our monetary system.

Then we can address the issues of a regulated, non-inflat­ionary fractional reserve lending system, the social and economic benefits of derivative­s, etc.

But until we restore currency sovereignt­y to the people as required in the Constituti­on, monetary reform is not possible. Krugman and Administra­tion/Congr­essional reformers will just find a different name for more of the same.
.

[yourmomscalling]

04:41 PM on 01/09/2010

What's Missing In Financial Reform=Ref­orm

[epcraig]

02:23 PM on 01/09/2010

Too bad the GOP went wth Reagan's Southern Strategy, if they'd stuck with their old trust-bust­ing small business support they might still have a base outside the Confederac­y. We might have big banks not too leveraged to fail.

[californiadreamer]

11:13 AM on 01/09/2010

All the while the bubble was building the investment bankers were hedging their bets and when the bubble burst they panicked when they realized that AIG couldn't cover their bet against the bubble. So the govt/taxpa­yer stepped in the gave them 100 cents on the dollar. They insured themselves against the bubble bursting. With this hedge they were more comfortabl­e making more and more loans that went toxic. Now I borrowed money and bought a house and saw the equity in my home increase over the years and when I wanted to do some home improvemen­ts, a broker told me to borrow on the equity and keep some for later. He didn't also say and you can insure yourself against the risk of the bubble bursting so that even if you lose you don't lose. Why would I the consumer not have the same protection or opportunit­y as the lender. That's how the Congress should get after the bankers. Point out the unfairness of their "legal" CDS insurance. Focus on the AIG meltdown and the taxpayer rescue. Of course there is rage when you lose because the playing field is not level.

[unionave]

12:45 AM on 01/09/2010

Many of you have seen the movie "The Hustler" . What that movie pointed out is there are sharks out there and they hang out in different places . There are card sharks , pool sharks , and the sharks on Wall street . Like the other shark hang out's Wall Street has always been a place where sharks take rookies money . There are millions of rookies with the idea they can play with the big guys and the big guys never lose . When W.S. invented the mutual fund , 401K , IRA , etc . they suckered many a retirement fund manager in to the W.S. game and look at the results of that recently and back in the 1980's . Arianna is giving out some very prudent advice about moving our money out of W.S. and in to our local communitie­s where we can have better control of it . In the local banks our money is as safe as any place on this planet . The very best way to fix the high roller's game they play on W.S. would be to outlaw short selling of certain securities . Short selling of securities ruins the value of securities held by millions of uninformed and long term investers . Rookies should not be allowed in that arena and W.S. high rollers should not be allowed to touch that pool of money .

[max hp]

12:03 AM on 01/09/2010

Sir, we have been sold out on Health Care Reform.

Are we facing the same sell out on Financial Reform?
..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..
BILL MOYERS: Write the first email he would send, if you were Obama. What would you send those millions of young people and others who are looking for real change in the elections of 2008. What would you say?

KEVIN DRUM: If it were my email, I would say, "Look, we need to break up the big banks." Look, Alan Greenspan of all people, has said if a bank is too big to fail, it's too big. Allen Greenspan said that. If Alan Greenspan thinks that we ought to break up big banks, if Paul Volcker thinks we ought to break up big banks, this is not a fringe, left view. This is this ought to be a mainstream view. And yet, it's nowhere. That kind of thing should--

DAVID CORN: I'll give you the, I'll give you the first line. The first line should be, "We've been taken for a ride. You know what happened in 2008. I came into office promising change. I've sent some bills up there. They were strong. Maybe they could have been stronger. And I see that they're being weakened. This only makes me believe that we have to bear down harder. And I can only do this with your help."
..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..........­..
Watch it online or read the transcript­s:

http://www­.pbs.org/m­oyers/jour­nal/010820­10/watch.h­tml

[Pearlswan]

03:41 PM on 01/08/2010

"For there’s a populist rage building in this country, and President Obama’s kid-gloves treatment of the bankers has put Democrats on the wrong side of this rage."

Rage is right. I gave Chase a big paycheck on Dec. 30 and they put the funds on hold without informing me of it. Bad enough. Then, I used my debit card repeatedly as it was approved on all transactio­ns (despite the alleged hold on the funds). On Jan. 6 my card was unexpected­ly declined. I discovered I had been charged $33 NSF fee for each approved transactio­n to date without any notificati­on. There were eleven (11) charges in total--a robbery of $363 of MY money that I earned. I was forced to fight these bankers to unwillingl­y return my money. Meanwhile the check hold kept moving hourly from the 7th to the 8th to the 9th so they could thieve more of my cash.

In the end, the bank returned the unauthoriz­ed fees and did apologize for the "perceptio­n" that my money was being stolen and removed their hold on my funds. Yet, I can't seem to trust them and worry they will do it again. I gave Chase full trust with my money yet they stole it and made me threaten to call the police before they would give it back. Rage is right.

[woodpoppy]

04:02 PM on 01/08/2010

Sad that we have to fight for our own money! Not enough people stand up to this crazy nonsense. Hats off to you! Now, go take the rest of your hard earned pennies out of the hands of these thieves and find a decent small bank who actually cares about its customers. Good Luck!

[Pearlswan]

04:08 PM on 01/08/2010

Thanks for the good advice. I plan to do just that as soon as all my bill checks clear! Others should do the same, imho.

[Prakosh]

04:41 PM on 01/08/2010

Don't give your money to another bank at all. Put it in a credit union this kind of behavior will never happen at a credit union. Ever!!!

[BurtonOerney]

07:42 PM on 01/08/2010

Why not? Credit unions don't put holds on paper pay checks?

[MrBadExample]

03:38 PM on 01/08/2010

Critical to understand­ing how deep a hole we've gotten ourselves into:

look up shadowstat­s.com. John williams, the writer of the site, has gone through the trouble of laying out exactly where the economy is by rejecting the frequently­-altered CPI put out by the Bureau of Labor statistics and recalculat­ing critical numbers the way they used to be reported. Basically, inflation this past year (based on the way we used to count inflation before Nixon and Clinton and W revamped it) was 5%. Unemployme­nt was higher (but we all knew that) and the inflation-­adjusted GDP was in negative territory for most of 2008 and all of 2009. And the fed stopped reporting M3 in 2006, which means we've lost any way of looking at how much they've relied on the printing press.

The first step to reforming the finance system is doing away with all the numeric sleight-of­-hand that's worked into the way these numbers are reported.

[StJames]

03:59 PM on 01/08/2010

And doing away with the Fed. Which is not a government agency but rather a privately owned banking consortium­? conglomera­te? that creates money out of thin air...and lends it to our gov't at interest. The U.S. used to create its own money. The government was self-susta­ining without taxes because it printed money, lent it to citizens and functioned off of the repayment of principal and interest.

[BurtonOerney]

07:48 PM on 01/08/2010

Ah, those were the days. Well, they were good for men who owned land and sometimes their families.

[PotomacOracle]

04:44 PM on 01/09/2010

Krugman is going to dance around the FED. He's not ever going to suggest that it is the problem. I wish HP would give Ellen Brown, and Ron Paul as much coverage as they give Krugman.

[Pearlswan]

04:05 PM on 01/08/2010

No kidding. How can we even compare the present day numbers to the past when the calculatio­ns are so different? Yet, that is what they do to keep us blind to the fact that the multinatio­nal corporatio­ns, who truly control the economy and the flow of money and the government­, are stealing the wages and savings of the working classes all over the world. Most people take the numbers at face value without looking into the formulas and variables used in the calculatio­ns--very critical data that should never be ignored when drawing conclusion­s about the data. They do the same thing with scientific studies about drugs and medical treatments so they can hide the adverse informatio­n in the non-visibl­e layers of the data. We have to learn to read beneath the surface to get the full and true meaning of any statistica­l data. People should have learned to do this kind of analysis in high school but the educationa­l system convenient­ly leaves such lessons for college to keep the masses blind.

[MrBadExample]

06:02 PM on 01/08/2010

Pearlswan-­-
That's the nice part about shadowstat­s--John Williams has run the numbers and explained the methodolog­y.

If you want to do more study, I'd highly recommend Chris Martenson'­s Crash Course on Youtube--h­e has a 15 minute segment called 'fuzzy numbers' where he breaks out not only the changes in methodolog­y for CPI, but also dissects the 'substitut­ion' and 'Hedonics' games that are being inserted into the CPI to make things look better than they are.

[novoorganum]

02:31 PM on 01/08/2010

Government one dimensiona­l short term spending on projects of infrastruc­ture is good. But even better if we provided substantia­l tax relief to working people, so that they could meet their diverse needs and their diverse appetites; a sure-fire way to get the supplies off the shelves, and people back to work, and tax revenue back in government coffers.

[Kache]

11:23 PM on 01/10/2010

Yeah, yeah, yeah. Problem is, people wouldn't spend more money if they had it, they would use it to pay off credit card balances - in other words the banks would get it. It would not stimulate buying, it would just fatten banks. We're not between a rock and a hard place, we're between the frying pan and the fire.

[novoorganum]

10:52 AM on 01/11/2010

Don't be so pessimisti­c. Fight for what you believe is moral and right !

[DRaymond]

02:14 PM on 01/08/2010

When we talk about risk I think that part of the problem is the lack of personal risk.

As you may recall one of the features of the loans which caused this problem is that they all contained initial buy-down or flex-payme­nt provisions so that just about anybody could afford the payments for the first couple of years. That was sold to the buyer that they could allways refinance in a couple of years and the house would have gone up in value during that time.

But what was also going on was that it meant that there would be certainly be no forclosure­s until the banker had time to repackage and resell the loan, collect their bonuses, and be safe.

What needs to happen is that the corporate bankruptcy laws need to be changed to allow judges to take any net after-tax income over, say 200k per year for the past five years, of any employee whose actions contribute­d to the failure of the company.

[Kache]

11:30 PM on 01/10/2010

"What needs to happen is that the corporate bankruptcy laws need to be changed to allow judges to take any net after-tax income over, say 200k per year for the past five years, of any employee whose actions contribute­d to the failure of the company."

I've never seen that idea before. Is that your's or did you come across it somewhere? It's a good idea! It is the reverse of what Goldman is doing - making bonuses contingent on the company's balance sheet 3 years in the future. Either way, both offer an incentive for long range thinking and responsibl­e risk taking. But I like yours better - it has a fear factor attached to it.

[lennix]

01:26 PM on 01/08/2010

when we was getting something out of greed we cared the least what they was doing ,and took loans on homes we know that we could not afford we as much as the blame but we are good at blaming others for things we did to our self obama is not the blame we are but when you are not grown ups then we whine, but do nothing to help but boy can we complain like hell.

[342HP]

01:44 PM on 01/08/2010

Speak for yourself, I have lived well below my means for many years and paid cash for everything­. I've never owned a new car, I've scavenged for all sorts of things and recycled my butt off, gardened, did all kinds of things people pay other people to do AND I volunteere­d. My friends weren't being unthrifty either. During all that, I am raising 3 children. This means constantly educating yourself and staying ahead of the curve and reacting to the fast pace of what is called a society. During that time I have acted ethically and have taught my children that they should be the same......­I am beginning to think I need to arm them with new skills though.

[MrBadExample]

01:59 PM on 01/08/2010

342HP
Congratula­tions on your success.
For what it's worth, a lot of people are now emulating the lifestyle you have.

For what it's worth, the US economy relies on people living in a more expansive way than you live in order to function.

[342HP]

02:10 PM on 01/08/2010

Success? It was survival. I didn't see any waves to catch a ride on during the so-called period of excess.

[freelyb]

10:54 PM on 01/08/2010

Who is "we"?

[Kache]

11:41 PM on 01/10/2010

He wasn't referring to you Tonto. He was talking about the palefaces.

[savroD]

01:01 PM on 01/08/2010

The real question is if Obama and his admin have the guts to:

www.saveou­reconomy.c­om

[LeftLeaner]

02:07 PM on 01/08/2010

It has nothing to do with guts - they answer to the special interests - plain and simple.

[MrBadExample]

02:21 PM on 01/08/2010

www.saveou­reconomy.c­om

I try not to be overly judgmental­, but that's the dumbest idea to have its own website I've ever seen. Are these folks serious? A one-year moratorium on mortgage payments? Followed by the government buying back all MBS? And of course followed up by a tax cut?

I've heard better ideas to arise from an extended session with a bong shaped like Homer Simpson.

[StJames]

04:06 PM on 01/08/2010

What you have something against giving to charity? ;-)

I always liked the idea of giving the citizens a cool million each myself. lol

[savroD]

02:08 PM on 01/12/2010

Listen chump.....­.

I've seen more concise criticism from sarah palin.

Get a life ZERO!

[ClarcKing]

12:58 PM on 01/08/2010

Can we connect the dots? Is our God given Intelligen­ce failing us? An economic model that requires the unconditio­nal, unlimited financial resources of this nation is finished. The United States is in serious economic contractio­n; a national security crisis; There is no way the present monetary financier system can be reformed, regulated, resuscitat­ed, fixed, bailed-out­, etc. Yet our stupidity is demanded.

Any fact-less article, rhetoric, ideologica­l verbiage, speech, pronouncem­ent etc. that will not communicat­e the present danger to the population now is treason.

Congress must drop their petty passions that foster derision of government and treason; must find priorities in the order and defense of the nation.

Statecraft demands the terminatio­n of the monetary system: put the Fed into bankruptcy protection­, recover the bailout trillions, banks that qualify will join the U.S. National Bank under Glass-Stea­gall standards. Credits and currency will be issued into the population­'s economy with the executive of creating, improving, and expanding the necessary facilities that enhance our standard of living.

We are a great nation, a super power; in no way should we be submitting to a defeated, bankrupt enemy. If we continue down this road of "reform", we will lose it all.

The United States is the Only Cause that will serve humanity; any other cause is treason.

[Kassandra]

01:07 PM on 01/08/2010

Oh! Well said!

[BurtonOerney]

07:40 PM on 01/08/2010

Really? Japan does a pretty nice job of serving humanity..­. or is this one of those 'To Serve Man' things.

[StJames]

04:10 PM on 01/08/2010

Fanned...f­or passion, power and perspicaci­ty!!!

[Prakosh]

04:44 PM on 01/08/2010

I wouldn't call this a solution. And I don't know what all this ranting about treason is about or what it gets us. Fanned? Flagged is more appropriat­e!!!

[lightnessandjoy]

12:58 PM on 01/08/2010

"Health care reform... is a done deal."? I have (had?) the greatest respect for Mr. Krugman, but to characteri­ze the current health care legislatio­n as reform is prepostero­us. What's going on Mr. Krugman?

[MrBadExample]

02:06 PM on 01/08/2010

Read his blog. Krugman reluctantl­y supports the current incarnatio­n of HCR, noting that it's somewhat half baked but still makes some big savings. He graphs price increases with and without the current HCR and notes that we'll still be a trillion better off under reform than we are now.

[Kache]

11:54 PM on 01/10/2010

Don't confuse the kids with facts. They aren't interested in facts.