Last Wednesday, speaking at the Council on Foreign Relations, Treasury Secretary Tim Geithner had this to say about the deepening European crisis: "If you wait to move on these things and you let the market get ahead of you, then you increase the cost of the solutions." Geithner was referring to efforts by European leaders to shore up Europe's banking system and public finances, to regain the trust of money markets.
But what's really at work here? As financial markets pull money out of economies perceived to be weak, the cost of government borrowing goes up, rating agencies downgrade bonds, private investors pull put capital, and the whole cycle feeds on itself. Then governments and central banks need even more heroic measures to try to stem the tide, and they demand more budget austerity in return, deepening the crisis still further.
Europe was actually heading towards a modest recovery in late 2009. Growth was resuming and unemployment was coming down in most countries. Then the new Greek government elected that October reported that the Greek deficit was worse than previously reported; hedge funds began betting against Greek bonds; and then the run on sovereign debt spread to Portugal, Spain and now Italy, where interest costs on bonds keep rising and the European authorities keep playing catch-up.
It wasn't the Greek economy, accounting for about 2 percent of European GDP that deepened the crisis. It was the speculative response to the Greek situation.
Geithner's comment gets the real dynamics backwards. It's not that economies are too slow to appease markets. It's that the markets have too much power to destroy economies.
Let's not forget -- this entire crisis was caused because markets mispriced risk. That's a polite, bloodless way of saying that a bunch of overpaid wise guys bet the farm on the premise that housing prices could never fall, and created opaque securities that made a lot of insiders rich and duped the rest of the economy at a cost of several trillion dollars.
So if financial markets totally screwed up when they created collateralized debt obligations backed by sketchy mortgages and treated them like triple-A bonds, why do we think that the same financial markets are to be trusted when it comes to accurately pricing Greek or Italian or Spanish bonds?
Look at the recent experience of interest rates on these bonds, and they bounce all over the place. The true financial risk can't possibly change so much from week to week.
In the years after World War II, the debt overhang was huge, but Europe nonetheless achieved an impressive economic recovery. One major reason was that financial speculation was kept in its cage. The whole menagerie of derivatives that permit speculation against government debt hadn't been invented yet, and were precluded by the rules of the game. The economist Carmen Reinhart terms this era one of the "repression" of finance -- a term that sounds ominous but in fact is what allowed the postwar recovery to go forward and not to be destroyed by debt.
Alas, the word's commentators and political leaders are mostly arguing just the opposite: if markets are betting against Spain and Italy, the story goes, they must know something that we don't.
But what they mainly know is how to create self-fulfilling prophesies of economic destruction -- highly profitable to the speculators and ruinous to everyone else. A good dose of repression of financial speculation is just what we need today, whether through financial transaction taxes, regulations, capital controls, or governments intervening on the opposite side of speculative bets.
This crisis occurred because financial markets were allowed to run amok. Now the speculators have turned their fire on sovereign debt. If they are allowed to keep running wild, recession will turn into needless depression.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.
"Simpson also relayed some advice to lawmakers on how to sell his plan to the American public. According to Simpson, it is essential to push the idea of a "shared sacrifice" to get the country out of debt.
"Everybody will get hit," he said. "If you tell people that and be honest with them, and
let them bitch and roar and snort, you can make it through there.""
http://www.huffingtonpost.com/2012/05/16/alan-simpson-paul-krugman_n_1519977.html
the snide snarky elite manipulative smarmyness sounds like blakfein "just doing god's work"
the 1%'s mantra
tell the 99% whatever you have to
they're too busy watching mind numbing reality tv and dancing with the pseudo stars
to notice our "financially engineered" and "financially innovated"
sleight of hand, smoke and mirrors
socialism for the wealthiest
socialized losses!
privatized gains!
that sound you hear is simpson and the neocons laughing all the way to the banks
the world's largest banks that they own and we bail out - dimon, blankfein, rubin, bernanke, greenspam...
and hiding their gains offshore
while they "financially engineer"
tax-free offshore profits repatriation "holidays"
in their $25 million manhattan apartments
There is a solution to the jobs problem and it could quickly put hundreds of thousands of people back to work. It is not pro left or right. It is not from any corporatioÂn, it's outside the government control, it's totally voluntary, works in about one week, and helps all with little sacrifice from anyone.
National Hiring Day - This is a day that corporatioÂns are encouraged to hire new employees. CorporatioÂns are called on to put patriotism first and help their country in
hard times. Those corporatioÂns that cannot hire, are asked to stop firing for that month.
http://wp.Âme/p5S9X-nÂv
Republicans should love this because it's outside the government and voluntary. Democrats should love this because it helps those needing jobs. Independents should love it because it helps all with little sacrifice from any one corporation, group, or person. Corporations should love this because with just a hire or two they become part of a collective country wide jump start of the economy.
I posted four times in the last twelve hours and all four of my posts were blocked.
Pension funds, insurance companies, widows and orphans etc. buy bonds.
And they are not buying Spanish bonds.
Don't blame speculators. Spain is broke.
http://www.telegraph.co.uk/finance/financialcrisis/9340073/Spain-pleads-for-ECB-rescue-as-bond-markets-slam-shut.html
Spanish banks are insolvent from bad real estate loans and now that many are nationalized, their guarantor the country of Spain can no longer borrow on the open markets.
As Will Rogers once said, "its not the return on my money I care about, its the return OF my money."
Big money has their rules and enforcers in place. National Governments are no longer sovereign. How then to formulate and impose a regulatory and tax structure on globalized trade in equities, bonds and currency ? They will have to want to do it themselves. This short term focus of "speculative responses", derivitives and stock options will have to be understood by the big players as a bad way to do business for them and us. That it makes sense and money to start thinking longer term.
"Enlightened self-interest." is a macro concept. The interest of society. The interest of the people. Personal self-interest was deemed somewhat acceptable as far as ventures and business. But money was never intended to be a weapon of power. Yet that is exactly where we are. You get money by collecting it from others. How much money you take determines how much you make. When money is power, to get more power, you have to take more away from others. The system does not lead to enlightenment. It leads to false pride and a society in which everyone feels entitled.
Starvation cannot be the solution to feasting. Really this is a management problem. Debt always is a management problem.
The wealthy countries should realize that their wealth cannot continue if the faucet that feeds that wealth just stops. There is a middle place. Regrettably, the smart guys haven't figured out where that place is.
Europe's problems are all about the ongoing failure of the euro as a common currency. No amount of bailouts or low interest loans will cure the structural deficiencies of the EU perifery. Best case for Europe and the world would be an orderly (as possible) dissolution of the euro.
In the US, as in most of the developed world, we continue to shore up our standard of living with borrowed money. A little like signing up for new credit cards to pay the balance on the old ones. Works for a while and then it doesn't. We are long past the point where fiscal prudence (austerity) has a chance to remedy things. At some point, the ponzi scheme that is our domestic economy will fail. There is a huge economic contraction in our future. It isn't a matter of if, only when. This is not a partisan rant. It will make absolutely no difference who is in the White House or running Congress. Politicians of both parties have given us over thirty years of gross fiscal mismanagement. We are all screwed.
That is why Republicans want no taxes. They want all the debt they can load on. Dems want services and taxes to pay for them. Republicans want government handouts to the military industrial complex and multi-nationals and they want to borrow the money from the wealthy so they can not only give them the money but give them interest on the money they give them.
It is plain who is in control and who isn't.
Au contre my friend - the "wise guys" even bought insurance assured the bundled mortgages would fail. And now "We the People" pay for their fraud