Ben Slade

From a really gloomy article dated April 2010 on the ThePrudentBear.com website:

"The real economy remains fragile. Government actions, such as fiscal stimulus and special industry support schemes (cash for clunkers; investment incentives, trade credit subsidies), have boosted demand and industrial activity in the short term. As Wells Fargo CEO John Stumpf told The Wall Street Journal on September 19, 2009: “If it’s not a government program, it’s basically not getting done.” Private demand remains somnolent. The problem remains as government incentives encourage current consumption and investment but ultimately “steal” from future demand."

A great rant by Joe Conason in truthdig.com:

If the public actually wants to stop bailing out rich brats who make stupid and destructive bets in the Wall Street casino, government must be empowered to oversee derivative trading. And if the public wants a national economy that provides decent jobs and useful goods - rather than super-profits for financial firms - then government should encourage production and construction while sharply regulating speculation.

Steven Pearlstein writes in the Wash Post:

"it remains a disappointment that there have been no sufficiently powerful voices in Congress or the Obama White House to challenge the idea that financial crises are inevitable and that the best we can hope for is to lessen the economic and human damage that they cause"

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says [Simon Johnson] former chief economist of the International Monetary Fund [and current MIT Professor], is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises.

If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

James Galbraith, the Lloyd M. Bentsen Jr. Chair of Government/Business Relations and Professor of Government at the University of Texas, says that the currently proposed reforms of Wall Street are woefully inadequate. Specifically:

• "More discipline on existing players to prevent abuses that led to disaster last year." This includes restrictions on executive compensation and criminal investigations of past abuses (as we'll discuss in a subsequent segment.) He also advocates a tax on financial transactions to reduce churning and short-term volatility.
• "A total restructuring of the system itself." Galbraith believes many institutions dubbed "too big to fail" should be either broken up or wound down. Generally speaking, "the financial sector grew far too much in relation to the economy in the last 15 years," he says.
• "It doesn't serve any larger purpose to have such a huge presence of financial institutions in the economy. It creates a predominance of casino activity."

Given the massive amounts of Federal bailout dollars being put to work, the incredible expansion of the Fed's balance sheet and the soaring U.S. deficit (these are all intimately connected of course) the "Treasuries are a bubble" view makes a lot of sense: The dollar must fall, inflation must rise, foreigners will demand higher rates on Treasuries [thus causing the price of the treasuries to go down]

At a time when just about everyone else in the country, including top members of the Bush administration, have come to realize that overzealous deregulation led us to the current crisis, the top Republicans in the House of Representatives actually think the problem is that we haven't deregulated enough. And now they want to finish the job they started by enticing into the banking system a group of money managers who are renown not only for their determined secrecy and lack of transparency, but for taking on even more leverage and more risk.

In theory, there is merit in the other Republican idea of selling government-backed insurance for some of the mortgage-backed securities on the balance sheets of financial institutions...

But wait -- government-backed insurance for mortgage securities? Haven't I heard of that idea before? Why of course, that's what Fannie Mae and Freddie Mac do -- the same Fannie and Freddie that this same group of Republicans has been trying to kill for more than a decade. Apparently Republicans have changed their minds just in the knick of time, since the government now owns them.

What we witnessed this week was the last death rattle of the Republican old guard in Congress, whose zealotry for tax cutting and deregulation, and whose hostility toward any government involvement in the economy, has now brought the global financial system to the brink of a meltdown. The ideas that brought them to power in 1994, while useful at the time, have since become so corrupt that they now are bankrupt -- intellectually, politically and morally. And though they may have succeeded in delaying passage for a day of a badly needed rescue for the financial system, they failed miserably in their ultimate goal of making themselves relevant again.

In the absence of the authority and political courage required to write off mortgage related losses, the Fed has been reduced to using short term solutions that - while allowing the extent of losses to remain concealed - postpone the moment of truth and the inevitable compromise the dollar.

Ultimately, the Fed and even the US government doesn't have enough money to bail out the subprime market, bond insurance contracts, and associated overleveraged hedge fund investments. Printing more money will inevitably hurt the value of the US dollar.

If Bernanke does this, he will instead export the crisis and stoke a global inflationary fever, risking a devastating boomerang: the rejection of the dollar as the global reserve currency and the possible crash of the global economy.

By Paul Krugman in the NYTimes.com (12/3/07):

...nobody knows where the [subprime mortgage] financial toxic waste is buried. Citigroup wasn’t supposed to have tens of billions of dollars in subprime exposure; it did. Florida’s Local Government Investment Pool, which acts as a bank for the state’s school districts, was supposed to be risk-free; it wasn’t (and now schools don’t have the money to pay teachers).

How did things get so opaque? The answer is “financial innovation” — two words that should, from now on, strike fear into investors’ hearts.

O.K., to be fair, some kinds of financial innovation are good. I don’t want to go back to the days when checking accounts didn’t pay interest and you couldn’t withdraw cash on weekends.

But the innovations of recent years — the alphabet soup of C.D.O.’s and S.I.V.’s, R.M.B.S. and A.B.C.P. — were sold on false pretenses. They were promoted as ways to spread risk, making investment safer. What they did instead — aside from making their creators a lot of money, which they didn’t have to repay when it all went bust — was to spread confusion, luring investors into taking on more risk than they realized.

Why was this allowed to happen? At a deep level, I believe that the problem was ideological: policy makers, committed to the view that the market is always right, simply ignored the warning signs. We know, in particular, that Alan Greenspan brushed aside warnings from Edward Gramlich, who was a member of the Federal Reserve Board, about a potential subprime [mortgage] crisis.

Also, from a similar column by Paul Krugman (on 12/21/07):

"Given the role of conservative ideology in the mortgage disaster, it’s puzzling that Democrats haven’t been more aggressive about making the disaster an issue for the 2008 election. They should be: It’s hard to imagine a more graphic demonstration of what’s wrong with their opponents’ economic beliefs."