My Anthem

Sunday, December 28, 2008

Some catchingUP, and AP to my dear ER...

For being "reclacitrant". Let Desi explain.Bear with Desi -- yes, it's reminding all you rich esteemedreaders it's steal a Bear Market, and expected to remain so for quite a while. BTW, quite can mean 1. some 2. a bit 3. long; take your pick, for MBH is a prettyNdemocratic abode!


Lately, I have been suffering a strange disease -- it's the culmination arising from faigue, mind block, cyber-hibernation or any symptom approximating Jurassickness! -- minus DDC, maybe you can call it a case of "the flesh is willing, but the spirit is weak". Hence, many of my Posts were left "hanging", and I ended wit' "To be c'untinued...", like with one of my fave Beatles, Yesterday's. Errata 10 minutes later: Oh no, not Yesterday's but December 22's ttiled "2 anecdotes at suppertime". I often teased with "InsyaAllah", and I truly meant it. I stand liable to be prosecuted for using this Word -- using God's name in vain, pain or sain'?Your pick, not the AG's please! I don't trust the ****ard:), which rimes wit' mustard -- on thy face!:(

Today may I take a short cut by posting up TWO items by Cut&Paste, courtesy of a newly found mGf Jacq Ho (Ho-Ho-Ho and a bottle of rum...?) plus a subject related to Noel laureatte I had meant to pick up on relted to a series on the State of The World Arising from Global Recession our learned DPM's assurance that "all's well in Malaysia, unlikely we will run into recession in the near future". I retorted at that time wit' a remark ala "Yes, we are a damned blardy lucky country!"
(Last FYE March 2008, Petronas reported a NET PROFIT, ie after-tax!, of RM61BLLLION. I also thought alou, still allowed!, that Desi wondered how much under-reporting of Revenues and Profits were creatively carried out. Oouch, oouch! -- I got a pinch on the side by one aweOFhelen that "that's knotty, Desi, but I think it's 50%!".

Okay, back from detour, digression and depression:






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CatchUP1:

Andrew Leonard
Monday, Dec. 8, 2008 03:45 PST
Paul Krugman's depression economics

Reuters/Tim Shaffer

(Desi to ER:
Visualise, using thy unique God's gifted mind!)
Paul Krugman at a news conference Oct. 13 at Princeton University, during his introduction as the 2008 Nobel Prize winner in economics.

On his way to Stockholm, the Nobel Prize winner and New York Times columnist takes time to explain the "awful" economy that looms ahead of us.

The revised and expanded edition of Paul Krugman's "The Return of Depression Economics," originally published in 1999 but back in bookstores last week, features, in a reasonably large font on the front cover, the mini-bio: "Winner of the Nobel Prize in Economics." The choice of the (re)publication date couldn't be better. Not only are Krugman's predictions of economic doom, first made in the wake of the Asian financial crisis of 1997, even more relevant as 2008 comes to a close, but he is also accepting his award in Stockholm, Sweden, this week. When I reviewed "The Conscience of a Liberal" a year ago, I wrote, "Now is a good time to be Paul Krugman." I spoke too soon. Now is an even better time to be Paul Krugman.

The words "depression economics" don't necessarily mean that we are in a depression or inevitably headed toward one. A more accurate definition would be that we are witnessing economic problems reminiscent of the Great Depression, long after many economists concluded that the question of how to avoid depressions had been permanently solved. Not true, says Krugman. If we don't watch out, we could steer the current recession right into depression territory.

The Asian financial crisis was a dress rehearsal for the massive financial crisis now shaking the global economy, Krugman writes, and the echoes of the Great Depression are not hard to hear. Krugman believes we are in a "liquidity trap": No one wants to lend money, and no matter how hard the Federal Reserve pushes its various monetary policy levers, it can't seem to get credit flowing again. Worst of all, we are witnessing what happens when too much leverage -- too much money borrowed on risky bets -- becomes a cascade of deleverage, when everyone starts selling assets to raise cash at the same time, forcing financial markets into a downward spiral.

As I write these words on Friday morning, the news is breaking that the U.S. economy shed 533,000 jobs in November and that one in 10 U.S. homeowners is delinquent on mortgage payments or is already in foreclosure. It underlines, once again, the appropriateness of putting a book with the title "The Return of Depression Economics" back in bookstores.

As he was preparing for his trip to Sweden, Krugman graciously made time to answer my e-mailed questions. He explained he was writing while traveling by train from New Jersey to New York.

In 1999, when the first version of "The Return of Depression Economics" was published, the title seemed provocative and its thesis was cavalierly dismissed by conservative economists. But today, fear rules the markets, John Maynard Keynes is back in fashion, and the stars of Milton Friedman and Alan Greenspan are fading. What's it been like to live through this, while, in effect, live-blogging the transition via the New York Times? Is republishing (and revising) the book a big "I told you so" to your critics?

First of all, it apparently isn't that obvious that we're experiencing depression economics. Some economists, including some of the prominent econo-bloggers, are still insisting, despite everything that's going on, that there's no such thing as a liquidity trap and that the Fed can easily get the economy moving again. But anyway, yes, there's a part of me that's enjoying the vindication -- and there's probably a bit of "told ya so" in the book. On the other hand, this is really, really scary. I lead a pretty sheltered life financially, yet even so I have friends who've lost their jobs and/or much of their retirement savings, so this isn't abstract.

The one thing I guess I can say is that, right now, I'm doing the job the Times originally envisioned me doing, instead of the more political role I felt I had to take during the Bush years.

You cover a lot of ground in 200 pages -- Mexico's "tequila" crisis in the early 1990s, the Asian financial crisis, the collapse of the Long Term Capital Management, the dot-com and housing bubbles, and, of course, the great financial crisis of the past year. What do you think is the one thread that links all these crises together?

Two threads, I think: leverage and the economic fragility it creates, on one side, and the limits to monetary policy on the other. The collapse of Indonesia or Argentina was all about leverage, and we've seen that replayed in the collapse of securitization in the United States. Japan showed us that central bankers can't always save the day, and Ben Bernanke is seeing that truth right now.

You write that some economists (and this certainly goes for many Salon readers) believe that recessions and even depressions are necessary mechanisms for purging economies that have gotten out of control. There's even a moralistic aspect to it: In the U.S., all those greedy investment bankers and housing speculators and overconsuming Americans are getting their comeuppance. But you seem to be suggesting something different: that the government can kick-start the economic machine back into motion, that we don't have to be subjected to the torture of a severe recession. What do you say to those critics who claim that stimulating the economy out of this recession will just lead to bigger problems down the road?

My favorite Keynes essay is "The Great Slump of 1930," in which he says "We have magneto [alternator] trouble." If you've got electrical problems with your engine, that doesn't mean you should junk the whole car. If part of your financial system has gone haywire, that doesn't mean that millions of workers have to be unemployed.

There's kind of a weird double-think involved in arguments that the slump should be allowed to follow its natural course. It's true that classical economics says that we should let market forces do their work; but classical economics also says that severe recessions can't happen. This idea that we must not intervene is based on a worldview that is refuted by the very fact that the economy is in the mess it's in.

We learned with Enron that a lack of confidence can take down a mighty public company in a couple of days or weeks, and now we're seeing the same crisis of faith shake the entire global economy. As you write, even the rumor of a bank run can be a self-fulfilling prophecy. What practical steps can we take to immunize ourselves from debilitating panics?

Well, we had about 60 years of financial stability, basically because we had an effectively regulated banking system. Then we fell prey to a combination of excessive optimism and excessive literalism. We started believing that financial markets always work, and we also believed that everything was OK as long as things we call banks were guaranteed, not realizing that lots of things we don't call banks are nonetheless subject to bank runs.

So the answer is to relearn our grandfathers' lessons: Highly leveraged financial institutions have to be regulated and insured.

In detailing the response that the IMF and U.S. Treasury took to the international economic crises of the 1990s, you write that "international economic policy became ... a kind of amateur psychology, not economics." Every action taken was motivated by a desire to increase market "confidence" and not necessarily by whether it was appropriate for the specific economy in question. Do you think that the same dynamic has played out in how Paulson and Bernanke have responded to the financial crisis this year? They wanted to bolster confidence, but the failure of each discrete action only made things worse.

Yeah, the "confidence game" goes bad pretty quickly if there aren't genuine substantive reasons for confidence. I wrote early in 2008 that Fed/Treasury policy was based on the "slap in the face" theory; the late, much-lamented Tanta at Calculated Risk even worked it into one of her Mortgage Pig entries. The answer, again, is institutions and regulations to secure that confidence. And if necessary, you deal with the problem of market panic by restricting the market: temporary capital controls, temporary nationalization of banks.

You conclude with a pretty straightforward prescription: Anything that acts like a bank, or that plays a role so significant in the financial system that its failure would require government help, should be regulated like a bank. There should be limits on leverage, capital requirements, and close scrutiny from regulators. Why is this so hard to understand? What explains the growth of the unregulated shadow banking industry to a point where it could imperil the living standards of everyone on the globe? Was it simply the triumph of deregulatory ideology?

Ideology played a big role -- but we should also bear in mind that the shadow banking system was making a few people incredibly rich. And that much wealth distorts policy, not just through campaign contributions and the revolving door, but because people who make that much money come across as masters of the universe who know what they're doing. [Economist] Willem Buiter apparently got in trouble at Jackson Hole for saying that central bankers are subject to "cognitive regulatory capture," but it's totally true.

There's been a lot of grumbling on the left about the return to the White House of Lawrence Summers and other Clinton-era economists. In the view of many, Summers and Robert Rubin were just as guilty of pushing "Washington consensus"-style privatization and deregulation on the rest of the world, and ensuring that new credit derivatives such as credit swaps were unregulated, as were Alan Greenspan and Phil Gramm. Why should we believe they won't make the same mistakes all over again?

Well, they're smart and relatively open-minded, so they're the kind of people who can learn from their mistakes. And you do want people who know a lot about the mechanics of finance and central banking, which is why some of the people being proposed by the left would be problematic.

Still, I'd like to see some "people of the left" given roles in the administration, simply to provide a variety of voices. And those of us on the outside should not shy away from being critical; I don't expect to go after the Obamanites the way I went after the Bushies, but I'm sure it won't be all sweets and flowers.

How bad do you think this is going to get?

Awful. Without a major stimulus package -- sorry, I guess the politically correct term is now "economic recovery plan" -- I'd say that we were definitely headed for double-digit unemployment. Right now the economy is clearly falling as fast as, or faster than, it was in 1981-82, which was a terrifying slump. If Obama doesn't come up with a massive plan, and possibly even if he does, this is going to be a slump that pushes 10 million-plus Americans below the poverty line, and more.

And how soon do you think it will be before Republican ideologues start blaming Obama for making it worse? Grover Norquist is already making the claim that the bear market is a result of the 2006 election -- he says investors started dumping stocks because they were afraid of the inevitable tax hikes coming down the road. How do you fight that?

To some extent you can't fight it -- people will believe what they want to believe. If they can make FDR the cause of the Great Depression, they can do anything. But one thing progressives can do is make sure that the story of the Bush administration is told, in all respects. There's going to be huge pressure from the usual suspects to let bygones be bygones, to forget about everything from torture to reckless disregard of financial warnings. But I want truth and reconciliation across the board, and progressives have to make it clear that it was an ideology, not an act of God, that made this crisis possible.

Andrew Leonard
Posted in: Economy



(Desi again, Dear ER: You just have to Google this wan out!)
The Obama stimulus: Bigger and better than ever
First $500 billion. Now $850 billion. Do we hear a trillion? Forget about everything else: The economic recovery plan is the only thing that matters
Thursday, Dec 18, 2008 22:25 EST
Wednesday, Dec 17, 2008 23:02 EST

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CatchUP2:

Obama Helped Stranger 20 Years Ago

Oct 05, 2008
The Norwegian newspaper VG has reported a truly amazing story about a newly-wed trying to get to Norway to be with her husband, and the stranger who helped pay an unexpected luggage surcharge.

The blog 'Leisha's Random Thoughts' has translated the story:

It was 1988, and Mary Andersen was in line at the Miami airport checking in for a long flight to Norway to be with her husband.
When it was finally Mary's turn, she got the message that would crush her bubbling feeling of happiness.
"You'll have to pay a 103 dollar surcharge if you want to bring both those suitcases to Norway," the man behind the counter said.
Mary had no money.
Her new husband had travelled ahead of her to Norway, and she had no one else to call.
"I was completely desperate and tried to think which of my things I could manage without.
But I had already made such a careful selection of my most prized possessions," says Mary.

As tears streamed down her face, she heard a 'gentle and friendly voice' behind her saying,"That's okay, I'll pay for her."
Mary turned around to see a tall man whom she had never seen before.
He had a gentle and kind voice that was still firm and decisive.
"The first thing I thought was, Who is this man?"
Although this happened 20 years ago, Mary still remembers the authority that radiated from the man.
He was nicely dressed, with brown leather shoes, a cotton shirt open at the throat and khaki pants, says Mary.
She was thrilled to be able to bring both her suitcases to Norway and assured the stranger that he would get his money back.
The man wrote his name and address on a piece of paper that he gave to Mary.
She thanked him repeatedly.
When she finally walked off towards the security checkpoint, he waved goodbye to her.
Who was the man?
Barack Obama.

Twenty years later, she is thrilled that the friendly stranger at the airport may be the next President and has voted for him already and
donated 100 dollars to his campaign:

"He was my knight in shining armor," says Mary, smiling.
She paid the 103 dollars back to Obama the day after she arrived in Norway.
At that time he had just finished his job as a poorly paid community worker in Chicago, and had started his law studies at prestigious Harvard university.

Mary even convinced her parents to vote for him:
In the spring of 2006 Mary's parents had heard that Obama was considering a run for president, but that he had still not decided.
They chose to write a letter in which they told him that he would receive their votes.
At the same time, they thanked Obama for helping their daughter 18 years earlier.
And Obama replied.
In a letter to Mary's parents dated May 4th 2006 and stamped "United States
Senate, Washington DC' Barack Obama writes:
'I want to thank you for the lovely things you wrote about me and for reminding me of what happened at Miami airport.
I'm happy I could help back then, and I'm delighted to hear that your daughter is happy in Norway.
Please send her my best wishes.
Sincerely, Barack Obama, United States Senator'.

The parents sent the letter on to Mary.
Mary says that when her friends and associates talk about the election, especially when race relations is the heated subject, she relates the
story of the kind man who helped out a stranger-in-need over twenty years ago, years before he had even thought about running for high office.

UPDATE:
Also, remember this was 1988, when 100 dollars was quite a bit of money, compared to today's value.
Truly a wonderful story, and something that needs to be passed along in the maelstorm of fear-and-smear politics we are being subjected to right now.

2 comments:

Yan said...

Truly heartwarming story!

Happy and Healthy New year!

chong y l said...

dear YAN-ny hyde-ing out i catsville -- ap AP ap nu'e year, and where's my prospective newspaper delivery AP:)?YL, Desi, knottyaSsual, and steal speaking tongue in chic after that entrance into a Ipohlang church -- on silvery mountain, helenH?

PS: The gal who gave the nick of DDC to my writHings is now on board CPI, wit' a little pulling of her hands, and legs, both handsum,from li'l DesFOOLofErrata:(

TO ALL OUR READERS:


ap ap2 AP3 nu' year 2009 -- jest 13hrs 8minutes as I typed this ending, fresh beginning kambing!