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The Twilight of Capitalism

I see a lot of garment rending (mainly at Fox) over the prospects of the end of capitalism as we know it, with the firing of General Motors' CEO and the nullification of AIG bonus contracts.

In my younger days, I preached from many a soap box that capitalism is the hope of the world. But the premise of capitalism-- that collective self-interest rebounds inevitably to the greater good-- has turned out to be false. To the contrary, it is that self-interest by the captains of capitalism that has almost brought capitalism to her knees. Greed motivates ambition and excellence. But those who have power and lack the restraint beyond those of most other mortals contain the seeds of their own destruction. Capitalism in the United States today is a house of termites. We cannot create until we first destroy, and there is no doubt that once august financial and manufacturing institutions will soon exist only the the history books.

What's Good About The Recession of 2009

1. Never again will anyone float the notion of individually-directed stockmarket-based Social Security retirement funds.

2. The neo-conservative vision of sustaining another land war in the Middle East with Iran is dead because it is unaffordable.

3. The recession is a dose of reality for speculators and also for our kids who expect that the good life is inevitable.

Generational Theft: Pot Meet Kettle

"During the Senate debate, 36 of the Senate Republicans voted for an alternative that would have cut taxes over the next decade by $2.5 trillion, [and] reduced the top marginal race to 25 percent," said the Atlantic's Ron Brownstein on "Meet the Press." "For John McCain -- who voted for that alternative of a $2.5 trillion tax cut over the next decade -- to talk about generational theft, I mean, pot meet kettle."

Irresponsible Reporting by New York Times?

Here is a press release from the White House press secretary on a New York Times piece that linked the present economic crisis to President Bush's policy of loose lending to promote the "ownership society".

Most people can accept that a news story recounting recent events will be reliant on '20-20 hindsight'. Today's front-page New York Times story relies on hindsight with blinders on and one eye closed.

The Times' 'reporting' in this story amounted to finding selected quotes to support a story the reporters fully intended to write from the onset, while disregarding anything that didn't fit their point of view. To prove the point, when they filed their story, NYT reporters were completely unfamiliar with the President's prime time address to the nation where he laid out in detail all of the causes of the housing and financial crises. For example, the President highlighted a factor that economists agree on: that the most significant factor leading to the housing crisis was cheap money flowing into the U.S. from the rest of the world, so that there was no natural restraint on flush lenders to push loans on Americans in risky ways. This flow of funds into the U.S. was unprecedented. And because it was unprecedented, the conditions it created presented unprecedented questions for policymakers.

In his address the President also explained in detail the failure of financial institutions to perform normal and necessary due diligence in creating, buying and selling new financial products -- a problem that almost no one saw as it was happening.

That the NYT ignored such an important economic speech to the American people and the complex causes of the crises is gross negligence.

The Times story frequently repeats a charge by the Administration's critics: a 'laissez faire' attitude toward regulation. We make no apology for understanding the concept of regulatory balance. That is, regulation should be stringent enough to protect the greater public good and safety but not overly strong so that it unnecessarily inhibits innovation, creativity and productivity gains that are the sole source of increasing Americans' standards of living. But while repeating this charge, the reporters gave glancing attention to the fact that it was this Administration that pushed for strengthened regulation and oversight, greater transparency, and housing reform.

The story also gives kid glove treatment to Congress. While the Administration was pushing for more transparent lending rules and strengthening oversight and supervision of Fannie and Freddie, Congress for years blocked attempts at stronger regulation and blocked reform of the Federal Housing Administration. Democratic leaders brazenly encouraged Fannie and Freddie to loosen lending standards and instead encouraged the housing GSEs to play a larger and larger role in the housing market -- even while explicitly acknowledging the rising risks. And while the story notes the political contributions of some banks to Republicans, it neglects that political contributions from Fannie Mae and Freddie Mac overwhelmingly supported Democratic officials -- in particular the chairmen of the banking committees. In fact, even in the midst of what by then was a housing crisis, it took Congress nearly a full year to pass specific legislation called for by the President in the summer of 2007, especially legislation to reform oversight of Fannie Mae and Freddie Mac.

There are many more reporting failures in this story -- failure to consider the impact of monetary policy; ignoring the regional nature of housing markets; and ignoring the Bush Administration's historic proposal to overhaul the nation's regulatory system, for example. But then a review of these issues would wave complicated the reporters' myopic point of view that only Bush Administration policies could possibly be responsible for the housing and finance crises.

Last night, I watched C-SPAN interview Bush. Both the interview and the response to the New York Times have the same thing in common-- a refusal to accept any kind of responsibility for anything that went wrong during his stewardship as president for anything. Bush allowed that perhaps the tone of his remarks on occasion was more partisan than it should have been-- but that is it. Bush portrarys his administration and himself as buffeted and sometimes overwhelmed by events that no one could have forseen. Bush, in this incarnation, is no longer "the decider" of anything. Whatever decisions were made were the logical consequence of forces that pressed down on him. And if it appears that he is leaving a nation in disarray, Bush believes that ultimately "history"-- whatever that is-- will vindicate him. It is this combination of arrogance, stubbornness, dishonesty, and fatalism that has always marked Bush's character. And I think historians will justly place him among one of the worst presidents in this history of this country. At least Hoover kept the peace and at least Nixon opened the door to China. But this president presided over the liquidation of a trillion dollars of equity and two intelligence failures-- 9/11 and Iraq-- with the resulting blood of thousands of Americans on his hands.

Why the Economy Has Collapsed

Joseph E. Stiglitz , a Nobel Prize–winning economist and a professor at Columbia University, wrote an insightful analysis of key mistakes that were made by policy-makers under Reagan, Clinton, and Bush II and one national delusion that led us to where we are in our economy. Anyone who thinks that our current predicament is merely the natural order of things needs to read this article. Here are some excerpts.

Was there any single decision which, had it been reversed, would havechanged the course of history? Every decision-including decisions not to do something, as many of our bad economic decisions have been-is a consequence of prior decisions, an interlinked web stretching from the distant past into the future. You'll hear some on the right point to certain actions by the government itself-such as the Community Reinvestment Act, which requires banks to make mortgage money available in low-income neighborhoods. (Defaults on C.R.A. lending were actuallymuch lower than on other lending.) There has been much finger-pointingat Fannie Mae and Freddie Mac, the two huge mortgage lenders, which were originally government-owned. But in fact they came late to the subprimegame, and their problem was similar to that of the private sector: their C.E.O.'s had the same perverse incentive to indulge in gambling.

The truth is most of the individual mistakes boil down to just one: abelief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, "I have found a flaw." Congressman Henry Waxman pushed him, responding, "In other words, you found that your view of the world, your ideology, was not right; it was not working." "Absolutely, precisely," Greenspan said. The embrace by America-and much of the rest of the world-of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.