Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Greenspan Wins Dynamite PrizeFrom the folks at the Real-World Economics Review (formerly the Post-Autistic Economics Review); they initially called this the "Ignoble Prize in Economics," not knowing that that name had already been taken (much as they, ahem, kind of stole the name our textbook series--Real World Macro, Real World Micro--has had for more than twenty years, but we still like them). So glad Larry made the top three!Alan Greenspan has been judged the economist most responsible for causing the Global Financial Crisis. He and 2nd and 3rd place finishers Milton Friedman and Larry Summers have won the first–and hopefully last—Dynamite Prize in Economics. In awarding the Prize, Edward Fullbrook, editor of the Real World Economics Review, noted that "They have been judged to be the three economists most responsible for the Global Financial Crisis. More figuratively, they are the three economists most responsible for blowing up the global economy." The prize was developed by the Real World Economics Review Blog in response to attempts by economists to evade responsibility for the crisis by calling it an unpredictable, "Black Swan" event. In reality, the public perception that economic theories and policies helped cause the crisis is correct. The prize winners were determined by a poll in which over 7,500 people voted—most of whom were economists themselves from the 11,000 subscribers to the real-world economics review . Each voter could vote for a maximum of three economists. In total 18,531 votes were cast. Fullbrook cautioned that not all economics and economists were bad. "Only ‘neoclassical’ economists caused the GFC. There are other approaches to economics that are more realistic—or at least less delusional—but these have been suppressed in universities and excluded from government policy making." "Some of these rebels also did what neoclassical economists falsely claimed was impossible: they foresaw the Global Financial Crisis and warned the public of its approach. In their honour, I now call for nominations for the inaugural Revere Award in Economics, named in honour of Paul Revere and his famous ride. It will be awarded to the 3 economists who saw the GFC coming, and whose work is most likely to prevent another GFC in the future." Dynamite Prize Citations Alan Greenspan (5,061 votes): As Chairman of the Federal Reserve System from 1987 to 2006, Alan Greenspan both led the over expansion of money and credit that created the bubble that burst and aggressively promoted the view that financial markets are naturally efficient and in no need of regulation. Milton Friedman (3,349 votes): Friedman propagated the delusion, through his misunderstanding of the scientific method, that an economy can be accurately modeled using counterfactual propositions about its nature. This, together with his simplistic model of money, encouraged the development of fantasy-based theories of economics and finance that facilitated the Global Financial Collapse. Larry Summers (3,023 votes): As US Secretary of the Treasury (formerly an economist at Harvard and the World Bank), Summers worked successfully for the repeal of the Glass-Steagall Act, which since the Great Crash of 1929 had kept deposit banking separate from casino banking. He also helped Greenspan and Wall Street torpedo efforts to regulate derivatives. In total 18,531 votes were cast. The vote totals for the other finalists were: Fischer Black and Myron Scholes 2,016 Eugene Fama 1,668 Paul Samuelson 1,291 Robert Lucas 912 Richard Portes 433 Edward Prescott and Finn E. Kydland 403 Assar Lindbeck 375 The poll was conducted by PollDaddy. Cookies were used to prevent repeat voting. For further information and interviews email: pae_news@btinternet.com Labels: Alan Greenspan, Dynamite Prize in Economics, larry Summers, Milton Friedman, Post-Autistic Economics Review, Real World Economics Review Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Ignoble Prize for EconomicsThe Real-World Economics Review (formerly the Post-Autistic Economics Review), has opened voting for what they are calling the Ignoble Prize for Economics, for "the three economists who contributed most to enabling the Global Financial Collapse." Here are the details:Twenty-two economists were nominated for the prize. Through consultation with contributors to the Real-World Economics Review Blog, the following short list of ten, including two pairs of economists, has been selected for the ballot. Labels: Alan Greenspan, Edward Presscott, Eugene Fama, larry Summers, Milton Friedman, Paul Samuelson, Real-World Economics Review, Robert Lucas Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). On the Usefulness of Economics In Tough TimesThis Washington Post article speaks for itself. Note that Alan Greenspan apprears to be a devotee. Needless to say, perhaps, I found it on Marginal Revolution, a veritable treasure-trove for those enthralled by the trivial.Blue Chip, White Cotton: What Underwear Says About the Economy By Ylan Q. Mui Washington Post Staff Writer Monday, August 31, 2009 For one answer to the nation's most pressing economic question -- when will the recession end?--just take a peek inside the American man's underwear drawer. There may be some new pairs there, judging by recent reports from retailers and analysts, and that could mean better days ahead for everyone. Here's the theory, briefly: Sales of men's underwear typically are stable because they rank as a necessity. But during times of severe financial strain, men will try to stretch the time between buying new pairs, causing underwear sales to dip. "It's a prolonged purchase," said Marshal Cohen, senior analyst with the consumer research firm NPD Group. "It's like trying to drive your car an extra 10,000 miles." The growth in sales of men's underwear began to slow last year as the recession took hold, according to Mintel, another research firm. This year, Mintel expects sales to fall 2.3 percent, the first drop since the company started collecting data in 2003. But the men's underwear index--or, conveniently, MUI--may also have a silver lining. Mintel predicts that next year, men's underwear sales will fall by 0.5 percent, and as with many economic indicators, a slowing of a decline can be welcomed as a step in the right direction. Retailers are reporting encouraging signs in the men's underwear department. Sears spokeswoman Amy Dimond said stores are beginning to see more sales. At Target, spokeswoman Jana O'Leary said sales of men's underwear have been stronger over the past two months and multi-pair packs are moving. No less an oracle than former Federal Reserve chairman Alan Greenspan has given this theory credence.... Read the rest of the article Labels: Alan Greenspan, economics education, financial crisis, Marginal Revolution Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dean Baker on C-Span 2Dean Baker was on C-Span 2 this weekend; you can view the segment online, here. Hat-tip to Joel H. Here's what the C-Span website said:Plunder and Blunder:The Rise and Fall of the Bubble Economy Author: Dean Baker About the Program Mr. Baker discusses the growth and "predictable" collapse of the housing and stock market bubbles and is critical of both the Reagan and Clinton administrations. He details the mistakes of Alan Greenspan and Clinton Treasury Secretary Robert Rubin. He offers suggestions for preventing additional financial crises and advocates massive government spending to combat the recession. About the Author Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He is a frequent guest on National Public Radio, Marketplace, CNN, CNBC and other news programs. Mr. Baker has authored several books, including "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer" and "The United States Since 1980." He received his Ph.D in economics from the University of Michigan. Labels: Alan Greenspan, Dean Baker, financial crisis, housing bubble, Robert Rubin Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bank Nationalization (P. Krugman, F. Moseley)Paul Krugman, in his NYT column today, joins the chorus of people calling for "nationalization" of the big banks. As we have noted here, that chorus includes even the so-called Maestro himself, Alan Greenspan, who told the Financial Times last week that nationalization may be the "least bad" option: "I understand that once in a hundred years this is what you do." Krugman is at least clear on what he understands by "nationalization"; here are the last three paragraphs of his column:
We wonder whom Krugman includes in his statement, "So do we all." We just posted an article from our March/April issue (to be printed soon) in which economist Fred Moseley argues for permanent nationalization of the "too big to fail" banks. If banks are too big to fail, they should be public, and run in the public interest. Read the article here. Labels: Alan Greenspan, bank nationalization, Fred Moseley, Paul Krugman, privatization Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Greenspan (!): Nationalize the BanksWe weren't so surprised when Noriel Roubini called for (temporary) bank nationalization in a Washington Post op-ed co-authored with Matthew Richardson this past Sunday. But now this bombshell from the Financial Times, via Naked Capitalism, with Yves Smith's excellent-as-usual commentary:Greenspan Predicts TARP Will Prove Insufficient, Supports Bank Nationalization Before readers start throwing brickbats at the mention of the name of Alan Greenspan, it's important to remember that he has become the poster boy of the policy errors that lead to our financial mess. And that isn't an accurate picture. This crisis had many parents, and even though Greenspan was one of the key actors, he was far from alone. Treasury Secretaries Robert Rubin and Larry Summers were also backers of the financialization of the economy, the permissive regulatory posture, and the strong dollar policy. Greenspan, to his credit, at least appears chastened by the mess helped create. As far as I can tell, very few of the other perps have questioned their decisions. Greenspan spoke this evening at the Economic Club of New York. Some of his comments show that he has made some considerable shifts from his libertarian, anti-regulation stance. But he hasn't had a Damascene moment; he seems to be changing his views incrementally. Nevertheless, it's remarkable that Greenspan has come out saying that nationalizing banks is the "least bad" policy option, as he did in a Financial Times interview. Now we are seeing role reversal: the loyal libertarian reluctantly admitting the need for regulation and the advantages of taking over dud banks, even big dud banks, while the Democrats tip toe around the idea of doing anything that might ruffle bankers feathers too much. Note that he stresses, as we have, the need to clean up the financial system for fiscal stimulus to be effective (as in kick the economy into a higher gear, rather than provide a temporary amphetamine hit that quickly wears off). He also sounded a warning similar to Willem Buiter's, that the US is fiscally constrained and cannot run deficits as large as we might otherwise like without incurring serious sdverse consequences. Buiter has warned of the danger of a collapse in dollar assets. Greenspan seems more concerned about immediate effects, namely, rising long term bond rates (the Fed in theory can suppress a rate rise by buying long-dated Treasuries, but I suspect in practice this policy would lead to private investors and other central banks abandoning the long end of the yield curve, knowing the Fed could not continue this strategy on an unlimited basis, and the Fed having qualms about ballooning its balance sheet to grotesque size. Even at this level, the Fed seems cautious about further balance sheet growth, even though some have argued the Fed would need to expand its balance sheet far more aggressively to combat deleveraging). From the Financial Times: The US administration will have to go back to Congress for additional funds to recapitalise the banking system to restore the normal flow of credit in the economy, Alan Greenspan, former chairman of the Federal Reserve, said yesterday.... As for the idea of increasing capital levels, it's a poor second best to rethinking what the financial system ought to look like. And it is truly sobering how little serious thought has been done on that front. As for Greenspan depicting Congress champing at the bit to reform the industry, that couldn't be further from the truth. Enacting strict limits on pay to TARP recipients is a far cry from meaningful regulatory reform. From the Financial Times interview:
However, he wimped out on cramming down bondholders (note Martin Wolf and Nouriel Roubini, among others, have advocated that step, although Wolf did warn that it would need to be done with ample preparation for temporary disruption): "You would have to be very careful about imposing any loss on senior creditors of any bank taken under government control because it could impact the senior debt of all other banks," he said. “This is a credit crisis and it is essential to preserve an anchor for the financing of the system. That anchor is the senior debt." Greenspan is a consultant to Pimco, and Pimco has consistently bet that the Feds would be nice to banks (I am told by someone in a position to know that they own a lot of junior bank debt). So this statement may be de facto an admission by Greenspan that he sees nationalization as inevitable and is trying to shape what form it takes. (This was the full post.) Labels: Alan Greenspan, bailout, bank nationalization, financial crisis, Nouriel Roubini, TARP program, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Humble Pie Chart This is from a fantastic and hilarious site, Bubblewrapped, that we just discovered. It bills itself as offering "Financial tools, objective analysis and mixed metaphors to help you stay afloat in the crash." Besides Greenspan, this "humble pie chart" mostly skewers journalists from the British business press, including, alas, Anatole Kaletsky (sorry, Larry...). Alan Greenspan Chairman of the US Federal Reserve, 1987-2006; knighted by the Queen in 2002 for his "contribution to global economic stability" Before 2003 "What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so. We think it would be a mistake [to more deeply regulate the contracts]." 2004 "Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient." 2007 "I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk … But I believed then, as now, that the benefits of broadened home ownership are worth the risk." "It seems superfluous to constrain trading in some of the newer derivatives and other innovative financial contracts of the past decade. The worst have failed; investors no longer fund them and are not likely to in the future." After 2008 US Congress hearing, 23 October 2008 REPRESENTATIVE HENRY WAXMAN: [Mr Greenspan, you said:] "I do have an ideology. My judgment is that free, competitive markets are by far the unrivaled way to organize economies. We've tried regulation. None meaningfully worked." That was your quote. You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. And now our whole economy is paying its price. Do you feel that your ideology pushed you to make decisions that you wish you had not made? GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to – to exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact. WAXMAN: You found a flaw in the reality … GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak. WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working? GREENSPAN: That is … precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well. Check out the rest of the site. Labels: Alan Greenspan, Anatole Kaletsky, Bubblewrapped, financial crisis, The Fed Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Greenspan Is Shocked! Shocked!This definitely falls into the "Give me a break" categoryIn case anyone didn't know, Greenspan now runs a hedge fund (can you spell R-E-V-O-L-V-I-N-G D-O-O-R?) I wonder it it's tanking like most of the other hedge funds these days.... Greenspan "shocked" at credit system breakdown Thu Oct 23, 2008 Reuters By Mark Felsenthal WASHINGTON (Reuters) - Former U.S. Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is "shocked" at the breakdown in U.S. credit markets and said he was "partially" wrong to resist regulation of some securities. Despite concerns he had in 2005 that risks were being underestimated by investors, "this crisis, however, has turned out to be much broader than anything I could have imagined," Greenspan said in remarks prepared for delivery to the House of Representatives Committee on Oversight and Government Reform. Read the rest of the article Labels: Alan Greenspan, financial crisis bailout, The Fed Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Committee To Screw the WorldExcellent article from the Washington Post on the deregulatory atmosphere that enabled the formation of the overlapping super-bubbles in derivatives, credit default insurance, and all the other gizmos we've come to know and love (and will pay handsomely for):What Went Wrong Read the rest of the article. Labels: Alan Greenspan, Brooksley Born, Commodity Futures Trading Commission, financial crisis, Lawrence Summers, Robert Rubin Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Hard New Look at Greenspan Legacy (NYT)From today's New York Times, an interesting piece about Alan Greenspan's attitude toward derivatives.By PETER S. GOODMAN Published: October 8, 2008 “Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” —Alan Greenspan in 2004 George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.” And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added. Read the rest of the article. Labels: Alan Greenspan, derivatives, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
