TPS

Given that I am a "Minskyite," I understand the relationship between regulation and financial innovation. Financial innovations are often a consequence of regulation. That doesn't mean you don't junk regulation and let finance rein free, because this is the result--speculation and crisis. The more "paper" finance creates, the more profits. In essence, Minsky's explanation for why capitalism is inherently unstable is because the growth of debt outpaces the ability to pay it (income growth). And regulators face a constant game of trying to keep pace with the innovation. As the report indicates, finance paid to make sure new products didn't get regulated. This crisis is really a case of "finance gone wild." How much are we going to have to sink into AIG because of little or no capital backing the cds its unit wrote? What would you do if you were king? Do you truly believe the markets can police themselves? On a side note to our longstanding argument about tax cuts and revenues, it's now clear to me why there was the blip in revenues that you thought would eventually create a federal budget surplus (but didn't): finance accounted for 30% of all profits in 2007, generated by the fenzy of fraud and manipulation. The financial units of companies like AIG and Lehman that created and sold the slew of financial acronyms "earned" hundreds of millions in compensation. IT really was a bubble created by fraud and manipulation. Mortgage and other asset backed securities sliced and diced then fraudulently rated AAA and sold to the rest of the world (and you asked how Britain and the rest of the world got into trouble...jeesh!). Once they ran out of "crap mortgages" to back cdos they created them out of "thin air" with synthetics. Billions in profits, and therefore taxes, were generated, but it was all a mirage. This has been one of the greatest con games ever, and we suckers are fine with continuing to dump trillions into "saving" it.

9:30?!? Cocktails start much earlier; that's when I get home and back to a computer...

It's not about "depression era laws," it's about regulating the financial sector instead of letting it push bubbles to their ultimate limit. Wall Street paid to dismantle old regulations and fought any new ones. And even you have to understand how junk securities sold here infected the rest of the world, dumb enough to believe a self-regulated Wall Street and self-interested ratings agences. Care to take a guess why Canadian banks aren't in the same mess as American ones?

While the usual apologists won't agree, this article (for me) pretty much sums up how the political system works and why we are in this mess. To be clear, the process of dismantling financial regulations has gone on since 1980, so it's not a partisan issue, as the article also states. While there are a lot of other factors that have contributed, it really is the case of "finance run amok." USA Inc.

Oh christ! And the supply side miracle of Bush's tax cuts saved us from economic ruin. Gee ma, look at all that capital formation we created, and all those taxes it genereated from the speculeration, manipuleration, err...investments that all those geniuses on Wall Street made...

Does this mean you right wing nuts will stop blaming Carter for the Recession that happended AFTER Reagan got elected? !@#$ing hypocrits!

Hola Olivier, Am on sabbatical myself. Never know about meeting people, I´ve had two "small world moments" on this trip already. Just finished a 4-day wine drenching in Mendoza, and after perusing a few posts here, am ready to do it again... Chao, tps Oh, replies to others: there are beautiful women in every country--I don´t discriminate; Kirchners? I'm trying to hang with my leftist hermanos: Hugo, Raphael, y Evo...

A quick update from my last cryptically drunk post--"dopes." Been travelling, since that post, in South America: Galapagos, Machu Picchu, Lake Titicaca; currently in Chile, and now heading to Mendoza, Argentina to drink as much red wine as I can in the next 5 days. Hope you are all well and surviving the recession. I am... Chao amigos. tps

Well, I can see that the cognescenti here believe that all is well. And all is the best of all possible worlds. Keep hoping for the best. I'm out of here. Heading back south. Hasta amigos. Good luck...

Idiots. We'd all be better off if the same folks who ran Bear-Stearns, Merril Lynch, AIG, Lehman Bros, GM, Chrysler, Wash Mutual, Wachovia, et al ran the government.

Because it's essentially at capacity already.

Was there over the weekend...Yummm! Had the pastrami, but I forgot to ask for an egg on it. I'm glad I wasn't drunk, else I would've had a second one... Had a couple of Yuenglings of course.

The thing that people don't seem to realize though is the FED, under Bush or Obama, can reverse what it's done when things improve. Just as it can flood the system with "cash" or liquidity, so can it take it away. Money gets created when the banking system starts lending, and right now it's not. As I keep saying, inflation will occur only if the money gets into the hands of those who spend it--in fact, it's more correct to focus on his fiscal stimulus plan as what might bring about inflation, not the banking system awash with liquidity. The other force that could bring inflation about is the investing class gets confident in speculating in commodities again. The interesting thing about the past 15 years (or so) is that with all of the money sloshing around the globe what we experienced was several asset inflations (tech, real estate bubbles) while goods inflation was tamed by globalization (at least until this past year when the brief commodity speculative bubble caused prices to rise).

Some of it is going, and probably more needs to be done. I mentioned a program in Philly (I believe) that gets lenders and borrowers together in bankrucptcy court to re-work the financing--both sides give a little. A fiscal stimulus will be targeted at the middle class, so that's no different than a "bailout" is it?

The monetary base, which essentially represents the amount of (paper) currency available in the economy, has increased by $600 billion since August, which is exactly the amount of excess reserves held by the banking system. So "team Bush" has already flooded "the banking system with paper." Why is "team obama" getting the blame for that?

It's now only "partially the root of the problem." The other side of the policy coin needs to kick-in in a big way now. Job creation and tax cuts for those making < $100K are necessary. Need to limit credit card defaults, student loan defaults, and business bankruptcies. In other words, there are a lot of other assets that could go bad in a bad economy. While I think Paulson has !@#$ things up more often than not, the FED continues to do whatever is necessary. Fiscal policy kicks in early next year. I expect continued negative news and surprises (who will we bailout next?) until June.

Gee thanks for the ppp news posting. No comment yerself?

You mean to say, "anyone who disagrees with me."

What do you mean around the picture, Hell it's uncle karl!

The key is that money has to be put into the hands of people who will spend it. You don't get inflation because the FED has injected $1.5 trillion into the banking system. In addition, once things "settle down" (if they ever do), the FED can always take the liquidity back. It is true that inflation occurs because there is too much demand relative to supply, and with businesses and consumers cutting back spending, there is no danger of that at the moment. As to your second point, if a dollar sell off caused interest rates to increase, that would push the US further into recession, with a slight counter-effect that whatever we still produce will be cheaper to foreigners. Also, I don't know too many workers who can demand higher wages when unemployment is rising. The cause of hyperinflation has been governments spending on goods financed by printing money when resources (capital, raw materials, and labor) are scarce. We're currently in a situation where resources are becoming "more plentiful."

Thank you sir. My apology to criticizing you on this...

Curious to know your thoughts on how the current deflationary recession could become a "hyperinflationary depression"? Since demand for everything is falling, which is bringing prices down, how exactly can we "jump the shark"?

Not quite. I criticize the belief that 'tax cuts don't lead to deficits." Also, Bush proposed his tax cuts when the economy was slowing down; at that time, I argued for a cut in the payroll tax (again) vs. his cuts (mainly) targeted toward the top. That was a minor slowdown, this is the most severe economic crisis in 80 years. Any sane economist understands the need for expansionary fiscal policy in these times, deficits be damned! Btw, could you expand on this:

I like Gill When was the last time an OC for the Bills had faith in the O-line to run the ball in short yardage situations, let alone 4th and 1?

No soup for you! The most fiscally irresponsible "CEO" in history is threatening to veto an extension of unemployment benefits because it would be "fiscally irresponsible?" Ahhh...irony, Bush be thy name...