Is Fiscal Responsibility Irresponsible Right Now?

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Former Center for American Progress staffer and former President of the Oxford Student Union Will Straw — son of Jack, the UK’s former Foreign Minister — returned home to London last year and kicked of the daily policy brief Left Foot Forward.
Left Foot Forward acknowledges Think Progress, affiliated with the Center for American Progress, as its inspiration — and I get both reports daily. (If you want to sign up for interesting stuff from the Brits, here is the link)
Today, Straw and Co. get into the debate over whether it’s irresponsible or prudent today to begin tightening the fiscal gusher.
The flamboyant Richard Branson says yes.
A non-brit but highly respected Paul Krugman blogs no.
And Martin Wolf gives a “hard no.”
From Will Straw’s interesting email today:

The Telegraph, Guardian and Independent outline how Richard Branson has entered the debate over the deficit in a story broken in yesterday’s Evening Standard and followed up on Left Foot Forward.
He said, “We are going to have to cut our spending and I agree with the 20 leading economists who said we need to start this year.” But writing about the same Sunday Times letter from a group of economists on his New York Times blog Nobel Prize winner, Paul Krugman, says, “It’s important to be clear that the call for immediate austerity isn’t grounded in unarguable economics; in fact, the arithmetic tells you that what Britain does in the next year or two is virtually irrelevant to its long-run solvency.”
Martin Wolf agrees and writes in today’s Financial Times: “a massive fiscal tightening today would be a grave error.”

Wolf’s full point punctuated by an extra line makes his warning even more severe:

Moreover, a massive fiscal tightening today would be a grave error. There is a huge risk – in my view, a certainty – that this would tip much of the world back into recession.

Hopefully the Brits and Barack Obama will read up on 1937 and try to avoid making the same ideologically honed mistake again.
— Steve Clemons

Comments

35 comments on “Is Fiscal Responsibility Irresponsible Right Now?

  1. PissedOffAmerican says:

    Kotz. You’re a jackass of the lowest order.
    Congratulations, you’ve arrived.
    You think so highly of Nadine, perhaps you can send her a one way ticket to the nether regions of the outback.

    Reply

  2. kotzabasis says:

    Sweetness
    Thanks for your amicable and reasonable post although I would not agree that Norheim’s arguments against Nadine come from the bench of reason. And the fact that he refuses to debate her in the future reveals clearly how intellectually exhausted he feels in climbing the steep hills of Nadine’s arguments.
    Norheim
    You cannot prevent your comical nature from showing itself and making an entrance frequently on serious matters, as depicted in the last sentence of your fifth paragraph above.

    Reply

  3. Warren Coats says:

    “We deficit hawks are calling for the commitment and plan to contain and roll back the debt over the next one to two decades NOW. We are not calling for a reduction in the deficit this year or next. See the recommendations of the Peterson-Pew Commission on Budget Reform http://budgetreform.org/ for approaches to overcoming the political deadlock before it is too late. My op-ed article on the same subject also appeared yesterday in the Daily Caller: http://tinyurl.com/yjos2ed.”
    Warren Coats

    Reply

  4. Outraged American says:

    Steve said that his buddies in DC Aviv sometimes read the TWN
    comment section -my comments are usually directed to them
    whilst pretending to be aimed at fellow commentators.
    But in regards to how the world sees the internal struggle going
    on in the US, you guys just don’t get it, and I would say many
    Americans don’t either. I don’t.
    All I know is that since 9/11 we’ve lived in topsy turvy world, but
    economically it started much earlier. After leaving LA I live in
    “What’s the matter with Kansas?” world — the world of people
    who not only vote against their best interests but seem to be
    vehemently opposed to their best interests.
    However, the Tea Party movement, which has been co-opted by
    the Numb-Skull Wing of the GOP, started out as people
    searching for the truth of 9/11, and then people who wanted a
    restoration of the Bill of Rights, to be eventually where it is,
    morons who don’t realize that one malignant breast lump might
    bankrupt them and their family forever.
    Hey Paul, I’d like your email address because of something I’m
    doing that’s entirely unrelated to politics or TWN. easy e and
    Kathleen Grasso Andersen know about this project. I’ll ask Steve
    to send you mine.

    Reply

  5. Paul Norheim says:

    Outraged,
    I know that healthcare “is huge”, and agree that an attack on Iran,
    or a collapse of the commercial real estate market may have huge
    implications globally.
    Can’t see though how your remarks are related to my post. Are
    you suggesting that mobilizing the majority of commenters at
    TWN against Nadine’s positions on various issues is an
    appropriate tactic to avoid these threats?

    Reply

  6. Outraged American says:

    Norheim, health care is huge here. Anthem Blue Cross is aiming
    to raise its rates up to 39%. Do you understand what that means
    to the “average” American with individual insurance?
    It means going without food or w/o health care and a huge % of
    bankruptcies in the US are related to health care, with many of
    the people involved having had some health insurance.
    We are talking about the destruction of a nation: while we
    pursue endless UsRael’s war the UniParty is destroying what
    remains of the middle class, and certainly the “lower” economic
    classes have already been eviscerated.
    While I truly enjoy your input here, we Americans are fighting for
    our lives against our own UniParty government. And many parts
    of the world are fighting against us because of our UniParty War
    Machine.
    It could not be more serious here, and guaranteed what
    happens here will affect the entire world. The repeal of Glass-
    Stegall and Clinton’s non-veto of the 1996 Telecommunications
    Act, which led to Fox News/ Goebbel’s Big Lie controlling the US
    mind, are only two examples of how American legislation can
    destroy the lives of hundreds of millions of people worldwide.
    And it’s only going to get much worse. Whatever happens here
    in the next few months, or generated by the US — an attack on
    Iran, the collapse of the commercial real estate market — will
    affect almost every person on Earth.
    In the meantime, Israel and her truly sociopathic or outright
    delusional fan club doesn’t give a sh*t.

    Reply

  7. DonS says:

    Paul, thanks for the post. I have on occasion lamented how much time I spend online, with most of my commenting time on blogs concentrated here.
    Without trying to inflate Nadine’s influence, and I would just as soon her ignore her too, I sometimes fantasize that she sees her mission as distracting others with her outrageous positions.

    Reply

  8. Paul Norheim says:

    “Nadine DOES take a lot of ad hominen on the chin…
    But she also gets a good bit of well-reasoned and supported
    counterarguments from the likes of Questions, Paul, and me. ”
    Thanks Sweetness,
    but I no longer respond to Nadine’s comments. Nor to Kotz’s
    posts, for that sake.
    As I see it, Kotz doesn’t add anything valuable to the
    discussions at hand. His position on EVERY topic is that you
    have to show strength and destroy the enemy with ruthless
    determination. I wouldn’t be surprised if he one day suggested
    that America should use military force to solve the health care
    reform problems, unemployment, or US debt.
    But most of his posts are ad hominem attacks on the alleged
    “weak characters” and utopian delusions of his opponents,
    especially Steve Clemons, Dan Kervick, and myself. These
    attacks occur a couple of times a month or so, and I see no
    point in replying.
    And I have stopped replying to Nadine’s comments for reasons
    well described by POA, NeoControll, and yourself above. She’s a
    talking point propaganda machine.
    Of course, whether I personally talk to, or stop talking to Nadine
    doesn’t change anything. But I would like to add something on a
    general level here: To me it seems like the dynamics at TWN
    have changed considerably during the last six to twelve months.
    Before, there was a tendency among many regular posters to
    think that Steve didn’t address what they regarded as the
    important issues, or that he was too polite, moderate, or
    beltwayish in his approach – so they frequently criticized him
    and pushed the envelope. Now they seem more content with his
    posts, and most of the intellectual, political, and emotional
    focus of the majority of commenters is actually structured in a
    back and forth against Nadine’s talking points. Carroll,
    Questions, DonS, OutragedAmerican, and Sweetness are all
    united in their opposition to Nadine’s extreme positions.
    In my view, this makes the comment section slightly more
    boring and predictable.
    Everybody who have spent some time in the comment section
    have noticed that the actual political positions of posters are
    varied and complex: some people who disagree passionately on,
    say certain foreign policy issues, may agree on certain
    important domestic issues, and vice versa.
    But due to the new dynamics, this complexity is suddenly
    reduced to a unison voice being against Nadine’s take on health
    care reform, teabaggers, big government, Obama, Iran, and
    Israel/ Palestine.
    I don’t know, perhaps some of this simply reflects the current
    polarization in US politics? But personally I find no pleasure in
    participating anymore in this perpetual back and forth – so I
    usually try to find a silent corner, establishing a more quiet
    discussion with someone who is not currently arguing against
    one of Nadine’s well known positions.

    Reply

  9. Sweetness says:

    Neo…
    I guess, for me, it comes down to this: Few people are going to
    change their minds based on what is said here, or anywhere on
    the Net. People mostly want their views confirmed.
    I’m one of the few people I know who pretty regularly changes
    his mind based on what I read. (Maybe others do too and just
    don’t say so. Paul and Questions do, I THINK.) But I also like to
    have my views confirmed.
    So Nadine is going to say what she says. It’s up to each person
    to decide whether he or she is going to engage Nadine or
    anyone else…and why. For example, I don’t expect to convince
    Carroll that some of the things she posts are absolutely anti-
    Semitic. She doesn’t care. So I say what I do because I think it’s
    stunning that a rational person would post this tripe.
    On at least one point–risk pools–Nadine got me to do some
    research. But mostly she seems to be well-encased in a specific
    ideology and is one of the few I know of who still believes in the
    Laffer Curve. Carroll, POA and others have gotten me to look
    more closely at the bad things Israel does. But Israel really isn’t
    the root of all evil, nor is Zionism, as we see from Goldstone
    himself. And some of the rage against Zionism is, IMO, an
    emerging nativism with really ugly and anti-American impulses.
    But there are a lot of genuine criticisms of Israel that hold a lot
    of water–and for Jews, some anyway, that can be hard to
    swallow. You know, “when a man loves a woman” kind of thing.
    These days, I post mostly to figure out what I think. And every
    time I have the impulse to try to convince someone else, I have
    to restrain myself…because it’s a fool’s errand.

    Reply

  10. Neo Controll says:

    Sweetness, just to further set the record straight, Kotz’ use of “Jew-haters, and incurable dolts” might qualify as ad hominen, as might Nadine’s liberal use of the term “anti-Semite” regularly.
    For every well-reasoned argument that folks engage in in a well-intentioned manner, Nadine retorts with an occasional argument, and an avalanche of propagandistic talking points. If simply ignoring her would encourage her to change or leave, or drop her propaganda, that would be good, but she is machine like in her propaganda.
    — NCHQ

    Reply

  11. DonS says:

    “ridiculously disingenuous and damaging effect of practicing partisan politics purely for the sake of practicing partisan politics. The security and well being of our nation gets tossed aside for partisan gain” (POA)
    Here in Virginia, I observe the the extreme polarization of national politics being repeated at the state level, with substantive matters related to programs, policies, and even judicial prosecutions and other legal matters being tossed around like the football.
    Politics has obviously become a huge part of the problem and yet it is the mechanism which we depend on to address societal problems. Self-destructively, from a national perspective, the republicans, almost to an individual, and many democrats, find their political path adopting a stance that eschews societal values and remedies in terms of, in philosophical terms, rugged individualism. It is a shallow and a hollow position in an industrial society, but it is one that finds resonance with the corporate political backers.
    The results are the emergence and prediction of a mean society, much of which is already evident, one that corresponds to a uncivil society, and second rate nation. Can more totalitarian results be far behind?

    Reply

  12. Sweetness says:

    Kotz, just to set the record straight…
    Nadine DOES take a lot of ad hominen on the chin…
    But she also gets a good bit of well-reasoned and supported
    counterarguments from the likes of Questions, Paul, and me.
    Arguments she’s been hard-pressed to answer in any real way.
    (Simply repeating what you said before or ignoring contrary
    evidence or arguments isn’t “answering,” I think you’d agree.)
    Of course, MUCH political discourse ends up being talking past the
    other person because there are often bedrock principles which
    separate people. That’s unavoidable.

    Reply

  13. PissedOffAmerican says:

    “Hi Kotz, thanks for the kind words”
    The wackjob Kotz defending the bigot Nadine is about as “constructive” to Nadine as the bigot Nadine defending Israel is “constructive” to Israel.
    Steve’s blog, showcasing RW talking point queens such as Nadine really demonstrates to the reader the ridiculously dissingenuous and damaging effect of practicing partisan politics purely for the sake of practicing partisan politics. The security and well being of our nation gets tossed aside for partisan gain, and the despicable nature of our nation’s leader’s character becomes exposed for all to see. Nadine is a window into the disfunction and corruption that defines modern DC governance, both in her parroting of partisan politics, and constantly speaking in defense of all things Israel, espousing policy advocations or scripted “opinions” that are blatantly against the interests of the people of the United States.
    Having read Kotz’s insane babblings here for some time now, one cannot help but think Nadine would be embarrassed and rueful of Kotz’s admiration and glowing endorsements, but instead, she wears them like a badge of honor. The word “bizarre” comes to mind.

    Reply

  14. nadine says:

    Hi Kotz, thanks for the kind words. As Steve’s title — “Is Fiscal Responsibility Irresponsible Right Now?” — the Dems have painted themselves into a tight corner, where getting their message just right looks trickier than staying on the snowboard cross track in the Winter Olympics.
    What’s the message? “Unsustainable is the New Normal”? “Fiscal Sanity is so Yesterday”? “Keep Dancing as Fast as We Can; Our Kids will Pay”? “Stimulus Works if We Say It Does”? “Someday Soon, We Can All Be Greece”?
    The disconnect with the independent voters, who were unhappy about Bush’s spending, is nearly total.

    Reply

  15. nadine says:

    DonS, I think a “public option” that means public high risk pools could get majority support. A “public option” designed to put private insurers out of business, which is what most of its supporters were hoping for, could not, just as single-payer cannot. The devil is in the details, because when the government comes to play it owns the rulebook and the playing field.
    But I think the independent voters of this country are about to say en masse “this is not the change we had in mind” and vote for gridlock in large numbers. So I expect if anything gets done it will be much smaller, really bipartisan measures, especially if Republicans take control of the next Congress, which is about even odds at this moment.

    Reply

  16. DonS says:

    Like I said Nadine, it’s not either rep or dem. I’m not partial to either, but I am critical of the dynamics of gridlock and refusal to address issues. As to health care bills and starting over, I’m all for that as long as it includes meaningful public option.
    Hey Kotz, thanks for sharing and thanks for advancing the discussion.

    Reply

  17. kotzabasis says:

    Except for political straitjacket ideologues, Jew-haters, and incurable dolts and know-all second rate minds, people who can separate the chaff from the grain are proud of Nadine’s often unassailable arguments. And the fact that her critics frequently demonize her arguments, reveal how profoundly incompetent they feel in answering them with logic.

    Reply

  18. JohnH says:

    Nadine didn’t deny that she’s a paid astro-turfer. [Not that it would mean anything if she did.]
    In any case, Dick Armey is proud of you, Nadine. Cheney probably is, too.

    Reply

  19. nadine says:

    Hey, JohnH, it’s Axelrod who’s the astro-turfing expert. The reality is much scarier – there is a real grassroots movement against Obama and his fiscal insanity. But the Left has spent their lives paying homage to grassroots movements, so they have to deny and delegitimize any right-wing grassroots movements.
    DonS, you don’t seem to have noticed, but it’s Obama who wants to slash Medicare by $500 Billion dollars over 10 years, not for fiscal prudence, but to spend it on Obamacare. The latest Zogby poll says 57% want to dump the Obamacare bills and start over. And Obama thinks he’s going to win by painting the Republicans as obstructionists?

    Reply

  20. JohnH says:

    Nadine’s “pimping for the likes of Boehner and Cantor, Shelby, Scalia, and a whole host of other right wing [stink] bomb throwers.”
    Maybe that’s the little business she trying to get off the ground–paid astro-turfing.

    Reply

  21. DonS says:

    “All these resignations by political pros tell the tale.”
    And what tale would that be? Folks who are trying to make this a repub-dem thing are not helping. If the alternative is to go with the repub faux program — no taxes, slash Medicare/Medicaid, privatize social security, no regulation, stifle appointments, all filibuster all the time, but don’t touch that defense budget, it’s throwing gasoline on the fire. Nadine, seems like you’re not only pimping for Israel; you’re pimping for the likes of Boehner and Cantor, Shelby, Scalia, and a whole host of other right wing bomb throwers.

    Reply

  22. nadine says:

    “Yep,Obama napped thru his political career and like Rip Van Winkle woke up, just in time to run for president.
    It’s easy to understand how we keep getting what we get when you see reasoning process of voters like this.”
    How else can you vote for a president who has never done anything but campaign?
    The Democratic caucus must be horrified at the incompetence they have put into the Oval Office. All these resignations by political pros tell the tale.

    Reply

  23. Carroll says:

    Oh gawd help us!
    I just talked to a aquaintence of mine, a self described “progressive”, who had seen Frontline also.
    She said the reason Obama hadn’t done anything about WS and had the same people in his adm was because he lived such a ‘cebral Life” that he didn’t realize what was happening…LOL
    Yep,Obama napped thru his political career and like Rip Van Winkle woke up, just in time to run for president.
    It’s easy to understand how we keep getting what we get when you see reasoning process of voters like this.

    Reply

  24. Paul Wicker (the tall vicar) says:

    Is that the same Will Straw whose dad turned him in to the cops for cannabis possesion so he wouldn’t be embarrassed by a tabloid exposé while he was posturing as an anti-drug warrior of a Home Secretary?
    Not as bad as lying us into war though, eh Jack?

    Reply

  25. DonS says:

    Carroll, it is hard to see any of this ending well, and with the level of overhanging personal debt, with our debt culture, we know the small guy will be hit hardest; even the next bubble, eh? (except that commercial real estate is vying for that honor). And with the employment environment so depressed, it is hard to ignore the possibility of runaway inflation as an outcome, though virtually all the sage economists say it’s not going to happen, at least soon. We definitely have to blame our corporate overlords and their vassal government for taking crony capitalism worldwide. Even if there was the will in the US to contain the mess, it is out of our hands to a large extent. Just the way the masters of the universe like it.
    So, I repeat, hard to see things going well, and greater have-have not disparity in the US a foregone conclusion. I suppose there are some wags who might say hyper inflation would be the better alternative since it would write down the cost of currently held debt. But we have seen how that destroys governments fast, which in itself might not be a bad thing except for the even more controlling and repressive regime it would portend.
    I shouldn’t really be commenting on any of this like I know much of what I’m talking about. But like many, I suppose, I am trying to understand just enough to do damage control as possible. Still, the most obvious conclusion is that we are powerless to protect ourselves and will be swept along or under by the tide.
    And our government hasn’t a clue either. First one way, then the other. Finally, a confidence building measure would be severe regulation of the finance industry; and that’s not going to be allowed.
    And our scumbag politicians can only mince around and whine like their personal fate is of importance, dismissive of the role they have played in allowing the debacle.

    Reply

  26. Carroll says:

    Posted by DonS, Feb 17 2010, 2:07PM
    >>>>>>>>>>>>>>>>
    Nothing is going to change.
    It will all happen again, just like Iraq will happen again.
    If anyone ask me what I think of the future of the US financially I tell then that unless they have a few million in ready cash to buy bread and water with they should move to the country, get a horse, plant a garden and learn to stomp their own grapes.
    Why?..because what have we seen in any adm or WH in the last 40 years that says most of them work for anyone but the corps and lobbist they get the bulk of their campaign money from.
    But the “little people” keep voting and voting and voting..or not….as if voting works.

    Reply

  27. DonS says:

    Sagacity, you don’t want to ask too many of those questions, because it leads one to formulate other questions which can lead to uncontrollable anger.
    If ‘yes’ (he’s seen it, or is familiar with the content), then !?#?@?!?#@?#?
    If ‘no’ (or not familiar with the content), then !?$#?%>#@$?#@
    Of course it’s just possible that Obama would view the Frontline piece as some left wing conspiratorial hit piece. That, in itself, would raise another whole series of questions though, sadly, most of us would not be all that surprised.

    Reply

  28. Sagacity says:

    I watched Frontline, too. I found myself wondering if Obama has watched it.

    Reply

  29. DonS says:

    Yeah, CArroll, we saw the Frontline expose. What amazes me is that after all the crap that Born received, not the least because she is a woman, how she seems now to be a pretty placid healthy woman; apparently being exposed to all those toxic assholes did not poison her, although it’s merely presumptuous to think one knows what she has been through. It’s interesting that Arthur Leavitt, NOW, does the mea culpa bit. You wodner why all the supposedly smart people are so influenced by the tide and prejudice around them, and not able to exercise independent analytical skills or recognize sincerity an thruth from outside their circle. Ah, because they are not the all powerful, all knowing being they think themselves. All arrogant; they’ve got that one down.
    Larry Summers, who the Frontline piece seemed to play down toward the end as not being among the big three assholes/stoolies, Greenspan, Rubin, Leavitt — although Summers was pictured early in the piece as being in the triumvirate of responsibles — of course is still in there meddling with the switches. One must ask, along with Gaither, his tweedle dee partner under Rubin, just how perverted it is that they are not run out of town on a rail much less be re-anointed by Obama?.
    And Born’s replacement at the CFTC, after she was hounded out by the architects of “the collapse”, one Gary Gensler? His CFTC bio notes: “As Under Secretary of the Treasury, Chairman Gensler was the principal advisor to Treasury Secretary Robert Rubin and later to Secretary Lawrence Summers on all aspects of domestic finance.”
    Fox watching the hen house doesn’t even get close. If it were just one Wall Street type clone tht might be acceptable. But all the top administration finance job are still in the hands of the folks who demonstrated terminal hubris, blindness, or both. Or worse.

    Reply

  30. Carroll says:

    Did anyone see Frontline last night?
    About how Brooksley Born tired to warn congress and the WH starting during the Clinton adm and since that the derivities and hedge funds were going to crash our financial markets and disappear trillions of Americans money?
    A few of the points.
    http://www.pbs.org/wgbh/pages/frontline/warning/etc/script.html
    AYN RAND: I am opposed to all forms of control. I am for an absolute laissez-faire, free,unregulated economy. Let me put it briefly. I am for the separation of state and economics.
    NARRATOR: Greenspan talked about Rand in his autobiography.
    [Alan Greenspan, The Age of Turbulence: “Ayn Rand became a stabilizing force in my life. It hadn’t taken long for us to have a meeting of the minds mostly my mind meeting hers.”]
    JOSEPH STIGLITZ, Sr. Clinton economic Adviser, 1993-’97: Greenspan was a
    believer in Ayn Rand, a believer in free market. A little bit curious for a central banker, because what is central banking? It’s a massive intervention in the market, setting interest rates.
    NARRATOR: Greenspan worried about this contradiction in his autobiography.
    [Alan Greenspan,The Age of Turbulence: “I knew I would have to pledge to uphold not only the Constitution but also the laws of the land, many of which I thought were wrong.”]
    [Alan Greenspan,The Age of Turbulence: “I had long since decided to engage in efforts to advance free-market capitalism as an insider, rather than as a critical pamphleteer.”]
    DAVID WESSEL: He understood that there were laws he had to enforce that he personally would not have passed. But he intended to do as little as he could on regulation, and he proceeded to do just that Rubin populated the Clinton administration with a network of free market true believers.
    JOE NOCERA: It wasn’t just Rubin and Greenspan who were these free market acolytes. That thinking pervaded the Treasury and the White House.
    NARRATOR: Among Rubin’s acolytes, 35-year-old Timothy Geithner and Rubin’s
    top deputy, the outspoken Harvard economist Larry Summers
    NARRATOR: Together, Greenspan, Rubin and Summers formed their own pro-business, anti-regulation support group.
    NARRATOR: It didn’t take long for Born to learn that she and the chairman were not going to see eye to eye.
    JOE NOCERA: He said something to the effect that, “Well, Brooksley, we’re
    never going to agree on fraud.” And she said, “Well, what do you mean?” And
    he said, “`You probably think there should be rules against it.” And she said, “Well, yes, I do.” He said, you know, “I think the market will figure it out and take care of the fraudsters.”
    DAVID WESSEL: Ninety percent of the members of Congress couldn’t have told you what a derivative was. So all they knew was that these guys on Wall
    Street, some of whom make big campaign contributions, many of whom seem very
    smart, say, “If we do this, it’ll screw up the economy.”
    Rep. SPENCER BACHUS: My question again is what are you trying to protect?
    BROOKSLEY BORN: We’re trying to protect the money of the American public, which is at risk in these markets.
    NARRATOR: That summer of 1998, Born testified four times before hostile congressional committees
    JOSEPH STIGLITZ, Sr. Clinton economic Adviser, 1993-’97: There was a strong sense that we ought to do something about these derivatives, that they really were posing a risk to our national economy and to the global economy.
    NARRATOR: But Alan Greenspan had no intention of yielding.
    ALAN GREENSPAN: [October 1, 1998] I know of no set of supervisory action we
    can take that would prevent people from making dumb mistakes. I know of no piece of legislation that can be passed by the Congress which would require us to prevent them from making dumb mistakes
    NARRATOR: In the end, Congress agreed with Alan Greenspan. There would be no new regulations of over-the-counter derivatives.
    MICHAEL GREENBERGER: So now this is an unregulated market, no transparency,
    no capital reserve requirements, no prohibition on fraud, no prohibition on manipulation, no regulation of intermediaries. All the fundamental templates that we learned from the Great Depression are needed to have markets
    function smoothly are gone.
    NARRATOR: But within the next few weeks, Congress did decide to do something about Brooksley Born. They stopped her entirely.
    TIMOTHY O’BRIEN: Essentially, what you had was a very bald and brutal power play. They defenestrate her entire agency.
    They say, “Because you haven’t played ball, we are now declaring a regulatory freeze on anything you folks can do in this market. Forget it. You’re done.” And she was.
    NARRATOR: By 2007, the OTC derivatives market had grown to $595 trillion. That’s $595 trillion.
    NEWSCASTER: The economy expanded at a robust 4.3 percent annual rate.
    NARRATOR: Those derivatives were at the heart of that strategy.
    JOE NOCERA: You have derivatives insuring derivatives which are based on
    derivatives. It’s an almost an Alice in Wonderland kind of profitability.
    TIMOTHY O’BRIEN: What, in fact, you essentially had was a big, creaking time
    bomb that needed some sort of event to disrupt all the assumptions everyone
    had.
    NEWSCASTER: The stock market dropped by hundreds of points
    NEWSCASTER: Profits in the banking industry are plunging.
    NEWSCASTER: The jobless rate in America has now soared to
    NEWSCASTER: The Dow tumbled
    NARRATOR: The time bomb exploded almost exactly 10 years after the collapse
    of LTCM.
    NEWSCASTER: Investors were shaken by Lehman’s bankruptcy filing and what was
    essentially
    TIMOTHY O’BRIEN: You had the most raw panic the economy and the financial markets had seen since the 1930s. It was ugly, it was broad-based, it was bringing huge institutions to their knees. And a lot of that was tied into derivatives.
    MICHAEL GREENBERGER: They’re hidden like land mines in a battlefield, and nobody wants to give money to anybody else because they don’t know.
    NEWSCASTER: AIG plunging. At one point, they were down
    NEWSCASTER: If AIG can’t raise $20 billion, they’ll have to announce bankruptcy tonight.
    BROOKSLEY BORN: It was my worst nightmare coming true. Nobody really knew what was going on in the market. The toxic assets of many of our biggest
    banks are over-the-counter derivatives and caused the economic downturn that made us lose our savings, lose our jobs, lose our homes. It was very frightening.
    NARRATOR: In the aftermath, one former member of the working group has had a change of heart about Brooksley Born.
    ARTHUR LEVITT: I’ve come to know her as one of the most capable, dedicated,
    intelligent and committed public servants that I have ever come to know. I wish I knew her better in Washington. I could have done much better. I could have made a difference.
    NARRATOR: And the others? Robert Rubin left government to join top management at CitiBank. The taxpayers have pledged more than $100 billion to keep Citi afloat. Rubin’s former deputies, Larry Summers and Timothy Geithner, have become President Barack Obama’s chief financial advisers

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  31. David says:

    Wolf’s got this one right.

    Reply

  32. Linda says:

    JohnH,
    “American cannot bomb its way out of the Great Recession.” I totally agree because to me 2010 looks a lot like 1937 But we already are in two wars–so we don’t have the option of WWII to end the double dip.
    Also Obama Administration sold health care reform based on some faulty logic. Hospital and pharmaceutical industries are very upset because the deals for savings they agreed to were to go toward funding more care for the uninsured but also were sold as reducing the deficit.
    Not that I agree with those industries or the deals made behind closed doors, but I do find myself agreeing with Republican Senator Jeff Sessions who recently noted this discrepancy, i.e., CBO is scoring health care reform bills as if it is possible to use any savings twice. Actuaries at Centers for Medicare and Medicaid Services have done it more logcially and disagree.
    All this lack of clarity of the Administration’s position is creating added anxiety and chaos for everyone.

    Reply

  33. JohnH says:

    “Deficit hawks” need to consider ALL spending, military included.
    Instead of targeting domestic spending, the debate should center on cutting spending and then shifting low-stimulus “defense” spending to high-stimulus domestic spending.
    America cannot bomb its way out of the Great Recession.

    Reply

  34. erichwwk says:

    W/o having read either article, I must point out that Branson and Wolf have opposing interests. Fiscal tightening better preserves the market value of current money enumerated assets – Branson’s PERSONAL assets(I’m assuming Branson is not expecting bailouts), whereas Wolf is more interested in the wealth a COUNTRY would lose by idles resources, a loss that is permanent and can never be recouped.

    Reply

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