Shouldn’t we all be mad as hell?  All the smart people in finance, all the ‘masters of the universe’ running corporations, all the folks dragging off millions in end-of-year bonuses turned out to be worse than stupid, beyond reckless. Count in those officials, Democrat and Republican, elected and appointed, who watched passively and in some cases helped.  And who pays?  We are and we will — for a very long time.  We should be angry.

And yet here in today’s Financial Times is Treasury Secretary Paulson — apparently a billionaire himself from his own life on Wall Street — blaming the problem on ‘lack of tools.’   BS.   Lack of common sense was the problem, lack of seriousness about being a civil servant.

Here’s the whole Paulson schtick — this is the guy whose mistakes and failure to require any oversight have cost us hundreds of billions (or is it trillions?):

Read the rest of this entry »

Just how scared are we?   Click here for “Fear or Uncertainty”, a striking graph and 2-minute interview on NPR this week with the inventor of the ‘vix’ number — an index of our economic fears which seems to predict where the market is going in the next month.  Warning: the index is very high, meaning the market is still headed down.  But we knew that, right?  (Note: click on the little arrow button on the audio bar to start the talk.)

What is your measure of how our economy is doing?

The Washington Post has been producing an excellent series of investigative reports on the origins of the financial crisis with the ‘too big to fail’ AIG. (Of which you and I are now part owners/debtors.)  If you have time, these are well worth reading — these folks cost us hundreds of billions.

Here is Part 1 in a new series, The Beautiful Machine. Greed on Wall Street and blindness in Washington certainly helped cause the financial system’s crash.  But a deeper explanation begins 20 years ago with a bold experiment to master the variable that has defeated so many visionaries: risk.

Here is Part 2, A Crack in the System. By 1998 AIG Financial Products had made hundreds of millions of dollars and captured Wall Street’s attention with its precise, finely balanced system for managing risk.  But then it subtly turned in a dangerous direction.

Here is Part 3 (of 3), Downgrades and Downfall.How could a single unit of AIG cause the giant company’s near-ruin and become a fulcrum of the global financial crisis?  By straying from its own rules for managing risk and then failing to anticipate the consequences.

For more of the Post’s several investigations, here is The Crash: What went wrong? How did the most dynamic and sophisticated financial markets in the world come to the brink of collapse.  The Washington Post examines how Wall Street motivation outpaced Washington regulation. The Post collects here a number of articles.

The Tacoma News Tribune editorializes today on the importance of carefully managing the federal and state stimus packages.  I was pleased to be quoted offering the three tests I think we should use for every infrastructure project.   Here’s the editorial in full:

Read the rest of this entry »

A constituent e-mailed yesterday to urge that we consider raising the state’s gas tax — gas prices are very low, he points out, and this would be a good time to use that revenue both to pay for needed infrastructure and to ease our general budget deficit.

Today one of our most influential columnists, Tom Friedman of the New York Times published this column to make the same case. Here’s the heart of his argument:

Of course, it’s a blessing that people who have been hammered by the economy are getting a break at the pump. But for our long-term health, getting re-addicted to oil and gas guzzlers is one of the dumbest things we could do.

That is why I believe the second biggest decision Barack Obama has to make — the first is deciding the size of the stimulus — is whether to increase the federal gasoline tax or impose an economy-wide carbon tax. Best I can tell, the Obama team has no intention of doing either at this time. I understand why. Raising taxes in a recession is a no-no. But I’ve wracked my brain trying to think of ways to retool America around clean-power technologies without a price signal — i.e., a tax — and there are no effective ones. (Toughening energy-effiency regulations alone won’t do it.) Without a higher gas tax or carbon tax, Obama will lack the leverage to drive critical pieces of his foreign and domestic agendas.

I’ve long been concerned that our state’s tax structure needs an overhaul.  Unfortunately, a higher gas tax imposed in the middle of an economic crash would only make our state’s regressive tax structure more regressive — ‘regressive’ meaning that lower income folks pay a higher percentage of their income than do the well off.  With our tax system in WA, poor people buy things for rich people.

What do you think?  Do you find the Friedman logic persuasive?  Where would you come down on this?

While much of the attention and a good share of the blame for this brutal recession can be laid on the American mortgage bubble, the resulting depression is global.  Today’s Independent (London) reports a new international bank forecast:

HSBC has warned that global gross domestic product will contract in 2009, describing this as “an extraordinary development in the modern era”. In a comprehensive examination of the economic crisis, it predicts that next year will be the worst in peacetime both for rich countries and the wider global economy since the Great Depression.

Stephen King, HSBC’s chief economist, said: “For a while, it was possible to pretend that the financial and economic crisis was merely a problem for
the major industrialised countries.

“Over the last three months, however, that theory has been blown out of the water. We have made savage downgrades to our forecasts with some of the emerging markets bearing the brunt of the bad news.

If this is an elevator, we’re all in it and we’re all headed for the basement.

Right now we all seem to be Keynesians. For a summary of the Keynes theory of how to get out of a recession, Paul Krugman (NYTimes columnist and recent awardee of Nobel Prize in economics) points to a recent essay in the Financial Times by columnist Martin Wolf.  Wolf’s closing paragraphs:

As was the case in the 1930s, we also have a choice: it is to deal with these challenges co-operatively and pragmatically or let ideological blinkers and selfishness obstruct us. The objective is also clear: to preserve an open and at least reasonably stable world economy that offers opportunity to as much of humanity as possible. We have done a disturbingly poor job of this in recent years. We must do better. We can do so, provided we approach the task in a spirit of humility and pragmatism, shorn of ideological blinkers

As Oscar Wilde might have said, in economics, the truth is rarely pure and never simple. That is, for me, the biggest lesson of this crisis. It is also the one Keynes himself still teaches.

Here is a 12-minute video segment from the 24 December NewsHour.  In addition to a clear and sobering report of how our Asian friends’ car manufacturing businesses are hurting too, economist-strategist Clyde Prestowitz notes that “all of Asia is in a panic.”  But Prestowitz finds one hopeful sign:  It is possible that the nature of the Pacific Rim economy is changing.  Americans have suddenly stopped buying, turning off the “Asia makes, America takes” conveyer belt. Prestowitz sees an opportunity for manufacturing to return to America.

That is not likely to be automatic.  How could we use the stimulus funds and the “opportunity” of the recession to start making stuff here again?  Is this an opportunity to turn our bedroom communities into places where the label says “Made in West Sound?”

“One minute they want to spend it quickly, the next minute they want to spend it well.”

At first it sounded simple: Economists from left to right agreed we ought quickly to pump in something more than 2.5% of GDP to jolt our “heart attack” economy back to life.  It seems the search for “shovel ready” has every city, county, park or fire district, and state making lists of how their project is the right project.

Enter complications: Read the rest of this entry »

More evidence about how broad this recession is. This WaPost article notes that jobs are being lost across the whole economy.  Another factor: this has been going for some time.