Who is to Blame?

There is always someone trying to spoil a picture.I think a smile is in order as we in the North East prepare for another 12-18 inches of snow.



Who is to Blame?

I am reading Joseph Stiglitz's new book, Freefall. He is the Nobel winning economist. In this book he lays out how we got into the economic mess we are in, who and what policies caused it and, perhaps more importantly, what we should be doing to get out of it. I have reprinted an excerpt below; but urge that you to read the book. Simply written and in plain speak.

Freefall (Joseph E. Stiglitz)

CONCLUDING COMMENTS The entire series of efforts to rescue the banking system were so flawed, partly because those who were somewhat responsible for the mess—as advocates of deregulation, as failed regulators, or as investment bankers—were put in charge of the repair. Perhaps not surprisingly, they all employed the same logic that had gotten the financial sector into trouble to get it out of it. The financial sector had engaged in highly leveraged, non-transparent transactions, many off balance sheet; it had believed that one could create value by moving assets around and repackaging them. The approach to getting the country out of the mess was based on the same “principles.” Toxic assets were shifted from banks to the government—but that didn’t make them any less toxic. Off-balance sheet and non-transparent guarantees became a regular feature of the Treasury, Federal Deposit Insurance Corporation, and Federal Reserve. High leverage (open and hidden) became a feature of public institutions as well as private. Worse still were the implications for governance. The Constitution gives Congress the power to control spending. But the Federal Reserve was undertaking actions knowing full well that if the collateral that it was taking on proved bad, the taxpayer would bail it out. Whether the actions were legal or not is not the issue: they were a deliberate attempt to circumvent Congress, because they knew that the American people would be reluctant to approve more largesse for those who had caused so much harm and behaved so badly. The U.S. government did something worse than trying to re-create the financial system of the past: It strengthened the too-big-to-fail banks; it introduced a new concept—too-big-to-be-financially-resolved; it worsened the problems of moral hazard; it burdened future generations with a legacy of debt; it cast a pallor of the risk of inflation over the U.S. dollar; and it strengthened many Americans’ doubts about the fundamental fairness of the system. Central bankers, like all humans, are fallible. Some observers argue for simple, rule-based approaches to policy (like monetarism and inflation targeting)55 because they reduce the potential for human fallibility. The belief that markets can take care of themselves and therefore government should not intrude has resulted in the largest intervention in the market by government in history; the result of following excessively simple rules was that the Fed had to take discretionary actions beyond those taken by any central bank in history. It had to make life and death decisions for each bank without even the guidance of a clear set of principles.

Really friends, we can not depend on the talking heads on any TV,radio or even the papers of record such as the NY Times and Wall Street Journal.

They all like us dumb and ready to accept what suites them. Read, Research and know what you are talking about.

If you think it has been bad till now? Wait till the commercial real estate bubble bursts and the credit card debt hits and the banks come asking for bail outs cause they are all too big to fail. What BS!