When Will They Ever Learn?

The Blogging Econ heads are still news makers today as we have more and more reports of record profits at Goldman pigs-playing-poker1Sachs and examples of blatant corportist propaganda at CNBC. I learned yesterday that many folks are listening, it just isn’t necessarily the ones shaping and setting policy. We also see a completely unsustainable budget coming down the pipe per the Director of the CBO. Why is it that policy makers seem to want us in dire straights? Are their sources of campaign funds so sacred that they’re willing to bring down the U.S. economy? Where does a Cassandra start?

Matt Taibbi and Paul Krugman focus in on the GS profits. So, I’m all for making a decent rate of return, that’s necessary to keep a company in business and it’s required to attract capital to grow a market. However, record setting, extraordinary profits are symptoms of a market out-of-whack. In the most simplest of analysis it could mean there are minimally too few providers of a service which can also lead to some form of market manipulation, information hiding, or information asymmetry allowing them to reap extraordinary profits. I basically think we’re seeing GS game the market based on raiding underpriced AIG assets with a free source of capital. This means the profits are straight from taxpayer funding. No wonder these guys don’t want to pony up any equity to us based on profitability and want to dump TARP funds (with their compensation restrictions) as quickly as possible. How can Washington miss that they’re back at their same old games?

This is from Taibbi who basically lays it out. They’re taking our tax dollars and buying assets with tax dollar in government-selected subsidized fire sales, creating arbitrage profits (some through their own huge market shares now that much of their competition is gone) and churning themselves some nice bonuses. In music, that’s called riding the gravy train. It’s a no risk, no brainer, no lose situation. Why would that require bonuses? [You can mark my words on this. They looted (with government enabling) AIG and the next one up will be CIT.]

So what’s wrong with Goldman posting $3.44 billion in second-quarter profits, what’s wrong with the company so far earmarking $11.4 billion in compensation for its employees? What’s wrong is that this is not free-market earnings but an almost pure state subsidy.

Krugman, a microeconomist with specializations in trade theory, sees it too.

The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America.

Second, it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away.

Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely.

Meanwhile, back in the Main Stream Media, also known as the Wall Street and K Street propaganda factory, CNBC has tired to rosy up Dr. Doom’s forecasts to enable its masters arbitrage profits. Roubini made it clear that his views on the economy have remained unchanged despite the attempts to make it look otherwise.

Nouriel Roubini, the economist whose dire forecasts earned him the nickname “Doctor Doom,” said after markets closed Thursday that earlier reports claiming he sees an end to the recession this year were “taken out of context.”

“It has been widely reported today that I have stated that the recession will be over ‘this year’ and that I have ‘improved’ my economic outlook,” Roubini said in a prepared statement. “Despite those reports … my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context.”

Several business news outlets, picking up on a report initially from Reuters, earlier Thursday cited Roubini as saying that the worst of the economic financial crisis may be over.

The New York University professor was quoted by Reuters as saying that the economy would emerge from the recession toward the end of 2009.

Reports of his comments helped trigger a late rally in the stock market.

Did you read that bit about triggering a late rally in the stock market? Pity the poor suckers that believed CNBC and of course, watch the deposits grow of the folks that placed the offsetting market transactions. And, let’s see, which market insiders would probably know that was BS? I don’t think you have to be Ms. Marple or an SEC investigator to figure that one out. It was just a simple mistake, wasn’t it?

Factors Explaining Future Federal Spending on Medicare, Medicaid, and Social Security (Percentage of GDP)
Factors Explaining Future Federal Spending on Medicare, Medicaid, and Social Security (Percentage of GDP)

Another thing that really has sugared my cookies is this report coming out of the Congressional Budget Office (CBO) one of the few bastions of economic thought in the beltway that tries to look out for the real constituents of Washington D.C.. The Director of the CBO,Doug Elmendorf, had this to say to a Senate Committee followed by a post to his blog.

The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.

There’s also his bottom line.

Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy.

Okay, am I just being a little too wonky here or are these three things perfectly clear to any one who has the audacity to be informed?

Norway, anyone?
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