Many Saw It Coming
Posted: May 19, 2012 Filed under: financial institutions, Global Financial Crisis | Tags: James Kenneth Galbraith 19 CommentsOne of the weirdest memes I’ve heard recently is that no economist or person with a finance background could have seen the global financial crisis coming. That’s quickly followed by no one knew it would be so deep and so hard to escape. Then, there’s the entire weirdness surrounding the tropes that just cutting taxes and balancing budgets will solve all the problems.
I read this Galbraith article over at Truthdig and wanted to share it because it just says all that many of us economists saw coming, see happening, and shake our heads at now. I personally expected the subprime credit markets to blow up sometime in 2005. I was watching the subprime contagion spread into the major banks by 2006. I heard from Social Workers what kinds of crap was being pushed on to their clients. You can ask my colleagues. I was vocal about it. The only people that seem flummoxed are those that were taken in by Fama and his Chicago acolytes. They are also the ones spreading the worst nastiness now. It does not surprise me that Paul Ryan is one of their groupies. They’ve been perpetually wrong on things.
I don’t have a lot of time to do a big analysis of this. I also think that Saturday is the last day you want to read it. Anyway, go read the article. It’s excellent.
The most important common ground was over the depth and severity of the financial crisis. We placed it in a different league from all other financial events since the early thirties, including the debt crises of the eighties and the Asian and Russian crises of the late nineties. One of us called it “epochal” and “history-making.” And so it has turned out. What distinguishes this crisis from the others are three facts taken together: (a) it emerges from the United States, that is, from the center, and not the periphery, of the global system; (b) it reflects the collapse of a bubble in an economy driven by repetitive bubbles; and (c) the bubble has been vectored into the financial structure in a uniquely complex and intractable way, via securitization.
Bubbles are endemic to capitalism, but in most of history they are not the major story. In the nineteenth century, agricultural price deflation was a larger problem. In the twentieth, industrialization and technology set the direction. It was only in the information technology bubble of the late nineties that financial considerations including the rise of venture capital and the influx of capital to the United States following the Asian and Russian crises—came to dominate the direction of the economy as a whole. The result was capricious and unstable—vast investments in (for instance) dark broadband, followed by a financial collapse—but it was not without redeeming social merits. The economy prospered, achieving full employment without inflation. And much of the broadband survived for later use.
The same will not be said for the sequential bubbles of the Bush years, in housing and now commodities. The housing bubble—deliberately fostered by the authorities that should have been regulating it, including Alan Greenspan and Ben Bernanke—pushed the long-standing American model of support for homeownership beyond its breaking point. It involved a vast victimization of a vulnerable population. The unraveling will have social effects extending far beyond that population, to the large class of Americans with good credit and standard mortgages, whose home values are nevertheless being wiped out. Meanwhile, abandoned houses quickly become uninhabitable, so that, unlike broadband, the capital created in the bubble is actually destroyed, to a considerable degree, in the slump.
We’re still seeing overheated securitized assets. We’re seeing more canaries in the mine again. Think JP Morgan’s big hedge. We never have the right minds in the District dealing with the problem. This has been the case for all of this century. There’s a lot of bad thing bubbling in the financial markets right now. Now is the time to bring in the people that knew better. Not the same old suspects.
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How can we get those people who did see the writing on the wall in positions to actually do some good? I mean Krugman has been shouting from his blog, (so have you, but he does have a wider audience.) How can we get the Obama admin to listen to the truth?
Thanks to the Internet — and semi free speech — there is a record of all the Economic Cassandras — plus there should now be a whole lot of “I told you so” — coming from said Cassandras.
Obama has to want to listen to the truth. And want to take action. And have the spine to take the right action. You can lead a horse to water ……
G8 lean toward Obama growth rather than Merkel austerity
Now if only Obama would really push for growth…..
The saddest part of this is that I think Obama knows what should be done but can’t get backing for it inside his own government. I remember after Clinton left office he said that being president was like being groundskeeper in a cemetery, there were a lot of people under you but no one listened and did what you said. Maybe it wasn’t a joke?
Yes, that’s true, but if he had waited on the health care bill like most of his advisers wanted him to, he might have been able to get a bigger stimulus through early in his term.
I don’t know but the stimulus passed so far ahead of health reform I doubt it would have made a difference. He almost didn’t the stimulus anyway.
He evidently pushed for growth with the new french minister … lot of good that does
Just for grins I’ll bet that since JPMC’s loss is now at about $3 billion on the bad hedge, this is only the tip of the iceberg and there are 10s of billions or more waiting to happen.
OT– but it sounds like the Occupy people who were arrested in Chicago weren’t actually doing anything much. More trumped up charges of protesters. And their lawyers haven’t even been told what the charges are yet. Will they be indefinitely detained? The lawyers say they had beer-making equipment, not molotov cocktails.
I would be really surprised if they were actual terrorists. Just the fact they have a lawyer puts them outside of 1021. I think anyway.
They’re white, so maybe they’ll get off. But they say they were targeted in Florida previously. The FBI has been hounding them.
I read the UK version of the news — not trusting the US esp. Chicago source.
Anyway the Occupy guys were targeted — and this sort of crap has been done since the beginning of despots in control (no doubt).
The aim was to make free speech impossible — and Homeland inSecurity seems to be working hard at their objective.
The lawyers also seem to be the target of this attack on the Constitution by the establisment.
The Tribune article was favorable to the protesters. I was kind of surprised.
Yes, I felt that way too BB, I put a link to it in the open thread post tonight…
Sorry, JJ. I missed it last night.
I see on memeorandum where the NAACP has passed a resolution backing gay marriage. Maybe Obama’s evolution will help a little after all?
Truman outlawed racism in the military. There was great respect in the military for the President — and he was obeyed. i know this personally because I grew up in Military housing and had neighbors of mixed races — and they were treated with no disrespect. There were no segregated housing or facilities on the Navy Air bases during the 50s & 60s were I lived. I didn’t know at the time that integration had been ordered by Truman.
I never heard racist remarks from any adults. It wasn’t until I was in high school that I learned that my father was a racist — although he was tolerant of individuals.I’m sure that in some places the CO did nothing to discourage racist behavior — but I never heard or saw any racism — sexism yes — loads of COs who were sexists pigs.
There was only once when I was in High School that I can remember that he was rude toward a friend of mine who happened to be black.(His behavior shocked the hell out of me — I can still locate the exact place I saw him acting like a jerk.) But then her mom was rude to me because I was white. Later when we were both in college we laughed about our ignorant parents. Of course the Fundie college we were going to was racist and most of my friends were former classmates from Hawaii or from Northern California.
So yes on many social issues the President can be a trend setter as can the First Lady.
And so it turns out that the whites are soon to be the minority — just like they are in Hawaii.
Romney may be the last hurrah for the white dominated racist. misogynistic religious right.
A majority minority nation has almost become my only hope for the future.