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DOW JONES     Stiglitz's new book :Freefall (Luck i m your father)

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Luck i m your father     posted : 03/03/10   08:31 pm

Mr. Stiglitz's new book, "Freefall: America, Free Markets, and the Sinking of the World Economy," expands these populist arguments further. He deconstructs the causes of the Great Recession of 2008, assesses the responses to the crisis by the Bush and Obama administrations and lays out suggestions for how America might use this "near-death experience" to address flaws in its economic system
and reconfigure itself for the 21st century - a century in which it faces daunting problems like a ballooning deficit and trade imbalance,mounting job losses in the manufacturing sector and challenges from China and other countries.

Mr. Stiglitz’s new book, “Freefall: America, Free Markets, and the Sinking of the World Economy,” expands these populist arguments further. He deconstructs the causes of the Great Recession of 2008, assesses the responses to the crisis by the Bush and Obama administrations and lays out suggestions for how America might use this “near-death experience” to address flaws in its economic system and reconfigure itself for the 21st century — a century in which it faces daunting problems like a ballooning deficit and trade imbalance, mounting job losses in the manufacturing sector and challenges from China and other countries.

A professor at Columbia University, Mr. Stiglitz uses his experience teaching to give the lay reader a lucid account of how overleveraged banks, a shoddy mortgage industry, predatory lending and unregulated trading contributed to the meltdown, and how, in his opinion, ill-conceived rescue efforts may have halted the freefall but have failed to grapple with more fundamental problems.

He is eloquent on how the American economy was sustained before the crisis by “a debt-financed consumption binge supported by a housing bubble” and impassioned in describing what he sees as the government’s failure to make substantial reforms to the economic system: though “excesses of leverage will be curbed,” he writes, “the too-big-to-fail banks will be allowed to continue much as before, over-the-counter derivatives that cost taxpayers so much will continue almost unabated, and finance executives will continue to receive outsized bonuses.” In each case, he writes, “something cosmetic will be done, but it will fall far short of what is needed.”

Before the deadly autumn of 2008, Mr. Stiglitz was one of the handful of economists who had been “expecting the U.S. economy to crash, with global consequences,” and in this book his prescience lends credibility to his trenchant analysis of the causes of the fiscal meltdown, though it also leads, at times, to an I-told-you-so sanctimoniousness about both the recession and Washington’s response.

“I suspect that if the government adopted the simple proposals of this chapter, the foreclosure problem would be a thing of the past,” he writes. “But regrettably, the Obama administration has followed the course of the Bush administration, directing most of its efforts at rescuing the banks.”

Mr. Stiglitz writes, of course, as a proud Keynesian, and his analysis of the recession of 2008 and its aftermath reflects his overall philosophy. For that matter, many of the arguments in this volume echo those he made in earlier books like “Globalization and Its Discontents,” and they underscore his beliefs about the limitations of “market fundamentalism” (“the notion that unfettered markets, all by themselves, can ensure economic prosperity and growth”) and the essential role that governments must play in regulating markets.

Indeed, Mr. Stiglitz concludes in these pages that the collapse of Lehman Brothers in September 2008 may be to market fundamentalism what “the fall of the Berlin Wall was to communism”: “The problems with the ideology were known before that date, but after it no one could really defend it. With the collapse of great banks and financial houses and the ensuing economic turmoil and chaotic attempts at rescue, the period of American triumphalism is over.”

In another chapter Mr. Stiglitz argues that “the failures in our financial system are emblematic of broader failures in our economic system, and the failures of our economic system reflect deeper problems in our society” — including growing inequities of wealth, a lack of accountability on the part of business and political leaders, and an emphasis on short-term gains as opposed to long-term benefits.

He writes that both the Bush and Obama administrations “underestimated the severity of the recession” and that the Obama stimulus “made a big difference” but “was too small” — that “too much of it (about a third) went to tax cuts, too little went to help states and localities and those that were falling through the holes in the safety nets.”

Echoing Colin L. Powell’s doctrine of overwhelming military force, Mr. Stiglitz writes that “when an economy is weak, very weak as the world economy appeared in early 2009, attack with overwhelming force.” Tackling the problem with what he sees as “insufficient ammunition,” he adds, “was a dangerous strategy, especially as it became increasingly clear that the Obama administration had underestimated the strength of the downturn, including the increase in unemployment.”

The result of the administration’s application of underwhelming force, he glumly predicts, will be a slower recovery, and “we will emerge from the crisis with a much larger legacy of debt, with a financial system that is less competitive, less efficient and more vulnerable to another crisis.”

Like the Times columnist Paul Krugman, Mr. Stiglitz reminds the reader that America was spared major financial crises in the decades following World War II, when “there were strong regulations that were effectively enforced.”

As memories of the Great Depression receded, however, deregulation became increasingly fashionable — not only under the Republican administrations of Ronald Reagan and the two Bushes, but also during the tenure of Bill Clinton. Mr. Stiglitz, a member of Mr. Clinton’s Council of Economic Advisers and later chief economist for the World Bank, frequently criticized the Treasury secretary at the time, Robert E. Rubin, and his successor Lawrence H. Summers, for their deregulatory policies; in these pages, he questions President Obama’s decision to make Mr. Summers his chief White House economic adviser and to name Timothy F. Geithner (who worked under Mr. Summers and Mr. Rubin in the Clinton administration) treasury secretary.

“Obama chose this team,” says Mr. Stiglitz, who writes with what sounds like a touch of sour grapes, “in spite of the fact that he must have known — he certainly was advised to that effect — that it would be important to have new faces at the table who had no vested interests in the past, either in the deregulatory movement that got us into the problem or in the faltering rescues that had marked 2008, from Bear Stearns through Lehman Brothers to A.I.G.”

Some of the suggestions that Mr. Stiglitz makes in these pages for reconfiguring the American economy (and American society) stray far from the realm of practical policy recommendations that actually have a chance of winning broad public support or being enacted by Congress. He writes about how a “redistribution of income” and more progressive taxation might help stabilize the economy and calls for a new global reserve system. He contrasts Bhutan’s concept of G.N.H. (“gross national happiness”) with America’s focus on G.D.P. and talks about the “moral deficit” that Americans’ “unrelenting pursuit of profits” and self-interest have created.

Such remarks not only give ammunition to conservative critics who want to dismiss Mr. Stiglitz as a European-style liberal, but they also have the unfortunate effect of diverting the reader’s attention from the many shrewd assessments that he makes in “Freefall” about the causes and consequences of the great financial meltdown of 2008.

Stephan     posted : 10/04/11   12:02 pm


Stiglitz: Of the 1%, By the 1%, and for the 1% and the Downward Spiral Into the Abyss

As we can see, the 'crisis' of the US budget impasse was averted, and the theater came to an end. Now the real work of creating a sustainable budget can begin.

The pigmen are going to be unrelenting in their attacks on the middle class and the poor. The attacks are threefold:

- resisting financial and political reform which caused the crisis in the first place. Three years after the crisis and no major player has even been indicted, the bonus system is flourishing again, and politicians are taking many millions in funds from the bankers and wealthy elite to promote their agendas.

- blaming the victims, and compelling them to take the greatest pain of the bailouts, and continuing bailouts and subsidies to the financial class through spending reallocations. The bailouts and spending on the military industrial complex are crowding out the public functions of government. There are even people trying to justify the theft of the Social Security Trust. Look, the funds are gone, we've taken them and given them to the banks! So no use crying over spilt milk, suck it up, and let's move on and take your cuts.

- shifting the impulse to reform from financial reform to 'tax reform' that further supports the monied interests. Cut taxes for the wealthiest as your primary agenda using a variety of deceptive means like promoting a consumption tax, of a flat income tax with offshore havens and loopholes, so the burden falls most heavily on those who spend the greatest percentage of their labor on subsistence, basic needs.

Listen to what Stiglitz has to say, and think about it. He is not perfect, the documentary Inside Job was not perfect, but start thinking for yourselves, and stop taking the easy route of allowing others to think for you, and mouth their slogans. They are only too willing to tell you what to think, what is real even if your eyes say no, if you let them.

Get back to the basic idea of reform, of at least bringing the banks back under control, of restoring them to some useful function that does not involve easy money and wealth without risk or production.

Try not to allow the pigmen and their piglets, who are being paid by the system in one way or the other, either directly or indirectly, and start thinking hard about what went wrong, what changed in the 1980's that took the country into such a state that it is in today, and then go from there.

Start thinking for yourself, and stop allowing crafty wordsmiths to play on your emotions, persuading you to drink their poisons with a happy smile. What they say sounds good, but their cup is full of misery for you and your children.

They are using the money system to control you. The stronger and more pervasive it gets, the more it dominates all human transactions, the more they can charge fees and rents on everything you do, in addition to the more esoteric methods of simply creating money and giving it to their friends using accounting rules and credit.

These fellows like to fool you, to say you can't do this or this will not work. You can't reform Wall Street because they will just find ways around it, so you may as well give up and let them rob you blind. In what other area of human endeavor do people fall for such nonsense? If there was some bully who made you pay them ten dollars every time you left the store would you just accept that?

If you pass a law he would just move down the block? No, you would find those among you with the means and the will to stop them no matter where they went, and to give them the kind of thrashing that might discourage them or anyone else from even thinking about doing it again. That is what has gone wrong. When a system richly rewards bad behaviour and does not punish it, even when they make a mistake and lose billions, what do you think will happen? Time for a change, time for a real reform. Time for people to stop this 'every man for himself' mentality and start thinking about the country again. But therein lies a trap, so devious it makes me shudder, because when people start talking about the national good to you, they often are a wolf in sheep's clothing.

Despair is a trap. Things are broken, and beyond repair, so we must tear down the law and be hard on the people, these sheep, so they will learn by fear and hardship. Leiden macht frei.

What they will learn is lawlessness, to lose their humanity, and to kill you. And then in your fear you reach for the big man with the iron rod and the will to use it, and there are many distorted, willful creatures who are eager to be that forceful ruler for you, to take up that rod in their pride and lust for power, and use it to knock everything down so that it is just as broken and desolate as them.

And whoever he may be, he will put 'them' down forcefully, in a widening circle of 'them,' and lead you and yours in a downward spiral into the abyss. This is the lesson of the last century in Russia, China, Germany and Italy.

One way or the other this situation will be resolved. I am very concerned about the outcome and the way in which the US will get there, and the collateral damage that may be inflicted on the rest of the world.
Lara     posted : 11/04/11   08:35 pm

Over the weekend, Nobel laureate Joseph Stiglitz called for a new global reserve currency.

The world economy needs a new global reserve currency to help prevent trade imbalances that are reflected in the national debt of the U.S., said Nobel-prize winning economist Joseph Stiglitz.

A “global system” is needed to replace the dollar as a reserve currency and help avoid a weakening of U.S. credit quality, said Stiglitz, a professor at Columbia University in New York. The dollar fell to an almost 15-month low against the euro last week, and the U.S. trade deficit widened more than forecast in January to the highest level in seven months.

“By taking off the burden of any single country, we don’t have to have trade deficits,” Stiglitz said in an interview in Bretton Woods, New Hampshire. “Things would be much worse if it were not the case that Europe was having even more of a problem, but winning a negative beauty pageant is not the way to create a strong economy.”

Many others have floated this idea and I think it’s a fascinating concept.

The issue is that there’s one currency that the central banks of the world prefer to hold and that’s U.S. dollars. That’s not much a surprise since the United States has the world’s largest economy.

There’s a debate around the idea there can only be one reserve currency at a time. The reasoning is that the reserve currency needs to unique and therefore there can be only one. I’m not sure if that’s theoretically true, but in practice it certainly has been true. The central banks of the world prefer dollars though euros play a minor role as well.

But here’s the catch about having the dollar as the world’s reserve currency—there’s an inherent conflict in what the world needs out of it and what the United States needs out of it. We’re not always on the same page. Formally, this is known as the Triffin dilemma in honor the economist Robert Triffin. In fact, the Chinese specifically blamed the Triffin dilemma for the world economy going kablamo in 2008.

In real world concerns, being the world’s reserve currency means that the normal situation for the U.S. is to run a current account deficit. (Of course, one “unnormal” scenario would be a plunging dollar.) They world let’s us finance our deficits on the keep and we waste little time in taking advantage of it.

No one has an inherent motive to change the status quo. Until a crisis comes, calling for a new global reserve currency is a futile exercise. The point of a reserve currency is that it doesn’t have to be called for—it’s immediately understood. It’s like telling visitors to Rome that they may want to check out some place called St. Peter’s.
Hi vador
Luck i m your father     posted : 07/06/12   07:22 pm

Professor Stiglitz on how companies, managers are re-distributing wealth from the bottom to the top:

"The old theory of economics was compensation was related to productivity and contributions either to the firm or society because those two were supposed to be aligned. We saw in the great recession that wasn't true. CEOs walked off with mega-bonuses when they had brought their own company, let alone the global economy, to the brink of ruin."

"[MF Global] is an example, you mentioned Citibank as another example where there is this incongruity between compensation and contribution. Over the last 30 years, the top 1%, the share of the national income they get, has doubled. The top 0.1%, their share of the national income has tripled. If it were the case that the increases to the income at the top trickled down to everyone, so everybody was better off, that would be one thing. But that's not where we are."

"The people in the middle, the median income, are today worse off, adjusted for inflation, than they were one decade and a half ago. So all the benefits of the growth have gone to the people at the top, with the majority of Americans worse off."

Ed Conard's response: "Well, you take a decade and a half ago and that was the peak of the Internet boom. Everyone wants to take that data so they can go from peak-to-trough."

Stiglitz: "Let me make this clear, if you go back to a full-time male worker, his income is lower than it was in the late 1960's. We're not talking about just one business cycle. We're talking about a half century of stagnation."

Conard: "If you look more carefully at the data, it'll show that median incomes have grown substantially if they don't adjust for household size, if they don't count the taxes, the nontaxable benefits, they don't adjust for demographics in the workforce where we've taken in about 20 million immigrants who earn below the median wage, we're put working mothers to work. I think if you really step back and look at it, employment in the U.S. has grown 40% since the mid 1980's. It's grown 15 to 20% in Europe and Japan. We've made homes for 20 million immigrants who've educated their children. Nobody else has done more for the working poor and the middle class."

Stiglitz: "We've had some successes, but let's be clear about the pattern of our growth in the period before 1980 and thereafter. The period before 1980, the national growth was higher than the period after. The period before 1980 we had shared growth - people at the bottom and [people at the top]."

"We hadn't had de-regulation. We hadn't weakened the unions. We hadn't had this unbridled CEO pay. We didn't have the excessive financialization. As Paul Volcker pointed out, all of this innovation was directed at circumventing the regulations to stabilize the economy, rather than creating value."

"The people at the top are not the people that invented the transistor, the computer, the laser -- they're the people who brought the financial products that brought the economy to the brink of ruin."

Conard: "Let's just parse the data. You have the 50's and 60's where the U.S. economy did grow rapidly, they were capitalizing on mass manufactured goods that weren't really available prior to that. In the 1970's and 1980's, the manufacturing slowed to a crawl. Productivity slowed down. Then, in the commercialization of the Internet, the U.S. alone has increased productivity. Europe and Japan are down."

"So if you don't see that innovation has become critically important to this economy, relative to the economy of the 1950's, you won't see that risk takers and innovators are really the source."

Stiglitz: "You have to mention the source of innovation. The Internet. The basic research for the Internet was done by government."

Conard: "That doesn't matter. It still has to be commercialized."

Stiglitz: "Somebody has to raise the taxes to finance the basic research, the education."

Conard: "So you get Solyndra and all of these great venture capital programs."

Stiglitz on income inequality: "That gives rise to the instability that led to the great recession. When you have that redistribution from the bottom of the top, that's been a mark of the U.S. economy in recent years, there is insufficient demand to keep the economy growing. The Fed compensated for that by creating a bubble. It was a temporary palliative."

Conrad: "I just think the data doesn't support that. Take real estate prices, they rose in Europe and in the U.S. the same. They were under a different monetary regime."

"The idea that the Fed engineered an asset bubble is silly. The real estate prices in Europe and the rest of the world grew as much as they did in the United States. I don't think you could make the argument that our monetary policy, and our subprime finance, changed prices in the U.S."

Stiglitz: "It's absolutely clear there was inadequate regulation, it led to a sub-prime bubble. The breaking of the bubble led to a major problem in the U.S. It was not the only thing, but it was a major problem."

"In the U.S., we not only have the highest level of inequality of all the industrial countries, we also have the least equality of opportunity."

"What that shows is, this isn't inevitable -- the inequality we have is, to a large extent, a result of rent-seeking monopolies, distortions in the economy. We used to talk about there being a trade-off between inequality and economic growth or efficiency. Now we realize we could have a more dynamic, efficient economy with more equality of opportunity and less inequality if we simply...The government has to be involved and it has to stop doing some of the things it is doing like the way it distorts the economy - giving a preference to derivatives, making student loans non-dischargeable, inadequate supervision..."

Conrad's final rebuttal: "Sure, information technology has disproportionately made the most talented people more productive in the economy. Their wages would have gone down if that's all that happened, if everything had been held constant. But there's been an enormous window of opportunity, unrealized investment opportunities, where risk-taking is needed to capitalize on those opportunities. 13 people can create Instagram and $1 billion of value in two years."

Stiglitz: "And that's why our economy is growing slower now."

Conrad: "Our economy is growing faster than Europe and Japan."

Stiglitz: "Most Americans today are worse off."

Conrad: "They're equal to, if not better, than Germany."
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