[Peace-discuss] Wayne calls out Krugman

[C. G. Estabrook]

[Wayne-- Wouldn't you agree that this (from today's column, "Money for Nothing" 
[no reference to chicks]) is pretty good? He even exposes the unbelievable 
Bernanke. --CGE]


...there’s no longer any reason to believe that the wizards of Wall Street 
actually contribute anything positive to society, let alone enough to justify 
those humongous paychecks.

Remember that the gilded Wall Street of 2007 was a fairly new phenomenon. From 
the 1930s until around 1980 banking was a staid, rather boring business that 
paid no better, on average, than other industries, yet kept the economy’s wheels 
turning.

So why did some bankers suddenly begin making vast fortunes? It was, we were 
told, a reward for their creativity — for financial innovation. At this point, 
however, it’s hard to think of any major recent financial innovations that 
actually aided society, as opposed to being new, improved ways to blow bubbles, 
evade regulations and implement de facto Ponzi schemes.

Consider a recent speech by Ben Bernanke, the Federal Reserve chairman, in which 
he tried to defend financial innovation. His examples of “good” financial 
innovations were (1) credit cards — not exactly a new idea; (2) overdraft 
protection; and (3) subprime mortgages. (I am not making this up.) These were 
the things for which bankers got paid the big bucks?

Still, you might argue that we have a free-market economy, and it’s up to the 
private sector to decide how much its employees are worth. But this brings me to 
my second point: Wall Street is no longer, in any real sense, part of the 
private sector. It’s a ward of the state, every bit as dependent on government 
aid as recipients of Temporary Assistance for Needy Families, a k a “welfare.”

I’m not just talking about the $600 billion or so already committed under the 
TARP. There are also the huge credit lines extended by the Federal Reserve; 
large-scale lending by Federal Home Loan Banks; the taxpayer-financed payoffs of 
A.I.G. contracts; the vast expansion of F.D.I.C. guarantees; and, more broadly, 
the implicit backing provided to every financial firm considered too big, or too 
strategic, to fail.

One can argue that it’s necessary to rescue Wall Street to protect the economy 
as a whole — and in fact I agree. But given all that taxpayer money on the line, 
financial firms should be acting like public utilities, not returning to the 
practices and paychecks of 2007.

Furthermore, paying vast sums to wheeler-dealers isn’t just outrageous; it’s 
dangerous. Why, after all, did bankers take such huge risks? Because success — 
or even the temporary appearance of success — offered such gigantic rewards: 
even executives who blew up their companies could and did walk away with 
hundreds of millions. Now we’re seeing similar rewards offered to people who can 
play their risky games with federal backing.

So what’s going on here? Why are paychecks heading for the stratosphere again? 
Claims that firms have to pay these salaries to retain their best people aren’t 
plausible: with employment in the financial sector plunging, where are those 
people going to go?

No, the real reason financial firms are paying big again is simply because they 
can. They’re making money again (although not as much as they claim), and why 
not? After all, they can borrow cheaply, thanks to all those federal guarantees, 
and lend at much higher rates. So it’s eat, drink and be merry, for tomorrow you 
may be regulated.

Or maybe not. There’s a palpable sense in the financial press that the storm has 
passed: stocks are up, the economy’s nose-dive may be leveling off, and the 
Obama administration will probably let the bankers off with nothing more than a 
few stern speeches. Rightly or wrongly, the bankers seem to believe that a 
return to business as usual is just around the corner.

We can only hope that our leaders prove them wrong, and carry through with real 
reform. In 2008, overpaid bankers taking big risks with other people’s money 
brought the world economy to its knees. The last thing we need is to give them a 
chance to do it all over again.

http://www.nytimes.com/2009/04/27/opinion/27krugman.html?_r=2&em


E. Wayne Johnson wrote:
> The only possible success I can see is choose option 1,
> otherwise we will reap corruption and the so-called reverse midas touch.
> 
> What we are experiencing now is plunder.
> 
> 
> Bob Illyes wrote:
>> Krugman is one of the people to the Left who is tearing his hair out 
>> about the same Bush/Obama response to large bank failure that the 
>> Right is tearing its hair out over.
>>
>> There are only two rational responses to the failure of the large banks:
>>
>> 1) Let them fail or
>> 2) Put them through the usual reorganization imposed on smaller banks 
>> when they become insolvent.
>>
>> We are so far doing neither, which is mad.
>>
>> Krugman is partial to the latter solution. He's very uneasy about the 
>> large sums of pretty much no-strings money being injected into large 
>> banks.