Yeah, a very nice piece that. We're so doomed.

I question how much of their action/lack of action is sincere, especially since none of them will be in a position to actually do anything about it for some time.

2- I guess being a US Senator isn't what it used to be.

It's not wrong to blame the financial crisis on the war. At least not according to Joseph Stiglitz, who contends that the Bushies have been massively lowballing the real costs from the start (shocking!) while trying to finance them entirely through borrowing, thereby creating the housing bubble. Be interesting to see Krugman address that argument directly.

Geez, ogged, too substantive, can we not stay on topic? I expected the article in the Style section titled, "You Say Recession, I Say 'Reservations!' ", about the effect on the top end economy in New York. But, alas, Waits for prime-time tables at Nobu are still four weeks, said Drew Nieporent. And for real estate, it turns out people from 1st world places like Europe are keeping the prices up. However, there was the heartwarming story of a financier winning his bid for a $4 million dollar condo because his rival for the place turned out to be a Bear-Stearns exec. Social mobility in action!

(Having said that, obviously there wouldn't have been a shadow banking system to flood the American economy with cheap credit if Krugman wasn't absolutely right about the need for financial reform. So Obama does have some questions to answer.)

Good, but "ominous omen"?

Look clearly the war is no more than one piece (a big one). But it certainly is the poster child for their fiscal recklessness in general and the Dems should be all over that part. (Not to mention of course the sickening amorality of the whole thing, but that is not such a proven vote-getter. ...sigh...)

Look clearly the war is no more than one piece (a big one).

The central one, even.

I'll play the Bob role here and say that Krugman might be an optimist. Lots of people are floating "Probably the worst since WWII". Krugman says "possibly". Some say "Probably worse than that".

Contrary to popular opinion, Krugman is a centrist, not a leftist. He looks leftish because the media is so wretchedly bad, Republican, and cowardly.

10: Frighteningly enough, I'm in full agreement with Emerson (and notionally with Bob) on this one. If you see comity between me and B. on a gender thread today, run for the hills, for the apocalypse is surely nigh.

Shorter Krugman: Draft William Jennings Bryan in '08!

Seriously, just what does he expect the candidates to do at this stage in the game? Sure, you could come up with a set of regulatory measures to take into account the new realities of the financial world, but take a look at when the major New Deal regulatory legislation was passed: 1932, 1934 and 1940. Any serious push for new regulation is going to have a long, grueling hall through committee and Congress before it has a hope of getting passed. And any non-serious push for new regulation is exactly what the big money boys would like to see happen, so they could easily quash it. If Krugman really wants to help, he should probably sign on a couple of US Representatives, and start drafting the actual bills, then use his column as a bully pulpit to push the ideas, instead of being such a nattering nabob of negativity. Jeez.

Prediction: if there is a third-party run for President this year, it will not be a mushy pseudo-centrist like Bloomberg, but a firebreathing populist running on a platform of

1. Hardcore anti-immigration.
2. Ending the war (because it's another form of foreign aid). "Either we get serious about winning this war, or we end it now. We've turned the Army into the Middle East office of the Dept. of Health and Human Services. I've got a message for the Iraqis: 'Your free ride is over.'"
3. Protectionism vis-a-vis China and Mexico
4. (And here comes the innovation relative to conventional wisdom:) Defaulting on debt/interest payments to China. "We're sending XX billions ever month to the Butchers of Beijing so that they can build more factories that put American workers out of a job. I say it's time to stop."

As frightening as such a campaign would be to bourgie liberals like myself, I would relish the inevitable schism in the VRWC between the loyal retainers like Hewitt, Hannity, and the WSJ editorial page and the jannissary corps of talk radio hosts and right-wing bloggers.

I haven't been reading Krugman much lately. Has he said anything at all about the nonstop "Obama's too black" stuff coming from Clinton, or has he more or less ignored that?

No, Stras, he was writing about something called "economics" today. We'll clue you when he mentions Obama. Go back to sleep.

Doesn't 13 more or less describe Ron Paul? Sorta?

Awesome how he refers to Barack and that republican guy as "Mr. Obama" and "Mr. McCain", respectively, whereas Hillary Clinton get the old friend treatment.

16: Not #4, which would violate a contrac and approach "intervention".

No, Stras, he was writing about something called "economics" today.

Krugman has spent the past eight years writing about the following non-economics related issues: the Iraq war, illegal warrantless surveillance, torture and indefinite detention, the exploitation of racism by the Republican party, the disenfranchisement of voters by Republican policy, lack of transparency in the Bush administration, and Scooter Libby and Valerie Plame, just to name a few. He stopped pretending to be the Times's house economist a long time ago. So it's perfectly fair to ask whether or not Paul Krugman has bothered to comment, in either his column or his blog, on a story that dominated campaign coverage over the course of the last week or so, especially given that this story has been pushed by his favored candidate, at the expense of, among other things, attention to the Growing Economic Crisis.

Go back to sleep.

Seriously, Emerson, grow the fuck up.

You don't know how annoying you are, Stras. We do not share your one-track Obama interest in Krugman.

You don't know how annoying you are, Stras

You're right, I really don't. Given that I annoy you so much, John, you could always stop reading and responding to my comments.

Oy vey. As per usual, Krugman's political analysis is silly, whatever the quality of his economic analysis.

1.Gee, why has the topic of technical financial reform not at the center of the campaign? Could it be because a) it's an issue hard to make comprehensible, b) no one wants to get out in front/"own" an issue where it's not clear what is going to happen? As a Democratic candidate, you would need to be a lunatic to do much more than say "this is more evidence of the failure of the Bush administration, I will do better." I expect, since neither Democratic candidate is a lunatic, this explains their actions. It's not because HRC doesn't get the concept of the Bear Sterns bail out.
2. Also good to know (and not surprising) that in Krugman's estimation, it is better for a campaign to put out what he believes to be wrong information -- "failure of mortgage-backed securities caused by the Iraq war" -- than no information (the McCain campaign)
3. Does Krugman believe "we are going to regulate wall street like a bank" is the message to send to the market right now? Puzzling.
4. "One of McCains advisors is..." Krugman plays card twice, and it's hilarious. It's actually been a topic of some humor among people who follow these things the degree to which the people who count as McCain "advisors" represent basically every right-of-center position on the economy. Douglas Holt-Eakin is also a McCain advisor (and believed by most to be a more central one). He's no Kevin Hassett.

As a Democratic candidate, you would need to be a lunatic to do much more than say "this is more evidence of the failure of the Bush administration, I will do better."

I think Krugman's point is that HRC and BHO are not even really doing that much. "But at least so far, neither Democrat has made a clear commitment to financial reform."

It's a question of positioning. GWB made a big rhetorical deal about the alleged decline in military readiness in 1999/2000 without saying much about what he would do about it. The idea is to put a stake in the ground that says "I own this issue" and "Anything bad that happens in the area is presumptively the fault of my opponent because I have already found fault with his policies."

22.1, at least, seems pretty obviously correct to me. Neither Democrat wants to get bogged down in anything as stultifying and opaque as a long debate over financial market reform, if for no other reason than a good chunk of the relevant deregulation leading to the current disaster happened under a Democratic administration anyway.

As it stands, Democrats are better trusted with economics, and the collapse taking place on Bush's watch makes all of this redound to their party's benefit, regardless of specific plans each candidate has to address the financial crisis. We'll probably see some kind of plan from Obama and Clinton, if for no other reason than the fact that the primary's going to keep dragging on and they'll get questions on this as the crisis worsens and the press gets bored of Obama's Muslim pastor, but neither of them are going to give it the kind of focus that, say, health care or Iraq have had in their campaigns.

Maybe one of the main-page posters could start a separate blog on which Stras and Emerson could argue to their hearts' content? It could be just as interminable as (and slightly more boring than) the old Reading Group blog.

I fail to see that mccain's having multiple advisers with incompatible points of view can be a defense against charges of poor campaigning on economic issues. are we supposed to deduce which ones he's actually going to rely on all on our own? pick the least crazy/most congenial at any moment ones?

25: I've tried to make this clear before, but I'm really not interested in arguing with Emerson at all, and don't even have anything against him, and find his constant hostility towards me amusing to baffling.

Neither Democrat wants to get bogged down in anything as stultifying and opaque as a long debate over financial market reform

Certainly not. But they could put down some rhetorical markers with popular, smallbore proposals by (say) attacking abusive credit card fees or calling for restrictions on the marketing of certain instruments. Granted, those proposals have about as much to do with solving the CDO-crisis as GWB's personal accounts proposal had to do with Social Security solvency, but hey, a cynic would say that that's a feature, not a bug.

22.1 - I agree with that - from a candidate's point of view, there's no point in doing the right thing when there's an election at stake.

22.2 - Maybe my reading comprehension isn't what it ought to be, but this seems entirely separated from reality. To the extent that Krugman addresses this issue, he says the reverse. Specifically, the matter you put in quotes is, as best as I can reckon, your own invention, and not something Krugman says at all.

22.3 - Krugman comes up foursquare in favor of the bailout of Bear Stearns and the other investment banks. (Emerson is right: Krugman is no liberal.) Seems ludicrous not to contemplate how we can keep this from happening next time.

22.4 - Who, among McCain's advisors, had taken a responsible stand on the regulation of the financial industry? That's Krugman's topic today.

I've tried to make this clear before, but I'm really not interested in arguing with Emerson at all...

And yet you keep responding to him when he says your name. Is it (really) that easy to troll you?

I'm not enough of a regular around here to enforce some king of community-based-norm-of-conduct, even informally. But it's clear, even to an occasional reader, that you (and Emerson) have already staked out your respective positions. So why do you keep arguing about the same things in the same ways, over and over again?

smallbore proposals by (say) attacking abusive credit card fees

One of the least satisfying moments of the Democratic primary debates was when Clinton tried to attack Obama on his vote against capping credit card fees (or was it interest?) at some hideous figure. Obama turned her "yes" vote against her as agreeing to an excessive demand from the credit industry. The whole exchange, however, was likely totally opaque to most voters---and I suspect that the campaigns' internal number-crunchers told them so, since the issue hasn't come up again since.

In other words, I agree with baa above.

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If I were John McCain, I would totally be saber-rattling about Tibet right now.

1. You'd rally your neo-con supporters who were well down the path of making China into the new USSR before Islamofascism volunteered for the role
2. You'd sweeten the pot for the armaments industry
3. You'd draw a distinction between yourself and Bush, who would be compelled to make conciliatory noises toward Beijing
4. You might convince a few of the Hollywood liberal types that, hey, this is the McCain I remember liking once
5. You would sow discord among the Dems, as BHO took a responsibly moderate position and HRC opportunistically helped beat the war drums* (a two-fer for her; hurts BHO with a segment of his coastal liberal supporters and underscores the "I'm CinC material, like McCain" theme).
6. You'd be laying the groundwork for a grand pivot, should you win office, away from endless hot war in Iraq and toward endless Cold War with China.

The only downside that I see is that it would reinforce the incipient "McCain is trigger happy" meme, but I don't think that meme is getting any traction in the MSM anyway, and for those who care about such things, the information is already factored into the share price.

* Sample rhetoric: "John McCain may talk tough about China and Tibet, but when I was in the White House, we dropped bombs on sovereign Chinese territory."

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Krugman criticizes Obama for trying to blame the war for some of our economic problems? WTF? Krugman has fallen considerably in my estimation during the primaries.

arthegall is being an asshat, but can we please spare the blog a back-and-forth between the two of us on whether or not this is true?

But it's clear, even to an occasional reader, that you (and Emerson) have already staked out your respective positions.

No, it's really not clear. As in, it's not even clear to me. What usually happens is, I say something, and then Emerson explodes randomly at me for saying it. I really have no idea what's going to set him off on any given day; I can't even identify the set of positions I have which differ from Emerson's positions.

So why do you keep arguing about the same things in the same ways, over and over again?

We don't; that's just it. It's not that I say X and then Emerson says Not-X and then we go back and forth; it's that I say X and then Emerson says "Fuck you, Stras." Now, I've nothing really emotionally invested in Emerson either way, and it's not that "Fuck you, Stras" hurts my feelings or anything, but I've decided that I'm not going to let him chase me off the blog just because he decided a while ago he personally doesn't like me.

I think it's certainly possible to campaign on economic solutions -- not easy, but possible -- but you need to know the parameters of the problem, first. "I'm going to stop the bleeding, somehow or other, after probably asking China for a bunch of big favors and almost certainly after things get a lot worse" is less than compelling.

But then, I find stras delightful and insouicant.

The whole exchange, however, was likely totally opaque to most voters---and I suspect that the campaigns' internal number-crunchers told them so, since the issue hasn't come up again since.

Blanket the airwaves with 30-second spots, and no way is this topic opaque. It's a guaranteed winner in the general. Except that I don't think any of the candidates (apart from Edwards) really cares enough about it to risk the ire of the financial services industry.

My general sense is that it's a mistake to think of Krugman columns as standing on their own. I assume he is setting up the frame for a further discussion of what needs to be done by way of regulation.

(And, boy, do I have a hard time believing that Holtz-Eakin is the one with McCain's ear. This disbelief is based on no real knowledge of economics, McCain, or Holtz-Eakin.)

I objected to Stras's #14, which was an attempt to steer an interesting thread toward Stras's anti-Krugman vendetta.

I started to tell Stras and McManus to fuck themselves when I thought that their pro- / anti- Obama obsessions were getting ridiculous. I still feel that.

Between the two, McManus may be crazier, but he's also far likelier to bring something interesting to the table.

My #15 could have been less sarcastic, but #14 was annoying and off topic, and characteristically so.

Krugman's bias regarding Obama has been transparent and ridiculous; for him to find fault with Obama's tying together the war and the economy is just exhibit 57.

I've generally regarded Stras and Emerson as both generally intelligent commenters, and McManus as a raving lunatic. If Emerson wants to continue to insist that McManus is bringing something to the table, or that Stras and McManus are two sides of the same coin, then perhaps we have one intelligent commenter, one raving lunatic, and one intelligent lunatic.

10 and 11: Marty Feldstein who is considerably to the right of Krugman has said that he thinks that this might be teh worst recession since WWII.

I'm told that the early 80's recession was really bad, but it wasn't that bad in Massachusetts. I remember my Dad saying during the "mild" recession of the early 90's that he'd take the 81 recession over that any day. Of course, the housing crisis in Mass is pretty bad. Lots of foreclosures.

The Conservative columnist Matthew Parris was writing in the Times of London in his column Britain on Uncertain Seas about how surreal it was that none of the politicians over there were talking about the credit crisis.

I started to tell Stras and McManus to fuck themselves when I thought that their pro- / anti- Obama obsessions were getting ridiculous.

I think Emerson actually has me confused with someone else, which might explain a lot.

Krugman's bias regarding Obama has been transparent and ridiculous; for him to find fault with Obama's tying together the war and the economy is just exhibit 57.

Krugman is making a factual claim regarding tying the war to this particular aspect of the economy. He doesn't denounce Obama - he just says Obama is factually wrong on a narrow point - and goes out of his way to note the particular ways that Obama is right:

The war is indeed a grotesque waste of resources, which will place huge long-run burdens on the American public.

And:

Obama, whose campaign has understandably made a point of contrasting his early opposition to the Iraq war with Hillary Clinton's initial support,

As best as I can reckon, the worst thing he says about Obama is that he finds Obama's stance "somewhat disappointing."

If you think Obama is factually right regarding the specific matter where Krugman finds fault, then I'd like to hear your defense. Otherwise, what's the problem?

: Marty Feldstein who is considerably to the right of Krugman has said that he thinks that this might be teh worst recession since WWII.

I wish I knew to what period that is supposed to refer. If it's '82, gawd, that's going to suck. My understanding is that the difference between the early eighties recession and the early nineties recession is that the earlier one was much worse but the later one hit white collar folks much more.

I'm told that the early 80's recession was really bad, but it wasn't that bad in Massachusetts. I remember my Dad saying during the "mild" recession of the early 90's that he'd take the 81 recession over that any day.

BG, if I didn't know your background already, I could surmise it from this comment. The 1981-82 recession decimated rustbelt manufacturing and left New England (which was mostly de-industrialized by the 1970s) relatively unscathed. The 1981 recessions was a deliberate one, engineered by the Fed to wring the inflation out of the economy. The instrument was high interest rates, which were a boon to the bondholding class even as they strangled investment and employment. High interest rates also drove up the dollar to record levels, making the Good Life more affordable to the coastal elite even as it devastated export-oriented industry.

The 1991 recession, by contrast, was accidental (a failed attempt at a "soft landing") and hit the service economy hard. The New England economy actually suffered a regional downturn that began several years before the nation as a whole was officially in recession. Also, the 1991 recession was more or less contemporary with (though not necessarily connected in any causal way) with the wave of downsizing and re-engineering that saw most Fortune 500 companies eliminate or outsource large numbers of headquarters employees in very high profile mass headcount reductions.

That your people in your father's milieu perceived the more recent recession as worse does not surprise me in the least. (Not a personal criticism; just an observation.)

Back to Krugman's column: my read of the candidates and their respective focuses has been that McCain doesn't particularly care about the economy, and that neither Obama nor Clinton can afford to spend much time on the financial crisis in particular at this point. Clinton started hitting back at Obama by attacking his ability to meet "the commander-in-chief threshold," which means foreign policy, which has dragged the primary into a long debate over the candidate's respective qualifications and experience, over judgments on Iraq, into meta-arguments about Clinton boosting John McCain over Obama, etc. The rest of the campaign has been all about race-baiting, often eagerly pushed by the Clinton camp or its surrogates. Between the race talk and the 3 AM stuff, the oxygen has been entirely sucked out of the room; there's been no time for anyone to talk about regulating Wall Street.

Decisions regarding financial regulation, like those regarding foreign policy, seem to take place behind closed doors and away from public debate.

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I'm listening to an American music channel on line, and the announcer just said that some venue in NYC was hosting "A recession that's open to the public" on Thursday.

My advice: don't go, you'll get your private invitation soon enough.
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47: I'm not sure about that. It seems to me that there is much more public debate about regulation, and a longer time frame involved. You're not going to see Congress vote for a blank-check "Authorization of Financial Regulation."

Or to continue from 46, my biggest issue is the environment and global warming, and in my perfect world everyone would be beating Clinton senseless over her pandering to the coal industry last week. But I understand how politics works, and the mere survival of human civilization isn't going to break into a news cycle crowded with Scary Black Men.

my biggest issue is the environment and global warming

Don't be so sure: I suspect you've got bigger issues than that.

43: I was making a general comment on Krugman, who writes about both economic and political issues (in fact, mainly the latter). You know, things like whether or not a leading Democratic candidate is using Republican frames to discuss issues. But that is tangential to the main topic of this post.

45: KR, It's not quite what you think. My father ran an employment business, temporary but mostly permanent placements. My Dad's not a natural businessman, but during the 80's anyone--even incompetent people could make a very good living in that business. In the early 90's excellent businessmen were losing their shirts. My father went out of business.

He also got sued by an employee around that time, and we wound up losing our house which had dropped in value when we had to sell it.

53: Consider me chastised. You didn't owe me any explanation, but I appreciate the one you offered. I'll think twice before making wild extrapolations from someone's status markers next time.

Between the race talk and the 3 AM stuff, the oxygen has been entirely sucked out of the room; there's been no time for anyone to talk about regulating Wall Street.

Eh. Obama can talk about what he wants to. The timing of the Wright blow-up coincided unfortunately with the Bear Stearns thing - BHO definitely had to deal with the former before the latter - but the economy has been heading for the shitter since the fall, and has been approaching free-fall for a month. Over the course of the last month, BHO has certainly had the ability to talk about the economy and regulating Wall Street if it were his priority.

His line tying it to the war would be a lot more convincing if he'd taken it up in the fall (he may have mentioned it, but I mean as a major theme). As it is, it's somewhere between inapt and inaccurate.

[I take it as a given that the Senator from NY will not be taking on Wall St aggressively]

Krugman criticizes Obama for trying to blame the war for some of our economic problems? WTF? Krugman has fallen considerably in my estimation during the primaries.

Maybe this is because the war has not a fucking thing to do with cascading CDOs and the other reasons the coming recession will be awful?

Look, the massive debt associated with the war is not helpful to the economy. The massive gov't spending associated with the war is helpful to the economy. Call it a wash in the moment, with terrible economic consequences in the future. None of that has a lick to do with why banks refuse to lend each other money right now. And that's the problem right now - that is what the candidates are failing to address.

Is it that you don't understand that, or that you're viewing what PK has to say exclusively in terms of "What's he saying about Obama?"?

I'm not defending the connection between the war and the economy as a matter of fact, just as politics. I think it is a good line to push (for anti-war reasons as much as anything else).

I'm also not going to defend Obama on economic populist grounds.

Krugman wrote a book in the 1990s called Peddling Prosperity about how everyone wants politicians to make the economy good and the dirty secret is that politicians can't do jack about it (more or less). In the book he chastised both left-wing and right-wing "policy entrepreneurs."

This is also the Krugman who looked at the WTO protests and saw a bunch of hippies who didn't want the third world to become richer.

58: To be fair, he has since been publicly revising his opinion of economy-politics relationship.

Is it that you don't understand that, or that you're viewing what PK has to say exclusively in terms of "What's he saying about Obama?"?

Wow, Pseudonymous Kid sure gets around.

in my perfect world everyone would be beating Clinton senseless over her pandering to the coal industry last week.

It was sickening, but of course it merely brought her up to where BHO started the campaign - as an Illinoisian, he's been plenty pro-coal, pro-liquification, etc. I'm happy to ignore it as hometown pandering, but he doesn't actually hold any high ground on the issue.

WVa is perhaps the perfect model of how poorly environmentalists cope with economic issues. Coal companies are a disaster, they employ fewer people every uear, most WVa-ans mistrust them at best, and hate their environmental impact, yet no one has figured out how to square the circle and bad-mouth coal companies without scaring the locals about the economy.

I kept being confused as to why HRC and BHO were spending time in WVa. I finally realized that, while the Rs had their caucus there months ago, the Ds have yet to vote. Always funny when it splits.

Eh. Obama can talk about what he wants to.

To what extent? The last few weeks have been pretty shitty for the Obama camp; he's been on defense the entire time. If he'd had the nomination already wrapped up, then yeah, he could choose what he wanted to talk about, but he's still got an actual opponent to deal with, and that opponent has been keeping the conversation focused on "commander-in-chiefiness" and race.

I suspect you've got bigger issues than that.

None that nobody else here hasn't got.

59: yeah I should get around to reading his most recent book or two. The columns aren't substantial enough to elaborate on what is a fundamental shift in perspective.

Of course there's also substantial stuff like this.

57: Then it's a bad critique of Krugman. It's certainly true that he talks about non-economics politics, but in an explicitly economics column, there's no reasonable expectation that he will judge pols for the effectiveness, rather than the relevance, of their rhetoric.

The column was about whether any of the 3 candidates is saying what [PK thinks] needs to be said about the economy. PK doesn't think so. Bitching that he should pat Obama on the back for saying something else that may be good politics is just ridiculous.

Krugman's general political critique here - as baa and others point out - is quite tone deaf. There's no particular urgency to discuss the current economic emergency while events themselves are so fluid. We may yet luck out and merely have a nasty recession; but whatever happens, there will be plenty of time between now and November to talk about it.

Look, the massive debt associated with the war is not helpful to the economy. The massive gov't spending associated with the war is helpful to the economy. Call it a wash in the moment

Anyone else bothered by this assertion? "The economy" isn't really a single, uniform block. What parts of the economy - or specifically, what people living inside it - are being hurt by the increased debt? What people are being helped by that massive government spending? I haven't seen that many economists try to tease that apart, and the tendency to treat "the economy" in the aggregate isn't helpful here.

62: Other than the Wright thing, I kind of blame BHO for being on the defensive - he needs to be able to seize initiative. The 3 AM ad wasn't such a big deal that he couldn't have dealt with it and pivoted to a different topic. Specifically, the most important topic of the day - it's not as if voters would think he was being irrelevant if he came out all William Jennings Bryant. People are starving for it.

That said, I heard the first radio ad of the campaign on Saturday, and it was Obama saying that he doesn't take $$ from Wall Street, and so he'll be able to take them on. It's a start. I hope to hell he goes crazy on it.

22.2, it is Obama who has blamed the Iraq War for the housing bubble, not McCain, and it's far from "obviously wrong" as the link in 4 points out. (This also to politicalfootball's 43.)

34 and 46 make perfect sense to me.

Isn't part of Krugman's point precisely that the candidates can't talk about it, because they're bought? Calling that politically tone deaf seems like a category mistake.

Krugman's bias regarding Obama has been transparent and ridiculous; for him to find fault with Obama's tying together the war and the economy is just exhibit 57.

I actually agree with this, on second reading; criticizing Obama's saying the war has something to do with the shitty economy just before saying, almost as an afterthought, that though she hasn't "made any comparably problematic economic claims" Clinton has been "disappointingly quiet" is sort of like damning with faint praise, only in reverse. I mean, saying the war's a problem for the economy is a problematic economic claim? Just after Krugman allows that the war is a gross waste of resources? I found the blanket claim that wartime spending is an economic booster unconvincing; okay, maybe that's generally true, but has it been true for this war, and by the way, what the hell do we mean by "economic boost" when we've all been running ourselves into debt?

That said, all I know about the two candidates' relative positions on economic matters is that Clinton's got a more specific response to foreclosures on her website, and this is *all* she has about the economy (or had, when I last looked). Obama's got a much longer, broader, and more general statement about a number of things, including (which is important to me) stronger differentiation, tax-wise, between small businesses and corporations. Clinton's statement looked to me, when I was still trying to decide who to vote for, bothersomely reactionary--ooh, here's a pocketbook issue, I'll throw the voters some pork--whereas Obama's looked to me like he at least thinks about the big picture. Of course, depending on one's way of thinking about these things, that could easily be reversed: Clinton's paying attention to specifics, Obama's being vague and general.

In any case. I do think that soundbites about things like "the financial lobby in Washington" would be easy enough to get across. Everyone's pissed off about ATM fees and $30 overdraft charges, and it's really not too hard to make the case that this sort of thing--and the mortgage crisis, and remember the bankruptcy bill?--is legal only because the financial industry has a lot more power in Washington than consumers.

Isn't part of Krugman's point precisely that the candidates can't talk about it, because they're bought? Calling that politically tone deaf seems like a category mistake.

No, because "tone deaf" suggests another explanation for the candidates' unwillingness to talk about it.

There's no particular urgency to discuss the current economic emergency while events themselves are so fluid.

This strikes me as correct. What would we have them say beyond vague assurances (or 'treat the markets like banks') ?

69: I'm puzzled by Stiglitz's connection of cheap money to the Iraq war. (While Stiglitz's and Krugman's connection of cheap money to the current crisis makes perfect sense to me.)

The linked article merely asserts that connection; it doesn't explain it. I don't see how Iraq would motivate Greenspan to cut rates. Specifically, I can't work out the cause-and-effect here at all:

The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit.

68: I agree that Obama needs more populist rhetoric, but his lack of foreign policy experience is an obvious political weakness that he was going to have to deal with sooner or later, and the media pounced on the 3 AM ad in a way that gave it a lot of traction. Pouring everything into pocketbook talk and hoping everyone forgets about terror and the war has been the standard Democratic tactic for the last couple election cycles, and it never works. The good thing about Obama is that he realizes this enough to hit back on war and foreign policy in a way that Kerry and the 2002 Dems never did; the bad news is that he's taking hits from all sides (Clinton, McCain, and the media). I really don't see how anyone could've expected him to realistically shoehorn significant talk of financial reform into the last few weeks.

For that matter, I don't see how anyone could've expected Clinton to do so, either. Her only chance of winning the nomination is to do what she's doing now: to attack Obama on race and experience. Financial talk doesn't help her, either.

Wartime spending is an economic boost in the short term, but I'm not sure 5-7 years gets to count as short term.

Aaand never mind; while I was writing 56 pretty much dealt with the entire first part of my comment.

67: FWIW, I don't put much behind that assertion - my point was merely that the war's direct economic effects in the US (the gov't borrowing from China and the Saudis to pay Southerners and Californians to build weapons) are neither the cause nor the salvation of our current woes, which are finance-based.

For instance: with the weak dollar, we're poised to regain some export industry ground. But no one on Wall Street wants to lend out money, because everyone's got a piece of Big Shitpile.

The war is certainly an impediment to useful gov't intervention, but much less so than GWB is - we could be running a trillion dollar surplus, and GWB would veto anything other than tax cuts for the top 5%.

74: I don't see what's all that puzzling about the connection. If Stiglitz is right, cheap credit was a means (the only means) of keeping consumer spending up in face of a financial drain which would otherwise have substantially dampened or even crippled it. The motivation for flooding the market with cheap credit would seem pretty obvious.

Stiglitz is contending that this was necessary because the costs of the war have been largely shuffled out of sight. This article is of course made in more detail in the book.

"This article" s/b "This argument"

Remember their "stimulus packages"? Those sort of went into the void. Of course, a stimulus package is short term by nature & financial sector reform isn't...

This may be a symptom of the extent to which: (1) this crisis arose quickly and until it was a crisis no one much cared about reform of financial markets (2) both democratic campaigns have been neglecting their policy shops as they rush frantically around the country.

I'd like to inject a small note of tempered optimism into this discussion.

Krugman invidiously compares the current crop of candidates to the magnificent edifice of financial regulation that we got out of the New Deal. But the fact is that Roosevelt did not campaign on banking regulation, he did not act on it in his vaunted 100 Days, and he actually opposed the creation of deposit insurance (on the grounds that it would reward bankers for their imprudent lending) until it became clear that it would pass with overwhelming Congressional support.

So if even PK's model Presidential candidate gave no sign that he would embrace the kind of financial regulation he seeks, why expect any different from today's candidates? The more fundamental question PK poses (whether the Dem candidates are so deeply in hock to Wall Street that they are tempermentally averse to regulation) still stands, and I'm not sure where I come down on that. I guess I assume the worst of the junior Senator from New York and hope for the best with the junior Senator from Illinois, but that's pretty much true of my views on all their relative merits.

Isn't 79 basically the exact argument that the Bush administration made when the war started? That the most patriotic thing we could do was not let ourselves be frightened away from the malls?

I know that the ostensible source of the fright was that terrorists might bomb our shopping centers, but surely there was an associated implication that we shouldn't let a feeling of uncertainty make us hunker down and start saving.

65: Bitching that he should pat Obama on the back for saying something else that may be good politics is just ridiculous.

Great. Of course I never said that, but it's a fantastic point nonetheless.

But I see what you're saying: let's criticize attempts to portray the war as an economic drag, because God forbid anyone could think that reductions in military spending are good for the economy.

If Stiglitz is right, cheap credit was a means (the only means) of keeping consumer spending up in face of a financial drain which would otherwise have substantially dampened or even crippled it.

Right. The problem I'm having is that I don't grasp why it's appropriate to describe the war as a financial drain, rather than a financial stimulus. (In the near term.)

83.1: Yes, the conflation of consumerism and patriotism has been extra-explicit ever since 9-11, which is probably not coincidence.

Questions from an ignorant person: How much is lack of regulation to blame for the current problems? I have a few buzzwords in my head: stock market bubble, housing bubble, whatever it is the Fed does. Which of these are causes and which are symptoms?

Add government borrowing to the list.

I don't grasp why it's appropriate to describe the war as a financial drain, rather than a financial stimulus.

I'm having the opposite problem here. If you're spending three trillion dollars to wage a war without raising taxes, and indeed lowering taxes on the wealthy, how can you possibly expect the war to act as anything but a financial drain?

And, behold, all three candidates have their crisis plans in the Post today. And the author of McCain's is ... Kevin Hassett? Zombie Ayn Rand? No, it's Holtz-Eakin.

Sperling for HRC

Goolsbee for Obama

Holtz-Eakin

It's may not be obviously wrong, but it is wrong. The housing bubble was underway well before the Iraq war. Given the housing bubble, Wall Street incentive structures, and lax regulations, the sub-prime mortgage crisis was inevitable.

91: I believe Stiglitz is ascribing the bubble's apocalyptic dimensions to the war, not its existence. It was not inevitable that the sub-prime crisis should be so epic as to trigger an epic financial crisis.

||

OT, but related to the NYT and its love of O'Hanlon:

There are no authoritative figures for most media coverage before 2007. But a check of several large and midsize newspapers' archives shows a year-by-year decline in articles about Iraq, and an increase in the proportion supplied by wire services. Experts who follow the coverage say there is no doubt about the trend.

"I was getting on average three to five calls a day for interviews about the war" in the first years, said Michael E. O'Hanlon, a senior fellow on national security at the Brookings Institution. "Now it's less than one a day."

He argued that Americans who support the war might not have wanted to follow the news when it was bad, and that Americans against the war are less interested now that the news is better. And the presidential candidates, he said, have shown "surprisingly little interest in discussing it in detail."

|>

(The last sentence of 92 posted from the Department of Redundancy Dept.)

From here: http://www.nytimes.com/2008/03/24/business/media/24press.html?ref=business

91 was to 69. I forgot that the Unfogged commenting rate is 40 comments/hour.

76: Wartime spending is an economic stimulus in a recession. If the economy is going well, it's just a diversion of resources from the peace-time economy.

If you're spending three trillion dollars to wage a war without raising taxes, and indeed lowering taxes on the wealthy, how can you possibly expect the war to act as anything but a financial drain?

Krugman's piece deals with this issue explicitly - in the long-term, it's a drain. In the short-term, it's not. This doesn't seem like some obscure bit of reasoning on Krugman's part - it seems self-evident. This is just Keynes 101.

[Started and was interrupted.]

DS:It's not wrong to blame the financial crisis on the war. At least not according to Joseph Stiglitz, who contends that the Bushies have been massively lowballing the real costs from the start (shocking!) while trying to finance them entirely through borrowing, thereby creating the housing bubble. Be interesting to see Krugman address that argument directly.

DS's story:

The war was now the second-most expensive in US history after World War II and the second-longest after Vietnam, he said.

Depending on how what deflator you use. Our current deflator is maybe a little bit on the low side, by say, 5-8%. Per year. For 10 years. Well, since 83ish, when they altered the metric.

The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit.

The US Central Bank, aka Alan Greenspan, responded to all financial or economic issues with cheap credit. With the occasional tightening to throw people off the scent.

"The regulators were looking the other way and money was being lent to anybody this side of a life-support system," he said.

The Bush administration would've done that anyways. Neil Bush, S&Ls and so on. They did that last time, they did it this time too. Massive deficit spending in and of itself, would not create a bubble. It would just create lots of debt, that would have to be paid off in the future. Massive deficit spending, loose credit in the general sense, very loose regulation, and a massive trade deficit 'caused' the bubble. Or enabled it at any rate. Your actual bubble was caused by people deciding that housing prices always go up, so it was ok to buy massively overpriced house, along with a lot of lenders engaging in out and out fraud to provide the credit justification for financing for the boom.

That led to a housing bubble and a consumption boom,

Consumption boom (remember all those low low zero interest rates on new cars?) followed by housing boom, mutually reinforcing.

and the fallout was plunging the US economy into recession and saddling the next US president with the biggest budget deficit in history, he said.

Well, yeah.

DS: (Having said that, obviously there wouldn't have been a shadow banking system to flood the American economy with cheap credit if Krugman wasn't absolutely right about the need for financial reform. So Obama does have some questions to answer.)

We had the Baby Bubble (late 80's/S&Ls/real estate/The Street with recession), Mama Bubble (late 90's/LTCM/Tech stock with recession) and Daddy Bubble (late 00's/Real Estate/financialization with recession). Bernanke wants to blow Granddaddy Bubble if he can manage it. Obviously, the only way to prevent this is to reregulate and bitchslap the Fed around. Of course, if he can't get Granddaddy to bubble, then we have a recession/depression.

So it's perfectly fair to ask whether or not Paul Krugman has bothered to comment, in either his column or his blog, on a story that dominated campaign coverage over the course of the last week or so, especially given that this story has been pushed by his favored candidate, at the expense of, among other things, attention to the Growing Economic Crisis.

He has NOT been commenting on Clinton, right about the point it became obvious that Clinton could not win without Superdelegates, that is, right about the point DeLong called it (wrongly?) for Obama. He has been all over the economic stuff for the straightforward reason that it is quite a bit more important than day to day campaigning, which is now about something other (what?) than campaigning exactly.

Krugman is positioning here, trying to get the idiots in the media to talk about something other than idiot campaign issues.

Baa: 1.Gee, why has the topic of technical financial reform not at the center of the campaign? Could it be because a) it's an issue hard to make comprehensible, b) no one wants to get out in front/"own" an issue where it's not clear what is going to happen? As a Democratic candidate, you would need to be a lunatic to do much more than say "this is more evidence of the failure of the Bush administration, I will do better." I expect, since neither Democratic candidate is a lunatic, this explains their actions. It's not because HRC doesn't get the concept of the Bear Sterns bail out.

Or perhaps they have been talking about it, indirectly with all that NAFTA stuff. At any rate, the Big Problem began last August which was some months ago. They could've said something. Unless...

2. Also good to know (and not surprising) that in Krugman's estimation, it is better for a campaign to put out what he believes to be wrong information -- "failure of mortgage-backed securities caused by the Iraq war" -- than no information (the McCain campaign)

Obama apparently recognizes that there is a problem whereas McCain is still living in 1889. No, it is not that he's a social Victorian, it's that he's apparently reading newspapers from 1889. Up to date, McCain is not. Clueful: in no way.

3. Does Krugman believe "we are going to regulate wall street like a bank" is the message to send to the market right now? Puzzling.

Gosh, is 'we are going to completely nationalize the banking system while leaving the corporations in the hands of the shareholders' the right message to send? For a quasi-conservative like you? 'Socialism works!'

4. "One of McCains advisors is..." Krugman plays card twice, and it's hilarious. It's actually been a topic of some humor among people who follow these things the degree to which the people who count as McCain "advisors" represent basically every right-of-center position on the economy. Douglas Holt-Eakin is also a McCain advisor (and believed by most to be a more central one). He's no Kevin Hassett.

Perhaps, but he also has KEVIN HASSETT! WHO WAS REALLY REALLY WRONG! WRONG, WRONG, AND WRONG. Wait...hrmmm... yep, STILL WRONG. And not only is he still wrong, he wrote a mea culpa that explained that he wasn't actually wrong, it was merely that his timing was a little bit off. Which is WRONG! VERY VERY WRONG. If he hadn't written the book, but instead had put on a clown suit and become 'Flappy the Clown Economist' it would have been vastly better for his credibility. That would be eccentric, not moronic.

max
['Also: shut the fuck up.']

Max! Go poop on gswift!

75: I actually agree with almost everything you say, but I still feel that BHO should've been able to take initiative with the discussion pre-Wright. He doesn't have to ignore the war/foreign policy to do so - he handled it beautifully, hardly breaking stride, 5-6 weeks ago, when everyone thought HRC was done. McCain would throw some shit his way, and he'd knock it right down. It's harder, of course, with getting shit from more directions, but it just seems like he should be able to take the lead - and the financial crisis seems like a good place to do it, since it's dominating the headlines.

I disagree with all the "What can they say about it?" comments. What the hell kind of Presidential candidate doesn't have anything to say about the economy when we're headed into the worst recession in anyone's adult lives? Is going after fat cats on Wall Street (who took profits for 7 years but come crying to taxpayers for a bailout when things get tough) somehow not effective rhetoric these days?

Remember their "stimulus packages"? Those sort of went into the void. Of course, a stimulus package is short term by nature & financial sector reform isn't...

97: Krugman's piece deals with this issue explicitly

No, it doesn't. It just assumes that wartime spending is an economic stimulus regardless of context. The need to flood the US market with cheap credit to keep up consumer spending, which is fairly plainly what happened and led to the current financial crisis, suggests that it's not self-evident.

Anyway, does five years after the onset of war count as "long-term" or "short-term"?

Is going after fat cats on Wall Street . . . somehow not effective rhetoric these days?

You're kidding, right?

max remains the hardest-working man in commenting.

Great. Of course I never said that, but it's a fantastic point nonetheless.
But I see what you're saying: let's criticize attempts to portray the war as an economic drag, because God forbid anyone could think that reductions in military spending are good for the economy.

That is what you're saying, right there in part 2 of your own comment. You're pissed that Krugman called out Obama for failing to say something that PK thinks is incredibly important. Your reason seems to be that what Obama said instead is true/has political value/whatever. It's all irrelevant to PK's point: someone needs to step up and talk about he financial crisis. Obama - and the others - hasn't done it.

Not to be snide (seriously), but it's apparent from your questions in 87 that you don't really get what it is that PK is freaking out about. Given that, perhaps you shouldn't be critiquing his sense of priorities.

You're kidding, right?

It's possible that "fat cats" may not be the most effective phrasing. But do you seriously believe that, at this point in time, most people would be offended by rhetoric like what was in my parenthesis? It has the twin virtues of being incendiary and being true.

We can finance the war entirely through a Redundancy Surcharge.

The Fed cut interest rates really low because they overreacted to the popping of the Internet bubble. As soon as that danger passed, they jacked interest rates back up.

Reading that article, it's not clear to me that Stiglitz is really making the argument they're attributing to him. The claim is in the text accompanying the quotes, not the quotes themselves.

No, it doesn't. It just assumes that wartime spending is an economic stimulus regardless of context.

Well, yes. That's how Krugman deals with it. Stiglitz (based only on that article) seems to assume the exact reverse, without evidence that I can see.

The need to flood the US market with cheap credit to keep up consumer spending, which is fairly plainly what happened and led to the current financial crisis, suggests that it's not self-evident.

It suggests that Greenspan found it useful to pile fed stimulus on top of spending stimulus. Max has the best line on this:

The US Central Bank, aka Alan Greenspan, responded to all financial or economic issues with cheap credit.

And DS's final question:

Anyway, does five years after the onset of war count as "long-term" or "short-term"?

There are two separate questions here, at least.

-When Greenspan acted, he was acting in the context of the Iraq War's effects being short-term. I don't see how, in that timeframe, we can define the war as being anything other than stimulative. (Though if Stiglitz says so, I assume there's a reason. I'd like to hear it.)
-As for whether five years is "long-term" regarding the current impact of war spending, I couldn't do anything but guess. But, of course, all of our Iraq money wasn't spent in a lump five years ago.

But do you seriously believe that, at this point in time, most people would be offended by rhetoric like what was in my parenthesis? It has the twin virtues of being incendiary and being true.

But not leading to a practical policy proposal, which I think is what Krugman was looking for. Bail out or no bail out? How do you position yourself on this when November is eight months away?

106: I really don't know. I mean, look at the statements baa linked--McCain's all about "not spending taxpayer money," but he's not saying shit about *regulating* the fat cats so they can't screw people over in the future. It's all tough-on-crime type talk; don't take guns away or do anything about poverty; just add on jail time for gun crimes after the fact, and let's have mandatory sentencing for crack cocaine while we're at it.

I do think that "the banks suck" would be effective language if anyone wanted to tie the mortgage crisis to extortionate banking fees and anti-lobbyist sentiment. But I think the focus has to be not on "no bailouts" but more on the "no foxes guarding the henhouse" sort of stuff.

Anyway, does five years after the onset of war count as "long-term" or "short-term"?

WWII was economically stimulating for as long as it lasted. So was Vietnam. As long as the gov't is taking the money it borrows and spends it on stuff, it's stimulative. The problem with the debt is that you're paying it back after the stimulative effects are over. As long as you have a job, credit card spending improves your lifestyle. It's not until you retire (or get fired) that it's a problem.

OK, it's an analogy, but just barely.

a practical policy proposal, which I think is what Krugman was looking for.

I read him more as raising the issue of why no one was talking about it at all. As someone up above said, "own the issue."

I kind of agree with Knecht up above - the candidates don't have to be putting out white papers on the subject to be able to govern on it effectively. But talking about it a lot can't help but build political capital for dealing with it when you get into office (and they'll have to deal with it).

There are issues you don't talk about because they hurt you - no one is running on a "raise taxes" platform, even though we need to do it. There are issues you don't talk about because they're too arcane - CBCG formulas, frex. There are issues you don't talk about because no one votes on them - reforming Park Service funding, or whatever. This isn't one of those issues. It's a natural Dem issue. The basic concept - banks tricked people into bad loans, now it's gone kaboom - is accessible enough. And people sure as hell care about the country going to shit.

As long as the gov't is taking the money it borrows and spends it on stuff, it's stimulative.

Exactly. The question is whether carpetbombing Iraq with gold ingots is a more efficient method of stimulus than spending that money here to rebuild infrastructure, or some such.

Well, yes. That's how Krugman deals with it.

Actually, that doesn't "deal with" anything. Even the usual pat assumption, itself questionable, is that war is usually an economic stimulus to the victor, of which none has emerged in Iraq, excepting maybe Iran.

It suggests that Greenspan found it useful to pile fed stimulus on top of spending stimulus.

And why would that be, exactly?

Stiglitz and Bilmes go into more depth here, in a piece more useful and far more detailed than the brief over in the Australian.

113: Similarly, whether having X hundred thousand Americans learning what skills are learned in Iraq is as efficient a use as having them learn the different skills that they would learn here. To some extent, this probably depends on a couple of questions: how much of an aberration is war, and what do you think we, as a nation, get out of this specific war?

Even if the war is a short-term stimulus, what does "stimulus" mean? An increase in the national GDP?

A stimulus for whom? Does it reduce unemployment? I note that the profits are almost all going to multinational corporations, who hire as few Americans as they can.

You could create an even more powerful stimulus by borrowing THIRTY trillion dollars from China and using it to hire Halliburton to bring in 10,000 people from Bolivia on H1-B visas to plant some flowers on our nation's highways. That's quite a lot of money being transacted there! our economy would be bigger than ever before.

er, 116 was me, not that that matters.

As long as we're talking about the war and its economic impact, I'll link to this.

Bubbles are overrated as problems. The Great Depression was a problem. I'd rather have a bubble.

Alan Greenspan lowered interest rates because everyone (including Paul Krugman) told him to. The fear at the time was that with the implosion of the Internet bubble the economy was about to turn deflationary.

116: Stimulus means that it lowers unemployment and increases GDP, yes. (You're arguing that war is shitty stimulus, which is probably true.)

Taxes. Taxes. Taxes.

Graduated marginal rates up to 90% for everything over a million a year. Or whatever the candidates think they can handle politically, then double it. Plus a VAT, plus a luxury surcharge, plus a gas tax, plus a carbon tax, plus a tax for Republican party members.

The financiers will always innovate faster than the gov't can regulate. The richest, and those who control pension funds, will always seek the maximum return disregarding risk, with their excess over their consumption. The marginal riskiest players will determine the risk premium for all players.

The ancient rule is:"Don't gamble what you can't afford to lose." Take away everything that is excess and expendable, and remove te unbalanced incentives to gamble.

Raise interest rates thru the roof. Make corporations finance expansion thru net profits, not equity inflation or cheap credit. We is like all fucked up everywhere.

And make gov't about 50% of the economy. Offer lots and lots and lots of goodies. Free health care. Free mass transit. Subsidized McMansions for everyone, with solar roofs and windmills. Free childcare.

The cost of the war, and the fact that the money would have been better spent on really anything else is a powerful one, and I don't know why the Democrats don't use it. My neighbor is the American swing voter, and when we talk about how much the war sucks, the amount of money wasted is a popular topic. We would have been better off if we'd just written a check for 3 trillion dollars to Exxon/Mobil.

Ummm, the Great Depression was caused by a speculation bubble, Walt.

I note that the profits are almost all going to multinational corporations, who hire as few Americans as they can.

God this is annoying, because it's making me a defender of the military-industrial complex. But get serious. Profits - even exorbitant profits - are a fraction of war spending. The rest gets spent on stuff and personnel. Virtually all war materiel used by the US military is built in the US by American workers. Plants making Humvee armor, JDAMs, and all sorts of other tools of death are humming along, paying wages, up and down the supply line. Gov't borrowing isn't "crowding out" anything else because - at least until the last few months - no one but foreigners has wanted to buy T-bills. American lenders/investors were buying stocks (and CDOs) - which the Chinese and Saudis don't want.

I suppose I should read the more detailed Stiglitz article, because I know his arguments must be better than this nonsense.

Final note on this: war spending has not been an alternative to non-war gov't spending. This president was never going to fund highways, alternative energy that works, cops on the beat, or any of the other goodies that would be a bazillion times more valuable than war spending. The Pony Budget was never on the table. The war is more stimulative than doing nothing (although worse in the long term! As Krugman says!), and less stimulative than virtually anything else would be.

And the problem is not at all just housing, and you will not be able to prop up real estate beyond the ability of wages and corporate profits to pay. All mortgage support plans are bullshit, doomed, doomed.

I think what is scaring people are the pension funds invested in MBS's and their devil spawn derivatives.

Um, the Great Depression was caused by the collapse of the banking system, DS.

For those who don't want to click on baa's link in 90, here's Clinton and Obama's specific language about regulation:

Clinton believes that even when seeking to get ahead of a Wall Street crisis, we must apply a "Main Street Test." Complex lending vehicles for sophisticated financiers must ultimately be shown to benefit America's working families. What justifies a $30 billion temporary lifeline for Bear Stearns and more common-sense supervision of our mortgage industry is the recognition that hands-off postures toward mindless or mind-numbing lending practices can lead to an economic spiral that can hit Main Street hard.

Obama's third priority is making sure that a housing crisis like this does not happen again. That means ensuring that we don't reward people -- whether borrowers, lenders or corporate executives -- for bad behavior in the mortgage market. It means installing the responsible oversight of credit markets that has been lacking -- on mortgages, yes, but also on credit cards, which threaten to metastasize into the next version of the mortgage crisis.

Not only is Obama the only one to mention credit cards, "responsible oversight" is more pleasing to hear than "a 'Main Street Test'."

81: Katherine, Barney Frank has been talking about this stuff for a long time, but the entrenched powers made it really hard for him to do anything.

126: Which started with... what?

But so what? If the government had prevented the banking crisis, then there wouldn't have been a Great Depression.

124:As a child of the 50s and 60s, I remember the military Keynesiansim, especially the money going to boots.

Newberry says its over, that the growth of suburbs and exurbs has created a political class that wants to fuck the cities and the reserve labour/creative class that lives there. Clinton is the candidate of the suburbs, Obama obviously the urban candidate.

Anyway, max's argument was that Bernanke is trying to inflate another bubble. The dangers lowering the Federal Funds rate is lower than the danger of leaving it alone, and letting the banking system fall over, which is the alternative the Fed is facing.

There are so many reasons not to support the RE inflation. Read Yglesias on density. Think about the transportation/oil infrastructure. Think about the synergies of urban intellectual concentration.

But cities require not private, but public investment.

Think about the transportation/oil infrastructure.

Which is why we're probably all screwed, regardless.

I disagree with all the "What can they say about it?" comments. What the hell kind of Presidential candidate doesn't have anything to say about the economy when we're headed into the worst recession in anyone's adult lives? Is going after fat cats on Wall Street (who took profits for 7 years but come crying to taxpayers for a bailout when things get tough) somehow not effective rhetoric these days?

Seconded.

In addition, Democrats need to be talking about this stuff, regardless of its effectiveness as a campaign issue, because when the Democrats come into power in 2009, the shit will just be hitting the fan. The Republican media machine will immediately swing into action, blaming Democrats for the slump (to the extent that that's even remotely possible) badmouthing their attempts to deal with the slump, and using the slump as a reason to push standard Republican goals.

But long ago I quit hoping for the Democrats to think further ahead than the next election, or even to start thinking about the next election sooner than about 9 months before it takes place.

132:Bernanke is setting up the coming Democratic President. He will go all Volcker in 2009, and the numbers get him support from the neo-liberals. Misery index of 30+.

The gov't will go bankrupt, with hundreds of billions just to withdraw from Iraq. The interest nut will be a killer. Only choices will be inflate equities with the SS Trust Fund (another bubble, but only tempoaray...one last looting), slash entitlements, or massive tax increases + Keynesianism gov't jobs.

Tax increases in a depression? FDR did it, 20% to 70%. It will be a civil war.

90: And Holtz-Eakin's piece is worth... jack-shit. So baa's defense of McCain is that some of his advisors aren't insane assholes, merely out-of-touch assholes who think that the solution to every problem is tax cuts. That is fresh thinking, isn't it?

Actually, his rhetoric on the actual Wall Street part of the crisis is along the lines that I think should be the minimal Dem position (if McCain can say it, why can't they?):

much of the difficulty has been created by speculators looking for quick profits and by investors and bankers who ignored basic rules of risk management in an attempt to cash in while times were good. John McCain will not dip into pockets on Main Street to reward these people with a bailout.

HRC and Obama spend too much time/effort on the mortgage crisis, which is now secondary. Obama includes a nice bit at the end:

It means installing the responsible oversight of credit markets that has been lacking -- on mortgages, yes, but also on credit cards, which threaten to metastasize into the next version of the mortgage crisis.

Anyway, this is certainly along the lines of what PK was looking for. We'll see if it actually becomes part of the stump speeches, or is just a check-box that the candidates have now ticked.

Obama obviously the urban candidate.

Racist.

I don't know who here makes over six figures, but I want your money. That is how much we need.

I can promise you security in a community in exchange for your loss of independence.

Or else go to Portugal or Costa Rica and take your chances.

DS, the idea that the Great Depression was the inevitable result of the stock bubble of the 20s is old-school, Andrew Mellon thinking - people had it good, now they must suffer. We will wring excess out of the economy. The whole point of Keynes is that this isn't true. Bubbles come and go, and post-bubble times are never as good (per capita) as bubble times, but bubbles don't need to lead to crises.

There was nothing structural that led to the dot-com bubble - people got excited, money got passed around stupidly, it ended. No banks collapsed, just grocery.com. The housing bubble was driven by interest rates, but the underlying structure was CDOs and inadequate mortgage regulation. Without those two, there would have been a RE bubble due to low interest rates (and some other things), but no financial crisis/bank run.

"If the Fed can extend $30 billion to help Bear Stearns address their financial crisis," [Clinton] said, "the federal government should provide at least that much emergency help to families and communities address theirs."

This is the kind of rhetoric I think we need. I'm not sure I think much of her overall policy prescription, but my point here has been that it's not about white papers right now - it's about laying down markers: that citizens, not just investors, will get gov't help; that the current mess belongs to laissez-faire Rs; and that only a Dem can fix things.

Rich people will be secure, regardless of what MacManus says. But sock away money and update your passports.

link for 141.

Cripes, are all you people over at that stupid IM thread?

a check-box that the candidates have now ticked

Candidate. Clinton's statement seemed to be studiously avoiding regulation, to me—she's putting it under advisement, to be checked against the "Main Street Test."

DS - having read the longer Stiglitz article, it doesn't seem to address the stimulus claim made in the link in 4. I think the Australian's reporter just got that one wrong.

Stiglitz's actual claim is pretty mundane, and Krugman certainly agrees with it: War as a method of economic stimulus isn't very efficient.

144, in my reading, disputes 141.

141 is correct.

Never mind. 144 and 141 maybe aren't really on the same subject. I still like 141.

105: Sorry, but Krugman calling out Obama for not saying something (we need to reform the financial sector) is not equal to Krugman calling out Obama for saying something (war bears some responsibility for our economic difficulties). So no, I did not ask for a fucking pat in the back for Obama, although I appreciate you're trying REALLY HARD not to be snide.

And your second part of your comment is just a cheap shot. Krugman is freaking out about what is essentially a bank run leading to a dramatic recession. I'm presuming that he traces this to a lack of regulation that allowed underwriting to be separated from the assumption of risk. If I may restate my questions in 87: to what extent did this lack of regulation cause the housing bubble, and to what extent did the housing bubble cause the lack of regulation to become a problem? It's not like you need regulation to get self-interested people to worry about skin in the game.

If this is such a stupid question, could you please explain to me why it is so stupid? I notice other people on this thread arguing over whether paying people to dig holes in the ground and then fill them up is any different from any other kind of government spending, so I really don't think the level of conversation here is that advanced.

34

"No, it's really not clear. As in, it's not even clear to me. What usually happens is, I say something, and then Emerson explodes randomly at me for saying it. I really have no idea what's going to set him off on any given day; ..."

This is exactly my experience with Emerson.

122

"The cost of the war, and the fact that the money would have been better spent on really anything else is a powerful one, and I don't know why the Democrats don't use it. ..."

Because Democrats never worry about what things cost?

148.3:I'll take an ignorant tentative stab.

Keynes wanted the holes dug, and military Keynesianism is a variant, because the holes do not create output that can deflate. The economists are terrified of the housing (a real output good) deflation because it will cause the rest of the financial world to deflate.

A good Keynesianism stimulus creates no output, or an output that belongs to a gov't and cannot be priced. Diego Rivera's murals, WPA park improvements. UHC could be directly inflationary, causing a necessary increase in Fed rates. So could mass transit or energy infrastucture.

In my plan, notice above I called for high Fed rates.

This doesn't really answer your regulation question, but I can't say I am concerned about it. Regulation is for those who want a more efficient finance economy, a neo-liberal trickle-down economy. If there is too much money at the top, it will bubble and inflate somewhere.

Because Democrats never worry about what things cost?

Try again, James.

I can only assume that 149 will make stras spit up his drink.

145: Don't see your point. The longer article calls the stimulus claim a myth that isn't applicable to Iraq, and the shorter one claimed that Iraq was an economic drain, which in fact is the basic claim Stiglitz is making.

Krugman calling out Obama for not saying something (we need to reform the financial sector) is not equal to Krugman calling out Obama for saying something (war bears some responsibility for our economic difficulties)

You and I have simply read PK's column very differently, I think. I see a column that asks, essentially, what have the 3 candidates said regarding the Huge Crisis that PK sees. When he gets to BHO, PK acknowledges that BHO is talking about the economy, but that he's not talking about the Crisis. You (seem to) see a column in which PK inexplicably derides what BHO has said about the economy - which proves that PK is a deranged anti-Obama hack.

Anyway, for the second parts of your comment, I wasn't saying that your questions in 87 were stupid. I was saying that those questions didn't seem to reveal someone who was understanding the same system that PK understands but coming to a different conclusion; rather, they seem to reveal someone who isn't quite sure what's going on. 148 obviously reveals more understanding, but it's still not clear to me why you think PK was making a cheap shot at BHO. PK sees a problem, and doesn't think any of the candidates had addressed it. Just because BHO said something vaguely related doesn't mean that he addressed it.

which proves that PK is a deranged anti-Obama hack

No, that was proven by the second link in 64, or the endless handwringing about Obama's Republican frames coupled with silence on Clinton's campaign tactics.

But this is all a side point. I stand by my statement that tying the war to the economy is good politics and should not even be attacked as bad economics. I completely agree that it is not even close to a sufficient statement about the current situation.

To respond to the question in 148.3: As I said above, the housing bubble was caused, more than anything else, by low interest rates. At the same time, CDOs and other financial shell games were being developed. These instruments aided and abetted the creation of shitty mortgages that were sustainable only in the presence of an ever-growing bubble.

What should have been clear to the financial people - but really not to anyone else, because no one else knew about the instruments - was that, when the bubble inevitably burst, the CDOs wouldn't save anyone.

I've seen a few sources that indicate that the tipping point was maybe 18 months ago - at that point, even responsible loans began to be set up unsustainably. Had the bubble burst then, there would have been enough good loans to salvage enough of the bad that you wouldn't get the cascading credit calls. But the vast majority* of mortgages written in the last 18 months contribute to the problem.

This is why I find the mortgage focus of HRC so frustrating - that was good policy/rhetoric 6-15 months ago. Mortgages are now a secondary issue (not to people losing their homes, obvs.) - if you save every homeowner, I don't think that saves Wall Street, and if Wall Street collapses as it might, then even fiscally conservative homeowners are in danger.

* Probable exaggeration; but it's a huge %age. The whole industry is predicated on foreclosure rates around a couple percent.

I stand by my statement that tying the war to the economy is good politics and should not even be attacked as bad economics. I completely agree that it is not even close to a sufficient statement about the current situation.

There you go. Near-comity.

151 isn't completely full of shit, but ain't right either.

Stiglitz is right in the particular instance of Iraq, but even Marxists are lukewarm, not hostile, to military Keynesianism. It must be paid with taxes, not debt, and it must be payroll with a consumption multiplier, not hardware. Not sure why, but my guess is that hardware creates too much output and finance.

Greenspan, Friedman, and Nixon ending the draft was part of the plan to lower wages and feed finance.

if Wall Street collapses as it might

I gree with much of the preceding, but why say this? For example, is there evidence that Lehman Brothers should have collapsed rather than recovered last week? Half the mortgages written in the last 18 months would affect what, 1/500 homes? The most extreme estimates that I have seen put 5% of homes with debt exceeding value. Not all of these will default. The stresses will be serious, but I have not seen credible predictions of consequences more serious than recession.

To put 154 another way, stating that the Iraq has so taxed US finances that the government no longer even has the wherwithal to bail out its own banks -- and Stiglitz points out that a lot of bail-out funding has come from abroad -- that is not a "mundane claim." I don't see any way to read Stiglitz (whom I think is right) as saying anything other than that the financial crisis is close to epochal and directly tied to Iraq War costs.

The longer article calls the stimulus claim a myth that isn't applicable to Iraq, and the shorter one claimed that Iraq was an economic drain, which in fact is the basic claim Stiglitz is making.

In Krugman's article - the one that you allege Stiglitz is contradicting - Krugman says this about the long-term:

The war is indeed a grotesque waste of resources, which will place huge long-run burdens on the American public.

So he's not disputing Stiglitz there. And Stiglitz, too, seems to be making an explicit contrast between short-term and long-term stimulus:

As Stiglitz and Bilmes put it, "Money spent on armaments is money poured down the drain"; far better to invest in education, infrastructure, research, health, and reap the rewards in the long term.

Barbar, above, proposes that people here are arguing

over whether paying people to dig holes in the ground and then fill them up is any different from any other kind of government spending

But that, of course, is a straw man. Surely everyone understands that there are better and worse ways of spending government money. The question is: Is government spending of almost all sorts stimulative to the economy? The Keynes 101 answer is: Of course. Stiglitz doesn't contradict this, he just seems to be making the entirely uncontroversial point that some ways of stimulating the economy are nowhere near worth the long-term cost - in other words, exactly what Krugman (and everybody on this thread) is saying.

160:Try Roubini or Calculated Risk. Check out the ratio of housing price to wages compared to historical averages. At least 10% of owners are "underwater", having a mortgage high than home value. Housing prices must decline another 20-50%. Specific to area, of course. Blue states and blue areas just coincidentally the worst off.

The worst ARM's and balloons haven't hit yet.

Deflation is a killer. Nobody will, or should grab a loan on a deflating asset.

We, the gov't, probably could afford to nationalize all mortgages, and give free the houses to the occupants. It would involve defaults, bank failures, collapse of finance, but we would have oodles of happy consumers buying big screen tv's.

162: So he's not disputing Stiglitz there.

Look, this isn't that complicated. Stiglitz is very clearly claiming that the current financial crisis is an outcome of the war. Krugman is very clearly claiming this is not so. "Long-term costs" is not the issue, the issue is that the costs are manifesting now, and he's taking Obama to task as trying to pull off a "twofer" for pointing this out.

stating that the Iraq has so taxed US finances that the government no longer even has the wherwithal to bail out its own banks ... is not a "mundane claim."

I agree that this sentiment is attributed to Stiglitz and it's not a mundane claim. But it seems like utter bullshit. The fact that furriners bailed out U.S. investment banks was the preference of regulators, not something that happened because regulators couldn't do it.

In fact, with Bear Stears we see a situation so screwed up that foreign investors don't want to step in (any more). The Fed clearly wishes things had not come to this pass, but when they did, the Fed was entirely able to step in, and did.

As Stiglitz and Bilmes put it, "Money spent on armaments is money poured down the drain"; far better to invest in education, infrastructure, research, health, and reap the rewards in the long term.

Does Stiglitz live in Sweden?

The opportunity cost argument is of course theoretically and morally correct, but I haven't seen the evidence that it is politically viable in America.

Eisenhower sold the Highway system as a defense project. Same with the space program. The education spending of around 1960 was sold as competition with Soviets. New Orleans levees were Army Corps of Engineers.

Whatever is possible. I'll take every gov't job you can get.

The opportunity cost argument is of course theoretically and morally correct

It's also correct as a matter of practical economics (as I know you know). It's puzzling to me that people think that Krugman disputes this.

162: the only person I see arguing that the Democrats cannot simultaneously (a) tie together the war and the economy and (b) call for fundamental reform of the financial system is -- wait for it -- Paul Krugman.

As someone who has been paying attention to politics for the past decade, I view the Dems' ability to link the war and the economy as a godsend, not as "disappointing."

Half the mortgages written in the last 18 months would affect what, 1/500 homes?

No no, this is the point: it's not about homes anymore. All of these financial houses own big chunks of Big Shitpile. They have been treating this as an actual asset. Regardless of how many specific houses are foreclosed, Big Shitpile is all worthless*. So every one of these places has a big hole in its balance sheets.

In the best of times, bank runs can cause healthy banks to fail. What we have here is not the best of times, and none of these pseudo-banks are fully healthy. The reason that this could be catastrophic is that, if a run begins, it could well go through everything. No one left standing, because no one has that much liquidity (you're not supposed to need it).

It probably won't be that bad. The Fed's bailout of BS stopped a run from starting last Monday. The question is what happens when the next run threatens to start. And the one after that.

The biggest question I have is: how big is this window? If we make it to June without a run, are we out of the main danger? Does the danger not pass until something else good happens (World's Largest Oil Field Discovered in South Dakota! Elgin Home Prices Soar To Upper Five Figures!)?

* It is comprised exclusively of bad - "subprime" - mortgages. All of the good stuff was peeled off the top before it even became a CDO. No matter how much counterfeit money you accrue, it never becomes valuable.

165: I agree that this sentiment is attributed to Stiglitz and it's not a mundane claim. But it seems like utter bullshit.

Really? Why exactly do you think regulators prefer foreign bailouts whose basic outcome is to put the US in a dependent position economically? Do you honestly think that would be their first choice if they had other resources to work with?

169: This works itself out of the system when the players all become comfortable doing business with each other - when they become convinced that their counterparties' balance sheets are sound.

I, too, have no idea what that will look like when it happens. Who knows? Maybe it already has happened. I hope so.

Roubini is good, but he has been consistently pessimistic for as long as I've been reading him, since 2002. I take him with a grain of salt; I prefer his facts to his conclusions.

I have not seen anything published suggesting that 10% of homeowners are underwater. 10% of homes, maybe, but the Moody's numbers recently reported include builders with unsold inventory and second homes.

Just as the financial press peddled zany greed two years ago, now there is a market for fear.

141: I disagree that the rhetoric there--not discussing the policy prescription, b/c I'm too dumb about economics to really do so intelligently--is what we need. At least, this economically stupid, socially liberal and worried about the economy voter's thought on the "if we can bail out Bear Stearns, we should spend at least the same amount of money on families" thought is, "jesus, we've already got a huge-ass recession, and yes, I think we should help people save their houses, but surely there's gotta be a way to do that that isn't going to cost us another $30 fucking billion we don't have on top of the $30 fucking billion we've already spent...."

Whereas I think (but I'm always wrong about politics) that "regulate the sons of bitches, because the purpose of government is to serve the people, not Bear Stearns" sounds right on.

Do you honestly think that would be their first choice if they had other resources to work with?

Like I said, they do have other resources to work with - and yes, that was their first choice.

Bailing out an investment bank in this fashion is all-but-unprecedented. Bailing out an investment bank that can find capital on its own would be absurd. It wouldn't ever happen.

168: You're driving me insane, Barbar. WTF does Krugman argue that it "cannot simultaneously" be done? Where? Show me a goddamn quote already.

All he says is, 'Dems need to say A. Obama has said B (which I, PK, think is false).' He denies that Obama can get a "twofer," because he doesn't think that the claim is true - not going to war with Iraq would not, in fact, have created Wall Street regulations.

Of course Obama could say A. The war has made our finances a mess, and B. We need to whip Wall Street into shape with some serious SEC-fu. He could. He hasn't (or hadn't as of press time). That's PK's complaint. No matter how much PK has annoyed you, he's right that BHO hadn't said the thing you, too, wish he'd say.

174: Okay, how about some references here.

Why exactly do you think regulators prefer foreign bailouts whose basic outcome is to put the US in a dependent position economically? Do you honestly think that would be their first choice if they had other resources to work with?

Because a good bailout doesn't put all the burden in one place? Because the more you spread around Big Shitpile, the less toxic it becomes? Because, as long as we're flushing money down a hole, it's nice to flush down somebody else's as well?

(I'm not buying 177, JRoth, I'm sorry. Those are all pretty anemic reasons for making yourself financially dependent on foreign bailout money and effectively abdicating -- or at least undermining -- your hitherto hugely-advantageous position at the heart of the world financial system.

173: If I'm not mistaken, then end result of every discussion of political rhetoric here is stalemate, because we're simply not the general public. We don't have any kind of ear for what plays in Peoria.

If I were about to lose my house, and Candidate A promises me a bailout now, while Candidate B promises to regulate Wall Street to prevent the next crisis, I think I'd lean towards Candidate A. But who knows? I'm not afraid of well-directed deficit spending; Perotheads might be.

My main point wasn't to promote specific rhetoric; it was that this topic, and the associated rhetoric, is a winner for Dems. It shouldn't crowd out Iraq or terrorism, but nor should it be a side note. This recession will impact far more people than Iraq has, even at a lower intensity. A recession is probably good for the Dem candidate regardless; but it will only help the country (long term) if the candidate is able to translate civic discomfort into positive action once in office.

I can't decide if this discussion is making me feel better or worse about the gorgeous mid-century modern ranch house I looked at today that needs work and is priced about $75k more than we can afford.

176: I'm stumped, DS. I don't know what to tell you. The Fed just doesn't do that sort of thing absent an extreme emergency - the last time it happened was during the Depression.

What the Fed has done (see Long Term Capital Management) is get capitalists together to work out a bailout. In the case of the foreign sovereign funds that invested in (or "bailed out") our big banks, I'm not sure that the Fed even intervened that much. Absent an emergency, they just aren't in that business.

Which investment banks do you figure Stiglitz wants the Fed to bail out?

172

"I have not seen anything published suggesting that 10% of homeowners are underwater. ..."

See here .

financially dependent on foreign bailout money and effectively abdicating -- or at least undermining -- your hitherto hugely-advantageous position at the heart of the world financial system.

Define "financially dependent." Whatever this bailout costs, it'll be a tiny fraction of consumer debt to foreigners. Iraq did not create the pattern of America as a debtor country, even if it exacerbated it.

Then: who is becoming the "heart of the world financial system?" You're acting as if we're passing the baton, but my point is that we're spreading around the mess - no one entity, nation, or currency is sitting in the catbird's seat (note that foreign indexes have generally been doing worse than ours - not proof of anything, but they certainly don't seem to believe that they're going to come out of this big winners). This isn't Potter taking over Bailey Bldg & Loan - it's everyone chipping in to keep the Bldg & Loan solvent.

I'm not saying that this is all ideal. But I simply don't see causation between Iraq war debt and Big Shitpile, nor do I see the gov't disinterest in singlehandedly throwing $200B at Wall Street as a disaster.

I don't know how to tell you this, B, but I really wouldn't be buying a house in your market right now. Bob is right that there's still another 10-25% that has to come out of home values before values get right. Maybe there are slivers of the market that are already on track, but I doubt any of them are in LA.

181: So, you know that Stiglitz is wrong about foreign bailouts indicating a lack of financial resources in the US economy, but you can't provide me any details about how or why you know this. This is not making your objections to Stiglitz very compelling.

In fact, Stiglitz gives specific examples of banks in the longer article, noting that Citibank for instance is now owned largely by MidEast oil wealth. He claims that is a big and fundamental change in dynamics. AFAICS he is correct.

163

"... Blue states and blue areas just coincidentally the worst off."

It's not really a coinicidence. Blue areas were associated with high and rising housing costs and rising house prices generated speculation and the bubble.

Max! Go poop on gswift!

I'm still going to eat that minty bastard.

175:

On the Democratic side, it's somewhat disappointing that Barack Obama, whose campaign has understandably made a point of contrasting his early opposition to the Iraq war with Hillary Clinton's initial support, has tried to score a twofer by suggesting that the war, in addition to all its other costs, is responsible for our economic troubles.

...

Hillary Clinton has not, as far as I can tell, made any comparably problematic economic claims. But she, like Mr. Obama, has been disappointingly quiet about the key issue: the need to reform our out-of-control financial system.

I, for one, am not disappointed with Obama's rhetoric regarding the war and the economy, although I share Krugman's view that the war is not really the primary cause.

It can be inferred from the passage above that the author believes that Clinton's silence is (marginally) preferable to Obama's statements. Very basic reading comprehension.

Yeah yeah, Krugman is just wearing his economist hat and doesn't have anything to say about political framing and rhetoric, which is well beyond his area of expertise and is confined to the 60% of special Paul Krugman columns clearly marked "Political Bullshit."

I can't decide if this discussion is making me feel better or worse about the gorgeous mid-century modern ranch house I looked at today that needs work and is priced about $75k more than we can afford.

Better! It'll be lower soon.

169

"* It is comprised exclusively of bad - "subprime" - mortgages. All of the good stuff was peeled off the top before it even became a CDO. No matter how much counterfeit money you accrue, it never becomes valuable."

This is not accurate. Even bad mortgages are generally worth something. Some of the CDOs are worthless but not all of them.

"When Merrill Lynch and Citibank had a problem, it was sovereign funds from abroad that bailed them out. And we had to give up a lot of shares of our ownership. So the largest shareowners in Citibank now are in the Middle East. It should be called the MidEast bank, not the Citibank."

This is Stiglitz's quote, but it's hard to see this as anything but America-first-type political rhetoric. Who is he proposing would have been available to bail out (actually "invest in" is more accurate) these companies if the Iraq War had not been fought?

regarding 10% owner-occupiers with negative equity:

I read the press summary of the Moody's report. I haven't paid for it, so do not have access to fine print, but it seems to take on faith builders' reports that their considerable unsold inventory has been spoken for, and to include second homes purchased as investments. I do not think that these are part of the denominator in an accounting of what affects the people living in the houses; I think abandoned exurbs will be less serious economically than people forced into draconian new BK.

Krugman seems alarmed, though, projecting 20M negative equity mortgage-holders by year's end, and not challenging 15M currently.

B- don't listen to random internet gurus on housing prices. Housing is very market specific and while there will be a further general deflation, your specific market (Ventura) may be stabilized. Buy what you can afford, but also know how long you plan to stay. The longer you plan to stay, the less housing can be treated as an equity play.

183: Define "financially dependent."

Ummm, as in "when you need their money to keep large parts of your financial sector functioning."

The bailouts are of course only an indicator, not the whole picture, and Stiglitz doesn't say otherwise.

who is becoming the "heart of the world financial system?"

That's an easy one: the EU, in a politically multipolar context. (The euro is already quite visibly replacing the dollar as the world's preferred reserve currency.) Of course it's in everyone's interests for the US to not completely crash and burn, but from the POV of American interests it's pretty hard to spin such loss of primacy as a positive.

184

"I don't know how to tell you this, B, but I really wouldn't be buying a house in your market right now. Bob is right that there's still another 10-25% that has to come out of home values before values get right. Maybe there are slivers of the market that are already on track, but I doubt any of them are in LA."

Obviously B should be cautious and shouldn't pay more than she can afford but trying for the last 10% of decline risks seeing prices shoot up and out of reach again.

B, it's hard to predict any market. I think, however, that 195 is clearly correct. As is 184. And 193. Do what they say, and you can't go wrong.

Housing is very market specific and while there will be a further general deflation, your specific market (Ventura) may be stabilized.

I don't know Ventura well, but the LA area almost certainly is going to fall further, and given the run up in prices the last few years, I'd be surprised if there's anywhere in So. Cal that's already stabilized

||
I traveled to D.C. last week for a job interview with The Man.

They want to make me an offer! Whoo hoo!
|>

To expand on 197, does anyone really think the Bear Stearn collapse is the end, rather than the beginning, or the bank runs? And specifically in So Cal, the pricier areas like Arcadia seem like so far they've avoided the drop in prices, or are just beginning to get sucked in. To me that says the effects are just beginning to ripple into the upper echelons of the market, and we're a ways off from seeing any kind of rebound.

And, of course there's other issues like stagnant wages, unemployment, etc.

Yay TJ!

Meh, I was joking. What I meant by 'good or bad' is "with luck, a low-ball offer will get this house, which I love and would totally fix up and never ever sell; if luck is bad, I'll somehow get the house and then the market will collapse and Mr. B. will lose his job and we'll all end up camping on the beach until we get arrested and/or global warming causes a huge tsunami and we drown, whichever happens first."

201

"... a low-ball offer ..."

I was going to add that under current conditions if you are uncomfortable making lowball offers you are likely to overpay but apparently that won't be a problem.

Who the hell would be uncomfortable offering less than the asking price? What, I'm gonna worry about hurting the seller's feelings?

Um, how could the EU be becoming the heart of the world financial system?

It already pretty much is it.

There's the City (which has a reasonable claim to primacy just on its own) and then various other European markets.

Of course, having the City of London didn't help Britain much in the late 20th century; maybe being `at the heart of world finance' isn't such a brilliant thing?

Of course, having the City of London didn't help Britain much in the late 20th century

Because by then New York was the centre. Just like it wasn't much help to Antwerp to be Antwerp when London supplanted it.

70: Isn't part of Krugman's point precisely that the candidates can't talk about it, because they're bought?

I do think that ogged's point in this comment (and the original post) has not been given the attention it deserves. The heart of the problem is a narrative in which $50 each for (or from) a million people is a special interest while a $1 million each for (or from) 50 people is keeping the economy strong. Much less messy to work with the latter as a politician, and the big media folks (and owners) definitely have more affinity for the latter group. And of course at the extreme end you get those policies that are practically reverse bills of attainder like the inheritance tax or the tax treatment of fund managers compensation. Given that, what real economic reform do you expect from candidates bought into that program?

(And I will admit a bias here. Most of this macroeconomic stuff seems like the most fulsome bullshit in a profession that routinely drowns in its own manure. But it certainly is great fodder for inspired amateurs to have deck chair arranging arguments while the fundamental economic truths of a changing world overtake your nation.)

That's an easy one: the EU

And what role have the EU countries played in the bailout thus far? None that I know of.

This is my point. The fact that the Iraq war has weakened our global position economically (as well as by every other measure) is trivially true. That it has a causal role in the current crisis isn't even close to proven. So Arabs now own a big chunk of Citi. How? Citi was in crisis because they bought a bunch of shitty loans that were made to Americans to buy American houses. Where does the gov't borrowing money come into this, again?

If all you're saying is that, due to the Iraq War, the gov't response to the financial crisis will be suboptimal, then you're not saying much. If you're saying that Iraq War borrowing has caused the crisis... you haven't offered a shred of evidence. We have a very complete picture of how the current situation came to be; we don't need an additional element Q to explain what happened.

inspired amateurs to have deck chair arranging arguments

I'm only commenting here when I'm not wearing my Batman suit.

but the LA area almost certainly is going to fall further

Lots of pain in some markets, but what has more happened is that volume of transactions are way down. If you need to sell in a hurry, you will take a haircut. But many sellers are still way ahead of what they paid for their property, and unless the refied and spent the money foolishly, it really doesn't matter what the current market price is.

207.1: Also, it's cold out today, so global warming must be a myth.

That it has a causal role in the current crisis isn't even close to proven. So Arabs now own a big chunk of Citi. How? Citi was in crisis because they bought a bunch of shitty loans that were made to Americans to buy American houses. Where does the gov't borrowing money come into this, again?

Ummm, because Citi was making shitty loans as part of a general attempt by the financial sector to keep consumption afloat amid an orgy of hidden and obfuscated war spending?

I mean, that's quite explicitly the argument. Attempting to pretend it's absurd on its face is simply not going to cut the mustard, because it isn't. If you'd like to tackle in detail the evidence Stiglitz presents for it, he's provided a whole book worth that I've provided a reference to (and which I'll be purchasing myself inside the week). That's something I would find of interest.

And as I said earlier, I'd be even more interested to see Krugman tackle it, since it's both plausible and directly relevant to what he writes about the war in this particular article.

188: comparably problematic economic claims

Why do you have a problem reading this as a statement about economics? If PK, and 90% of all economists since Keynes, think that Obama's statements blaming the pending recession on the war are wrong, then why the fuck shouldn't he say so? Because you think it's a politically valuable statement? How about "The Mexicans are to blame for our current mess"? That might be a vote-getter - should a responsible economist therefore give it a pass? Is this Krugman's job now - not to hurt the feelings of Obama supporters?

There are a lot of statements you can make about how the war is hurting us economically - but saying that it's a direct cause of our problems is simply not true* (except in the sense that everything is a contributing factor, yada yada). Maybe if BHO made an accurate statement tying Iraq to the economy, PK wouldn't ding him. But I suppose it would be better for him to hold his tongue - what's a little exaggeration coming from our guy, right?

Fucking A.

* DS and maybe Stiglitz are arguing otherwise, but PK is under no obligation to agree with them

JRoth: of course it's too bad that Krugman doesn't actually link to any of Obama's statements, so it's very hard to see what is actually wrong with them.

Here's a NYT article I found.

link

Tell me what is so wrong with Obama's comments. Are you disappointed by them?

You know, I'm pretty sure that the City of London was always near the, if not the, centre of int'l finance, since quite a long time ago.

Will Hutton's The State We're In, Peter Donaldson's Guide to the British Economy, Colin Chapman's How The Stock Markets Work (and most every other book I've read about the British economy) all say, at the start of their discussions of the City, something like `the pre-eminent financial centre in the world'.

Admittedly, all British books, but Will Hutton doesn't seem to like the City much -- Dsquared will be able to tell you just how much I'm talking out my arse -- and I think Donaldson's some flavor of planner who also dislikes the stock market.

Ummm, because Citi was making shitty loans as part of a general attempt by the financial sector to keep consumption afloat amid an orgy of hidden and obfuscated war spending?

Ah, I thought Citi was trying to turn a profit. Now I see that they were trying to prop up BushCo.

OK, too snarky. I should read the Stiglitz - he's been generally on track over the past 10 years. But, again, I just don't see where his theory is needed - it's far from the most parsimonious explanation. Wall Street has fucked up plenty of times before, with no need for orgiastic war spending.

simply not true

I'd recommend replacing this phrase with "arguable."

I don't think DS is saying that you can't disagree, but that disagreeing by saying 'there isn't an argument! it's absurd!' when he's showing you the argument with citations and links and forthcoming books is, well, not as good as an opportunity for cheap potshots as it might first appear.

I mean, I don't know if the link in 114 states the truth, but it does amount more than 'wah, my feelings are hurt, Obama should make racist statements.'

simply not true

I'd recommend replacing this phrase with "arguable."

simply not true

I'd recommend replacing this phrase with "arguable."

Also, I advise against triple-posting.

and unless the refied and spent the money foolishly

A hell of a lot of people have been doing exactly that.

The spec purchases, the maxed out HELOC activity, the unaffordable loans, the building boom, price increases vastly outpacing wages, etc., and now all that's being coupled with a tightening on lending. I don't have any kind of crystal ball, but it sure seems unlikely that we've seen the worst of it yet.

213: Could be. I'm a Braudel man myself.

214: Ah, I thought Citi was trying to turn a profit.

... in the circumstances created by BushCo. And in the short term they did.

Thank you, B--I'm very excited. Contingent upon a drug-test and a clearance investigation. So... I don't know any of you people. And God bless America. Go Jesus.

It sure is funny to think that if you'd bought Bear Stearns, punchline of the year, at its low last week, you could have quadrupled your money today.

I am taken aback that no one has anything to say about the volatility in spot copper prices. Doesn't that figure in your calculations?

I am taken aback that no one has anything to say about the volatility in spot copper prices. Doesn't that figure in your calculations?

Fucking metal prices. Shooting has gotten a lot more expensive the last few years.

Citibank couldn't make the loans without the spreads proved by Greenspan's Fed. The Fed had to go to 1% and stay there because the fiscal stimulus to get out of the 2001-02 recession was not available. The fiscal stimulus was not available because of the Bush tax cuts and the budgeting for the war.

Bush's war was even possible in large degree because he didn't really ask Americans to pay for it, in either taxes, decreased consumption, or additional manpower, all of which would have provided fiscal stimulus.

The counter-factual of what Bush would have done without the Iraq War is more questionable. Contra Stiglitz, I think military spending was always very likely. But to be honest, I don't remember the 2001 budget.

226 amended: "Decreased consumption" fiscally stimulating? Think forced savings as in WWII rationing or bond sales.

Course, I am a guy that thinks all money given to the gov't or commons is fiscally stimulating, and all money in the private sector is contracting.

"fiscally stimulating" s/b "economically stimulating"

What is the difference between NIH research and private pharmaceutical research? Excess profits gambled away in marketing & finance.

Please write some more about spending in the public sector, bob, 'cause I'm about to have a shibboleth.

Contingent upon a drug-test and a clearance investigation. So... I don't know any of you people. And God bless America. Go Jesus.

Congratulations on your new job with the Uni/ted S/tates Ai/r F/orce!

229:Korean & Japanese broadband? French healthcare? Northern European energy policy?
Canadian movies before they fucked it all up? WTF has the American system done for us lately?

The recent facts have definitively disproved every word Mises and Hayek wrote about market information & pricing. Not that it always wasn't fascist bullshit.

What was Bear Stearns worth? $170 a share a year ago, $2 a week ago. Which is what the total capitalization of equities is worth. $2, or whatever they lie the fools into paying while the Fed covers the losses. Marx called it "imaginary money."

Congratulations on your new job with the Uni/ted S/tates Ai/r F/orce!.

Jesus is my copilot.

231: Thanks, very stimulating. Was it good for you?

But, uh, I've got a presentation to a client tomorrow morning that I've got to get ready for. See ya'.

DS: The Saudis bailed out Citibank before, after Mexico defaulted on its loans. (I forget when. The 80s, maybe?) Bank then, the exact same guy became Citi's largest shareholder. After a while, he sold most of his stake. The Saudis having more money than God is not a new phenomenon.

The Fed would rather solve banking crises with someone else's money (plus rate cuts). When Long-Term Capital Management went bad, the New York Fed muscled the investment banks to bail them out.

The argument you're outlining makes no sense to me, which is why I'm having trouble following it. Is the US government supposed to be having trouble borrowing money to pay for the Iraq War? Then they would have to raise interest rates, not lower them. Throughout the decade, everyone has been falling all over themselves to lend us money (something now changing).

If the Fed was manipulating interest rates to pay for the Iraq War, why did they raise the Federal Funds rate back up to 4-5 percent at the beginning of this year? Bernanke didn't get the memo?

From the second Stiglitz article linked upthread:

This is not, then, pure neocon ideology at work, says Stiglitz: "Ideology of convenience is a better description." It is an ideology illustrated even more clearly in another fact that Stiglitz can't believe - that Bush put through tax cuts while going to war. In Stiglitz and Bilmes's reading, this was downright underhand. Raising taxes, and resorting to the rhetoric of shared sacrifice used in the world wars, for example, would have made Americans more aware of exactly what the war was costing them, and would have provoked opposition sooner. The solution was to borrow the money, at interest of couple of hundred billion dollars a year, which, by 2017, will add up to another trillion dollars or so. This government will be gone in nine months; subsequent administrations, and generations, will have to pay it off.

At the same time, Stiglitz and Bilmes argue, the Federal Reserve colluded in this obfuscation, because it "kept interest rates lower than they otherwise might have been, and looked the other way as lending standards were lowered, thereby encouraging households to borrow more - and spend more." Alan Greenspan, by this account, encouraged people to take on variable-rate mortgages, even as household savings rates went negative for the first time since the Depression. Individuals were taking on unprecedented debt at the same time as a long housing bubble made them feel wealthy (and less concerned with derring-do abroad) - a scenario echoed on this side of the Atlantic.

On foreign dependency, the money graf is:

And the borrowed trillions have to come from somewhere. Because "the saving rate [in America] is zero," says Stiglitz, "that means that you have to finance [the war] by borrowing abroad. So China is financing America's war." The US is now operating at such a deficit, in fact, that it doesn't have the money to bail out its own banks. "When Merrill Lynch and Citibank had a problem, it was sovereign funds from abroad that bailed them out. And we had to give up a lot of shares of our ownership. So the largest shareowners in Citibank now are in the Middle East. It should be called the MidEast bank, not the Citibank." This creates a precedent of dependence, "and whether we become dependent on Middle East oil money, or Chinese reserves - it's that dependency that people ought to worry about. That is a big change. The amount of borrowing in the last eight years, on top of the borrowing that began with Reagan - that has all changed the US's economic position in the world."

IOW it's not limited to Citibank, which as I mentioned earlier was one example.

The argument that Stiglitz is making doesn't seem that unclear, which is why your confusion confuses me. I really do recommend reading the whole article, which goes into more detail about the hidden costs of the war, and the incoherent policies of BushCo, than I care to quote at length in a comments thread. Now, it may well be that there is more precedent for this extremely heavy foreign borrowing than the article suggests, and I'm not sure what Stiglitz has to say about this in the book, which presumably presents these arguments in more complete form and with more context.

(As to why Bernanke behaved differently from Greenspan, my guess would be that he's engaged in an ad hoc effort to manage and contain the mess.)

85: Right. The problem I'm having is that I don't grasp why it's appropriate to describe the war as a financial drain, rather than a financial stimulus. (In the near term.)

Because the money spent on the war overwhelmingly disappears in the pocket of companies and people already quite wealthy, instead of those of Joe Q Public, who might actually buy stuff for it? Sure, the manufacturer of uparmoured humvees might get more orders and hence hire more employees, but this isn't WW2 and the US isn't building a Liberty ship every four days or a tank division each day; this is not a material intensive war in the sense that a lot of new goodies are needed for it.

Meanwhile a lot of Guardists are called up and earn less in Iraq or Afghanistan than they would've in their civilian jobs.

And yes, there are a lot of civilian jobs in the Iraq wear as well, driving trucks for KRB and such, but while those positions cost the government much, the benefits to the workers themselves are much smaller, with the difference being eaten in KRB fees.

Even if we're going to pretend that none of the war money gets spent into the economy, that still doesn't explain the near-term drag on the economy that Stiglitz stipulates.

The problem with Stiglitz's narrative is that it's incoherent and unconnected with reality. Contra DS, it's not an argument, it's a series of unevidenced assertions - like government spending is, in the near term, an economic drag when it is war spending.

There's no evidence that the Fed "colluded" with Bush to hide the impact of Iraq - merely that it acted on its mandate (as it perceives it) to maximize growth to the extent possible while limiting inflation. In that sense, the Fed "colludes" with every policy goal in every presidency, because it aims to have the economy run smoothly regardless of the actions of politicians (at least in principle). While Stiglitz suggests that Greenspan acted in support of Bush's war goals, he offers no evidence, and those same Greenspan actions were widely supported by liberals in real-time. (I'm sure mcmanus was the exception here, but I'm not sure it's right to call mcmanus a liberal.)

it's not an argument, it's a series of unevidenced assertions

Your series of bald assertions that this is so are byt this point thoroughly unconvincing. Your complaint that his arguments must be "unevidenced" because the Guardian is summarizing them instead of reproducing the whole book is disingenuous. I'm unconvinced that you have any special insight into Greenspan's motives and actions that Stiglitz doesn't. And you appear have nothing to offer against the rather clear summary of his arguments about financial drain in that article except bluster and repeated declarations of "Absurd! Absurd!" Just as hope is not a plan, spluttering is not a counter-argument.

Any-hoo, a little complementary info: the next bubble from Harper's, an overview contending that the US economy is now essentially based on bubbles, and needs a new one to continue functioning. It was Bob who noted this earlier, wasn't it?

240: this reminds me, calls for financial regulation should recognize the fact that we need to watch out for the next bubble, not the last one.

Except if that gent in Harper's is right, lancing the next bubble will be something of a trick, since it's likely to be based on... alternative energy.

I'm sure mcmanus was the exception here, but I'm not sure it's right to call mcmanus a liberal

Darn tootin. In general I oppose inflation & deflation, and disapprove of negative real interest rates. My macroeonomic conspiracy theory is like awesome, and goes back to the Nixon years. For instance, Nixon's wage-price controls wasn't a foolish mistake, but a way of managing inflation expectations upward. Volcker wasn't in on it, but Greenspan is the heart & soul of the conspiracy.

I don't like the way inflation is measured, and don't like the changes made since the 70s. I think Greenspan's (et al) extended 1% was not a mistake, but deliberately intended to create a bubble/asset inflation. Greenspan was about upward redistribution.

Now whether there was covert collusion to have the Fed pay for the war, well. I have my own standards of evidence, which are never based on anything people write or say. People lie.

I would have to do research, but my guess id that during a war, both taxes and real short interest rates rise. (Should go back and look at the post-Napoleonic banker's report). Since taxes & short rates are controllable, if they don't rise, I presume this is policy rather than error or incompetence.

Incidentally, apparently the asset inflation/bubble provided a significant chunk of tax revenue over the last half-decade. And now we are pretty fucked fed revenue/deficit-wise, as I predicted. This shit is so fucking complicated.

242:The current bubble is in commodities. I am unclear as to whether Bernanke is feeding or starving the commidity bubble.

I don't think you will see a bubble in alt-energy. Bubbles need to be non-productive, in order to funnel winnings to the top; local and domestic as far as possible, and something else I forget. Dammit. Commodity bubble therefore a little weird.

I think it is usually about relative wealth at the top. The hedge trader won't have as much fun if the Chinese get twice as rich as the hedge fund dude off solar panels. Dot-com and RE were partly about suckering money from overseas.

DS, if you're telling me here that Stiglitz doesn't provide evidence here but provides it somewhere else, why don't you just tell me what the evidence is? If you're claiming he does provide evidence that Greenspan colluded with Bush to lower interest rates to offset the short-term slump caused by the war, then why don't you show me where he does this?

Alternatively, if you're just going to rely on the ol' appeal to authority, well, we could have saved a lot of time. He's certainly got more Nobels than I do.

Ummm, pf, I've referred you to the book in which he presents the full argument, said I've found it believable (not solidly proven), told you why, and told you I'm picking up the book. You're just playing games, now.

I expect an annotated bibliography out of you, DS.

I'll just do an online dump of all the raw data, like they do at the Lancet.

If you dump, clean up after yourself. We run a respectable house here.

Damn. Now you tell me...

245:Coincidence implies causality, and the real world is infinitely overdetermined.

Not exactly Occam, but a lot more fun.

251: As is often the case, you've lasered in to the heart of the disagreement, and I hesitate to even respond to your perfect comment except to note that you are right that I believe that coincidence tells us next-to-nothing about causality. Likewise (I say) the real world is remarkably contingent.

But I do kinda suspect that you have more fun than I do.

you are right that I believe that coincidence tells us next-to-nothing about causality

See? Something about which you, me and Stiglitz agree. I knew we'd reach comity! (Or is that comedy?)

240: the author mentions on page 1 that the Bubble Act of 1720 effectively ended bubbles in England for a century, when (according to Wikipedia at least) the Bubble Act was actually passed before the peak of the South Sea Bubble, with the intention of preventing other companies from competing with the South Sea Company for capital.

Not that the writer strikes me as a poser or anything.

Huh. Guess 18th-century isn't his forte.

On more substantial matters, I wish the writer had actually explained why he thinks the US economy "needs" bubbles. I mean, he hits a bunch of reasonable sounding notes (decline of US manufacturing, depreciating dollar and fiscal/trade deficits) but I really don't see why our economy desperately needs bubbles (bubbles, by definition, don't create any value) that will eventually come crashing down and cause great harm. Seems very hand-wavy, although I'm sure McManus can come by again and give a clear cogent rational explanation.

I think he's saying that the economy needs bubbles to continue to give the impression of wealth, or to maintain something like the style Americans are accustomed to. But yes, it's all quite breezy.

although I'm sure McManus can come by again and give a clear cogent rational explanation.

Without asset inflation, the Saudis would have like bought everything and we would have to drive our wimmins to baby showers and stuff.

258 wasn't really a joke.

Oil is a monetary base guaranteed to inflate in price, and will inexorably cause inflation. The PTB have been since the late sixties working their butts off to channel the inflation to the top.

Newberry explicates in depth, and I think Kevin Phillips might have gone over it. Oil drives everything, including the suburbanization that has been the core of domestic politics since the 60s.

Newberry connects the Detroit riots to the switch to an oil economy, one in which oil is not a factor of production, but the factor. There was a choice to be made between cities and suburbs. Democrats rebelling against military Keynesianism, which provided jobs & training for the inner city poor, were partly to blame.

My kind of guy.

Apparently Mayor of SF Gavin Newsom, according to a headline at Yahoo, is going to sue Arnie over massive cuts in Medical.

The cities, the poor get fucked. Because of oil.

The game is nearly over. I posted a link here from Mish's economic blog that shows construction in Dubai. It is fucking awesome and beautiful, architecture, parks, urban amenities the likes of which Americans will never ever see again in our country.

You know, y'all make fun of my coincidence is causality and overdetermination stuff.

But the horse economy of the late 19th century required like 1/3 of all agricultural land for horse feed. So why did we have the urbanification of the 1st half of the 20th? Oil.

You just connect stuff.

I know that this is pathetic, but a couple more thoughts on this fascinating thread:

1. That guy who wrote the Harper's article in 240 goes around talking about the South Sea Bubble all the time (for example on his personal website, in various interviews), and yet is almost completely wrong about it.

2. Krugman has an op-ed today saying that financial regulation is nice but the *real* key issue is that restructuring mortgages. Interestingly Clinton has a more liberal position on this crucial key urgent matter than Obama. Once again, I appreciate Krugman's point and find his framing completely ridiculous.