Another lost decade?

iVillage Member
Registered: 10-25-2006
Another lost decade?
Sun, 03-14-2010 - 11:16am

Stiglitz should be sitting where Geithner is:

How free markets sank the U.S. economy

Thu, Mar 11 2010

By Ellen Freilich

NEW YORK (Reuters) - Two years ago, a poisonous brew of bad economics, lax regulation, and egregious behavior boiled over, scalding the financial system and pitching the United States into its steepest downturn since the Great Depression.

The antidotes to the crisis, concocted by many of the players who stirred the original toxic brew, have pulled the U.S. economy back from the brink.

But those remedies won't prevent future crises, Joseph Stiglitz, winner of the 2001 Nobel Prize for Economics, writes in "Freefall: America, Free Markets, and the Sinking of the World Economy" (Norton, $27.95).

In contrast to the regulations that emerged from the Great Depression, which promoted growth and stability, the response to this crisis has led to a less-competitive financial system dominated by banks that are too big to fail, he writes.

Stiglitz, former chief economist at The World Bank and now a professor at Columbia University in New York, focuses on banks' failure to assess and manage risk, especially when risk is disguised by complex financial instruments. Such "modern alchemy" transformed risky sub-prime mortgages into A-rated products dubbed safe enough to be held by pension funds, he says.

America's financial markets also failed to allocate capital productively, he says. "At their peak in 2007, the bloated financial sector absorbed 41 percent of profits in the corporate sector," Stiglitz writes.

To add insult to injury, some of those profits were spent influencing Congress to make certain the government would not regulate risky derivatives or curb predatory lending.

Finally, flawed incentive structures fostered corruption, encouraging deceptive accounting that would lead to higher stock prices and higher bonuses for Wall Street managers.

By 2008, the nation's economy was in a freefall and the United States, a country that purported to revile socialism, had to socialize the risks banks had taken and intervene in markets in unprecedented ways, Stiglitz writes.

But where does that leave the financial system and, more importantly, the U.S. economy?

"It's very likely we will have a very slow recovery, I hope not as protracted as the Japanese did, but no one thought in 1990 that they would have one that long either," Stiglitz said in a recent conversation with Reuters.

Japan is viewed as having lost a decade of growth during the 1990s before the economy bounced back in 2004-06.

Stiglitz said one difference between Japan and the United States is that Japan has zero labor force growth, while the United States has a 1 percent labor force growth rate.

Thus, if U.S. jobs grow at a 1 percent pace, "it's as bad as Japan's growing at zero percent," he said.

Other differences exist between Japan and the United States, some of which argue for a quicker comeback for the United States and others than point to a slower one, Stiglitz said.

For one thing, while Japan could export its way out of its slowdown, the United States cannot because European growth is also slow.

For another, Japan began its recession with a high savings rate and that enabled it to expand by decreasing savings and increasing consumption.

"The United States is in the opposite situation, having begun with a savings rate of zero," Stiglitz said. "Thus, the likelihood that our savings rate is going to go up is very high and rising savings can contribute significantly to a prolonged slowdown."

The healthcare situation in the United States, with its issues of equity and access, also has implications for U.S. growth, Stiglitz told Reuters. Health affects productivity, and the cost of healthcare affects competitiveness, he said.

"To make things worse, we have made the fundamental mistake of linking the provision of healthcare to employment, creating strong interactions between deficiencies in the health care system and problems in the labor market," he said.

The solution to that problem would be to move to a single payer system that recognizes health as a social cost, not an employment cost, Stiglitz said.

"Providing low-skilled workers who earn minimum wage with health insurance almost doubles the cost of employing them so the adverse affects of the current system are most marked on the low-wage part of the labor force," he said.

But the biggest risk to the economic recovery is the "very, very strong political risk" posed by those who argue for deficit reduction, he said.

"President Obama is trying to walk a very fine line on that issue now, saying he will cut the deficit over the long run and stimulate the economy over the short run," he said. "But the myopia of the deficit hawks won't let them buy into that."

(Reporting by Ellen Freilich; Editing by Eddie Evans)



iVillage Member
Registered: 02-14-2010
Sun, 03-14-2010 - 11:45am

There have been no remedies.

Geithner, who was supposed to overseeing these banks when he was working in NY never did his job.

Since being promoted by Obama he now supports withholding AIG emails, adding banking loopholes and has Obama's support in his passage of legislation allowing banks to write whatever 'fair market value' they wish for their toxic debt.

There's that regulation the left likes so much

iVillage Member
Registered: 03-02-2009
Mon, 03-15-2010 - 12:06am

Spoken like a true leftist. Single payer heath care is our salvation, what a surprise!

I didn't see much in there about the CRA, the government forcing the big, bad banks to give loans to unqualified people, the democrats defending these high risk loans, and actually calling them "riskless" investments, the millions in bonuses the democrats at Fannie Mae and Freddie Mac made on all this, or the democrats like Chris Dodd, Barack Obama, Ted Kennedy, etc... that received large contributions from Fannie & Freddie.

What a shill.

"Resist, we much. We must, and we much. About that, be committed."

iVillage Member
Registered: 03-10-2010
Mon, 03-15-2010 - 12:24am

~OPAL~   onoz_omg2.gif OMG ONOZ image by KILLER_BOB11694

iVillage Member
Registered: 02-14-2010
Mon, 03-15-2010 - 12:46am

Of course they weren't forced. They were given the choice:

iVillage Member
Registered: 10-25-2006
Mon, 03-15-2010 - 9:25am

Did you even READ the article? It was about the CRA, not about Fannie and Freddie.

I think too many on the right see the words "government", "poverty", "low-income" and cringe at the thought that their tax dollars are going to help the "others".

Enough GREED already!!!


iVillage Member
Registered: 03-01-2010
Mon, 03-15-2010 - 10:08am

((I think too many on the right see the words "government", "poverty", "low-income" and cringe at the thought that their tax dollars are going to help the "others".
Enough GREED already!!!))

I am curious to know just how much extra tax dollars YOU personally donate to the federal government to help all those "others". I am talking about above and beyond your fair share.

Most taxpayers don't have a problem with taxes going to help others. What we have a problem with is the gross mishandling of OUR money. The government can do NOTHING efficiently or economically.

The government is wasteful, wasteful, wasteful with OUR money! We are sick of it.

iVillage Member
Registered: 10-25-2006
Mon, 03-15-2010 - 10:27am

And corporations waste NO money, right? And don't tell me that they don't take it from us citizens, either, because they do. If a nation is not socialized (i.e. businesses owned and operated by the gov't) the citizens are forced to rely on corporations.

My sister used to work for the federal gov't and she complained all the time about the wasteful programs, while DH and I told her they couldn't be worse than the waste we saw in our corporate jobs. Now that she's retired and has more time to open her eyes to the world of corporate excess and greed, she understands. Switched from voting Republican to voting for Dems.


iVillage Member
Registered: 03-01-2010
Mon, 03-15-2010 - 12:37pm

((And corporations waste NO money, right?))

Perhaps they do, however, it is their money to waste. Not mine. I do not recall a corporation sending me a bill to give them money because they need more. Uncle Sam on the other hand, does increase my taxes when they waste money and need more.

((a nation is not socialized (i.e. businesses owned and operated by the gov't) the citizens are forced to rely on corporations.))

I am not forced to rely on corporations. I am not forced to shop at Target, Walmart, etc. I shop where I choose to shop. Heck....I can even buy my own land and my own livestock. I can plant my own crops and feed myself...if I so choose.

I am not forced to put my money in a bank. I am not forced to invest.

I am not forced to go to the doctor. I am not forced to take any pill. Last I America....I am not forced to do anything (except of my taxes).

If you look back in history, socialism doesn't work. Capitalism does.

Perhaps if you desire socialism so should move to another country. I do not see America turning socialist any time soon.

iVillage Member
Registered: 10-25-2006
Mon, 03-15-2010 - 2:23pm

<< I do not see America turning socialist any time soon.>>

Well, then, you're one of the few conservatives who think like us liberals. Most rightwingers think that just because the health care reform bill is going to pass and that Obama wants to regulate the financial industry, he will turn the U.S. into a socialist country. And if the public option is a go, yikes!; no doubt we'll become a COMMUNIST country!


iVillage Member
Registered: 10-25-2006
Mon, 03-15-2010 - 2:30pm

<<.I am not forced to do anything (except of my taxes).>>

Perhaps YOU are not forced to, but many have no choice. Try telling the kids born to the minimum-wage earners who serve your food, make your beds and clean the restrooms you use,that they can simply go buy a plot of land and build their own home and grow their own food.

There's only one way the majority of those born into poverty have a chance, and that is government aid. Too bad all the churches in the country are not charitable enough to help those unfortunate souls.