Stiglitz, Johnson, Krugman Sound Alarm

Three economists who during the Bush-Cheney years became political-economic pundits of sorts are sounding the macro-economic alarm.

As President Obama turns the political focus onto “jobs, jobs, jobs,” Joseph Stiglitz, Simon Johnson and Paul Krugman warn of a "enormous catastrophe" (Johnson), and real-economy circumstances about which economists are "almost universally pessimistic (Nobel Laureate Stiglitz)."

One understands the political imperative of not placing all bets [political-economic initiatives] on a single swing when mainstream Republicans will happily court more catastrophe if they can garner a political advantage out of the rubble, but Obama needs to swing for the fences and follow the advice of another economist, Nobel Laureate Krugman, who warns that "2010 [may] be a year that began in false economic hope and ended in grief."

Obama Critics to Appear at Joint Economic Committee

Update: See Too Much To Handle? Why I expect Obama's poll numbers to plummet soon at TNR by John Judis.

Via Robert Kuttner:

'Part of the Way with LBJ'
- Students for a Democratic Society button, circa 1964

The Joint Economic Committee (JEC) hearing next Tuesday (May 19) will feature testimony from leading critics that one hopes will highlight the 'absurdity of the Summers/Geithner approach (to the financial crisis) and help animate skepticism in the media, the public, and eventually the President.'

Nobel Laureate Joseph Stiglitz; former IMF chief economist Simon Johnson, whose recent piece in the Atlantic Monthly compared the US to third-world kleptocracies, and Thomas Hoenig, the most outspokenly critical of the regional Federal Reserve Bank presidents (are scheduled to appear before the committee).

The JEC is a "bicameral Congressional Committee composed of ten members from ... the Senate and the House of Representatives. ... Its main purpose is to make a continuing study of matters relating to the US economy."

Suffice it to say that Obama does not deserve and has not earned the benefit of the doubt on foreign policy, the financial crisis, civil rights for gays, transparency, well anything.

Econ Wm Black: Treasury plan is 'greatest boondoggle in history'

Reading finance analysts Blodget-Black-Krugman-Stiglitz-Shiller-Johnson-Roubini-DeLong, an Obama supporter is left with the feeling: Jesus, I hope these guys are wrong about what Treasury Secretary Timothy Geithner is doing.

One of the problems is Geithner's Public-Private Investment Program (PPIP).

From TechTicker:

While much of the focus is on the stress tests and banks' efforts to raise cash, the real story is Geithner's Public-Private Investment Program (PPIP), says William Black, an Associate Professor of Economics and Law at the University of Missouri - Kansas City.

The PPIP is the 'greatest boondoggle in the history of the world,' says Black, a former bank regulator who was counsel to the Federal Home Loan Bank Board during the S&L crisis. As occurred during the S&L era, Black says the PPIP will allow banks to exchange 'trash for cash' and turn 'real losses into faulty gains.'

If the goal of Tim Geithner and other regulators was 'to rip off the American taxpayer for the benefit of the least-deserving wealthiest people you can imagine, well - mission accomplished,' Black says.

Among the masses and a growing number of economists is the distinct sentiment that what Obama and Geithner are doing is in a word: Wrong.

And boondoggling. Isn't that what the Republican geniuses who got us into this mess do?

What does that mean? That banks make a lot of money and the rules of the game have always favored capital?

We know that, that's kind of why many people get into finance: To make money. If this seems unfair, change the rules and start gearing American capitalism towards the middle class. Like soon.

One thing certain is that Obama needs to rebut these economists who are scaring the hell of a growing number of his supporters who just don't feel sufficiently conversant to understand or much less defend what is going on in the financial temples. And looking to the Recovery Accountability and Transparency Board doesn't seem all that revealing.

And by anecdote, some dudes sure seem confident that the DOW is going back down to 6,500 in the foreseeable future.

How bad is it? Tell me right away.

Moyers Delivers on the Financial Crisis

Bill Moyers' Journal features an exhilarating conversation with scholars Simon Johnson and Michael Perino on the economic crisis.

The conventional wisdom is that the financial chimeras, like CitiBank, Bank of America, and AIG, who are targets of popular outrage, receiving massive government bailouts (to prevent a depression and promote a recovery), comprise too-big-to-fail entities. If they go down, we all go down.

"The guys who remain are more powerful, okay? And their position is, 'Look, if you want a recovery, if you want get your economy back, you've got to be nice to us,'" said Johnson.

Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at MIT's Sloan School of Management, and Perino is the Dean George W. Matheson Professor of Law at St. John's University School of Law in New York.

Johnson blogs with James Kwak on The Hearing at the Washington Post.

Bill Moyers to Host Simon Johnson and Michael Perino

What to know a critical step in the economic recovery?

Bill Moyers Now tonight will host Simon Johnson and Michael Perino on the demand for a new Pecora Commission, an investigation into the causes of the great crash and depression demanded by an angry American public.

Much New Deal regulatory legislation was passed as a direct result of the findings of the Pecora Commission.

That's what's missing now, a full public accounting and understanding of what went wrong and why and where we going.

The Obama administration has addressed these concerns, but mostly in generalities and absent an indictment of the regulatory, structural and political failings, a pointing of fingers that it has apparently resolved to avoid.

Its efforts on transparency and accountability are welcome, seemingly sincere, but incomplete.

For genuine insights into what is happening and where we need to go on the political end of pointing fingers, watch Bill Moyers Now. One of Moyers' guest tonight is Simon Johnson who has written perhaps the best feature-length piece on the crisis in The Atlantic: The Quiet Coup (May 2009).

Financial Oligarchy Is Named

Even as the depth of depravity of the financial crisis's array of bad actors rings out, the rightwing shouts "The extreme-left is desperately trying to take over every aspect of your life."

Here's a link to Simon Johnson's piece in The Atlantic: The Quiet Coup, describing an American financial "oligarchy" that most Americans blame for the financial mess.

From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:
• insistence on free movement of capital across borders;
• the repeal of Depression-era regulations separating commercial and investment banking;
• a congressional ban on the regulation of credit-default swaps;
• major increases in the amount of leverage allowed to investment banks;
• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
• an international agreement to allow banks to measure their own riskiness;
• and an intentional failure to update regulations so as to keep up with the
tremendous pace of financial innovation.
The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights. ...
The conventional wisdom among the elite is still that the current slump 'cannot be as bad as the Great Depression.' This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.

Obama, Be Bold

On Afghanistan and the economy, Obama needs to dump in toto the rhetoric and substance of the neocons who have brought us to this terrible place.

Repudiation is called for.

Militarism in Afghanistan won't work, nor will pretensions that economic elites, financiers on Wall Street, are well-intentioned actors.

Speak the truth boldly.

See Krugman today in the Times:

Simon Johnson. In an article in the current issue of The Atlantic, Mr. Johnson, who served as the chief economist at the I.M.F. and is now a professor at M.I.T., declares that America’s current difficulties are 'shockingly reminiscent' of crises in places like Russia and Argentina — including the key role played by crony capitalists.
In America as in the third world, he writes, 'elite business interests — financiers, in the case of the U.S. — played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of
reforms that are needed, and fast, to pull the economy out of its nosedive.'

And Juan Cole in Salon:

Obama's dark vision of the overthrow of the Afghanistan government by al-Qaida-linked Taliban or the 'killing' of Pakistan by small tribal groups differs little from the equally apocalyptic and implausible warnings issued by John McCain and Dick Cheney about an 'al-Qaida' victory in Iraq. Ominously, the president's views are contradicted by those of his own secretary of defense. Pashtun tribes in northwestern Pakistan and southern Afghanistan have a long history of dissidence, feuding and rebellion, which is now being branded Talibanism and configured as a dire menace to the Western way of life. Obama has added yet another domino theory to the history of Washington's justifications for massive military interventions in Asia. When a policymaker gets the rationale for action wrong, he is at particular risk of falling into mission creep and stubborn commitment to a doomed and unnecessary enterprise.