How not to solve a financial crisis

By Edward Harrison

As we head into the New Year, I am trying to look back at the last one with some semblance of a coherent interpretation of events that leads to a strategic vision of the future.  I have already touched on stimulus, kleptocracy and crony capitalism as dominant themes for the year 2009. 

These posts have been critical of the economic vision presented by the Bush and Obama Administrations. I would stress that I see a lot of overlap in the two Administrations’ economic policies, which is why I use the phrase “the Bush and Obama Administrations” instead of focusing just on Obama.

But, now is the time to offer a review of alternative policy solutions. Bashing policy without pointing to an alternative doesn’t add value. I also believe quite strongly that this exercise will demonstrate that alternative policy solutions did exist – and that they were pointed out at the time. One can only assume that alternative policy solutions were rejected because the Bush and Obama Administrations preferred the solutions they crafted to these. And while, I am most concerned with outcomes, this juxtaposition between what could have been and what is points to the kleptocracy and crony capitalism I mentioned in my last two review posts.

Before I go into my spiel, I want to stress a point I made at the outset of a November post “The less optimistic view of Treasury’s handling of the crisis”:

one doesn’t have to take the view that its efforts to save the banking industry were a deliberate attempt to line bankers’ pockets by transferring money from taxpayers to the banking industry.

I will probably end up flexing my confabulatory muscles like every other pundit out there – making direct or unconscious assumptions about motives, agendas or intent. This is all just speculation – much of it false. It is outcomes that matter, not intentions. And it is the outcomes that leave me unsatisfied with the present policy course.

Change you can believe in

The key issue, in my view, is the desire for change in 2008.

For years, the U.S. had been lecturing others how to run a successful economy. The Mexicans needed to sell their banks to foreign behemoths to succeed. The Asians and the Argentines needed to take their depressionary medicine and eliminate crony capitalism. The Russians also needed to eliminate gangsterism and crony capitalism or no one would invest there. The Europeans were overly regulated and the state was too big.  And so on.

Then, after a quarter-century of apparent economic success (1982-2007), the U.S. economic and financial system was close to collapse. The masters of the universe were seen to have brought the economy to its knees because there were vulnerabilities at the core of American-style capitalism.  This was an ugly surprise for many – and it was humiliating, just as 9/11 had been on national defense. Change was the watch word.

What kind of change? Last month, I said:

If you asked 1000 people in those exit polls from November 2008 – or even last week, “what would make you know America was headed in the right direction,” you probably would have gotten 700 different answers.

But, one thing is clear: Since January 20th, a lot of people are saying to themselves, “I know change when I see it and this is not it.” That’s what all polls are saying. So, whatever Obama and the Democratically-controlled Congress are doing, it’s not working.

So, people wanted fundamental change and they felt Obama could deliver it. What the specifics were was less important. The key was that whatever changes were made, it reflected a more proportional connection between economic contribution and financial gains as well as elimination of the core vulnerabilities of our system.

More of the same

So, when Tim Geithner says:

I spent most of my professional life in this building. Watching the politics of the things we did in the past financial crises in Mexico and Asia had a powerful effect on me. The surveys were 9-to-1 against almost everything that helped contain the damage. And I watched exceptionally capable people just get killed in the court of public opinion as they defended those policies on the Hill. This is a necessary part of the office, certainly in financial crises. I think this really says something important about the president, not about me. The test is whether you have people willing to do the things that are deeply unpopular, deeply hard to understand, knowing that they’re necessary to do and better than the alternatives.

this is either cynical propaganda or self-delusion. People did not elect your President to do deeply unpopular things. They elected Obama to make the fundamental change that he is not delivering. You may think this is change we can believe in, but polls show Americans do not. This quote encapsulates why you can’t have people who created the mess clean up after it. They are prone to defend their prior policies tooth and nail to vindicate their actions. As I said when reviewing a recent Matt Taibbi piece:

What happens when a company is nationalized or declared bankrupt is instructive; here, new management must be installed to prevent the old management from covering up past mistakes or perpetuating errors that led to the firms demise. The same is true in government.

And Geithner and Summers do not represent change in the least. They were at the center of many of the past decade’s policy mistakes: Lehman, OTC derivatives, and anti-regulation of money center banks.

It’s not difficult to see what’s going on. For Obama, it’s kind of hard to get change when you surround yourself with insiders who have vested interests in the status quo.

Credit Crisis Options

A quote from “America needs a pre-privatization plan” is my jumping off point because it does a good job of framing the policy choices at the time.

To my mind, there are three ways to deal with an insolvent financial institution:

  • Bankruptcy. Allow the  institution to collapse (like Lehman Brothers)
  • Nationalization. Seize the assets of that institution and nationalize it (like Northern Rock, AIG, or Fannie Mae)
  • Bailout. Inject capital into the institution in order to allow it breathing room until it can meet capital adequacy levels.

As you can see, governments have tried all three solutions.  However, there are vast differences between the three.

The bailout solution is the most ‘anti-free market’ choice and seems to be the favored solution of governments everywhere.  It props up organizations, giving them an unfair advantage at the expense of other more prudent institutions.  It also acts as a subsidy, which favors domestic institutions over foreign rivals.  Bailouts increase moral hazard by rewarding risky and reckless lending practices.  And they are often the result of crony capitalism due to the power of the financial services lobby. There are many other problems with bailouts. All around, bailouts are a poor solution.

As you know, the Bush and Obama Administrations chose the third option. Here are a few posts from the crisis detailing the Bush response (for which Geithner as New York Fed Chair shares responsibility). Paulson wanted to allow failed firms to fail. But, he quickly learned the same lesson that the Brits learned during the run on Northern Rock, namely this is a very risky strategy unless you have a well-thought out process to limit contagion (see the first post below).

After the post-Lehman panic, I see the policy as bailouts that are “a naked attempt to preserve status quo” as I say in the Dead on Arrival post below (and I present a coherent policy alternative there). Congress was asleep at the wheel, as usual.

So, when Obama was elected, there was an enormous opportunity to change course. I had pointed to Paul Volcker’s presence in Team Obama as encouraging in October 2008 (Paul Volcker: Obama’s other economic advisor) and November 2008 (Volcker warns how serious things have become).

However, after the election, Obama immediately put Geithner and Summers in charge despite their complicity in the policies that led to crisis. I will sheepishly admit to putting a positive spin on things pre-inauguration (see Crony capitalism in U.S. banking bailout should end from January). But, Geithner and Summers consolidated power over time as infighting begins within Obama’s team forced Obama to cast his lot with Geithner-Summers or Volcker. By March, Marshall Auerback was asking Where’s Volcker? as it became obvious he was being shunted aside.

The path not chosen

So, to sum up, we had an economic and financial crisis of a lifetime. The Bush Administration and the Fed were in disbelief and failed to make enough preparations for the obvious coming failures. An almost religious belief in market mechanisms and an incoherent policy led to disaster with Lehman – after which the Bush Administration got religion about bailouts and crony capitalism.

When Obama came to town, you might have thought his policies would be substantively different. But they were not – not on regulatory reform, auto bailouts or bank bailouts. His was the neo-liberal prescription of the Clinton era – substantively the same as the Bush policies. When I wrote Seven reasons to be skeptical of Obama’s economic plans already in January, this was why.

That’s how things panned out.

Since I detailed some of the policy choices in my review post on crony capitalism, I won’t cover that ground here. I will point out just a few March 2009 posts from Credit Writedowns which I did not mention in the last review posts. They all point to problem’s with Team Obama’s solution in terms of wealth transfers and sustainable outcomes as pointed out by leading economists.

I will use this as a natural place to stress how motives and intent are irrelevant.  Think Obama is a bad guy all you want. Think Larry Summers has an alternative agenda all you want. Think the perennial public servant Tim Geithner doesn’t want to do good all you want.  Motives and intent don’t matter; outcomes matter.

And here are the posts I feel best represent a number of potential alternative solutions to what we have witnessed from pre-Lehman through March.

Likely outcome

I’ll finish this off by quoting from my third post “The US Economy 2008” which points to over-indebtedness and a purge of malinvestment as the problem which politicians will refuse to tackle:

The global economy, now supported in the main only by the overextended U.S. consumer, finds itself at stall speed, susceptible to any number of potential exogenous shocks. Ultimately, the economic malaise created by this confluence of events will take years to unwind. A positive outcome to this process is dependent wholly on liquidation of excess credit and consumption.

This process will be extremely painful in the short term, but will lead to a healthy economy long-term. Unfortunately, experience shows that these painful steps will only be taken as a last resort. Moreover, geopolitical events become volatile in a world of economic insecurity, leading to political upheaval and protectionism. Protectionism is a natural outgrowth of nationalist economic policy as it transfers wealth from foreign producers to domestic producers by cutting off access to lower cost excess capacity in the goods in service sectors. However, this also serves to transfer wealth from domestic consumers to domestic producers by increasing the price of goods in the protected sectors, ultimately reducing consumption demand.

For these reasons, I am cautious about the long-term outlook for the global economy and the U.S. economy in particular. The likely outcome for the next decade is one of sub-par global growth with short business cycles punctuated by fits of recession.

Could it be any different?

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward


  1. Kievite

    “I am trying to look back at the last one with some semblance of a coherent interpretation of events that leads to a strategic vision of the future.”

    On New Year Eve one should be a big picture and wear rosy glasses. Despite all the difficulties this country is still a magnet for immigrants. Despite all the difficulties internet access here is working and electronics is twice cheaper then in EU.

    Please don’t forget that this is the country that gave the world computer & internet, McDonalds and Yves ;-)

    Such a country cannot simply perish in abuses.

    Another consideration is that with economic crisis like a tiger chasing countries you do not need to outrun the tiger (aka solve all problems) to survive. You need only outrun a couple of other countries.

    1. alex

      “On New Year Eve one should be a big picture and wear rosy glasses.”

      New Year’s Eve is still 3 days away.

      “electronics is twice cheaper then in EU”

      And health care is twice as expensive.

      “Please don’t forget that this is the country that gave the world computer & internet, McDonalds and Yves”

      You sure you want to put McDonalds in that list? How about airplanes – we had the first working one.

      “Another consideration is that with economic crisis like a tiger chasing countries you do not need to outrun the tiger (aka solve all problems) to survive. You need only outrun a couple of other countries.”

      No, it’s possible for pretty much the whole world to go to hell economically. This isn’t a “just gotta be faster than the competition” type of situation. And my personal concern is for the success of the Republic in an absolute rather than a relative sense. In the bad old days of the Cold War we could always (rightly) congratulate ourselves for being better than the USSR, but that was far to low a bar to satisfy most patriots.

      Despite all the doom and gloom here I suspect most posters appreciate that this is a great country, but that’s why we’re so outraged when it doesn’t come ever closer to its ideals.

      1. Kievite

        You sure you want to put McDonalds in that list? How about airplanes – we had the first working one.”

        You noticed the wink at end of the sentence, don’t you ? Actually in the XX century the most important inventions were either made by USA or first mass adopted by USA. And I think the USA still have advantage in fundamental research because of huge military budget.

        And my personal concern is for the success of the Republic in an absolute rather than a relative sense. In the bad old days of the Cold War we could always (rightly) congratulate ourselves for being better than the USSR, but that was far to low a bar to satisfy most patriots.

        It’s probably more complex then “absolute vs. relative”. I think your comparison with the USSR is very apt. In a way, USSR gave the US and allies important meaning and, if you wish, will to fight “evil empire” that served as stabilizer and prevented excesses. After the collapse of the USSR the USA completely succumb to a strange self-reinforcing political, social and academic delusion (politically that can be called “casino capitalism” with the ideology of “market fundamentalism”) . The idea was to bet the destiny of the country on financial services and the role of the dollar as reserve currency replicating the Switzerland model on a grand scale. It failed under the burden of accumulated debt in a similar way as state socialism (nomenklatura rule) failed in the USSR. As Marx used to say “History repeats itself, first as tragedy, second as farce.” The differences between the USSR nomeclatura and the USA financial oligargy is that the latter are not ready to any society transformation that cut into their wealth or power. They will try to preserve “casino capitalism” (the term was coined by Susan Strange who used it as a title of her book published in 1986) at any cost, protests or no protests.
        That’s why I suspect that those “ideological transformation” of the country which started with Reagan, the first prophet of profligacy, military build-up and financial excess (“deficits does not matter” as Cheney aptly said) are very sticky. Recent events suggest mild shock is insufficient to get rid of them.

        1. CrocodileChuck


          “Actually in the XX century the most important inventions were either made by USA or first mass adopted by USA. And I think the USA still have advantage in fundamental research because of huge military budget.”

          Comrade Kiev, can you cite some examples of ‘advantage in fundamental research’ from a huge military budget? I believe you have it exactly….BACKWARDS.

          1. Siggy

            Check out the LSI chips that plug into your mother board. Those little beauties come the research that was undertaken to minaturize the guidance circuitry for intercontinental balistic missiles.

  2. alex

    Edward Harrison: “Motives and intent don’t matter; outcomes matter.”

    But in your last port you wrote: “… this question is irrelevant as it ascribes intent when we should be looking either at motive or outcome. If you do look at motive and outcome …”

    Not that I have any grief over this change, but it is a change. My own way of expressing it would be that from most to least important we have outcome, motive and intent.

    As long as you consider outcome the most important thing and intent the least, I’m happy with the approach to analysis.

  3. kevinearick

    This caused a bit of an uproar over at the NYT:

    GDP, Deficits, Law, & Outcomes

    Deficits measure maladaptive behavior, the failure to effectively save, and invest in future viability, to maximize NPV and induce growth. Capital is in trouble because it failed to invest in the future, and the current policy of infinite monetary policy (see Freddie and Fannie) is to accelerate the short, now that the future, demographic deceleration, is here.

    There is no way to measure I because capital borrowed from the future to create “earnings” as the basis for borrowing again, compounding the error, to magnify C, supplying artificial demand abroad to create global dependency, increasing self-interested G to process the transactions.

    I, C, & G are all artificial, because GDP never measured economic profit; it measures economic activity, maximizing borrowing from the future to pay increasingly irrational, maladaptive costs, to bail out capital – eliminating the path to the future.

    Healthcare is classic, 20% of the economy to subsidize maladaptive behavior, created by the ponzi capital pyramid between producers and consumers in the food chain, a problem that would quickly solve itself if the structural subsidy to capital were removed.

    Monetary policy is being employed to create artificial scarcity, social demand, to re-enforce non-performing capital and the government serving it.

    The constitution was designed to protect the majority from these self-liquidating circumstances. Shorting the constitution with family law terminated savings and investment, doubling down on debt and consumption, in a too-big-to-fail strategy, that always fails. Capital had a going-away party.

    The US Supreme court, on the vote of a handful, removed the evolutionary lead of natural new family formation, discharging the middle class battery to ground, capital.

    Capital breeds on the laws of property. Labor breeds on the laws of physics. They had an agreement to grow a semi-neutral middle class. Capital broke that agreement under the false assumption that its global economy was the only “game” in town. Labor is protected by its relationship with evolution, and always has access to ground, alternative capital.

    The point in developing the Internet was to make the process transparent. The dismantling of the USSR was just a beta test.

    The dinosaurs were a sunk cost. Everyone clutching non-performing assets may want to make a new years resolution, or continue partying. Titration is nearly complete, non-performing capital is turning to salt, and social evolution is about to accelerate again.

    Now, we watch as the municipalities are pushed over the cliff, as the momentum of global implosion hits American shores, but at least the feds got a big pay raise for putting the states and municipalities at the edge of the cliff first, to buttress themselves.

  4. Ben

    Geithner: “I think this really says something important about the president, not about me. The test is whether you have people willing to do the things that are deeply unpopular, deeply hard to understand, knowing that they’re necessary to do and better than the alternatives.”

    It’s propaganda. It’s unpopular because it’s wrong. It’s easy to understand; it’s hard to justify using logic, because it’s wrong. It isn’t necessary, and it’s not better than all the alternatives.

    It is, however, expedient and reactionary, and it means that your next campaign won’t be underfunded.

    The circle of corruption is complete and has been exposed. Bush proved that you no longer have to hide it. The oligarchs will continue to abuse the peasants unrestrained until the social fabric tears.

  5. Doug Terpstra

    “…new management must be installed to prevent the old management from covering up past mistakes or perpetuating errors that led to the firms demise. The same is true in government.”

    This is why Obama’s steadfast refusal to investigate or prosecute, not only wire fraud and financial fraud but war crimes is so maddening; it ensures their perpetuation.

    In this context, deterrence, I disagree that “motives and intent are irrelevant.” It implies letting bygones be bygones; let’s look forward not back. I feel they are critical, not only to basic trust in business and society, but also to crime and punishment, (or vengeance)—the difference between 25-to-life or lethal injection. Can’t we at least get a seven-strikes-and-no-parlole rule for banksters and politicians?

    1. alex

      “I disagree that ‘motives and intent are irrelevant.’ It implies letting bygones be bygones”

      That’s true for prosecution, but not entirely true for politics. Failure to achieve desirable outcomes, regardless of motive or intent, is a perfectly valid reason for throwing the bums out.

      The problem with focusing on intent is that in politics it’s very hard to prove and very easy to defend against. Absent a smoking gun memo, a politician’s supporters can always say “he meant well”. So what? The effect is what counts.

      P.S. Not to say we don’t need more prosecution. As William K. Black has pointed out, there were over 1000 convictions in the S&L crisis. Given that the current debacle makes that look like a petty cash theft, it’s beyond belief that there aren’t plenty of crimes to prosecute. But who prosecutes their campaign contributors?

  6. Blurtman

    Is the US investment banking industry the new US auto industry, issuing toxic garbage as opposed to unreliable gas guzzlers? And fighting reform all the way into oblivion?

  7. just me

    Resolving a non-bank financial crisis and a banking crisis are two entirely different things. Only banks in theory can offer transactional DDA that are payable on demand at par. Read Corrigan’s 1982 piece “Are Banks Special”. Part of the problem is that the size of the non-bank institutional MMMF sector got too large – and post the break-the-buck of the Reserve Primary fund we had the makings of a classic run here.

    But banks are special: they issue financial liabilities (guarantees, backup lines, derivatives) that are different in size, scale and scope from those issued by non-bank firms. They do this because of confidence in their ability to backsyop these obligations.

    There is a universally acknowledged way of handling a banking crisis: guarantee the liabilities, inject capital into institutions, and remove the bad assets. The first two were done, as arguably was the third through writeidowns. We are now in extra-innings as the lack of credit set off a credit downturn recession.

    1. Been there


      You tryin’ to say boomer leaders are arrogant know-it-alls that look out strictly for their own self interest?

      You may be right but I’ll bet that there were also plenty of generation X’ers who sold the Sh** that got us into this mess. The problem does not involve age. Rather, the conundrum, it seems, is that the only people who are seen to have the appropriate level of cred to tackle the problems are the ones who now are frantically trying to scrape off the bootom of their boots.

      Obama, like Bush and every other modern President before him, has probably been checkmated into a course of action dictated by those who provided the cash that got him where he is. For these reasons I agree with Ed Harrison’s conlusions about what he belives is the most likely outcome for the next decade.

      1. moneta

        I’m blaming human nature more than I am the boomers. I’m part of Gen-X and I want the whole system to crash now so we can just fix it once and for all. And yes I am being selfish because I want it to happen while I still have more than 20 years to plan my old age. But if I were a boomer I would probably want to believe that we can maintain the status quo until I’m not around.

        Let’s be objective here… The older generation (Volcker) is disgusted with the spendthrift ways of the younger generations, boomers included. The younger generation (Taibbi) just wants a quick resolution so they can plan accordingly since they still have many years ahead of them to rebuild.

        I’m not saying that all boomers are arrogant pricks but I am saying that those leading us are. They are leaders because they have succeeded in the system that workded for them. Anyone who thinks it’s in their interest to change that system is completely deluded. And the fact that boomers have limited time to rebuild their nest egg is an important motivator.

        Most boomers are quite nervous these days. The moneyed ones don’t want any change that will destroy their wealth. Fot them, the only acceptable changes are the ones that will bring them more. This means taking from the future and taking from the young.

        I find quite revealing when every time I have a conversation with a boomer over 50 about the state of our economy and of our envrironment and their final comments are always in the line that, yes, there are troubled times ahead but they are sure glad they won’t be around to see them.

  8. moneta

    Obama: 1961
    Geithner: 1961
    Summers: 1954
    BB: 1953
    Paulson: 1946
    Taibbi: 1970

    I would not be surprised if only 2 variables determine how much change we could actually believe in: age and wealth accumulated.

    IMO, we are not going to see any change coming from leaders born between 1945 and 1965, unless they are broke.

    First of all, these dogs are old enough to not be able to learn new tricks plus they have every reason to believe in their powers and the status quo.

  9. TC

    “Could it be any different?”

    Not only could it be, it absolutely must be. Yet cause for optimism is terribly faint.

    I disagree “[t]he likely outcome for the next decade is one of sub-par global growth with short business cycles punctuated by fits of recession.” Rather more likely is a cascading, global collapse of many vital economic, social and political functions.

    Response thus far to crisis occurring amidst profound imbalances (both physical and financial) built up over many decades reveals the lender of last resort behaving like a spoiled, unrepentant child (a view your dominant themes for the year 2009 more or less supports). And yet where is the smack-down of this unruly child? In bipartisan calls for restoration of Glass-Steagall as well as other [watered down] regulatory reforms being put forward long after the horse has left the barn? The spirit of Neville Chamberlain rules the Congress!

    And now, with risks of sovereign default growing by leaps and bounds, I am to suppose there is serious concern for our wholly unresolved, grave vulnerability when even well-informed critics say “motives and intent don’t matter?”

    Indeed, motives and intent are the only logical starting point at this time if our desire is to avoid the most likely outcome: catastrophic, chain reaction collapse of many substantive bonds existing within, and among, nation states.

    Our present vulnerability to a more or less total collapse into a physical breakdown crisis DEMANDS targeting of all enemies acting in defiance to principles put forward in the simple, single sentence to the U.S. Constitution. We should be acting as though our nation were under attack (which, judging by outcomes — think taxpayer looting — it is).

  10. wally

    It is becoming really frustrating to read something in which common sense and reason are clearly laid out – because it just serves to point out that we aren’t going there. Instead, we will adopt the opposite as policy.
    The most telling is your statement: “Obama was not elected to do wildly unpopular things”.
    Of course not! He was elected to do popular things, things people want. How he ever got sucked over to the philosophy that ‘the people are always wrong’ is beyond me. It’s nuts.

    1. gruntled

      I think the decision makers in Washington tend to see the voices of “common sense and reason” in the blogosphere as nothing more than a nuisance, like mosquitos buzzing in the ear of a donkey or elephant. We talk in vain, and they talk with their actions, as if they’ve never heard a word we said.
      What do we do?

    2. gordon

      Well, I’m not an American so I may well have missed a lot of nuances, but from the other side of the Pacific the election of Pres. Obama did indeed look like a desire for major change that has since been frustrated. But look at it from Obama’s point of view. He, a man from a non-privileged background, has made it to the top of the greasy pole. That’s a victory in itself, and in ordinary circumstances would have been enough. It’s a great American success story, and what more could you possibly want?

      Then there’s the career aspect. The Presidency is only 8 years at most. Life goes on after that. If he wins 2 terms he will still only be 55. It would be silly for him to endanger his chances of successful books, speaking engagements, Govt. appointments, business links etc. etc. by making himself unpopular with the people who hand these things out. And such an ostracism would detract from the dazzling success of his having been elected, which is after all what really happened and was always itself the main event.

      For Obama to have acted differently, more perhaps in the vein of FDR, would have required Hollywood-style improbability in a world in which politics is a career and bright young guys without a lot of money want more than anything else to make good. That’s what life’s about, isn’t it?

      1. Cynthia

        It seems pretty obvious to me that Obama is using the office of the presidency only to enrich himself and enrich his already rich campaign contributors. I get the impression that it’s not one of his goals to make America a richer place for ordinary Americans. In fact, he comes across to me as someone who is such an elitist in his thinking that he’s probably looking forward to seeing America turn into a land of haves and have-nots with nothing in between.

        So I’ve pretty much come to the conclusion that there’s only one of two things that we can do to keep politicians like Obama from using Washington as a place to strike it rich: 1) get rid of all private campaign contributions or 2) elect only people to public office who are so damn rich that they don’t need to raise a dime to win elections. I’m sure that there are few wealthy people out there, Rep. Alan Grayson comes to mind, who’d seek public office in order to represent the interest of ordinary Americans, even if it means having to lose a few of their multimillionaire friends.

  11. Jim in SC

    I’d like to follow up Moneta’s point about the baby boomers. Incidentally, I am one, 1961.

    I suspect that if you were to draw up a list of the movers and shakers who brought us Health Care Reform, which is supposed to be paid for through cuts in Medicare, you’d find they are mostly boomers. I would guess they skew slightly older than the President. The underlying motivation is to take something valuable away from their parents’ generation. ‘You didn’t give me that train set I wanted back in ’62, Pop, so you’re not going to get that medicine you need to get out of bed everyday.’

    It has never made any sense for the President and Congress to focus on Health Care Reform during such an economic crisis as the one we’ve been experiencing. That they are doing it proves that deep Oedipal strivings trump reason every time.

    1. JTFaraday

      I have a somewhat different take on that. The way I see it, the reason someone like Paul Krugman decides he’s okay with the corporate giveaway Senate Bill is because he’s an investment “portfolio watcher,” not because he’s a baby boomer. Taking money out of Medicare and putting money into private corporations is a gain for HIM, as an asset holder.
      He’s not so keen on the implications for his government benefit–he’s got better going for him.

      “Punishment” in the whole healthcare reform misfire seems concentrated on the median income working class–the kinds of “free rider” rhetoric Krugman directed at those feel they can’t afford to buy individual insurance policies was as nasty as anything coming out of the fiscally conservative right.

      This “free rider” category can certainly include people on Medicare. So, it’s not that some 50-something didn’t get a train set in 1962, it’s that people on Medicare who are not going to goose Krugman’s portfolio for him are kind of pointless.

      Yes, I realize I’ve ascribed motives to him but it seems to me that when credentialled people with influential press platforms start talking smack, it’s perfectly appropriate to seek to do so.

      The Federalist papers didn’t dwell on competing “interests” for nothing.

  12. tooearly

    Motive and intents don’t matter?

    Proving them might be difficult. Not impossible .
    A good prosecutor’s job imo

  13. killben


    “Unfortunately, experience shows that these painful steps will only be taken as a last resort”

    I agree. So it also means that as long as Fed & Treasury can get away with the bailout binge they will …

    When will it end?

    It will end either when the interest rate goes up because of the size of the debt or when there are sovereign debt failures leading to a seizure in the credit markets …

  14. Stocks on Wall Street

    The debt are country is taking on is becoming unbearable to watch. Obama was not the savior he promised to be or what America bought into and frankly he never will become one either. The lefts in American government have been making wrongful moves moving America closer and closer to a European Controlled Economy. All this I feel is leading America on a downward spiral that will be a catastrophic failure when we look back at it all.

  15. moneta

    The problem does not involve age
    The problem might not involve age but the solution does.

    Since 75% of the wealth is in the hands of the 55+ and the solution involves a redistribution of this wealth, anyone who thinks that a moneyed 50+ will implement strategies that will redistribute his/her wealth is completely deluded.

    The reality is that our current rulers are boomers with money. They will do more of the same. If there are changes it won’t be because they choose them, it will be because these changes will be forced on them.

  16. moneta

    When will it end?

    It will end either when the interest rate goes up because of the size of the debt or when there are sovereign debt failures leading to a seizure in the credit markets …
    Right now too many people still think we can pull rabbits out of a hat.

    Only when the general population accepts that the western world is broke, will our leaders be able to tighten the purse strings without getting assassinated.

  17. johnC

    Hey Ed! Here’s a clue.
    Obama’s gonna do the same.

    He is known as a dove among the hawks of the Bush administration. But Colin Powell has chosen an eagle and a lion in his application for a coat of arms to mark his Scottish ancestry.

    The US secretary of state has petitioned the heraldic authority of Scotland for the right to bearings, joining a growing and disparate band of Americans keen to lay claim to their roots in the old world.

    A researcher recently claimed that Elvis Presley’s family originated in Lonmay, a hamlet in Aberdeenshire, while Johnny Cash insisted he descended from the family of a 12th century Scottish monarch.

    Heraldic bearings cannot be granted to non-citizens, but Mr Powell has applied on behalf of his late father Luther, who was born in Jamaica and therefore a subject of the crown. The secretary of state would inherit the right to use the bearings.

    He wanted a Scottish coat of arms as his mother Maud McKoy’s family was originally from Scotland.

    Elizabeth Roads, Lyon clerk at the court of the Lord Lyon in Edinburgh, said applicants had to be “virtuous and well deserving persons” who fell within the court’s jurisdiction.

    “His father was a subject of Jamaica and of course he is an honorary KCB, so a worthy individual,” she added.

    Mr Powell received his honorary knighthood in 1993, his last year as chairman of the US joint chiefs of staff.

    As a four-star general, it was perhaps inevitable that Mr Powell’s coat of arms would include the trappings of a war rior. But Ms Roads ruled out the prospect of humvees and grenades. “We try to use symbols rather than specific things,” she said.

    Accordingly, the shield will feature four stars and two swords as well as a lion, commonly used for arms holders with the surname Powell. The crest will be an eagle, in reference to America and the badge of the 101st Airborne Division, in which he served and which he later commanded. The motto – in English, rather than Latin – will read: “Devoted to public service.”

  18. DownSouth

    Ed Harrison said: “Motives and intent don’t matter; outcomes matter.”

    That statement is more prescriptive than it is descriptive, and very much in concert with classical and neoclassical economic theory.

    According to Amitai Etzioni:

    Moral acts often concern intentions and processes, not outcomes. (This is not to say that outcomes do not matter, but the moral standing of an act is derived from its being in line with moral criteria. See discussion of the deontological position on pp. 11-13.) Unlike pleasure, which is a matter of achieving the desired end-state, moral commitments can be expressed by taking the proper steps (choosing the morally sanctified course) even when the sought-after result is not attained. For example, one can live up to a moral commitment when one testifies in court on behalf of a wronged party even if the person loses the trial, or when one donates blood to a relative who nevertheless dies.

    To the extent that moral acts are concerned with consequences, how the consequences were attained is significant. The use of immoral means casts a dark shadow on the consequences: a stolen candle is hardly worth lighting in church; liberation achieved through a blood bath is defiled. In contrast, the pleasure obtained from a stolen apple is commensurate with that bought at full price (if not higher). A stolen $1000 will buy as much as the same amount earned the hard way. In short, pleasure is a matter of consequences; moral action, on the other hand, is a matter of predisposition (or intentions), of processes, and consequences.
    –Amitai Etzioni, The Moral Dimension

    Classical and neoclassical economic theory holds that morality is not important in human decision making. Etzioni, however, challenged that assumption:

    The main thesis advanced here is that the most important bases of choices are affective and normative. That is, people often make non- or sub-rational choices, first because they build on their normative-affective foundations, and only secondly because they have weak and limited intellectual capabilities.

    That was back in 1988 when Etzioni wrote that. Since then, his thesis has gained considerable momentum, especially in the fields of psychology and neurobiology. The simplistic, reductionist assumptions about human nature that underpinned the Age of Reason are becoming increasingly dubious, as is pointed out here:

    While the writings of the great political philosophers of the past are usually both penetrating and nuanced on the subject of human behavior, they have come to be interpreted simply as having either assumed that human beings are essentially self-regarding (e.g. Thomas Hobbes and John Locke) or, at least under the right social order, entirely altruistic (e.g., Jean Jacques Rousseau, Karl Marx). In fact, people are often neither self-regarding nor altruistic. Strong reciprocators are conditional cooperators (who behave altruistically as long as others are doing so as well) and altruistic punishers (who apply sanctions to those who behave unfairly according to the prevalent norms of cooperation.)


    Strong reciprocity is a predisposition to cooperate with others, and to punish (at persona cost, if necessary) those who violate the norms of cooperation, even when it is implausible to expect that these costs will be recovered at a later date.
    –Herbert Gintis et al, Moral Sentiments and Material Interests

  19. Tony Frank

    What better example could one find in all of history than what was done the last 18 months by the thieves, dc stooges and financial mafia.

    The biggest rape of taxpayers in history.

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