Three key regulators saw the warning signs of a serious financial crisis. All three were ignored. All were women.

Keith Chrostowski of The Kansas City Star:

Summers: "Issues of women's intrinsic aptitude?"

More people in positions of power — government regulators, especially — should have foreseen the subprime financial crisis coming.

They could have saved us from this mess.

But wait …

Three regulators did indeed ring warning bells — at the right time, in the right places, and loud enough for other banking and financial system overseers.

Brooksley Born

 All three were women: Brooksley Born, Sheila Bair and Susan Bies.

All three were ignored.

You may have heard before about the warnings issued by Born, the head of the Commodity Futures Trading Commission in the 1990s, and Bair, the chairwoman of the Federal Deposit Insurance Corp. from 2006 to 2011.

Bies’ concerns, however, came to light recently when the Federal Reserve released transcripts of its policy meetings from 2006, a full two years before the crisis exploded.

Susan Bies

Bies was a central bank board member from 2001 to 2007. Several times in the transcripts she said she was worried about the housing bubble.

Bies warned fellow board members that exotic mortgages — for instance, negative amortization loans in which balances become bigger and not smaller over time — were too dangerous for consumers.

Sheila Bair

She warned about the Wall Street-created securities backed by risky mortgages.

“I just wonder about the consumer’s ability to absorb shocks,” she said at Fed meeting in May 2006.

“The growing ingenuity in the mortgage sector is making me more nervous as we go forward in this cycle, rather than comforted that we have learned a lesson. Some of the models the banks are using clearly were built in times of falling interest rates and rising housing prices. It is not clear what may happen when either of those trends turns around.”

The Death of Glass-Steagall: a former top banking exec's "Mea Culpa" and a former Senator's "I told you so!"

Bill Moyers interviews John Reed, the former head of Citigroup - who was personally involved in the extinction of the Glass-Steagall Act, which for 70 years separated traditional banks from speculative investment banking, and now regrets it - and former Senator Byron Dorgan - who was one of the few in Congress to forcefully oppose the change and warn of great risks, predicting with almost eery prescience in 1999 that "within ten years" the country would come to regret this landmark deregulation.

Moyers & Company Show 103: How power and influence helped big banks rewrite the rules of our economy. from BillMoyers.com on Vimeo.

Thought for the day...on the GOP's Newtron Bomb

From John Heileman, who's been following Newt Gingrich on the campaign trail for New York magazine:

(S)o much has he come to despise Romney and the Republican Establishment that has brought down on him a twenty-ton shithammer in Florida, and so convinced is he of his own Churchillian greatness and world-historical destiny (that t)he same antic, manic, lunatic bloody-mindedness that has made him such a rotten candidate in the Sunshine State may be enough to keep him the race a good long time.

 You go, guy!

State and Local Budget Cuts Are Stalling Recovery

Jared Bernstein:

Sources: BEA, BLS

Last year, state and local squeeze shaved about 0.3% off of GDP and cost 266,000 jobs.  A simple regression of state/local job losses on the GDP contribution finds that for every point of growth that the states and locals take off of GDP, employment in the sectors falls around 700,000.

We generally recognize that GDP losses map onto job losses but the fit is not usually this tight—there are lags in the generalized relationship between growth and jobs and lots of other moving parts.  But that’s less the case in state and local governments.  Here, the chain of events is pretty obvious and pretty clear.  You squeeze their budgets, it shows up quickly and directly in growth and jobs.

Conversely, and here’s the policy part, were we to use federal stimulus to help relieve their budgets, we could get this relationship running in a better direction.

Update: The always righteous Larry Mishel (president of the Economic Policy Institute) points out that the job losses I’m citing above are only part of the story.  States and cities buy private services and contract with private firms.  Ethan Pollack writes: “For each dollar of budget cuts, over half of the jobs and economic activity lost are likely to be in the private sector.”

We need more federal assistance (aka "stimulus") to state and local governments. Of course, given the current Congress it's not going to happen.

Bill Maher wants to know: Who the F*** Is Saul Alinsky?

Newt Gingrich, trying to keep incoherent fear alive on the GOP campaign trail:  “The centerpiece of this campaign, I believe, is American exceptionalism versus the radicalism of Saul Alinsky,”

Once more: Fannie and Freddie did NOT cause the housing bubble!

"Fannie & Freddie's fault" fabulists.

Worth repeating, because the false narrative keeps getting recycled cynically - most recently by Mitt Romney in his desperate desire to become President at any cost to whatever integrity he might have had - another  debunking of the "Fannie and Freddie caused the housing bubble" Big Lie.  This one comes from, interestingly, Mark Zandi who is chief economist for the credit ratings agency, Moody's, which was itself a key player in marking up junk sub-prime mortgage securities so that unwitting investors would buy them. From the horses mouth, Zandi comments at the Washington Post:

There is plenty of blame to go around for the U.S. housing bubble, but not much of it belongs to Fannie Mae and Freddie Mac. The two giant housing-finance institutions made many mistakes over the decades, some of them real whoppers, but causing house prices to soar and then crater during the past decade weren’t among them.

GOP Pols, Right-Wing Billionaires, Chinese "Communists" and the art of having it every which way in the citadels of Money & Power.

According to a 2008 New Yorker article on Sheldon Adelson - Newt Gingrich's financial angel in the GOP primaries and current poster boy for post-"Citizens United" unrestricted campaign spending - the cagy casino mogul knows well how the game of money and politics is played, and with much bigger stakes than the career of a disgraced former House Speaker.

In 2001 Adelson - well known for his right-wing views and close ties to GOP politicians - met with the mayor of Beijing in the course of promoting his Las Vegas Sands Inc. casino business to the Chinese ruling group. Adelson saw his entrprise as a perfect fit for the island of Macao, a former Portugese colony which is controlled as a "special administrative region" by China and which had been exempted from the Communist Party's bans on gambling.

Global gambling mogul Adelson

But the Beijing mayor brought up an apparently unrelated concern - legislation pending in Congress criticizing China's human rights record, that was targeted in opposition to Beijing hosting the 2008 Summer Olympic Games.  The official asked if the politically-connected Adelson could do anything to block this US legislation as a favor to the Communist Party-controlled government he was lobbying to open China's doors to his casino business?

According to The New Yorker (citing testimony in court documents filed in an eventual lawsuit when one of Adelson's presumed business partners alleged he had been ripped off by the casino mogul):

Adelson said in court he immediately made calls on his cell phone to Republican friends in Congress—including Tom DeLay, then the majority whip—who had received generous support from Adelson. DeLay told him that there was indeed a resolution pending about China and the Olympics.

Representative Tom Lantos, then the highest-ranking Democrat on the House International Relations Committee, had introduced a resolution opposing China’s Olympic bid, saying, “China’s abominable human rights record violates the spirit of the games and should disqualify Beijing from consideration.”

The Buffet Rule

Greg Sargent at Plum Line:

Picture this scenario. The Senate holds a high-profile vote on a proposal focused directly on implementing the Buffett Rule, one that would bring the current tax rate for millionaires paying lower rates on investments up to 30 percent. This, at at exactly the moment when the GOP is picking a nominee who is worth $250 million and is personally benefitting to an enormous degree from the current rate — one that’s lower than many middle class taxpayers pay.

It could happen...Senator Sheldon Whitehouse is set to announce a proposal to do just this...

The Politifiction of "Politifact"

Who checks the bogus "fact checkers" downgrading the President's State of the Union speech? 

 
Jared Bernstein does a pretty good job:

OMG…this is beyond preposterous.

Politifact—the self-anointed fact checkers—grade this statement from the President speech tonight as “half-true:”

“In the last 22 months, businesses have created more than three million jobs. Last year, they created the most jobs since 2005.”

This is not half true or two-thirds true.  It is just true.

So why, I ask you, why do they go where they go?  Because of this:

In his remarks, Obama described the damage to the economy, including losing millions of jobs “before our policies were in full effect.” Then he describe [sic!] the subsequent job increases, essentially taking credit for the job growth. But labor economists tell us that no mayor or governor or president deserves all the claim or all the credit for changes in employment.

Really?  That’s it?  That makes the fact not a fact?  I’ve seen some very useful work by these folks, but between this and this, Politifact just can’t be trusted. Full stop.

Citizens United!

Las Vegas Sands casino mogul Sheldon Adelson, who has bankrolled the Gingrich campaign to the tune of $10 Million.

The Bains of Capitalism

James Suroweicki, at The New Yorker, on the implications of presidential aspirant Willard Romney's particular business experience:

Willard Mitt Romney Front and Center at Bain

The real reason that we should be concerned about private equity’s expanding power lies in the way these firms have become increasingly adept at using financial gimmicks to line their pockets, deriving enormous wealth not from management or investing skills but, rather, from the way the U.S. tax system works. Indeed, for an industry that’s often held up as an exemplar of free-market capitalism, private equity is surprisingly dependent on government subsidies for its profits.

Financial engineering has always been central to leveraged buyouts. In a typical deal, a private-equity firm buys a company, using some of its own money and some borrowed money. It then tries to improve the performance of the acquired company, with an eye toward cashing out by selling it or taking it public. The key to this strategy is debt: the model encourages firms to borrow as much as possible, since, just as with a mortgage, the less money you put down, the bigger your potential return on investment. The rewards can be extraordinary: when Romney was at Bain, it supposedly earned eighty-eight per cent a year for its investors. But piles of debt also increase the risk that companies will go bust.

It's the demand, stupid...

Former Treasury Secretary Larry Summers at Financial Times:

Government has no higher responsibility than insuring economies have an adequate level of demand. Without growing demand, there is no prospect of sustained growth, let alone a significant fall in joblessness. And without either of these there is no chance of reducing debt-to-income ratios...

The best chance for economic recovery involves governments working directly to increase demand and to augment business confidence.

Eye of the Newt

"Eye of newt, and toe of frog, Wool of bat, and tongue of dog...
For a charm of powerful trouble, Like a hell-broth boil and bubble."
                                        Macbeth (IV, i, 14-15)

Newt Gingrich is a chameleon-like charlatan who appears to constantly reinvent himself for his audience du jour, in variations on his persistent grandiosity, pretensions to power and ambition to accumulate wealth. His conduct in the GOP debates has been a study in resentment honed into startlingly effective demagogy. But there's really  nothing new here. Lest we forget one of his more shameless recent-but-pre-GOP-primary moments of shabby moral dissolution - having nothing to do with ex-wives - Charles Blow, at The New York Times, reminds us:

In September 2010, he told the National Review Online that President Obama followed a “Kenyan, anti-colonial” worldview. Gingrich continued, “I think he worked very hard at being a person who is normal, reasonable, moderate, bipartisan, transparent, accommodating — none of which was true.”

Gingrich was commenting on a Forbes article by Dinesh D’Souza, the president of the King’s College in New York City. In the article, D’Souza said of President Obama:

“Our president is trapped in his father’s time machine. Incredibly, the U.S. is being ruled according to the dreams of a Luo tribesman of the 1950s. This philandering, inebriated African socialist, who raged against the world for denying him the realization of his anti-colonial ambitions, is now setting the nation’s agenda through the reincarnation of his dreams in his son.”

Gingrich called the article the “most profound insight I have read in the last six years about Barack Obama.”

Ironically, what Newt was offering us was a profound insight into his own lack of intellectual integrity or moral boundaries, which would come to full fruition in his more recent conduct as a presidential aspirant.

"The crisis raises legitimate questions about the system itself"

Mohamed El-Arian - the chief executive of a major global investment firm, PIMCO - asks some serious questions about the  capitalist system itself, HERE @ Financial Times: "four years into the crisis, little has been done to repair the damage coherently and comprehensively and to safeguard the real victims, let alone counter the risk of further costly dislocations."

Economists at Sea...

Economist Robert Johnson suggests some ways to salvage the reputation and relevance of his profession in the wake of multiple economic crises and an increasing sense that the "experts" have been either bought off or are clueless:

As the Oscar-winning documentary Inside Job illustrated, there is a very lucrative market for false visions of financial-market behavior that legitimate the desires of participants to be unshackled and make more money. But good policy prescriptions are public goods that represent the social good and not just the concentrated financial interests. Unfortunately, as economists beginning with the work of Adam Smith have repeatedly shown, public goods are under­provided in the marketplace. In addition, the reputation of the economics profession is itself a collective good, and those who have tarnished it are not adequately penalized for the damage they do to their fellow professionals when they accept large sums of money in return for marketing a perspective that benefits vested interests.

These are problems that some within economics have been aware of for a long time, but the discipline as a whole has been unable to address them. The onus is on the profession to face these challenges and help lead society off the rocks.

How to Save Economics

"For God So Loved The 1%"

Historian Kevin Kruse at the NYTimes:

IN recent weeks Mitt Romney has become the poster child for unchecked capitalism, a role he seems to embrace with relish. Concerns about economic equality, he told Matt Lauer of NBC, were really about class warfare.

“When you have a president encouraging the idea of dividing America based on the 99 percent versus 1 percent,” he said, “you have opened up a whole new wave of approach in this country which is entirely inconsistent with the concept of one nation under God.”

Mr. Romney was on to something, though perhaps not what he intended.

"Supply Side Jesus" courtesy of Al Franken

The concept of “one nation under God” has a noble lineage, originating in Abraham Lincoln’s hope at Gettysburg that “this nation, under God, shall not perish from the earth.” After Lincoln, however, the phrase disappeared from political discourse for decades. But it re-emerged in the mid-20th century, under a much different guise: corporate leaders and conservative clergymen deployed it to discredit Franklin D. Roosevelt’s New Deal.

During the Great Depression, the prestige of big business sank along with stock prices. Corporate leaders worked frantically to restore their public image and simultaneously roll back the “creeping socialism” of the welfare state. Notably, the American Liberty League, financed by corporations like DuPont and General Motors, made an aggressive case for capitalism. Most, however, dismissed its efforts as self-interested propaganda. (A Democratic Party official joked that the organization should have been called “the American Cellophane League” because “first, it’s a DuPont product and, second, you can see right through it.”)

Realizing that they needed to rely on others, these businessmen took a new tack: using generous financing to enlist sympathetic clergymen as their champions. After all, according to one tycoon, polls showed that, “of all the groups in America, ministers had more to do with molding public opinion” than any other.

Obama and his critics

"I never said change would be easy."

"Self-described conservative" commentator Andrew Sullivan responds forcefully to the unhinged attacks on President Obama from the GOP, distorting him as some sort of socialist who doesn't believe in capitalism, as an appeaser and - in the crackpot cartoon painted by Mitt Romney and others - a mortal threat to "the soul" of America:

None of this is even faintly connected to reality—and the record proves it. On the economy, the facts are these. When Obama took office, the United States was losing around 750,000 jobs a month. The last quarter of 2008 saw an annualized drop in growth approaching 9 percent. This was the most serious downturn since the 1930s, there was a real chance of a systemic collapse of the entire global financial system, and unemployment and debt—lagging indicators—were about to soar even further. No fair person can blame Obama for the wreckage of the next 12 months, as the financial crisis cut a swath through employment. Economies take time to shift course.

But Obama did several things at once: he continued the bank bailout begun by George W. Bush, he initiated a bailout of the auto industry, and he worked to pass a huge stimulus package of $787 billion.

All these decisions deserve scrutiny. And in retrospect, they were far more successful than anyone has yet fully given Obama the credit for. The job collapse bottomed out at the beginning of 2010, as the stimulus took effect. Since then, the U.S. has added 2.4 million jobs. That’s not enough, but it’s far better than what Romney would have you believe, and more than the net jobs created under the entire Bush administration. In 2011 alone, 1.9 million private-sector jobs were created, while a net 280,000 government jobs were lost. Overall government employment has declined 2.6 percent over the past 3 years. (That compares with a drop of 2.2 percent during the early years of the Reagan administration.)

To listen to current Republican rhetoric about Obama’s big-government socialist ways, you would imagine that the reverse was true. It isn’t.

The basis of growing income inequality

The math, via Jared Bernstein:

Willard Romney: "Let's talk about this in quiet rooms..."

"In the decade of the 2000s, productivity  (economic output - i.e. aggregated national income - divided by hours worked) grew 28% while real median household income fell 7%.  Since 1979, productivity is up 84% and real median compensation, including fringe benefits, rose 12%."

Simply put, the pie keeps getting bigger as economic productivity increases dramatically, but the slices going to the typical worker - from the middle class to the working poor - keep getting smaller relative to the size of the whole pie.

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"New York Federal Reserve Estimates 3.6 Million Foreclosures Will Occur In The Next Two Years"

Pat Garofalo at Think Progress:

While foreclosure rates hit a four-year low in 2011, the early signs for 2012 don’t look good when it comes to housing, as banks have begun to work through a backlog of foreclosures that were delayed by the foreclosure fraud scandal. In fact, the New York Federal Reserve anticipates that 3.6 million foreclosures will occur in the next two years, piling on to the 1 million in 2010 and the 800,000 last year. “The ongoing weakness in housing has made it more difficult to achieve a vigorous economic recovery,” said New York Fed President William Dudley. “Housing has inhibited economic activity through a number of channels.” (HT: Realty Biz News)

Willard's wild tax scheme (for starters, he doubles the Bush tax cuts for millionaires)

The Romney tax plan in five charts, courtesy of Center for American Progress' Michael Lind:

"A smart guy who is also a moral coward"

Guess who?  

Paul Krugman on Willard:

I was fairly startled by Mitt Romney’s new defense of his work at Bain: it was just like the auto bailout!

“In the general election, I’ll be pointing out that the president took the reins of General Motors and Chrysler, closed factories, closed dealerships, laid off thousands and thousands of workers. He did it to try to save the business,” Romney said on “CBS This Morning.” “We … had, on occasion, to do things that are tough to try to save a business.”

The first thought is, didn’t Romney write an op-ed titled Let Detroit Go Bankrupt? Yes, he did. But the title was misleading. What he actually called for was a “managed bankruptcy”, with government support — not too different from what actually happened.

So can Romney claim that he was for this successful policy all along? No, he can’t — because when the actual policy was proposed, he trashed it:

What is proposed is even worse than bankruptcy–it would make GM the living dead.

So what the story of Romney and the auto bailout actually shows is something we already knew from health care: he’s a smart guy who is also a moral coward. His original proposal for the auto industry, like his health reform, bore considerable resemblance to what Obama actually did. But when the deed took place, Romney — rather than having the courage to say that the president was actually doing something reasonable — joined the rest of his party in whining and denouncing the plan.

And now he wants to claim credit for the very policy he trashed when it hung in the balance.

More on Income Inequality

Key excerpts from the top White House economic adviser's presentation on the "mindboggling" magnitude and increasingly negative consequences of growing income inequality (via Ezra Klein):

Klein - This morning, Alan Krueger, the chairman of the President’s Council of Economic Advisers, gave a speech on inequality at the Center for American Progress. Prepared remarks here. Charts here. These are the parts that caught my eye:
 
- “I used to have an aversion to using the term inequality. The Wall Street Journal ran an article in the mid-1990s that noted that I prefer to use the term ‘dispersion’. But the rise in income dispersion – along so many dimensions – has gotten to be so high, that I now think that inequality is a more appropriate term.”

- “As the Congressional Budget Office noted in a recent report, the top 1 percent of families saw a 278 percent increase in their real after-tax income from 1979 to 2007, while the middle 60 percent had an increase of less than 40 percent.”


(Alan Krueger) 
 
- “We were growing together for the first three decades after World War II, but for the last three decades we have been growing apart. Here at CAP, I should point out that the pattern in the post-1970s period is not monolithic. . .the period from 1992 to 2000 was an exception, when strong economic growth and the policies of the Clinton administration led all quintiles to grow together again. Indeed, all income groups experienced their fastest income growth in years. I could also note, parenthetically, that there is no sign in these data that the tax increases in the early 1990s had an adverse effect on income growth.”

- “The magnitude of these shifts is mindboggling. The share of all income accruing to the top 1 percent increased by 13.5 percentage points from 1979 to 2007. This is the equivalent of shifting $1.1 trillion of annual income to the top 1 percent of families. Put another way, the increase in the share of income going to the top 1 percent over this period exceeds the total amount of income that the entire bottom 40 percent of households receives.”

Mitt Romney's Crazy Talk III

Jared Bernstein has it:

Everyone's got a right to their own opinions…but not to their own facts.

When Republican presidential candidate Mitt Romney asserted that federal low-income programs are administered so inefficiently that “very little of the money that’s actually needed by those that really need help, those that can’t care for themselves, actually reaches them,” my colleagues at the CBPP got to work on this graph.

It shows that “federal administrative costs range from less than 1 percent to 8 percent of total federal program spending.  Combined federal and state administrative costs range from 1 percent to 10 percent of total federal- and state-funded program spending.”

Gov Romney is singing from the same playbook as Rep Paul Ryan along with a litany of conservatives whose goal for years has been for the Federal gov’t to shed the responsibility for Medicaid, food stamps (SNAP), low-income housing, and so on.  Once you “block grant” these functions to the states, it’s easier to cut them.  And remember, this is from a candidate (and the same is true for the House R’s budget) that wants to cut taxes deeply for the richest households.

So he’s launching his attack based on inefficient administration—the claim that most of the dollars don’t reach the clients.  Trouble is, the facts got in the way.

Many people argue that Gov Romney is the reasonable R candidate…you might not love his policies, they tell me, but he’s not known for making stuff up, for repeating outrageous statements with no basis in fact.

OK, let’s see—if he keeps repeating this falsehood, then they’re wrong.

The Man from Bain

The expose of Willard Mitt Romney's role as a job-killer with Bain Capital, currently being circulated - in the most ironic electoral gambit in my memory - by a pro-Gingrich "SuperPAC," funded to the tune of $5 million by a right-wing casino magnate and friend of Newt's.  

Who knew?

Gallup:  "The health of the economy in general (31%) and jobs or unemployment (26%) continue to rank as the top two specific issues Americans most often cite.."  Deficits?  Not so much.

"The Foreclosure Crisis: A Government in Denial"

Bruce Judson at New Deal 2.0:

The financial crisis began with the housing crisis and it will not end until we resolve housing. Government policymakers who seemingly ignore this basic fact are leading the nation to another potential catastrophe.

This past week, a number of important events occurred in Washington, including important recess appointments by President Obama. However, the most noteworthy event did not make front page news: the Federal Reserve’s (apparently) unsolicited memo to the committees of Congress that oversee financial services warning of the dangers the current housing market poses for the economy.

This represents an extraordinary action and underscores both the seriousness of the continuing crisis and the absence of meaningful discussion of the problem in Washington. Bernanke’s memo reviewed federal actions to date and effectively concluded that they were unlikely to solve this national tragedy.

The memo concluded, in part:

The challenges faced by the U.S. housing market today reflect, in part…a persistent excess supply of homes on the market; and losses arising from an often costly and inefficient foreclosure process (and from problems in the current servicing model more generally)… Absent any policies to help bridge this gap, the adjustment process will take longer…pushing house prices lower and thereby prolonging the downward pressure on the wealth of current homeowners and the resultant drag on the economy at large.

This memo is notable for several reasons. First, it’s important to remember that when the Fed speaks, it does so in sober, limited terms. So an unprompted Fed warning suggesting “a persistent excess of supply” and a “resultant drag on the economy” is comparable to the Secretary of Homeland Security holding a press conference to warn of the risk of an imminent national emergency. Second, an unprompted memo from Bernanke to the House means that he is so deeply worried he felt the need to speak out in as strong a voice as his position permits. Third, the Fed rarely speaks on issues unrelated to its direct activities. Indeed, The Wall Street Journal subsequently wrote, “For an institution that jealously guards its independence, the Federal Reserve is wading into treacherous political waters.”

Mitt Romney's Crazy Talk II

Anyone who believes Willard Mitt Romney is a moderate, thoughtful alternative to the cranks and crazies who populate the contemporary GOP - to, say, a Michelle Bachmann who will say anything, no matter how evidence-free or insanely hyperbolic - need go no farther than the following quote from Romney's current stump speech:

“President Obama believes that government should create equal outcomes. In an entitlement society, everyone receives the same or similar rewards, regardless of education, effort and willingness to take risk. That which is earned by some is redistributed to the others. And the only people who truly enjoy any real rewards are those who do the redistributing — the government.”

Romney, in his desperation to get the top government job, has shape-shifted himself into an extremist as nutty and hysterical as the rest of them. He is explicitly claiming that President Obama is some sort of socialist who doesn't value education, entrepreneurial risk or work. This is an assertion, frankly, so far removed from the reality of President Obama's actual policies, his rhetoric and his values it doesn't deserve detailed refutation.

Anyone who believes this or asserts this absurdity demagogically isn't fit to teach a junior high school history or civics class, much less aspire to the highest office in the land. Romney brings shame on himself and his party, as much as the fringe characters like Donald Trump, Sarah Palin or Michelle Bachmann have with their "crazy talk."


(Paul Krugman also references this Romney nonsense in an excellent column today.)

"How Austerity Is Killing Europe

Jeff Madrick at NYRB:

"The European Union has become a vicious circle of burgeoning debt leading to radical austerity measures, which in turn further weaken economic conditions and result in calls for still more damaging cuts in government spending and higher taxes. The European debt crisis began with Greece, and that nation remains the European Union’s most stricken economy. But it has spread inexorably to Ireland, Portugal, Italy, and Spain, and even threatens France and possibly the UK. It need not have done so. Rarely do we get so stark an example of bad—arguably even perverse—economic thinking in action." 

Read the rest of Madrick's excellent piece on the fallacy of austerity economics HERE.

The awful truth - government employment has declined more under President Obama than under Reagan

Fact Free!

While Romney and his fellow Government-Job-seekers in the GOP primaries sling crackpot rhetoric about President Obama overseeing some huge growth in the public sector, the facts show an (unfortunate) shrinking of employment in government over the past three years. Floyd Norris at The New York Times has it:

When Barack Obama ran for president four years ago, he appalled some Democrats by saying Ronald Reagan had been a transformational president.

Three years into his presidency, he has exceeded Reagan in one area: reductions in government jobs.

Romney's dishonesty

Paul Krugman takes a look at Willard Mitt Romney's "job killer" vs. "job creator" rhetoric, HERE.

Like most of the Romney double-talk, it doesn't add up.

More on social mobility in the United States as compared to Europe

  Jason DeParle at the New York Times:

At least five large studies in recent years have found the United States to be less mobile than comparable nations. A project led by Markus Jantti, an economist at a Swedish university, found that 42 percent of American men raised in the bottom fifth of incomes stay there as adults. That shows a level of persistent disadvantage much higher than in Denmark (25 percent) and Britain (30 percent) — a country famous for its class constraints.

Meanwhile, just 8 percent of American men at the bottom rose to the top fifth. That compares with 12 percent of the British and 14 percent of the Danes.

Despite frequent references to the United States as a classless society, about 62 percent of Americans (male and female) raised in the top fifth of incomes stay in the top two-fifths, according to research by the Economic Mobility Project of the Pew Charitable Trusts. Similarly, 65 percent born in the bottom fifth stay in the bottom two-fifths.

By emphasizing the influence of family background, the studies not only challenge American identity but speak to the debate about inequality. While liberals often complain that the United States has unusually large income gaps, many conservatives have argued that the system is fair because mobility is especially high, too: everyone can climb the ladder. Now the evidence suggests that America is not only less equal, but also less mobile.

"Bring Back Boring Banks"

Amir Bihde, a professor at Tuft's Fletcher School of Law and Diplomacy, argues for "Boring Banks", HERE.

Mitt Romney's crazy talk

"The guy who fired you."

Mitt Romney and the rest of the GOP pack routinely attack Obama's "socialism." Calling President Obama a "socialist" is crazy talk, but it's just as crazy to suggest that the European countries that have enacted a social democratic - though hardly "socialist" - framework for their dynamic, advanced capitalist economies to function efficiently aren't doing a better job of rewarding merit and hard work than ours is. One central reason our economy is increasingly dysfunctional is because characters like Willard "Mitt" Romney, representing a financial elite who feel  "entitled" to power, have had their way. 

Harold Myerson at the Washington Post has it:

“Over the past three years, Barack Obama has been replacing our merit-based society with an Entitlement Society,” Mitt Romney wrote in USA Today last month. The coming election, Romney told Wall Street Journal editors last month, will be “a very simple choice” between Obama’s “European social democratic” vision and “a merit-based opportunity society — an American-style society — where people earn their rewards based on their education, their work, their willingness to take risks and their dreams.”

Romney’s assertions are the centerpiece of his, and his party’s, critique not just of Obama but of American liberalism generally. But they fail to explain how and why the American economy has declined the past few decades — in good part because they betray no awareness that Europe’s social democracies now fit the description of “merit-based opportunity societies” much more than ours does.

Ronald Reagan would be a pariah in the current version of the GOP

Eric Cantor was on 60 Minutes last night and it didn't go well, when he was challenged by interviewer Leslie Stahl on his notion of "compromise."  Steve Benen at Political Animal has it:

Oldies But Goodies: Da Doo Ron Ron

Stahl: But you know, your idol, as I’ve read anyway, was Ronald Reagan. And he compromised.

Cantor: He never compromised his principles.

Stahl: Well, he raised taxes and it was one of his principles not to raise taxes.

Cantor: Well, he — he also cut taxes.

Stahl: But he did compromise —

Cantor: Well I —

At that point, Cantor’s press secretary, off camera, interrupted the interview, yelling that Stahl was lying when she said Reagan raised taxes. As Stahl told “60 Minutes” viewers, “There seemed to be some difficulty accepting the fact that even though Ronald Reagan cut taxes, he also pushed through several tax increases, including one in 1982 during a recession.”

"Nobody Understands Debt"

Well, not "nobody."  But most of the people talking the loudest about government debt and deficits don't have a clue - they are steeped in ill-informed ideology that doesn't match empirical evidence. (Or perhaps they are invested in the public not having a clue because of a self-interested anti-government agenda.)

Paul Krugman offers a New York Times column that is a useful primer on the real and imaginary issues related to federal budget deficits:

In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.

This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.

Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!

And while they’ve been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts — that is, you might think that if you didn’t know anything about our postmodern, fact-free politics.