Jamie Dimon's Folly

 Henry Blodgett @ Business Insider:

Yesterday's JP Morgan implosion has now put any lingering questions to rest.
Wall Street banks simply cannot be trusted to manage the massive risks they are taking.

After the financial crisis, when most of the world's banks were revealed to have been run by reckless gamblers, a couple of institutions stood above the fray.
JP Morgan was one of them.

The idiocy of a handful of gamblers should not be construed as a problem with the system as a whole, institutions like JP Morgan said.

Well-run banks should be trusted not to be so colossally reckless and stupid.

Well-run banks should be allowed to manage their own risks. Well-run banks should not be hammered with straight-jacket regulations that would stymie their marvelous and creative innovation. Well-run banks should be free to look after themselves, like responsible adults.

And the banking lobbying engine rushed this message to Washington and threw money around. And the lobby quickly persuaded Congress that Wall Street was fine, that the financial crisis was an aberration, that Wall Street should be left alone.
JP Morgan was the prime engine of this message. And its brilliant CEO, Jamie Dimon, was Wall Street's defiant Adult-In-Chief. 

Dimon had credibility, because unlike all the other incompetent banks, his bank hadn't imploded and brought the system to the edge of catastrophe...

But now JP Morgan has blown up.

So we finally know the truth about Wall Street, a truth most Wall Street observers have known all along:

Wall Street can't be trusted to manage—or even correctly assess—its own risks.

"Easy Useless Economics"

Currently reading Professor Krugman's "End This Depression Now!", from which he's essentially lifted today's column in the NYTs.  A Must Read!  Krugman's also been batting down - without mentioning names - some of the nonsense that's being peddled by his "colleague" David Brooks about structural problems trumping any effective solutions to the current crisis.

Money quote today is Krugman quoting Keynes - "Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the sea is flat again":

A few days ago, I read an authoritative-sounding paper in The American Economic Review, one of the leading journals in the field, arguing at length that the nation’s high unemployment rate had deep structural roots and wasn’t amenable to any quick solution. The author’s diagnosis was that the U.S. economy just wasn’t flexible enough to cope with rapid technological change. The paper was especially critical of programs like unemployment insurance, which it argued actually hurt workers because they reduced the incentive to adjust. 

O.K., there’s something I didn’t tell you: The paper in question was published in June 1939. Just a few months later, World War II broke out, and the United States — though not yet at war itself — began a large military buildup, finally providing fiscal stimulus on a scale commensurate with the depth of the slump. And, in the two years after that article about the impossibility of rapid job creation was published, U.S. nonfarm employment rose 20 percent — the equivalent of creating 26 million jobs today. 

So now we’re in another depression, not as bad as the last one, but bad enough. And, once again, authoritative-sounding figures insist that our problems are “structural,” that they can’t be fixed quickly. We must focus on the long run, such people say, believing that they are being responsible. But the reality is that they’re being deeply irresponsible. 

The Real Deficit Story

It can't be repeated enough - Dave Johnson @ Campaign for America's Future:

Atrios says it: Eschaton: Planning For 10 Years From Now

"Listen, government has got plenty of money."

The last time the an administration did the supposedly responsible thing, the fiscal "hawks" suddenly decided that the worst possible thing was no longer a deficit, but a surplus, and that therefore it was necessary to have massive tax cuts for rich people.

And they will, of course, do it again.

Any time any DC elite complains about "the deficit" remind them that when Clinton left office we had a huge surplus, so big that at the rate it was being paid down the entire US debt was going to be paid off in 10 years. Bush demanded that we give back the people's money and Greenspan warned of the danger of paying off the debt. Etc. Etc. Etc. Then Bush doubled military spending -- and started two wars on top of that!

So we went from big surplus to huge, huge deficits. Bush said it was "incredibly positive news" when we went back into deficit spending. He said it was good news because it continued the plan to use debt to force the government to cut back. He said that. It was the plan. (Don't take my word for it, click the links.)

The Reagan people said it too, back when they started the massive deficit spending. It was the plan: force the country into massive debt, "starve the beast," and use that to force the government out of business, or at least to be "small enough to drown in a bathtub." They forced the tax cuts and Reagan said this was "cutting the government's allowance." The point was to use revenue cutbacks to force government to shrink, to get out of the way of the 1%.
 

Now that government is very much out of the way of the 1% we are seeing how things work out when the 1% dominate everything.

They called it "strategic deficits." They said it was the plan to force the country into debt, and then they would demand that we cut the things that government does for the 99%, in order to further enrich the 1%. They would scare everyone by saying that the debt will destroy us so we have to cut back. That was the plan. They said that was the plan. And now that the plan is being executed, we should understand that it was the plan and not fall for it!

They said it was the plan. So as the plan unfolds, don't be so surprised.

The Job Creators

Bloomberg:

The BGOV Barometer shows that since Democrat John F. Kennedy took office in January 1961, non-government payrolls in the U.S. swelled by almost 42 million jobs under Democrats, compared with 24 million for Republican presidents, according to Labor Department figures.

Democrats hold the edge though they occupied the Oval Office for 23 years since Kennedy’s inauguration, compared with 28 for the Republicans. Through April, Democratic presidents accounted for an average of 150,000 additional private-sector paychecks per month over that period, more than double the 71,000 average for Republicans

"Learned Helplessness" in Hard Times

Economist Robin Wells @ The Guardian:

Yet another disappointing statistic today from the US labor market – only 115,000 jobs added in April, barely enough to keep the unemployment rate from rising given the growth in population, and a significant fall from the 154,000 jobs added in March. While not necessarily a sign that the economy is headed for another turn downward, April's job numbers signal a repeat of the pattern seen in 2011 – a recovery that is halting, unpredictable, and agonizingly slow...

And it's not surprising given the continued heavy drag on the economy from high levels of household debt, high oil prices, and significant budget cutbacks by state and local governments. Moreover, the longer the economy limps along, the harder it appears to be for policymakers to accept that another outcome is possible. Months with stronger numbers will be seen as confirmation that the economy is turning the corner, and months with weaker numbers will be seen as confirmation that there's little one can do in the face of the need for longterm adjustments in the economy. Learned helplessness sets in.

One could not have asked for a clearer example of learned helplessness than Ben Bernanke's recent press conference, where he labeled calls for further Fed stimulus "reckless" and appeals for a higher inflation target "irresponsible" because it would, in his view, sacrifice its commitment to a 2% inflation target. Higher inflation helps stimulate a depressed economy as consumers and businesses find it less appealing to sit on cash, and it reduces the real cost of pre-existing debt. Ironic given that a 4% inflation rate during the Reagan years was considered perfectly acceptable...

How to End This Depression

Paul Krugman says "it's easy":

The depression we’re in is essentially gratuitous: we don’t need to be suffering so much pain and destroying so many lives. We could end it both more easily and more quickly than anyone imagines — anyone, that is, except those who have actually studied the economics of depressed economies and the historical evidence on how policies work in such economies.


The truth is that recovery would be almost ridiculously easy to achieve: all we need is to reverse the austerity policies of the past couple of years and temporarily boost spending. Never mind all the talk of how we have a long-run problem that can’t have a short-run solution—this may sound sophisticated, but it isn’t. With a boost in spending, we could be back to more or less full employment faster than anyone imagines.

But don’t we have to worry about long-run budget deficits? Keynes wrote that “the boom, not the slump, is the time for austerity.” Now, as I argue in my forthcoming book—and show later in the data discussed in this article—is the time for the government to spend more until the private sector is ready to carry the economy forward again. At that point, the US would be in a far better position to deal with deficits, entitlements, and the costs of financing them.
 

Meanwhile, the strong measures that would all go a long way toward lifting us out of this depression should include, among other policies, increased federal aid to state and local governments, which would restore the jobs of many public employees; a more aggressive approach by the Federal Reserve to quantitative easing (that is, purchasing bonds in an attempt to reduce long-term interest rates); and less timid efforts by the Obama administration to reduce homeowner debt...

The politics of achieving that?  Okay, that's more difficult. Krugman discusses the evidence for his argument and the obstacles to achieving rational policy to end what he forthrightly calls "this depression" at length in his current New York Review of Books article, HERE.

"Rebellion at the Fed"

Matthew O'Brien at The Atlantic:

Chicago Federal Reserve president Charles Evans doesn't look the part of a heretic. But in the cozy, conservative club that is central banking, he certainly qualifies. While most of his colleagues at the Fed have recently taken an even more hawkish turn, Evans remains a champion of additional monetary stimulus. And on Tuesday he took an even bigger step: He became the first sitting Fed member to endorse nominal GDP (NGDP) level targeting... 

 The Fed famously has a dual mandate: It's supposed to promote the maximum level of employment consistent with its two-percent inflation target. In reality, this dual mandate often looks more like a single inflation mandate. NGDP level targeting would do away with this problem by rolling the mandates together. And right now, that would mean a much more aggressive Federal Reserve... 

In the end, this is really a clash over inflation. After all, we're talking about central bankers here. The first group is worried that by effectively printing more money to goose the economy (better known to in policy circles as "quantitative easing"), the Fed has already created future inflation. The second group isn't worried about the money that's already been printed, but believes that running the presses any further will create future inflation. Finally, a third group is worried that if the Fed doesn't print more money, there won't be enough inflation to keep the economy healthy. Evans belongs to the last camp.

European Austerity - Wrong Diagnosis & Wrong Medicine

Former Treasury Secretary & Harvard-based charmer Larry Summers explains why austerity schemes give him a headache - read his entire piece at the Financial Times HERE:

Unfortunately, Europe has misdiagnosed its problems and set the wrong strategic course. Outside Greece, which represents only 2 per cent of the eurozone, profligacy is not the root cause of problems. Spain and Ireland stood out for their low ratios of debt to gross domestic product five years ago with ratios well below Germany. Italy had a high debt ratio but a very favourable deficit position. Europe’s problem countries are in trouble because the financial crisis under way since 2008 has damaged their financial systems and led to a collapse in growth. High deficits are much more a symptom than a cause of their problems.

Treating symptoms rather than causes is usually a good way to make a patient worse. So it is in Europe. Its financial problems stem from lack of growth...

Stiglitz: "We're in the 5th year of crisis and we haven't solved it."

Nobel Prize-winning economist Joseph Stiglitz on academic economists and the current economic crisis:

Joe Stiglitz at Occupy Wall Street

Academic economists played a big role in causing the crisis. Their models were overly simplified, distorted, and left out the most important aspects. Those faulty models then encouraged policy-makers to believe that the markets would solve all the problems. 

Before the crisis, if I had been a narrow-minded economist, I would have been very pleased to see that academics had a big impact on policy. But unfortunately that was bad for the world. After the crisis, you would have hoped that the academic profession had changed and that policy-making had changed with it and would become more skeptical and cautious. You would have expected that after all the wrong predictions of the past, politics would have demanded from academics a rethinking of their theories. I am broadly disappointed on all accounts...

Within academia, those who believed in free markets before the crisis still do so today. A few people have shifted, and I want to give credit to them for saying: “We were wrong. We underestimated this or that aspect of our models.” But for the most part, the response was different. Believers in the free market have not revised their beliefs...

If my forecast about the consequences of austerity is correct, you will see a new round of protest movements. We had a crisis in 2008. We are now in the fifth year of crisis, and we haven’t solved it. There’s not even a light at the end of the tunnel. When we come to that conclusion, the discourse will change...

Foreclosures on the rise

HousingWire:

More than half of U.S. major cities showed an increase in foreclosures since the end of last year, according to RealtyTrac.

Mortgage servicers put a freeze on the process in 2010 to correct affidavit problems and resolve investigations from federal regulators and the state attorneys general. A $25 billion settlement approved in March brought new standards and relief requirements for struggling homeowners.

As servicers adjusted, foreclosures began to increase in different areas of the country during the first quarter.

Filings increased in 26 of 50 largest cities, led by Pittsburgh, where foreclosures jumped 49% from the previous three months.

Heather McGhee of Demos Talks With Bill Moyers on Student Debt

Via truthout

Breakin' Down Student Loan Interest Rates

Jimmy Fallon and a friend, 'splain it:

Why does the GOP lie so much? Because when they tell the truth, it doesn't go well...

Hispanic radio talk show host, Fernando Espuelas:  "(T)here’s some analysis now that is being published talking about the Bush years being the slowest period of job creation since those statistics were created. Is this a different program or is this that program just updated?"
 
Alexandra Franceschi, Spokeswoman for the Republican National Committee: "I think it’s that program, just updated."

"No End in Sight" to Unemployment

James Surowiecki at The New Yorker:

The talk in Washington these days is all about budget deficits, tax rates, and the “fiscal crisis” that supposedly looms in our near future. But this chatter has eclipsed a much more pressing crisis here and now: almost thirteen million Americans are still unemployed. Though the job market has shown some signs of life in recent months, the latest figures on new jobs and on unemployment-insurance claims have been decidedly unimpressive. We are stuck with an unemployment rate three points higher than the postwar average, and the percentage of working adult Americans is as low as it’s been in almost thirty years. What’s most troubling is that so much of this unemployment is long-term. Forty per cent of the unemployed have been without a job for six months or more—a much higher rate than in any recession since the Second World War—and the average length of unemployment is about forty weeks, a number that has changed very little since 2010. The economic recovery has now lasted nearly three years, but for millions of Americans it hasn’t yet begun. 

Being unemployed is even more disastrous for individuals than you’d expect. Aside from the obvious harm—poverty, difficulty paying off debts—it seems to directly affect people’s health, particularly that of older workers. A study by the economists Till von Wachter and Daniel Sullivan found that among experienced male workers who lost their jobs during the 1981-82 recession mortality rates soared in the year after the layoffs. And the effects of unemployment linger. Many studies have shown that the lifetime earnings of workers who become unemployed during a recession are permanently reduced, and von Wachter and Sullivan found that mortality rates among laid-off workers were much higher than average even twenty years afterward.

"Is high public debt harmful for economic growth?"

 VOX:

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.
-- Mark Twain

Do high levels of public debt reduce economic growth? This is an important policy question. A positive answer would imply that, even if effective in the short-run, expansionary fiscal policies that increase the debt-to-GDP ratio may reduce long-run growth, and thus partly (or fully) negate the positive effects of the fiscal stimulus.

Most policymakers do seem to think that debt reduces growth. This view is in line with the results of a growing empirical literature which shows that there is a negative correlation between public debt and economic growth, and finds that this correlation becomes particularly strong when public debt approaches 100% of GDP (Reinhart and Rogoff 2010a, 2010b; Kumar and Woo 2010; Cecchetti et al. 2011).

Debt and Growth - What Causes What?

The Case Against Lehman Brothers

Very interesting 60 Minutes piece on the Lehman Brothers downfall:

  Via Economist's View

The virtues of expansionary monetary policy

Professor Krugman, at his NYT blog:

These past few years have been lean times in many respects — but they’ve been boom years for agonizingly dumb, pound-your-head-on-the-table economic fallacies. The latest fad — illustrated by this piece in today’s WSJ — is that expansionary monetary policy is a giveaway to banks and plutocrats generally. Indeed, that WSJ screed actually claims that the whole 1 versus 99 thing should really be about reining in or maybe abolishing the Fed. And unfortunately, some good people... have bought into at least some version of this story.

What’s wrong with the idea that running the printing presses is a giveaway to plutocrats? Let me count the ways.

Happy Tax Day!

From American Prospect and Demos:

1. The government has collected less in taxes as a proportion of the economy in the past three years than it has in any three-year period since World War II, and tax rates are at historic lows.

2. One out of three multi-millionaires pays a lower percentage of their income in taxes than the vast majority of people making $60,000 a year.

3. Chairman Paul Ryan’s budget proposal, which has been praised by Governor Romney, would deliver benefits to people with incomes over $1 million that are 10 times greater than the benefits to those earning $40,000 or less.

The Buffet Rule filibustered by GOP's Senate minority

Mitt declares his stay-at-home wife Ann "lackng the dignity of work"

"Big news week" for FOX, GOP hacks and a desperate Romney campaign boils down to a Hypocrites' Kerfuffle. Up w/ Chris Hayes has it:

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