A decade of descent
One can't say we weren't warned about the recession that we're now in - - not with the increased concentration of wealth and concomitant increase in poverty, lack of job creation, and wage stagnation that accompanied the recent economic expansion, to go along with excessive leverage, system-wide.
New York Times (NYSE: NYT) columnist and Nobel Prize-winning economist Paul Krugman provides a little perspective on how we got here and also offers some hope, regarding these trying economic times.
On the signals, or signs, some in economics, corporate, and public policy circles are suggesting that we didn't have any signs of economic trouble ahead. "Why weren't we warned?"
Ah, but you were warned, Krugman said. And these warnings were ignored. Item: Clear signs of a housing bubble, after the dot-com bubble a decade earlier. Item: The implosion, and required dissolving of Long Term Capital Management in 1998 - - just one hedge fund, but one that nevertheless temporarily paralyzed credit markets, globally. Item: The near-universal belief in the market's ability to self-correct, self-police, and if need be, self-punish transgressors, when there was little case precedent to hold that mistaken notion. In sum, there were plenty of warnings, Krugman argues.
Why were the warnings ignored? Krugman argues that "no one likes a party pooper" is one reason, and doesn't that observation have a weighty ring to it? How many professionals, employee or executive, have the courage in a key meeting to say "You know, we really shouldn't be doing this because it's laden with risks" when revenue streams appear to be solid? Another reason for ignoring the signals: people earlier this decade were still celebrating the ability of public and private officials to successfully navigate through previous crises, he argues.
Economist David H. Wang offers another reason: an ethical vacuum. Absent federal (or state) regulations, a business's guiding force is virtue -- starting at the top, with key executives. "This decade has experienced an ethical vacuum. Virtue took a holiday. It's a climate that led executives to make decisions that increased their wealth at the expense of their shareholders, and that encouraged mortgage brokers to promote outrageous, cockamamie mortgages to borrowers. No free market economy can remain on a growth track for long in that unethical environment."
Fiscal Policy / Economic Analysis: Krugman said the failure to heed signals is the main reason the new Obama Administration and U.S. Congress, in addition to addressing the immediate, current fiscal stimulus needs of the U.S. economy, must simultaneously pursue market reform and market regulation, quickly. Krugman's right, and those regulations should be driven by a Congressionally-approved code of ethics.
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Reader Comments (Page 1 of 1)
12-04-2008 @ 9:45PM
beachpaul said...
Business Ethics, Military Intelligence, Compassionate Conservative, Self Policing, a blind man could have seen this coming. Will all those laid off workers go stand in soup lines like their great grandparents did in the thirties? I think the revolution we should of had in the early 1970's may still be a possibility. Hell no, we won't go!
12-04-2008 @ 10:09PM
John Pozzi said...
www.grb.net - a new world order
12-05-2008 @ 2:38AM
ATHELSTAN said...
We are witnessing the end of the 19th century capitalist model. Our future will be one of small towns and the agrarian way of life.
12-05-2008 @ 8:57AM
nick said...
This SOB has been calling this down turn for all his life. The guy is a hater of the Republicans all his life. He is a scum bag to the 9th degree.
12-05-2008 @ 4:15PM
Mike O said...
@nick
Krugman has admitted he has a liberal bias, but let's face facts... the Republicans shoulder the majority of the blame here.
Phil "Americans Are Whiners in a Mental Recession" Graham (R-TX) is the biggest culprit. He was the guy who wrote the law regard Credit Default Swaps (CDS) and deregulated them. These were the instruments that lead to the downfall of major banks. Because there were unregulated, the companies were allowed to sell what was basically insurance without having the cash to back it up.
The Republicans believe that less regulation is better and that the market can be trusted to police itself. Now we are seeing the results of their disastrous policies.
It should be little surprise that the electorate chose Democrats by such a huge margin.
The Republican party's intellectual bankruptcy has cost the American taxpayer trillions. Sorry, but facts are facts.