Wednesday, January 23, 2008

reality-based reality check

PRESIDENT GEORGE W. BUSH: I believe we can find common ground to get something done mumble mumble get something done mumble big mumble mumble bigness, big dick, dickness, mighty bollock of greensnap mumble mumble really frickin big.

Asia calls bushit

ROBERT KUTTNER: I think the place to start is to recognize why this recession is different from all other recessions. This began and is continuing with a collapse in credit markets, and the collapse in credit markets is, in turn, the result of deregulation gone nuts. And it’s a repeat of a lot of things that happened in the 1920s, where there was too much speculation with too much borrowed money and a complete lack of transparency. The regulators, the public had no idea of what these bonds that had been created out of subprime mortgages really contained, what they were worth. The people who packaged them were not subject to any kind of regulatory scrutiny.

And when it turned out that a lot of these loans were never going to be paid back, the layer upon layer upon layer of bonds and then securities based on the bonds—you know, if you can picture the World Trade Center collapsing floor by floor or you can picture the collapse of the Ponzi schemes of the 1920s, that’s a good—or horrible—analogy. And when you have a credit contraction, it means that banks have less capital against which to make loans, and lowering interest rates doesn’t fix that.

There are two other things that lowering interest rates and an ordinary stimulus package won’t fix. One, you alluded to in your opening comments, Amy, and that’s the collapse in housing prices. At the current rate of decline in housing values, American homeowners—and that’s about 70 percent of Americans—are going to lose $2.2 trillion of net worth this year alone. Well, when you lose $2.2 trillion of savings, you’re not inclined to rush out and do home improvements, you’re not inclined to rush out and buy durable goods. And again, compared to that kind of a loss, a stimulus—and they’re talking about $140–$145 billion, that’s one percent of GDP—that’s a drop in the bucket.

Lastly, this occurs on top of thirty years of increasing insecurity on a whole bunch of fronts: the greater risk of losing your job, the greater risk of having your paycheck not keep pace with inflation, rising energy costs, rising tuition costs, rising health insurance costs. All of the things that make you middle class have become more difficult to attain in the past thirty years. So you’ve got a three-layer cake here. You’ve got this thirty-year history of flat or declining living standards for most Americans, you’ve got this terrible weakness in financial markets, and you’ve got this housing collapse.

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Anonymous Anonymous said...

As I mentioned to you in an email .. long time coming, this state of affairs.

It won't be solved or swept aside in a few weeks or months.

Jon H.

1/23/2008 8:49 PM  
Blogger Tom Matrullo said...

Given that it took some 30 years to be comprehended, it's unlikely to be solved, but then, perhaps Bush can fit it in right after bringing permanent joy to the mideast.

1/23/2008 10:25 PM  
Blogger madame said...

it sounds like the prayer the youngest child reads at passover: why is this recession different from all other recessions?.

1/29/2008 1:26 AM  
Blogger madame said...

if i haven't mentioned it to you before, i think you might find The Trap interesting.

1/29/2008 1:35 AM  
Blogger Tom Matrullo said...

Thanks Madame, traps are "of special concern" around here.

1/29/2008 10:57 AM  

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