"So much bigger than a shoe!," economist Ken Rogoff protested to NPR this morning when asked if this is the other shoe expected to drop, the sign that we're headed back into recession. The foreclosure mess at the big banks -- the discovery that banks were "robo-signing" mortgages and the legal and financial consequences of that discovery-- began "years ago" and needs to be addressed if we're to climb out of the present mess.
Scary? We are right to be scared about the fallout of further evidence of financial malfeasance and its potential effect on the markets and the economy.
With home sales this past summer at the lowest level in more than a decade, real estate is ill-prepared to suffer another blow. But as a scandal unfolds over mortgage lenders’ shoddy preparation of foreclosure documents, the fallout is beginning to hammer the housing market, especially in states like Florida where distressed properties are abundant. ...NYT
So far, three big banks are involved: GMAC, JP Morgan, and Bank of America.
Paul Krugman deplores the stupidity of avoiding measures that would put people back to work.
...By any rational calculation, would be an especially good time to improve the nation’s infrastructure. We have the need: our roads, our rail lines, our water and sewer systems are antiquated and increasingly inadequate. We have the resources: a million-and-a-half construction workers are sitting idle, and putting them to work would help the economy as a whole recover from its slump. And the price is right: with interest rates on federal debt at near-record lows, there has never been a better time to borrow for long-term investment.
He focuses on New Jersey governor Christie's decision to delay work on a badly needed new rail tunnel serving his state and New York, a reflection of the current "wisdom" that we shouldn't borrow -- not even to put thousands of people back to work.
By refusing to pay for essential investment, politicians are both perpetuating unemployment and sacrificing long-run growth. And why not? After all, this seems to be a winning electoral strategy. All vision of a better future seems to have been lost, replaced with a refusal to look beyond the narrowest, most shortsighted notion of self-interest.
I wish I could say something optimistic at this point. But at least for now, I don’t see any light at the end of this tunnel.
It's an enormously dumb and cruel decision to set aside the opportunity to put people back to work. Worse, it's almost certainly a purely political move clothed in economic terms. The country's interests are sacrificed to the Republican party's appetites for more and more power.
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Personal note: As Ken Rogoff noted in his interview on NPR this morning, there's nothing new about what the banks have been doing. Back in 1982, give or take a year, a partner in a big, old financial management firm -- a company that handled big institutional investment funds -- warned during a private conversation with friends that some of the biggest banks were increasingly engaged the kind of trading we've recently "discovered." It was all known thirty years ago. For thirty years politics have kept the general public in ignorance.
A decade later, another financial manager -- this time with A.G. Edwards (absorbed later by Wells Fargo) -- issued the same warning.
So "dumb" is not an idle choice of words when it comes to how America has behaved politically and economically for three decades. We allowed ourselves to be bought and only now are feeling the constraints of being wholly owned by a system that may well be breaking down around us.
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Junk bonds are thriving.
The market for high-yield securities, as junk bonds are more politely known in the business, is booming as never before. ...Companies with less-than-sterling credit are rushing to sell bonds and take advantage of low interest rates. In the first nine months of this year, a record-breaking $275 billion of junk bonds have been issued worldwide, up from $163 billion during the period last year, according to the financial data provider Dealogic, a research company. ...NYT
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One of the villains in the story of our financial debacle is good ol' Bill Clinton, one of three presidents over the past thirty years who deliberately lifted any meaningful regulation of financial institutions. It's no great surprise that he's now embraced warmly by Republicans, from Paul Ryan to Orrin Hatch and Vin Weber to Trent Lott.
Paul Ryan's statement, reported in a "political memo" at the New York Times, is particularly hilarious -- and grim, considering the current context.
"I enjoy Bill Clinton,” Representative Paul D. Ryan, a six-term Republican from Wisconsin, said in an interview, echoing several colleagues. “The first two years of his term were one thing, but the rest of his presidency was tempered with moderation, and the nation benefited.”
Um, there was that whole impeachment thing.
“Yeah, I don’t think about that too much,” Mr. Ryan said, adding, “If it were not for Monica Lewinsky, I think we would have Social Security straightened out now.”
