Alan Blinder: "After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead"
http://thedianerehmshow.org/shows/2013-01-28/alan-blinder-after-music-stopped-financial-crisis-response-and-work-ahead
When President Obama took office in 2009, he was faced with the worst economic crisis since the Great Depression. The president, his economic team and the Federal Reserve took actions that many credit with helping stave off a global financial meltdown. But the causes of the near-collapse and what was done to solve it remain poorly understood by many who lived through it. In a new book, a leading U.S. economist explains what happened and why. And he warns that more needs to be done to reduce the chance of a similar crisis in the future.
Guests
Alan S. Blinder
professor of economics and public affairs at Princeton University; former vice chairman of the Federal Reserve Board.
Read An Excerpt
Excerpt from "After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead" by Alan Blinder. Copyright 2013 by Alan Blinder. Reprinted here by permission of Penguin Press. All rights reserved.
Comments
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I read Dr. Binder's editorials in the Wall Street Journal when they appear. Seeing that he was appearing here today, I went through my submissions to the editors of the WSJ but found none relating to his editorials. Therefore I look forward to listening to him today since in my mind he is not one of those economists who brazenly cherry pick data just to make a point with the paper's readers.
There were only two major ways the Federal Government could have prevented a recurrence of the Meltdown:
Nationalization of the larger banks and insurance companies, and their devolution to smaller heavily regulated financial institutions.
Prosecution of elite bank officers and investors for knowingly collapsing our national economy.
These things were not done because our Federal Government had been captured by Libertine Capitalism. The public did not react because we were scared, having just witnessed two illegal wars and the dubious events of 9/11. Oligarchs were well prepared as finances caved in upon the public. Propaganda was already circulating about how "Too poor to buy" homeowners had caused the whole thing and the Tea Party had its racist, classist and sexist talking points.
I was talking outside a church yesterday with three deacons who believe "the market" is enshrined in the Constitution. (They also find male White supremacy there.) I asked them if they were ready to lay down their lives for the gasbag we call the New York Stock Exchange. Two of three were, and were also ready to call upon Jesus to protect make believe retirement investments make through their employer (Duke Energy). It would be funny if it weren't so pitiful. Their pockets will be turned inside out over the 4 new nuclear plants just being started, as they continue to drink the coal ash poison from Mountain Island Lake. I'm convinced that many people have crippled authoritarian personalities and cannot stomach the facts. They rant on repeating fact-free garbage and boasting gun ownership. And these are Christians? More like Whiteboy Taliban I'd say.
And, the very best part.... None of the thieves went to jail!
Pancake Rankin wrote: " I'm convinced that many people have crippled authoritarian personalities and cannot stomach the facts."
That's you! The government caused the housing bubble and when it burst it brought about the financial crisis.
Iceland had the right idea (Krugman)-
Where everyone else bailed out the bankers and made the public pay the price, Iceland let the banks go bust and actually expanded its social safety net. Where everyone else was fixated on trying to placate international investors, Iceland imposed temporary controls on the movement of capital to give itself room to maneuver.
I am wondering what exactly is "disinformation?" Is it outright lying, and if so, why use a euphemism?
Congress and the presidents' administrations for the last 30 years has been complicit in allowing things to get out of control. It is fact that, in order to gain more favor with the public, politicians pushed through legislation that forced lenders to lower their standards. The only way they could get this passed each time was to order Fanny Mae and Freddie Mac to buy up more of the riskier mortgages. It is also well understood that congress has for years defaulted to the financial industry when writing financial legislation, neither understanding nor pursuing insight on new financial instruments, only taking the word of so-called experts that such devices are safe. Where is the new law that limits the size of financial companies that ties them to a certain portion of something like GDP so that they will never be too big to fail?
Professor Blinder makes many good points about the need for The Stimulus and The TARP but one of his points is very disturbing.
The notion that the stimulus was not large enough and that we should now increase our deficit spending above the current level seems to contradict the many responsible bipartisan panels as well as common sense.
We can call the excess spending over both the Bush and Obama administrations whatever we want: "investment" , "stimulus", or just plain spending. However the fact remains that we have spent many trillions more than we have brought in. We continue to spend over a trillion more every single year than we have brought in.
Most experts say that the spending has to ratchet down slowly rather than all at once. However, Mr Blinder and the other advocates of more spending now seem to be simply pushing a liberal version of Voodoo Economics ( ie spend whatever we want now and worry about it later).
The SEC is the most useless arm of the government ever. They have repeatedly missed opportunities to stop problems before they occurred and bow to Wall Street insiders and congresses unending push to pander for votes by promising the world to both rich and poor.
1. No reform will work if the SEC doesn't have teeth. Bush underfunded the SEC and withdrew FBI assets from the financial market surveillance.
2. Leverage have to be brought under reasonable limits, even for investment banks on which the banks have significant exposure.
3. The rating agencies can't keep hiding behind the freedom of speech, as has happened in the courts.
4. Mortgages could still be safely subject to securitization if the banks replace failing mortgages or buy them back, adjusting their position with the security holder. Thus refinancing wouldn't have to be an ordeal.
5. As an emergency measure, you should be able to go to a judge, as in any bankruptcy case, to modify your mortgage. We need to clear the books of the banks and make clear the real size of the losses.
I wish that Mr. Binder were working for the U. S. Government in some policy-making capacity.
It is difficult for me to follow, remember (and all the acronyms!), and form an opinion myself. Still I think we ought to understand how this, "the financial sector", wags the dog; our money system! So I am looking for where what Mr. Blinder says overlaps with what Sheila Bair has said, and says in her current book; Bull by the Horns." She puts a lot of blame on Tim Geithner at Treasury (formerly of the NYFed) who did not want banks to foot the bill for their bad loans, rather than Ben Bernanke at the Federal Reserve. Mr. Blinder has two views on Federal bank take overs. ? One; it is an orderly way to resolve failing banks, and two; bank takeovers are wildly displacing, (I think he just said). (Ms. Bair is a strong supporter of taking over and resolving bad banks on their own dimes.)
CCraigS: And now it is too late for the Federal Government to recapture control of financialism even if the People asserted themselves, because Neoliberal Globalism trade agreements and transnational uprootedness have become standard practice. Our military (as a terror device) can menace the entire planet but our law has extremely short arms. These are the rules Oligarch chose. How do we beat them at their own game? Refusing to play; refusing to honor their assertion of wealth, might be a good strategy. "Your money (property titles) ain't no good here." If they can tell us our labor is worthless, then that would be a fair solution. Why would we continue to bail out cheaters? Why do we protect elite contract and their bogus paper? I don't wanna be like them, do you?
Bernie Mihm: Deficit and debt might be more important if the USA were going out of business. As a going concern the only alternative is priming the pump in order to expand the taxable base. Prosperity rapidly dwarfs such a shortfall as we have. But the problem is that only a tiny few hold all the assets and most of the political power. Their mindset opposes a general prosperity because their present day hegemony would be undone. The truth is that American workers might as well be in one large bankrupt firm. The owners want to close up shop and live off their hoard, but the workers need to earn to live. Maybe there is no survival course besides worker ownership and worker self-management. It's like the Emancipation Proclamation. Lincoln seized an abused asset (the slaves) more in order to save the economy than to deliver justice. Can you get your head around that?
Sam Tea: Your consternation reinforces my contention that nihilism is the result of colonized minds. You fight so hard to preserve the Oligarchs' power when it is self-evident you are their vexed victim. If you were a high roller and not a petit bourgeois working stiff you would not be writing here.
When you repeat a Fact-Free talking point provided by media indoctrination and supporting your denial you are little more than a flashlight battery not thinking or inquiring. The claim you make is impossible by scale, but if the federal housing mechanism were responsible for the Meltdown then why would it be worldwide? Were all national housing programs exactly in synch globally? And what of derivatives, credit default swaps, executive fraud conspiracies, trade in currencies, capital flight to tax havens and so on. Maybe you can do your sums but are too immature for Algebra? Your bosses want to keep you little forever. Bust out, Buddy!
Pancake Rankin wrote: "The claim you make is impossible by scale, but if the federal housing mechanism were responsible for the Meltdown then why would it be worldwide? Were all national housing programs exactly in synch globally?'
It was worldwide because foreign governments did mirror the U.S. government policies on artificially low interest rates. The economic boom was worldwide, governments spent with wild abandon on the false notion that the escalated tax revenues would continue, they are now reaping the whirlwind of unsustainability, just like us.
I only caught the last part of the show, but I was very distressed how Dr Binder seemed to absolve the banks of having anything to do with the economic collapse. The banks in concert with the central bankers of the world were directly responsible for the economic calamity. All other players in this historic fraud took their cue from the bankers. The bankers were the enablers through easy credit and financial "innovation". NO bankers have been held accountable and many investors globally were defrauded.
Were the ratings agencies, appraisers, home buyers, etc culpable, ABSOLUTELY. None of it would have been possible without the central bankers and the banks providing the easy money.
I could see as early as 2000 where this was all headed, having previously been in the finance/real estate business during the savings and loan scandal days. Any professional who has said "No one could see this coming" is either a culpable liar or and idiot. If I could see it coming having been 10 years removed from the business, what is their excuse?
I think Alan Binder soft pedalled the crimes that took place on Wall Street and the permanent damage that was done to the economy and people's lives by the financial industry. Bankers' greed never ends. Glass-Stegall had nothing to do with the crash? Huge private brokerage firms became banks and instantly got their transactions guaranteed by our government. That opened the gates for a free for all on the Treasury. This recession was a giant heist of the peoples' savings and benefits. Most people don't realize that it's not their fault that they are broke. Banks must be regulated. Customers need laws that protect them from crooks posing as financial wizards. State governments need watchdogs for those who handle tax money and retirement accounts. Hedge funds and high risk investments have no place in teacher retirement funds. (example:Texas)
Pancake Rankin,
You are right on the money with this comment. I hope you find an Occupy movement that is functional where you live. Outside of church on Sunday is a good place to find out what people think. Ignore the national ripoff at your own peril. What do you bet Duke Energy is an ALEC member?
The GOP keeps revising their propaganda to appear more concerned about regular people. Read Paul Krugman's column today. Snake oil salesmen are good at adapting to change with talk, while picking your pocket.
Sheila Bair is right. I think she nailed what was wrong with the financial system and government. Hopefully she can make a difference outside of government.
We should not give another stimulus to the banks to distribute. The government has to do it for the stimulus to work. Put money into infrastructure and public works. The government does create jobs, unlike the 1%.
npr.freak,
You are absolutely right. I'm glad to see some blow-back from this interview. It was like watching a devastating tragedy through a soft focus lens. When will Diane interview Matt Taibbi? I'm sure he would clean up his language on her show. After all, Bill Moyers has had him on his show.
I agree as well...I would like to hear Matt Taibbi. I think Dr. Blinder is an academic and was trying to focus more on explaining a very complex situation. I think he soft pedaled on AIG as well as the banks. However, we cannot forget how enthusiastically homebuyers bought right into this bubble . It doesn't take a PHD in economics to realize that NOTHING goes up 20% forever, including the home you also have to live in. I lived in southern California during this time period and was really aghast at some of the crazy things I saw some very intelligent people do. They ended up losing it all...there is plenty of blame to go around. But human beings will always be susceptible to get-rich-quick schemes so eventually we will be dissecting another bubble/bust situation.
Pancake,
I think you are right about the global damage the mortgage crash had. Those toxic debt bonds sold all over the world. In Greece, Goldman et. al bought their debt at high interest rates so there was no way for Greece to buy them back, especially after the Greek administrators went on a spending spree with the cash. After getting away with the U.S. mortgage robbery, the big banks were confident they could to the same to a vulnerable country. Since that country was in the EU, it rocked the entire union. I suppose the same scam happened in Spain, Portugal, and Italy. Those Latin countries with their siestas, easy targets.
I agree as well...I would like to hear Matt Taibbi. I think Dr. Blinder is an academic and was trying to focus more on explaining a very complex situation. I think he soft pedaled on AIG as well as the banks. However, we cannot forget how enthusiastically homebuyers bought right into this bubble . It doesn't take a PHD in economics to realize that NOTHING goes up 20% forever, including the home you also have to live in. I lived in southern California during this time period and was really aghast at some of the crazy things I saw some very intelligent people do. They ended up losing it all...there is plenty of blame to go around. But human beings will always be susceptible to get-rich-quick schemes so eventually we will be dissecting another bubble/bust situation.
Pancake,
I think you are right about the global damage the mortgage crash had. Those toxic debt bonds sold all over the world. In Greece, Goldman et. al bought their debt at high interest rates so there was no way for Greece to buy them back, especially after the Greek administrators went on a spending spree with the cash. After getting away with the U.S. mortgage robbery, the big banks were confident they could to the same to a vulnerable country. Since that country was in the EU, it rocked the entire union. I suppose the same scam happened in Spain, Portugal, and Italy. Those Latin countries with their siestas, easy targets.
To DianFaninPhx
Consumers need protection from putting their money in deals that are too good to be true. Ergo, the Consumer Protection Agency. Business loves to put people in the position of parting with their money, whether or not the customer can afford it. Sharks don't like rules and will fight them. The big banks have evolved into sharks and they are huge and threatening. It's hard to fight back after the sharks have had it so easy for so long. Public participation in government is essential for democracy.
From what I understand, the poor were suckered into buying homes with ARM loans that were bound to get to expensive for them to afford. Unsophisticated investors were prime pickings for mortgage brokers. The poor were hit the hardest.