Economist Paul Krugman – “This Could Be 1931 – The Collapse Of EVERYTHING.”

I promise I won’t write about this every day, and I don’t know if anyone caught Real Time with Bill Maher this past weekend, but he had New York Times Columnist and Economist Paul Krugman on who voiced his concerns about the condition of our financial system:

When I heard news about this plan my first thought was “Kommisar Paulson is seizing the means of Production”. This is the most socialist move we’ve seen by any administration in God’s knows how long, and it’s coming from the Bush Administration

Quite Seriously, Like, I was looking at the numbers on Wednesday and I thought “The World is coming to an End”, and apparently the people at the Treasury Dept. thought the same thing. This was – boy – this was the worst thing I’ve ever seen.

The best scenario is that the economy’s probably going to get worse for another year, and the housing market is going to get worse for another two years.

I thought it was pretty telling that an economist finally came forward and called it as is – it’s the last 8 years of deregulation that has caused all of us to lose our shirts while simultaneously being called upon to bail out companies that created their own demise because of their greed. These CEO’s are walking away with millions and millions of dollars in their bank accounts, (The Bear Stearns CEO walked away with $61 million, Merrill Lynch’s top three are looking at a cool $200 million for the fire sale to Bank of America and now Lehman, the company that supposedly was on the rocks, now has a $2.5 BILLION bonus plan.) while their workers are being sent packing with little more than a useless letter of reference to try to find another job. So who wins when the banking industry is deregulated and we have nothing to sell the world except fraudulent, made-up bank notes? Not you and I, that’s for sure. But heaven forbid we have health care or education programs that benefit the millions of Americans that don’t run for these companies, right? Besides, where is my bonus for bailing these idiots out?

Also, I will note that all of the commenters who were deriding me for talking about socialized health care have not come back to comment about how bad this bailout is…why is that? Why is a taxpayer bailout of a public company (the didn’t benefit most people) that dug it’s own grave OK, but we cannot provide a fraction of that amount of money to help people pay medical bills? To give a better education to children? To pay our teachers and police officers more? If our government can afford (and us, in return – without a choice, of course) $1 trillion dollars to bail out companies that should be left to fall apart – but we let poor kids suffer without an education or health care – where are the priorities in this country?

As Mr. Krugman said this weekend:

There are no atheists in fox holes and there are no libertarians in financial crises.

And now back to your regularly scheduled programming.

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Comments (24)

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  1. Frugal Dad says:

    I don’t remember if I criticized the nationalized health care post or not, but let me say that I am no fan of this bailout package. You know me and my feelings on spending public money to salvage private industry…I can just imagine our forefathers spinning in their graves.

    Plenty of blame to go around, politically. Bush called for an “ownership society” early in his term, and frequently touted new home sales as evidence of his success. Many of these new sales were allowed under loose lending requirements, and were probably encouraged at some level by deregulation of the mortgage industry. Bush also allowed trillions of dollars to slide underneath his veto pen for the first seven years he was in office–which was full of pork from both parties. The Democrat-controlled Congress has done absolutely nothing in the two years they have had power, despite numerous promises of sweeping reform during the midterm elections. They have refused to address the energy crisis, have failed to address health care reform, and have done nothing but bicker back and forth on the validity of the war in Iraq and its time table. It is safe to say government is largely inept at the federal level.

  2. david says:

    Thanks for the comment FD, and yes – I know your feelings on the subject and am glad it holds for this bailout as well. So many people think this is a great thing, and they are the same ones who don’t think govt should help those in need with taxpayer money. It is refreshing to see someone stick to their beliefs on this. And while you point out the Democrats power for the last 2 years, it was Bush and Congress for the previous 6 who did nothing, so I would venture that they are a little more responsible for this mess. But that does not give the Dems an excuse; they should have done something. However, I am sure they would have been labeled socialists and/or communists if they had tried, same as when they try to talk about helping poor people.

  3. cwaltz says:

    Both parties are responsible. I’m with Frugal Dad, BOTH parties are playing the American people for suckers. I am sick to death of the Democrats saying they can’t do things because they would get called names. They need to grow up and act like adults. Instead we get a majority that whines and complains that the only way they can get things accomplished is if we hand them a “super majority”. In the mean time thewy managed to get rid of that pesky 4 th amendment because they were afraid they would get called “terrarist lovers.” Geez their whining is an insult to the men and women who put on a uniform to protect and defend them and the things they are “supposed to stand for.” If the GIs in Iraq can deal with IEDs then surely the Dem leadership should not be able to hide behind the cowardly excuse that they will get called bad and mean names if they do the right thing. No more excuses.

  4. I am all in favor of paying attention to the views of economists on these issues but not when his name is Paul Krugman. The idea that any of Krugman’s views can be taken as those of an objective economic scientist is ludicrous. Just read the titles of his past columns (or the entire columns if you don’t believe me). He is a hater of Bush and the Republican party and whether you agree with him or not, you must understand that his hatred trumps any economic objectivity he might otherwise have. You should find a better source.

    (And by the way, you can find libertarians in a financial crisis. They are the ones who have prepared for it.)

  5. David says:

    ToughMoney – so there is good, positive news out there about this bailout? I have not seen any at all other than from Bush and cronies themselves, so whether I use Krugman or any other reasonable economist, the results are the same – this is a bad deal for the American taxpayer, no doubt about it.

    And cwaltz, I agree – the Democrats have no balls when it comes to standing up for what they believe in, and that is partially why we are in this mess.

  6. David – Don’t get me wrong, except for the citation to Krugman, I liked your post. There is no good news from this bailout. Democrats, Republicans, and debt-addicted consumers share full responsibility for where we are. Just please don’t cite Krugman for objective economic analysis (unless you are a Democrat partisan as to economic policy in which case Krugman’s your man.)

    As for Paulson, he cannot imagine a world without investment banks but with today’s news, they are going to disappear by government regulation anyway. Want to see our future? Study French economic policy.

  7. David says:

    ToughMoney – You may be right, but like I said – it really doesn’t seem to matter which economist anyone quotes, they all say its a bad thing. Unless, of course, you quote guys from the other side of the aisle. 😉

  8. Jon says:

    I don’t recall whether I’ve commented on socialistic healthcare on your blog or not, but…
    I think this bailout is a panicked reaction by all concerned, and is going to cost us far too dearly in the long haul. The unintended and unexpected consequences of these actions are going to bite us in the rear for decades to come.
    The question you’re implying here, though, seems to be “Will those of us who oppose any sort of nationalization/socialization of our economy are willing to stand up for our principles in a situation when we could face global economic disaster and oppose the bailout?”
    Great question, tough to answer in a crisis.
    I hate to see the bailout, but I don’t want to move to a compound in the mountains when the run on the banks and rioting starts (tongue somewhat firmly in cheek).

  9. David says:

    You hit it Jon – “”Will those of us who oppose any sort of nationalization/socialization of our economy are willing to stand up for our principles in a situation when we could face global economic disaster and oppose the bailout?””

    Are we a socialist nation only when it benefits companies and shareholders, or always when it benefits everyone that actually could use some help? You nailed it.

  10. @Frugal Dad:

    The Democrats can’t do anything interesting until they have a veto proof majority or have a Democrat in the White House. Despite the majority in both houses, Bush still has the ball and doesn’t want to let anybody else play with it.

  11. Frugal Dad says:

    @MITBeta: The Dems could force the issue if they wanted to. The fact is, they would much rather do nothing for the next 40 days until the elections are over. I think people on both sides of the aisle are quaking in their boots over this one! And let us not forget that while our president is far from perfect, he cannot spend a dime with Congressional approval. It is Congress who should shoulder much of the blame fo this–Republicans AND Democrats.

    To David’s point about Republicans having control for the first six years, and Democrats for the last two…I thought Pelosi and crew were going to clean everything up in the first 100 days? It’s been over 700 days and I haven’t seen much of anything productive happen in Congress. I say it is time to clean house in Washington–let’s boot these guys out and start over with new blood on both sides of the aisles. It is the only way anything will ever change.

  12. For the last 20+ years, we’ve touted home ownership as the be all and end all of great things. We had people pushing for minority home ownership. We had Clinton and Reno promising “vigorous enforcement” of any mortgage company who redlined a group of people…even if that group were unemployed, bad credit, bums. We had Freddie and Fannie promising banks and mortgage companies the security of the Federal Government if they would only grant a loan to the ninja people (no job, no income, no assets) so they could get into their dream home.

    There is not a single person complaining now who would have done a thing differently if they were in the bankers shoes 10 years ago. All a bank had to do was create a loan, bundle it up, and send it on to Freddie or Fannie after keeping the origination fee, the points, and the documentation fees.

    Congress is to blame for 100% of it.

    “These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee in the New York Times in September of 2003.

    Or how about Rep Melvin L. Watt, Democrat of North Carolina, who said, “I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing.”

    Or how about Christopher Dodd who told the Washington Post that he thought the 2005 reform bill would only hurt low income families qualify for home loans.
    Recently, he had the gall to say to Bloomberg, “I have a lot of questions about where was the administration over the last eight years.”

    Mr. Dodd, where have YOU been? Rest assured he won’t face any storm of contempt over his short, selective memory. We shouldn’t criticize nor present him with his words, rather have compassion and allow him to steer our economy as he desired as the Chairman of the Senate Banking Committee!

    Congress is to blame for 100% of this.

    And don’t get mad because the guys at the top negotiated golden parachutes long before this debacle happened. In the past, corporate raiders would come in and dismantle an entire company kicking everyone, including the top guys, out. They learned to negotiate deals and compensation packages to cover themselves so that couldn’t happen again.

    In reality, most people who truly understand macro economics and finance see this whole deal playing out pretty well for the government in the long run. Those “toxic” loans being purchased at 30 cents on the dollar are backed by real estate. If you could get a piece of that action, you’d be a fool not to do the same thing. I’ll buy ANY piece of real estate for 30% of what it’s worth, even if the price is overstated by half!!! By 2010, most of this will have played out and there will be a HUGE amount of money flowing back into the Treasury. At that point, there will be a large budget surplus that will be wasted by whichever party is in power. Guaranteed. Wasted on pet projects and pork. Wasted on programs that the government cannot administer because it’s run by a bunch of stupid bureaucrats.

    The government only does two things well:
    1. Nothing.
    2. Over-react

    Plus, all the homeowners that are in these “toxic” loans…do you really think the government will kick them out. Nope. Those are voters. We gotta buy them votes!

    “I would rather be governed by the first 400 people in the Boston phone book than the group we have in Congress right now.” –George Will

    I agree.

  13. david says:

    President Bush, 2007:

    “The Federal government will not bail out lenders — because that would only make a recurrence of the problem more likely. And it is not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.”

    And only last year the Fed said this was a “$100 billion problem” And yet, they let it get worse. And these guys were in charge of the Fed and Treasury that allowed this to happen and get worse, and we want to put them in charge of fixing it? Please. It is not 100% Congress’ fault. It is their fault, Bush’s fault, Treasury’s fault, the Feds fault, and dumb homeowners’ faults…

  14. Ron – Amen brother. Don’t forget this famous quote from the White House in 2003:

    “This Administration will constantly strive to promote an ownership society in America. We want more people owning their own home. It is in our national interest that more people own their own home. After all, if you own your own home, you have a vital stake in the future of our country.”

    – President George W. Bush, December 16, 2003

    “National interest” to own your home? Not saying that today are we.

  15. One thing’s for sure. The government won’t fix it. Government isn’t the solution to problems. government IS the problem. There is nothing that government cannot make worse.

    Just wait til the monies start flowing back in from this investment (it isn’t a real “bailout” since it’s backed by real estate). You think ANY of that will go to reducing the Federal debt? Nope, no matter who is in office, it will be wasted, squandered away.

  16. Summarized from Bloomberg’s Kevin Hassett:

    Three years ago, Alan Greenspan warned that Fannie and Freddie were on cue to put our entire financial system risk and a Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill (S-190) was co-sponsored by John McCain and would have required both Fannie and Freddie to divest of their riskier assets. In essence, it would have given a regulator the power to say “not a chance!”

    But the bill didn’t become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, indicating this would be a partisan issue. Republicans couldn’t even bring it to a vote in the Senate for fear of a filibuster.

    The Democrats, under Clinton, had strengthened a government-created monster called the “Community Reinvestment Act.” This law was then used by “activists” and “community organizers” to coerce lending institutions to make these bad loans … millions of them. Many of them are on record bragging about their harassment tactics aimed at getting banks to make more loans to unqualified, sub-prime buyers.

    Throughout his political career, Senator Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

    Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

    They socialized the risk but privatized the profit, so to speak.

    There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

    Today we get to see what happens when political “wisdom” thinks it understands and knows more than good loan underwriters. When private financial institutions are forced to make loans to people with a bad credit and job history…this is what you get. Enjoy it.

  17. david says:

    Or, as Fox News puts it – “to minorities” – that’s the cause, according to their anchor Cavuto.

    What about McCain’s campaign manager getting $30K a month for the last 5 years, from FM&FM, to provide access to McCain for FM&FM so they can avoid regulation on their loans?

  18. Didn’t work did it? Those idiots at FM&FM ended up and got a bill to regulate them further even though they supposedly paid for “access?” LOL! And they’re managing billions…

    It all boils down to the repeal of Glass-Stegall back in 1999 under Clinton (who willingly signed the repeal). That act prevented banks from tampering in the stock market. De-regulation was supported by Clinton…and Biden. McCain didn’t vote. Here’s the vote breakdown:

    REPUBLICANS FOR (52): Abraham, Allard, Ashcroft, Bennett, Brownback, Bond, Bunning, Burns, Campbell, Chafee, Cochran, Collins, Coverdell, Craig, Crapo, DeWine, Domenici, Enzi, Frist, Gorton, Gramm (Tex.), Grams (Minn.), Grassley, Gregg, Hegel, Hatch, Helms, Hutchinson (Ark.), Hutchison (Tex.), Inhofe, Jeffords, Kyl, Lott, Lugar, Mack, McConnell, Murkowski, Nickles, Roberts, Roth, Santorum, Sessions, Smith (N.H.), Smith (Ore.), Snowe, Specter, Stevens, Thomas, Thompson, Thurmond, Voinovich and Warner.

    DEMOCRATS FOR (38): Akaka, Baucus, Bayh, Biden, Bingaman, Breaux, Byrd, Cleland, Conrad, Daschle, Dodd, Durbin, Edwards, Feinstein, Graham (Fla.), Hollings, Inouye, Johnson, Kennedy, Kerrey (Neb.), Kerry (Mass.), Kohl, Landrieu, Lautenberg, Leahy, Levin, Lieberman, Lincoln, Moynihan, Murray, Reed (R.L), Reid (Nev.), Robb, Rockefeller, Sarbanes, Schumer, Torricelli and Wyden.


    DEMOCRATS AGAINST(7): Boxer, Bryan, Dorgan, Feingold, Harkin, Mikulski and Wellstone.

    NOT VOTING: 2 REPUBLICANS (2): Fitzgerald (voted present) and McCain.

    The repeal of Glass-Stegall allowed all the shenanigans to get started. It was the beginning of the end and no person who voted for it should be crying about de-regulation. Heck, they’re the ones who put it in motion. The whole thing was very bi-partisan. That’s why I blame Congress 100%. Throw them all out…except Richard Shelby. He’s a personal friend from many years back. 🙂

  19. Slinky says:

    I’m a libertarian against the bailouts and health care and welfare and social security. I don’t need a babysitter, thanks.

    How many PF bloggers are good with their money BECAUSE they hit rock bottom? Did it suck? Yes. Was it painful? Yes. Knowing where you are now, would you choose to go back to being stupid with your money and running up debt just because it was a painful learning experience? I’m guessing not.

    So am I worried about what will happen with the economy and whether I might lose my money or my job? Sure, but I still believe that this is a lesson that america needs to learn. People have made their beds and dragged the rest of us down with them. Now all of us will have to live through this.

  20. David says:

    Ron, we may disagree on a lot of things, but I agree with you on getting rid of every single one of them. Too bad it will never happen. Politics was not meant to be a career – it was meant to be a service to your country for X amount of years. These people have made a career out of it, and it is time for term limits for all of them, just like the President has in place. 8 years, tops, you are out. See ya, no more govt. service. Most of these people have not changed jobs since I was a teenager!

  21. We’re on the same page on that my friend! One thing I love about discussing this stuff with you is you definitely keep me on my toes! And they have been in power since I was a teenager, too…and that’s been a long, long time ago. Yikes.

  22. David says:

    And I am happy that someone can come in, disagree with me on some things, but not throw insults around like some other commenters do. It takes away from any argument when they start attacking people because of a disagreement on policy.

    Ron, we are not getting any younger but seemingly these same politicians will be in office when I am dead and gone. 😉

  23. […] In so doing, I came across some outstanding comments left by Ron from The Wisdom Journal blog to a post at My Two Dollars.  One of the reasons that I enjoyed Ron’s comments was that he agreed that Congress and the […]

  24. […] Economist Paul Krugman – “This Could Be 1931 – The Collapse Of EVERYTHING.” […]