“One dollar, one vote”

Nobel laureate Joe Stiglitz writes on revealed preference in our political system:

President George W. Bush claimed that we did not have enough money for health insurance for poor American children, costing a few billion dollars a year. But all of a sudden we had $150 billion to bail out AIG, the insurance company. That shows that something is wrong with our political system. It is more akin to “one dollar, one vote” than to “one person, one vote.”

Read the whole interview here.

One nation under Wall Street

Robert Scheer, writing in Truthdig, applauds Sheila Bair’s new book:

If you want a compelling-if-unintended reason to loathe the two-party choice, check out the new book “Bull by the Horns” by former FDIC Chairman Sheila Bair. Her principled but ultimately futile effort to check the overwhelming power of the Wall Street lobby under both Republican and Democratic administrations indelibly documents the hoax that now passes for our representative democracy.

Read his take on the first presidential debate here.

TBTF = TBTR?

Does “Too Big To Fail” also mean Too Big To Regulate?

Gretchen Morgenson talks with Neil Barofsky, former special inspector general for TARP (the Troubled Asset Relief Program) about his new book, Bailout:

“So much of what’s wrong with Dodd-Frank is it trusts the regulators to be completely immune to the corrupting influences of the banks,” he said in the interview. “That’s so unrealistic. Congress has to take a meat cleaver to these banks and not trust regulators to do the job with a scalpel.”

Finally, Mr. Barofsky joins the ranks of those who believe that another crisis is likely because of the failed response to this one. “Incentives are baked into the system to take advantage of it for short-term profit,” he said. “The incentives are to cheat, and cheating is profitable because there are no consequences.”

Read her piece here.

Meanwhile Gar Alperovitz finds a surprising source of support for nationalization of banks that are TBTF and TBTR:

Most liberals in Washington — President Obama included — keep hoping the banks can be more tightly controlled but otherwise left as is. That’s the theory behind the two-year-old Dodd-Frank law, which Republicans and Wall Street are still working to eviscerate.

Some economists in and around the University of Chicago, who founded the modern conservative tradition, had a surprisingly different take: When it comes to the really big fish in the economic pond, some felt, the only way to preserve competition was to nationalize the largest ones, which defied regulation.

Read his column here.

When Corporatism Masquerades as Liberty

In “Capitalism Unmasked,” Econ4′s joint project with AlterNet, Edward Harrison writes on the peril to democracy posed by out-of-control credit markets:

“Corporatism masquerading as Liberty” … is a sort of crony capitalism steeped in the language of liberty that some are using to remove the protections we have built up to uphold and safeguard our individual rights. The goal of this corporatism is to give corporations the sorts of liberties that permit them to use their size, influence and money to tilt the playing field to their advantage. Absent any kind of regulatory oversight, these behemoths can run roughshod over individuals, trampling their rights and liberties in the process.

Read his piece here.

Bringing Bad Things to Life

In the second installment of “Capitalism Unmasked,” Econ4’s joint project with AlterNet, Doug Smith lays out the difference between profiting from market successes and profiting from market failures:

Capitalists can pick between two responses to markets that are failing. They can bet their capital on fixing them – on bringing more good things to life. Or, they can do everything possible to extract more and more profit by extending, expanding and exacerbating the failures.

Read more here.

Too-big-to-fail banks: Heads they win, tails we lose

Yves Smith of Naked Capitalism and Matt Taibbi of Rolling Stone dissect the corrupt nexus between our financial system and our political system:

Source: http://billmoyers.com/segment/matt-taibbi-and-yves-smith-on-the-follies-of-big-banks-and-government/

Mainstream amnesia

Econ4 team member Gerald Epstein writes for TripleCrisis on the “Memento syndrome” in orthodox macroeconomics:

Like the protagonist in the movie Memento, who has no memory but is trying to solve the mystery of his wife’s murder, and has to remind himself every minute about what happened the minute before by writing notes and even tattooing himself , mainstream macroeconomists’  write themselves articles and books after every crisis and they then promptly forget what they wrote (no tattoos as far as I know).

I believe there is a reason for this: the mainstream never changes its underlying theory which is based on the erroneous ideas that financial markets are, by and large, perfectly self-governing and efficient and that the market economy has strong self-equilibrating forces that always bring the economy back to full employment… Since they won’t change their basic framework, they have nowhere to put the new information they get after each crisis. So, they forget it just as soon as they can…  The tragedy is that it is these same economists who still control the elite economics departments, the main economics journals and hold the key policy making and research positions in our public institutions such as the Federal Reserve. Their stranglehold must be broken if we are going to break the Memento syndrome that is hindering sensible economics and economic policy.

Read his piece here.

Unequal and unstable

The correlation between income inequality and financial crises raises an important question: could it be that extended periods of increased income inequality help to cause financial crises? Evidence suggests this may well be the case, through three primary mechanisms that reinforce each other:

• Sharp increases in debt-to-income ratios among lower- and middle-income households looking to maintain consumption levels as they fall behind in terms of income;
• The creation of large pools of idle wealth, which increase the demand for investment assets, fuel financial innovation, and increase the size of the financial sector;
• And disproportionate political power for elite financial interests which often yields policies that negatively affect the stability of the financial system.

Read their analysis here.