A little bit of history from Berkeley economics professor Brad DeLong. In the 15 April 2009 edition of The Week, DeLong wrote The Panic of 1825 in which he describes how the Bank of England overstepped its authority by lending money to a bank in the midst of runs of the banks. This quelled the panic and established a valuable precedent.
Follow this link to the 49 minute video of President Obama explaining the big picture on his approach to solving the current economic crisis. There is about 5 minutes of introduction at the beginning. You can either be patient and watch that, or you can skip ahead until you see Obama appear.
I have heard all the naysayers taking pot shots at the President’s plans. I have been waiting to hear his answer. This speech is it. It was worth waiting for.
Follow this link to the Huffington Post speech transcript and comments about the speech.
This link points to my specific comment on HuffPo. It expands on what I have written here.
On 13 April 2009, Obsidian Wings in The Regulatory Origins of the Internet reminds us that the birth and continuing success of the Internet is due to regulatory oversight and initial R&D funding by the government. Importantly, the government did not allow the phone companies to dictate the terms of access.
‘Wisely, in the Computer Inquiries proceedings, the FCC opted for open, nondiscriminatory access. The Twitters of yesteryear didn’t need permission from AT&T to start their business. The nondiscriminatory access that made the Internet successful didn’t happen because AT&T was full of benevolent, far-seeing souls. It was because of government regulation. (On an aside, that’s why the fight over net neutrality is actually a battle to maintain a ridiculously successful status quo).
‘Given that the Internet is probably the single greatest advance of mankind since the printing press, you could plausibly argue that the Internet is regulation’s crown jewel.’
Let’s hope that environment continues to prevail.
Follow this link to a story and video of a recent get together of American people who are angry about how the world situation is unfolding.
I posted a comment about this story.
You can laugh this off as much as you like, but the parallels to the world history of the 1920s, 1930s, and 1940s are getting to be too much to ignore.
I’ll start you off with a few. I am sure you can fill in the rest.
Stock market excess and bubble economy with lax regulation.
Bubble bursts, market tanks, unemployment rises, home foreclosures skyrocket.
People get angry and look for scapegoats.
Now take it from there and fill in the rest of the story from whatever history of the 20s, 30s, and 40s that you have heard about..
Let’s just say that people who were raised in the 50s with a certain ethnic background were always warned to be on the look out for a repeat of this history. Of course we knew our parents and grandparents were just worrying about nothing. It’s amazing how much more well founded their worries look today than they did back then.
Obviously there are some people who are very frightened. Frightened people are apt to act irrationally. I would love to hear some thoughtful, serious ideas on what we can do to head off this problem before it gets out of hand.
Can you channel people’s fears into productive action?
I’d be wary of any efforts to channel their actions in any way that would add to their fear of scapegoats.
Follow this link to economist Joseph Stiglitz’s interview with Der Spiegel.
This is another pessimistic outlook from a Nobel Prize winning economist.
‘If it’s not one thing, it’s another.’ By why so many all at once?
On 2 April 2009, Julie Connelly of the NY Times reports Doctors are Opting out of Medicare. Finding a doctor who accepts Medicare isn’t easy.
‘Many people, just as they become eligible for Medicare, discover that the insurance rug has been pulled out from under them. Some doctors — often internists but also gastroenterologists, gynecologists, psychiatrists and other specialists — are no longer accepting Medicare, either because they have opted out of the insurance system or they are not accepting new patients with Medicare coverage. The doctors’ reasons: reimbursement rates are too low and paperwork too much of a hassle.’
More in the article.
Follow this link to the complete video of President Obama’s Town Hall meeting in Strasbourg, France on April 3, 2009.
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Derek Lowe of Corante’s ‘In the Pipeline’ (a drug-discovery blog) points to this graph in an article by Bristol-Myers Squibb’s Stephen Johnson, titled, The Trouble with QSAR (OR How I Stopped Worrying and Embrace Fallacy).
Lowe writes, ‘The most arresting part of the article is the graph found in its abstract. No mention is made of it in the text, but none has to be. It’s a plot of the US highway fatality rate versus the tonnage of fresh lemons imported from Mexico, and I have to say, it’s a pretty darn straight line. I’ve seen a lot shakier plots used to justify some sweeping conclusions, and if those were justified, well, then I’m forced to conclude that Mexican lemons have improved highway safety a great deal. The vitamin C, maybe? The fragrance? Bioflavanoids?
‘None of the above, of course. Correlation, tiresomely, once again refuses to imply causation, even when you ask it nicely.’
I’m sure the readers of Steve’s Politics Blog know the difference between correlation and causality but it is always nice to have an amusing refresher.
BTW, In The Pipeline is one of the many blogs in the Corante family. Check them out; you may find a few that interest you. [I stumbled upon Corante years ago and then met the founder, Hylton Jolliffe, at the tennis courts where, to my surprise, I learned he is the son of one of my tennis buddies.]
I now return you to your hard-core politics and economics.
-RichardH
In a 25 March 2009 post (Karl Denninger’s ‘Open Letter to the Ombudsman’ on the PPIP), I mentioned the possibility of troubled banks buying each other’s troubled assets at inflated prices and gaming the system.
On 2 April 2009 in the Financial Times, Bailed-out banks eye toxic asset buys indicates Citigroup, Goldman Sachs, Morgan Stanley, and JP Morgan Chase, are indeed thinking of buying toxic assets of their competitors.
The FT said, ‘The plans proved controversial, with critics charging that the government’s public-private partnership – which provide generous loans to investors – are intended to help banks sell, rather than acquire, troubled securities and loans.
‘Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls”.
‘Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.” ‘
Read the whole article.
Bloomberg (2 April 2009) reports Harvard Begins Case Study as Tainted MBAs Reveal Damaged Brand. Uh-oh. Too late? Stanley O’Neal and John Thain (ex-CEO’s of Merrill Lynch), Rick Wagoner (ex-CEO of General Motors). Do you remember others? I bet you can remember at least one more.
Update: An old friend, who is a retired HBS professor, just wrote to me regarding this article. ‘Same old, same old. No one has to know what the hell he’s doing, just develop better gut instincts?’