[Al_U_Card]

Robert B. Reich, in the San Fransisco Chronicle, wrote:
Bottom-up economic theory

Robert B. Reich
Sunday, October 5, 2008

The Mother of All Bailouts may be necessary to unfreeze our capital markets, but it won't unfreeze the American economy.

Bailout or no bailout, we're heading into deep recession. One of the first initiatives that Congress and the next administration will need to take will be an economic stimulus package. But not even this will remedy the underlying problem: The earnings of most Americans haven't kept up with the cost of living. That means there's not enough purchasing power to keep the economy going.

Adjusted for inflation, the incomes of nongovernment workers are lower today than in 2000. They're barely higher than they were in the mid-1970s. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago.

Per-person productivity has grown considerably over the past three decades and has continued to rise even in the lackluster recovery of this decade.

But most Americans haven't reaped the benefits of these productivity gains. The benefits have gone largely to the top.

The top 1 percent of American earners now take home about 20 percent of total national income. In 1980, the top 1 percent took home just 8 percent. Inequality on this scale is bad for many reasons, but it is also bad for the economy.

The wealthy devote a smaller percentage of their earnings to buying things than the rest of us because, after all, they're rich and already have most of what they want. Instead of buying, the very wealthy are more likely to invest their earnings wherever around the world they can get the highest return.

The last time the top 1 percent took home 20 percent of total income was 1928. After that, the economy caved in.

The underlying earnings problem has been masked for years as middle- and lower-income Americans found means to live beyond their paychecks. The first coping mechanism was to send more women into paid work. The percentage of American working mothers with school-age children has almost doubled since 1970, to more than 70 percent. But there's a limit to how many mothers can maintain paying jobs.

So Americans turned to a second coping mechanism - working more hours. Americans have became veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.

But there's also a limit to how many hours Americans can work. So we turned to a third way of coping. We began to borrow. With housing prices rising briskly through the 1990s and even faster this decade, we turned our homes into piggy banks.

But now, with the bursting of the housing bubble, we're reaching the end of our ability to borrow, just as lenders have reached the end of their capacity to lend.

That means there's not enough purchasing power in the economy to buy all the goods and services it's producing. We're finally reaping the whirlwind of widening inequality and ever more concentrated wealth.

The only way to keep the economy going over the long run is to increase the real earnings of middle- and lower-middle-class Americans.

The answer isn't to protect jobs through trade protection. That would only drive up the prices of everything purchased from abroad. Most routine jobs are being automated anyway.

Nor is it to give tax breaks to the very wealthy and to giant corporations in the hope they will trickle down to everyone else. We've tried that and it hasn't worked. Nothing trickled down.

The long-term answer is for America to invest in the productivity of our working people - enabling families to afford health insurance and have access to good schools and higher education, while also rebuilding our infrastructure and investing in the clean-energy technologies of the future. We must also adopt progressive taxes at the federal, state and local levels.

Call it bottom-up economics.

It would be a sad irony if the Wall Street bailout robs us of the resources we need to invest in average Americans and rebuild America from the bottom up.

[y66]

Gordo to the rescue?

Quote

Has Gordon Brown, the British prime minister, saved the world financial system?

O.K., the question is premature — we still don’t know the exact shape of the planned financial rescues in Europe or for that matter the United States, let alone whether they’ll really work. What we do know, however, is that Mr. Brown and Alistair Darling, the chancellor of the Exchequer (equivalent to our Treasury secretary), have defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up.

This is an unexpected turn of events. The British government is, after all, very much a junior partner when it comes to world economic affairs. It’s true that London is one of the world’s great financial centers, but the British economy is far smaller than the U.S. economy, and the Bank of England doesn’t have anything like the influence either of the Federal Reserve or of the European Central Bank. So you don’t expect to see Britain playing a leadership role.

But the Brown government has shown itself willing to think clearly about the financial crisis, and act quickly on its conclusions. And this combination of clarity and decisiveness hasn’t been matched by any other Western government, least of all our own.

For the rest of this story, by Nobel laureate Paul Krugman, click here.

[helene_t]

The article says that the British plan will take effect Monday (today I suppose) and that other European countries are likely to follow, but the Fortis-owned part of ABN-AMRO has already been taken over by the Dutch government.

[glen]

August 08 NY Times article on Prof Nouriel Roubini:
NY Times August 08 Dr Doom Nouriel Roubini

NY Times said:

On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt.

Today's interview - long, but real stuff:
October 14 2008 Nouriel Roubini video interview

About the prof:
Wikipedia Nouriel Roubini

[mike777]

glen, on Oct 14 2008, 10:45 PM, said:

August 08 NY Times article on Prof Nouriel Roubini:
NY Times August 08 Dr Doom Nouriel Roubini

NY Times said:

On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt.

Today's interview - long, but real stuff:
October 14 2008 Nouriel Roubini video interview

About the prof:
Wikipedia Nouriel Roubini

lets back up and assume all I mean all of this happens 100%.....now we make money...lots of money for us and our families....so?
1) once in a lifetime housing bust.....we make money!
2)deep recession...we make money!
3)default mortgages...we make money!
4) trillions unravel.....we make money!
5) system shudders to halt////we make money!



lol you know all of this and you still lose money.......i give up!

Please note it assumed you know all of this...if you still lose money ok........blame YOU!

What is worse you know..you know all of this and yet you still lose all your money!
Let us back up!



1) housing bust predicted last 50 years...ok maybe longer!
2) default mortage..predicted last 50 years..okmaybe longer
3) trillions unravel.....ok predicted last 100 years
4) system shudders..okpredicted last 1000 years

[y66]

Nouriel Roubini makes Dr. Doom look like little Miss Sunshine. I love this guy.

[PassedOut]

Alan Greenspan has changed his mind about the beneficial effects of financial market deregulation: Greenspan Concedes Error in Regulatory View

Quote

WASHINGTON (AP) — Alan Greenspan, the former Federal Reserve chairman, said Thursday that the current financial crisis had uncovered a flaw in how the free market system works that had shocked him.

Mr. Greenspan told the House Oversight Committee on Thursday that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had proved to be wrong.

Mr. Greenspan said he had made a “mistake” in believing that banks operating in their self-interest would be enough to protect their shareholders and the equity in their institutions.

Admitting a mistake: You can tell that Mr. Greenspan is not a politician!

[y66]

I saw this quote today

Quote

"those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief."

No *****.

Now what?

[mike777]

PassedOut, on Oct 23 2008, 11:43 AM, said:

Alan Greenspan has changed his mind about the beneficial effects of financial market deregulation: Greenspan Concedes Error in Regulatory View

Quote

WASHINGTON (AP) — Alan Greenspan, the former Federal Reserve chairman, said Thursday that the current financial crisis had uncovered a flaw in how the free market system works that had shocked him.

Mr. Greenspan told the House Oversight Committee on Thursday that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had proved to be wrong.

Mr. Greenspan said he had made a “mistake” in believing that banks operating in their self-interest would be enough to protect their shareholders and the equity in their institutions.

Admitting a mistake: You can tell that Mr. Greenspan is not a politician!

Yes......MBA schools are teaching and have been for a while that there are many stakeholders not just shareholders.

This will be an excellent case study of that. CRA became a priority, employees became a priority, plain executive greed, etc.....

Fellow bridge player Ace Greenberg last night on Charlie Rose said how the "investment bank business model failed" It failed from simple rumors which caused a "bank run" which could not be stopped.