To restructure or not to restructure?

Joseph Stiglitz looks to the past and the future:

For Europe and the United States, 2010 was a year of disappointment. It's been three years since the bubble broke, and more than two since Lehman Brothers' collapse. In 2009, we were pulled back from the brink of depression, and 2010 was supposed to be the year of transition: as the economy got back on its feet, stimulus spending could smoothly be brought down.

Growth, it was thought, might slow slightly in 2011, but it would be a minor bump on the way to robust recovery. We could then look back at the Great Recession as a bad dream; the market economy — supported by prudent government action — would have shown its resilience.

Resilience? Recovery? Prudent government action? I think not. Stiglitz continues:

In fact, 2010 was a nightmare. The crises in Ireland and Greece called into question the euro's viability and raised the prospect of a debt default. On both sides of the Atlantic, unemployment remained stubbornly high, at around 10%. Even though 10% of US households with mortgages had already lost their homes, the pace of foreclosures appeared to be increasing — or would have, were it not for legal snafus that raised doubts about America's vaunted "rule of law."

But profits were made secure. Sure, the EU may have just averted a systemic crisis, but it didn't fall. Still, there can be no doubt that the "little people" feel put out by their insecurity. The elite response to their most recent failures and the insecurity they engendered:

Unfortunately, the New Year's resolutions made in Europe and America were the wrong ones. The response to the private-sector failures and profligacy that had caused the crisis was to demand public-sector austerity! The consequence will almost surely be a slower recovery and an even longer delay before unemployment falls to acceptable levels.

Why should anyone find it surprising that a political elite committed to neoliberal policies would propose remedies to a recession that won't work and will intensify the misery of the politically powerless? Only the daft and the vicious would find this surprising.

Stiglitz offers this solution to our common problem:

Debt restructuring — writing down the debts of homeowners and, in some cases, governments — will be key. It will eventually happen. But delay is very costly — and largely unnecessary.

Color Stiglitz an optimist!

This essay was also published on FDL.com

Create a “good bank”

An oxymoron for out time?

Joseph Stiglitz recently defended a bank nationalization program. He made his defense on the grounds that many banks are now insolvent, that transparency is lacking, that funding a bailout program such as the Bush and Obama administrations have will necessarily be too costly for the taxpayer and, finally, that the costs specific to any resolution to the financial crisis should be paid by the bankers and shareholders, not the taxpayers. His solution: Create a "good bank" by stripping the viable assets from the banks known to be insolvent, thus leaving the diminished banks with a project of making do by peddling their trash on the market.

Some crisis links (11.9.2008)

Writing for the Washington Post (via Naked Capitalism), Joseph Stiglitz warns the President-elect to expect a long, deep and career-defining recession. "The first task facing President-elect Obama, after eight years of misguided economic policies, will be to begin the recovery — or at least forestall a further decline. It won't be easy," Stiglitz counsels. Stiglitz's reforms are radical given the ideological tenor and institutional decay of the past 40 years. Together they amount to a new economic model. This

…model will require changes in the ways and places where we live and work. There will be some losers (including the oil industry, which has done jarringly well in recent years), but there will be even more winners.

In so many ways, the United States has reached a low point. Picking ourselves up off the ground is itself no mean achievement. But I hope that our new president will do even more for us than that.

What is a crisis? It is a moment of dusk and dawn, of death and birth.

China, in response to its slowing growth rate, announced a $586B stimulus plan, according to the New York Times.

Congressional Democrats have also caught the spirit of reform. They want to divert a part of Paulson's gift to Wall Street by giving it to America's faltering auto industry (see this and this). Following the President-elect's lead, Nancy Pelosi (D-CA) wants Congress to pass a stimulus package before January, according to the Journal.