Quote of the day: on the fiscal mess we are in

Robert Reich:

If any three people are most responsible for the failure of financial regulation, they are Greenspan, Larry Summers, and my former colleague, Bob Rubin. In 1999 they advised Congress to repeal the Glass-Steagall Act, which since 1933 had separated commercial from investment banking. By 1999, Wall Street was salivating over such a repeal because it wanted to create financial supermarkets that could use commercial deposits to place bets in the financial casino. That would yield the Street trillions.
At the same time, Greenspan, Summers, and Rubin also quashed the efforts of the Commodity Futures Trading Corporation to regulate derivatives, when its director began to worry that derivative trading already was getting out of control.
Yet Greenspan continues to take no responsibility for what occurred. In the interview he just completed he avoiding saying anything about the failure of the Fed under his watch to adequately oversee the banks, and the absence of sufficient financial regulation to begin with.
I dislike singling out individuals for blame or praise in a political system as complex as that of the United States but I worry the nation is not on the right economic road, and that these individuals — one of whom advises the President directly and the others who continue to exert substantial influence among policy makers — still don’t get it.

Meanwhile, there is a talk that Summers is leaving the administration ...

Two down; the third is in Obama's administration!

Difficult to imagine Alan Greenspan being invited to many parties any more, given that we are all in a drive to cancel all celebrations.

Robert Rubin is now on his way out of Citigroup.  I don't think he will be invited to join any corporate boards any time soon.

Larry Summers is still around--in quite a powerful position in the Obama administration.  He will find great company with yet another Rubin-school product: the nominee to be the treasury chief.  I suppose this is like coaches in the NFL--as soon as they get fired by one team, they get picked up by another team, and their coaching lives continue on .....

Anti-science attitudes keeping Africa poor

Speaking before a keynote lecture tonight to the British Association for the Advancement of Science, of which he is president, Sir David said that the slow pace of African development was linked directly to Western influence. “I'm going to suggest, and I believe this very strongly, that a big part has been played in the impoverishment of that continent by the focus on nontechnological agricultural techniques, on techniques of farming that pertain to the history of that continent rather than techniques that pertain to modern technological capability. Why has that continent not joined Asia in the big green revolutions that have taken place over the past few decades? The suffering within that continent, I believe, is largely driven by attitudes developed in the West which are somewhat anti-science, anti-technology - attitudes that lead towards organic farming, for example, attitudes that lead against the use of genetic technology for crops that could deal with increased salinity in the water, that can deal with flooding for rice crops, that can deal with drought resistance.”

That is from Professor Sir David King, as reported in the Times. Sir David was the British government's Chief Scientific Adviser until last December. (Via aldaily) He then adds:

The problem is that the Western-world move toward organic farming - a lifestyle choice for a community with surplus food - and against agricultural technology in general and GM in particular, has been adopted across Africa, with the exception of South Africa, with devastating consequences.

I wrote about some of these issues in an op-ed in the Register Guard (April 27, 2008). In that, I wrote: Let us not forget that food is a vital component of world peace. Here's hoping that we will soon launch Green Revolution, version 2.0.

The economic downturn: who is to blame?

In an earlier post, I noted that it starts with Alan Greenspan, the former chair of the Federal Reserve. And, I wrote about consumer greed as a factor in an oped for Planetizen. Apparently, I am not the only one who starts with Greenspan though, of course, he is not the only one nor the most significant actor. Here is an excerpt from a NY Times report, which ends with the consumer also being at fault:

Who’s to blame?
There is plenty to go around.

In the estimation of many economists, it starts with the Federal Reserve. The central bank lowered interest rates following the calamitous end of the technology bubble in 2000, lowered them more after the terrorist attacks of Sept. 11, 2001, and then kept them low, even as speculators began to trade homes like dot-com stocks.

Meanwhile, the Fed sat back and watched as Wall Street’s financial wizards engineered diabolically complicated investments linked to mortgages, generating huge amounts of speculative capital that turned real estate into a conflagration.
“At the end of this movie, it’s clear that the Fed will have to care about excesses,” Mr. Barbera said.

Prices multiplied as many homeowners took on more property than they could afford, lured by low introductory interest rates that eventually reset higher, sending many people into foreclosure.

Mortgage brokers netted commissions as they lent almost indiscriminately, offering exotically lenient terms — no money down, no income or job required. Wall Street banks earned billions selling risky mortgage-linked securities around the world, aided by ratings agencies that branded them solid.

Through it all, a lot of ordinary Americans borrowed a lot more money then they could afford to pay back, running up enormous credit card bills and borrowing against the value of their homes. Now comes the day of reckoning.

The wisdom (ha ha) of Greenspan

I guess the only credit he deserves is for cautioning against "irrational exuberance." That was during the go-go-internet years of the mid-1990s--they already seem like a few hundred years ago! If only he had smarts to think about the horrible ways in which mortgage and investment bankers were inflating assests and egos; on the contrary, he was an ardent supporter of sub-prime mortgages.
Over to Bill Fleckenstein: Alan Greenspan was recommending adjustable-rate mortgages in February 2004 -- just as short-term rates were making their lows. Then, in a speech on April 8, 2005, he extolled subprime lending:
"With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . . As we reflect on the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. . . . This fact underscores the importance of our roles as policymakers, researchers, bankers and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers."

His term ended, and Ben Bernanke took over. Bernanke was famous for his "savings glut" thesis--"the past decade a combination of diverse forces has created a significant increase in the global supply of saving--a global saving glut--which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today."

Even as Bernanke was touted as a potential replacement for Greenspan, this is what Daniel Gross wrote:
The savings-glut meme changes the terms of the conversation about global imbalances. It's not our fault that we rely on foreigners to fund our desire to spend in excess of our resources. Au contraire. Our extreme consumption and failure to save become something of a virtue. Somebody has to keep the world's factories humming and absorb all the products made in Japan, China, and elsewhere. And until the rest of the world becomes More Like Us in its consuming habits, the imbalances are likely to persist.
The savings glut may be an accurate and subtle take on the world's economic imbalances. But less subtly, it minimizes the impact of the potentially destructive monetary and fiscal policies pursued by the U.S. over the last five years. It also lays the responsibility for change squarely on the backs of foreigners and makes a virtue out of what appear to be our own failings. No wonder Bernanke is so popular at the White House.

And, ironically enough, it is Bernanke trying to manage a liquidity and credit crisis. So quickly we burnt up all those savings, eh? Well, as Bernanke, Paulson, and the Congress pour billions more down this sinkhole, let us turn to The Onion for the best report of all:
"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."