Why school teachers are like Wall Street fat cats?

The Daily Show - Crisis in Dairyland - For Richer and Poorer - Teachers and Wall Street
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The day after tomorrow ... are we ready?

First, an excerpt:

Has the contribution of the modern world of finance to economic growth become so critical as to support remuneration to its participants beyond any earlier experience and expectations? Does the past profitability of and the value added by the financial industry really now justify profits amounting to as much as 35 to 40 percent of all profits by all US corporations? Can the truly enormous rise in the use of derivatives, complicated options, and highly structured financial instruments really have made a parallel contribution to economic efficiency? If so, does analysis of economic growth and productivity over the past decade or so indicate visible acceleration of growth or benefits flowing down to the average American worker who even before the crisis had enjoyed no increase in real income?

Reading this, you might think that I excerpted it from an essay in The Nation ... Well, it is not.  It is from Paul Volcker's piece in the NY Review of Books.
Rightly, Volcker reminds us about the crisis that is more than merely about banking and finance:

We are not a small country highly vulnerable to speculative attack. In an uncertain world, our currency and credit are well established. But there are serious questions, most immediately about the sustainability of our commitment to growing entitlement programs. Looking only a little further ahead, there are even larger questions of critical importance for those of less advanced age than I. The need to achieve a consensus for effective action against global warming, for energy independence, and for protecting the environment is not going to go away. Are we really prepared to meet those problems, and the related fiscal implications? If not, today’s concerns may soon become tomorrow’s existential crises.

Oil spill, finance mess, and regulation

Ken Rogoff puts it so succinctly (ht):

The parallels between the oil spill and the recent financial crisis are all too painful: the promise of innovation, unfathomable complexity, and lack of transparency (scientists estimate that we know only a very small fraction of what goes on at the oceans’ depths.)  Wealthy and politically powerful lobbies put enormous pressure on even the most robust governance structures.

Well phrased, right?  Rogoff then writes:

If ever there were a wake-up call for Western society to rethink its dependence on ever-accelerating technological innovation for ever-expanding fuel consumption, surely the BP oil spill should be it. Even China, with its “boom now, deal with the environment later” strategy should be taking a hard look at the Gulf of Mexico.
Economics teaches us that when there is huge uncertainty about catastrophic risks, it is dangerous to rely too much on the price mechanism to get incentives right. Unfortunately, economists know much less about how to adapt regulation over time to complex systems with constantly evolving risks, much less how to design regulatory resilient institutions. Until these problems are better understood, we may be doomed to a world of regulation that perpetually overshoots or undershoots its goals.

I am not sure whether regulation will ever be able to get it right.  It is simply the nature of the beast, so to say.  But, here is the question: aren't the global economic crisis and the oil spill posters for it might be better to overshoot through regulation than to undershoot?  After all, Rogoff himself notes:

t is extremely difficult to strike a balance between managing “tail risk” – a very small risk of a very large disaster – and supporting innovation.

Overshooting means precluding that "tail risk" ... a tough call for society.  The recent announcement from Craig Venter is yet another example of how things will only get even more complex ....

The sorry state of discussions in America :(

It is one thing if illogical and uncivilized remarks are made on Faux News.  But, the following from a banking professional executive is pathetic:

HERE'S something ridiculous:

Morgan Stanley Asia Chairman Stephen Roach said that Paul Krugman’s call to push China to allow a stronger yuan is “very bad” advice and that increased Chinese spending is a better way of reducing trade imbalances.

“We should take out the baseball bat on Paul Krugman -- I mean I think that the advice is completely wrong,” Roach said in an Bloomberg Television interview in Beijing when asked about Krugman’s call, characterized as akin to taking a baseball bat to China. “We’re lashing out at China rather than tending to our own business,” which is raising U.S. savings, Roach said.

Two points. First, Mr Krugman's advice to China isn't wrong; it's right. China's currency is undervalued, and I think everyone (including the Chinese, but evidently excluding Mr Roach), thinks that an orderly appreciation of the renminbi would be a net benefit to China. Where I disagree with Mr Krugman is in his advice to America. The currency issue isn't a big enough problem to be worth the risks associated with an aggressive American push to get China to revalue.

Secondly, I think it's very inappropriate to wish violence on anyone, and particularly on a very good economist who is just arguing for what he believes. That's a poor way to conduct discourse, though it's probably a good way to get invited back on a television show.

The criminals (?) who caused the Great Recession

On the banking/financial crisis that is at the center of this Great Recession:

There has been no criminal investigation to date, so evidence supporting criminality has not been uncovered -- no one is looking for it. Liberals hate to think that Obama, led by Geithner and Summers, is part of a grand cover-up scheme, but that is exactly what is going on. How else can you explain the lack of criminal investigations? Why isn't the FBI breaking down the doors of the commercial and investment banks and grabbing computers so as to preserve incendiary e-mails that will most definitely implicate executives? Why are managements that caused this still in their jobs and still receiving bonuses? Are the bonuses paid to the folks at AIG that caused its collapse nothing more than hush money? How can the rating agencies still be in business? Why don't we make one arrest and lean on the bankster to see if he will fold like the cheap suit that he is and name other conspirators? The FBI spends more time investigating $2,000 drug buys than they have to date investigating the biggest heist in the history of the world: $40 trillion, that's trillion with a T, that's 40 million bags each containing $1 million.

Maybe you think it is some crazy left-wing loonie who wrote this over at Mother Jones or at The Nation. Think again. The writer is a former investment banker with Goldman Sachs, which, by the way, reported a good chunk of change as profits!
Anyway, this is from the first instalment of a three-part discussion between John Talbott--the former investment banker--and Simon Johnson, the former IMF Chief Economist. The discussion thanks to Salon.com.

Johnson's response is far from comforting when he writes:

I think the situation may actually be worse.

O M G!

Johnson explains why it is worse than we think:

What worries me most about our situation at this moment is that while our current leadership on economic strategy issues now talks about the mistakes of their (and our) past, their policies are pointing us back in the same direction. The latest evidence in this regard is the regulatory plan released by the Treasury this June.

This plan is a long list of technocratic tweaks. But when you dig through all the details, it is hard to find anything that will really make a difference to the functioning of our financial system. Most importantly, we will still have banks that are perceived as "too big to fail," and these institutions will have access to government bailouts under vague and completely open-ended terms. In what way will this encourage responsible lending in the future?

Johnson makes a point that I hadn't thought about:

And the way in which the Obama administration is attempting to extricate us from the crisis -- with unconditional support for big banks, regardless of costs -- is not addressing the fundamental imbalance of power that favors the financial sector. If anything, the big banks that survive in this sector have now become more powerful -- the political market share of JP Morgan Chase or Goldman Sachs has increased because Lehman and Bear Stearns are out of business.

The firms left standing have become even more powerful!

Falling Dow Jones Index NOT the real nightmare

Thanks to the 24/7 news cycle that announces every mosquito bite as "BREAKING NEWS" we are all too familiar with how much the stocks have plummetted. But, that is merely the symptom, and is one hell of a distraction from what ought to really worry everybody on the planet: money is getting tight.

In "Hello, Dolly!"--yes, nothing like quoting from musicals while understanding crises!--Dolly Levi quotes her late husband: "Money, pardon the expression, is like manure. It's not worth a thing unless it's spread around encouraging young things to grow."

That is exactly what banking does--makes sure that the manure is spread around. With the economic crisis, there is pretty much no money to go around. Bernanke and Paulson, and central bankers around the world are trying their best to infuse liquidity into the system. But, doggone it, we are bloody scared to lend our money to anybody anymore. Which is why auto dealerships are closing down--no credit available. Even grain exports are stalling because of distrust in any piece of paper promising payment. So, forget the market indices for now. That is a symptom and not the problem.

About 2:30 into this YouTube clip, you will see Horace Vandergelder (Walter Matthau) say that very line about money and manure, which is when Dolly (Barbra Streisand) says she is ready to marry him :-)