Nobel-Prize winning economist warns of another contraction

[Dominus Atheos]

Not Paul Krugman, some other guy

Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.

While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.

Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action.

G-20 Steps

“We aren’t doing anything significant so far, and the banks are pushing back,” he said. “The leaders of the G-20 will make some small steps forward, given the power of the banks” and “any step forward is a move in the right direction.”

G-20 leaders gather next week in Pittsburgh and will consider ways of improving regulation of financial markets and in particular how to set tighter limits on remuneration for market operators. Under pressure from France and Germany, G-20 finance ministers last week reached a preliminary accord that included proposals to claw-back cash awards and linking compensation more closely to long-term performance.

“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”

Global Economy

Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.

“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”

The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.

“The question then is who is going to finance the U.S. government,” Stiglitz said.

To sum up, the problems that created the 2008 crash have only gotten worse because non of our leaders are willing to actually do anything about them.

[KrauserKrauser]

Not only that all of their efforts have been to re-inflate the already burst bubble.

I've heard that Congress is proposing a $15k payout to anyone, not just new home buyers, buying a house next year. Sure, it's great to get a free $15k, but seriously? Have we learned absolutely nothing from the past few years? We're seriously going to send more money down the blackhole in hopes of propping up the real estate markets to previous insanoinflated prices?

I guess there are alot of people with alot of influence that still have significant assets they want to unload before the real bottom is reached.

I used to think Obama = Carter, now I'm leaning more towards Obama = Hoover now with the idiotic moves he is making with the economy. I wonder if people will start moving into Obamavilles in the future.

[Bluewolf]

Frankly economically, we are in the eye of the storm. Bad stuff has happened yet we are in a point where it was not crashing at the speed it was a few months ago. I dont think that hold at all though and there is a good chance we will just slip back down again. Personally I think Obama does not have a great idea of what he is doing, nor does most of Congress.

[Big Orange]

Neoliberalism is an ideology far too ingrained into the Anglo-American corporate/political infrastructure to remove through voting and government policies, since the Neoliberals did too good a job in rigging their polcies, they appear to be too stuck in their ways to instigate real change in time and seemingly going down the same route that is still rapidly contracting by the month.

[Starglider]

they appear to be too stuck in their ways to instigate real change

What kind of 'real change'? Most of neoliberalism was deregulation and tax cuts. Would you consider reversing that, i.e. restoring 60s/70s levels of taxation and regulation to be 'real change'? 'Real change' as in adopting a few more socialist policies such as national health care? The sort that most first world countries have had since the middle of the last century? 'Real change' wouldn't be the label I'd use for either of those ('return to sanity' perhaps), but do you have anything more novel to offer?

[Big Orange]

'Real change' as in adopting a few more socialist policies such as national health care? The sort that most first world countries have had since the middle of the last century?

Obama is attempting to instigate genuine healthcare, but is fought tooth and nail with surprising viciousness by loads of stupid people who have been manipulated/bribed by the insurance industry that is still in business. And all those offshored production lines and administrative blocks are still in Asia.

[KrauserKrauser]

Oh bullshit. He started this fight with his guns plugged and loaded with blanks.

Don't try and trot out Obama as some sort of victim in this. If Obama is so naive to think that starting the issue with a compromise is going to magically make the other side realize how bad it could have been and accept it, he doesn't deserve the office.

He could have started with "Medicare for all" and settled on a Public option instead of starting with the Public option and settling for a thousand pages of dogshit.

The right was going to fight fight fight any sort of government involvment in healthcare so given that, why shoot yourself in the foot when going the mythical "Change" that he won the election on.

[PainRack]

Oh bullshit. He started this fight with his guns plugged and loaded with blanks.

Don't try and trot out Obama as some sort of victim in this. If Obama is so naive to think that starting the issue with a compromise is going to magically make the other side realize how bad it could have been and accept it, he doesn't deserve the office.

He could have started with "Medicare for all" and settled on a Public option instead of starting with the Public option and settling for a thousand pages of dogshit.

The right was going to fight fight fight any sort of government involvment in healthcare so given that, why shoot yourself in the foot when going the mythical "Change" that he won the election on.

To be fair, Obama is actually attempting to live up to his campaign hype about changing the tone. Yeah, I know, he didn't actually use those words, bush did, but in the Audacity of Hope, he made it clear that he was sick of partisan bickery and wanted a spirit of compromise in politics. And let's face it, Obama was NEVER a leftist.

[TheKwas]

Joseph Stiglitz is not just 'some other guy'.

[Big Orange]

I agree with KrauserKrauser that Obama has failed to properly grab the bull by the horns in regards to reforming healthcare, but the anti-UHC factions certainly put the "fucking" into fucking nuts. Obama only being mildly centre-left and then being called a Soviet Communist shows more of their cracked lunacy and how far they've gone down the road with a discredited economic ideology that poses the greatest threat to America since the Soviet Union, ramping up the unemployement and wealth disparity that feeds political turmoil.

[J]

Frankly economically, we are in the eye of the storm. Bad stuff has happened yet we are in a point where it was not crashing at the speed it was a few months ago. I dont think that hold at all though and there is a good chance we will just slip back down again.

Mmmm...it depends on what we're looking at in the speed of decline. While it's true that the equity markets are back up and credit is no longer as tight as it was last fall due to unprecedented bailouts, guarantees, and liquidity measures undertaken by governments & central banks, the "real" economy which we live in has continued to crash at the same rate as before. When we look at energy consumption, railway & truck shipments, ship tonnage & traffic, housing prices, consumer credit availability, sales tax revenues, various manufacturing & retail indices and so forth which measure the real world around us, the decline's barely slowed since last fall and some of those measures are still deteriorating at an ever faster rate.

Personally I think Obama does not have a great idea of what he is doing, nor does most of Congress.

Well, he did appoint a multi-time tax cheat to take care of the Treasury. Works about as well as fox guarding the hen house...