"Gullibility is the principal cause of bubbles. Investors and the general public get snared by a “beautiful illusion” and throw caution to the wind. Attempts to identify and control bubbles are complicated by the fact that the authorities who might naturally be expected to take action have often (especially in recent years) been among the most gullible, and were cheerleaders for the exuberant behavior. Hence what is needed is an objective measure of gullibility."

"The short-term way to level the playing field is to update the New Deal so it includes and addresses the current workforce. We need to accept that many people don't work full-time for an employer and that "jobs" no longer mean just W-2 employees, as Douglas Rushkoff explained. Richard Cass, a self-employed technical and business consultant and Freelancers Union member, also puts it well: "Government programs that promote small business generally focus on companies with scores of employees and millions of dollars in annual revenue, which is short-sighted." That has immediate implications for our economic and job policies.

But to really bring a thriving middle class back to life, we need a dramatic shift in thinking, institutions, and assumptions. The role of policy should be to foster newer, more self-sustaining systems that follow this new mutualist paradigm. In the long run, our institutions need to move away from regarding the office as the center of a person's economic life, from business as the provider of benefits, and from government as the provider of social supports. The middle class does not have to be built by focusing on individual wealth. Instead, we can build stable markets and societies where people make a living, communities flourish, and businesses survive -- and not at the expense of others. It's not utopian -- it's a necessity if we want a successful middle class again."

'While Adam Smith may be known as the philosopher who first promoted the idea that “greed is good,” his earlier work suggests we are not condemned to exploit others for the benefit of a few. In his book The Theory of Moral Sentiments, written in 1759, Smith proposed that sympathy for the plight of those who suffer is an inherent part of human nature.

“When we see one man oppressed or injured by another,” he wrote, “the sympathy which we feel with the distress of the sufferer seems to serve only to animate our fellow-feeling with his resentment against the offender.”

With the current occupation of Wall Street and the international condemnation of an economic model that would take advantage of those most in need, we are witnessing Smith’s prediction in action. It is only when the reality of people’s suffering is hidden that greed is allowed to dictate policy. While our current system has chosen the greed of the few over the needs of the many, the intellectual founder of modern capitalism suggests it doesn’t need to be this way. “When we think of the anguish of the sufferers, we take part with them more earnestly against their oppressors.”'

"Thus the most logical interpretation is that as other sources of cash are drying up – jobs, equity lines, etc. -- consumers are now turning to credit cards for basic expenses, and as credit lines become exhausted another round of defaults is in store. Some may say that cash sales are not reflected in the data, but the American way of life and the core economic engine has been plastic-based for as long as we can remember, and is not about to change anytime soon."

"We propose an online form of the cake cutting problem. This models situations where agents arrive and depart during the process of dividing a resource. We show that well known fair division procedures like cut-and-choose and the Dubins-Spanier moving knife procedure can be adapted to apply to such online problems. We propose some fairness properties that online cake cutting procedures can possess like online forms of proportionality and envy-freeness. We also consider the impact of collusion between agents. Finally, we study theoretically and empirically the competitive ratio of these online cake cutting procedures. Based on its resistance to collusion, and its good performance in practice, our results favour the online version of the cut-and-choose procedure over the online version of the moving knife procedure."

"For the GOP to use the debt ceiling to put a gun to the head of the US and global economy until they get only massive spending cuts and no revenue enhancement is therefore the clearest sign yet of their abandonment of the last shreds of a conservative disposition. A conservative does not risk the entire economic system to score an ideological victory. That is what a fanatic does."

"Future historians will look back at this, and marvel. Of course, it’s just part of the broader story of how bad economic ideas — the very ideas that were proved wrong by the crisis, and continue to be proved wrong by subsequent events — have come to dominate the discourse."

"First thing we've got to do is tell the truth. We live in an age where lies are just ubiquitous. The biggest lies are that free markets are self-corrective, that individuals are rich because they're smart, and that somehow America became great because of economic growth as opposed to the moral courage of the citizens of all colors to fight for freedom. We need a democratic awakening. We need organizing, mobilizing. We need to be willing to take a risk to change the world. The Obama moment of hope is over. "

"Yet I find none of the classical, semi-classical, new classical, or neoclassical economists who believe in optimizing growth models stepping forward and saying: "Because r < g right now, what we really need is more government spending and an expanded government debt."

It is very odd..."

"The positive lesson for the US is that we have a lot of scope to give employers incentives to cut hours rather than jobs, including improving and expanding "work-sharing" (part-time unemployment benefit) programs as well as implementing new direct tax credits to firms that expand paid time off (paid sick days, paid family leave, paid vacations, and other measures).

The negative lesson is that focusing on supply-side issues such as training, education, and improved job-matching for the unemployed --as much sense as they make in the long run-- is not likely to get us very far when the economy is at 9 percent unemployment. Denmark does far more than we could ever hope to accomplish along these lines and the unemployment there almost doubled between 2007 and 2010."

"What’s striking, though, is that even in January of 2010, when unemployment was over 10%, deficits received equal mention as unemployment. The media is certainly culpable here, but I’m guessing that their headlines are driven by the political discussion, which since the passage of the stimulus has been entirely warped. Goes to show that our political leaders, and the media by extension, will never give unemployment the attention it deserves."

The charts below give us a rather different view of the U.S. retail economy and the long-term behavior of the consumer. The sales numbers are adjusted for population growth and inflation. For the population data I've used the Bureau of Economic Analysis mid-month series available from the St. Louis FRED with a linear extrapolation for the latest month. Inflation is based on the latest Consumer Price Index. April retail sales adjusted accordingly declined 0.2% from March.

We were already very unhappy about the fact that the review was conducted on 2800 mortgage files across 14 servicers and there seemed to be no scientific process for how the cases were selected. The GAO signaled it had reservations about the exercise. And no wonder. Not only was it a garbage-in, garbage out process (whether the borrowers were delinquent was based on the servicers’ say so, not any analysis to see if the fees, charges, and applications of payments were in compliance with the law and the various agreements), it effectively said pretty much all foreclosures were warranted when it looked at only 100 completed foreclosures:

"Perhaps full-scale economic devastation was the only way to restore the sense of “intimate and inextricable relation to the society” around us that Tom Wolfe famously hoped to instill in readers of his 1987 crash-lit classic Bonfire of the Vanities, one of the last memorable explorations of the morally hazardous culture of the Master of the Universe class."

"As of January 2010, the duration of the current recession stands at 25 months and counting. By lasting this long, it has vaulted into 5th place on the career list, surpassing the 24-month long recession of January 1910 to January 1912. It’s the Ken Griffey of recessions. Next one in our sights is the 32-month long post-Civil War recession that ran from April 1865 to December 1867."

"“We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse,” Stiglitz said. “What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.”"

"Efficient-market theory ought, with any methodological justice, to be relegated to the Museum of Nice Tries. But there is no unified replacement theory, and developing one will be arduous, involving empirical and theoretical work on all scales, from the experimental psychology of individual investors, through the institutional constraints under which money managers work, to solving for the aggregated effects of market participants’ interactions. In the meantime, efficient-market theory provides a ready basis for precise calculations, and one that is moreover now built into the academic field of finance and into the practice and even infrastructure of the markets."

"In 1790, an intense debate swirled around the debt issued by individual states and the government during the Revolutionary War, much of which had been scooped up by big-city speculators after it had plummeted in value. Treasury Secretary Alexander Hamilton's proposal that the newly constituted federal government assume state debts was wildly unpopular among the agrarian types from Virginia. They loathed speculators and the cities in which they congregated, and they viewed the plan as part of Hamilton's scheme to concentrate power in the federal government."

"Think it can't be done? Surprise: What is past is prologue.
Great Britain faced an existential threat back in the 1940s in the form of the overwhelming Nazi military juggernaut that conquered all of continental Europe. Hitler then blockaded and prepared to invade isolated England.
Without enough metal to re-build new airplanes with, England turned to home wood workers and small furniture builders to build a wood-bodied, twin engine light fighter bomber that became known as the de Havilland Mosquito. The resulting plane became the fastest (>400 mph) bomber of the war and contributed in large part to eventual Allied victory. 7,800 wooden planes were made."

"According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland -- the central bankers' bank -- the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion. The main categories of the USD 1.144 Quadrillion derivatives market were the following:"

"But for Shlaes, as for the Liberty Leaguers, government isn't big unless it restricts big business; then big government is bad."

"Of particular note, they have a great line where they say (my close paraphrase) that "to an outside observer who is not aware of the underlying objective function, it might appear that some agents become risk-loving." So when you say "We know that excessive risk taking was a factor in the financial crisis, but why people were willing to take on excessive risk?", you are ignoring a point emphasized by Keynes, and many others, but actively disdained by free-market fundamentalists: there is no a priori reason to believe in general that behavior that is individually rational is collectively rational. What, after all, is "excess" risk?"

"See chart below (thanks go to David Wheelock from Fed St.Louis), which shows monthly value of imports in 75 countries between 1929 and 1933. Trade implosions happen, you have been warned."

Consider replacing "oil" with "auto".

"But with any energy boom eventually comes the energy bust. Here are some photos I took showing what a community looks like if its economy is disproportionately based on oil and the oil companies leave. I’m not a particularly good photographer, so these aren’t artistically impressive, but they capture what the area looks like now."

"The last six months — if not the last year — logged what felt like a decade’s worth of financial news. So perhaps it isn’t surprising that swings that normally would attract an enormous amount of attention have gone almost unnoticed. Like the near-total collapse of private capital flows."

"These universities, because of their incessant reliance on standardized tests and the demand for perfect grades, fill their classrooms with large numbers of drones. I have taught gifted and engaged students who used these institutions to expand the life of the mind, who asked the big questions and who cherished what these schools had to offer. But they were always a marginalized and dispirited minority. The bulk of their classmates, most of whom headed off to Wall Street or corporate firms when they graduated, starting at $120,000 a year, did prodigious amounts of work and faithfully regurgitated information. They received perfect grades in both tedious, boring classes and stimulating ones, not that they could tell the difference. ..."

"If the dot com crash is any predictor of future consolidation, look for the survival of systems that address some specific real need of some narrow niche and that don't have to grow to planetary size to be profitable. Display advertising rates continue to fall, making it more and more attractive for people to run house ads instead selling merchandise or services directly to whatever audience they can sustain. If what you are using does more than just scratch some coder's itch you have a better chance."

"Because the public doesn't understand the intricacies of finance, it's easily persuaded that this is definition of "soundness" is the same as keeping savings flowing to the banks so that the banks can lend to them to Main Street. That's why the public and its representatives have committed $700 billion of taxpayer money to Wall Street and another $500 to $600 billion of subsidized loans to the Street from the Fed -- bailing out the investors and creditors of every major bank, including , any moment, Citi -- only to discover, at the end of this frantic and unbelievably expensive exercise, that American jobs and communities are more endangered than they were at the start."

"If cargo trade stops, the wheat doesn’t get exported. If the wheat doesn’t get exported, the mill has nothing to grind into flour. If there is no flour, the bakeries and food processors can’t produce bread and pasta and other foods. If there are no foods shipped from the bakeries and factories, there are no foods in the shops. If there are no foods in the shops, people go hungry. If people go hungry their children go hungry. When children go hungry, people riot and governments fall."

"But even more concerning for the U.S. is that export traffic is declining. For the LA area ports, outbound traffic fell off a cliff in September, and was even lower in October. Outbound traffic was about 8% below the level of October 2007.

The key supports for the economy earlier this year - consumer spending, exports, and investment in non-residential structures - are all declining sharply now."

"For a living, I’m an IT generalist and a Web specialist. For doing this, I get paid reasonably well and thus I have some savings to take care of. My conclusion: it is neither fair, nor is it sane, for me to hand them over to people who get paid ten times and up what I do. So I’m not gonna. If that means I have to deal my nest-egg out among real estate, gold, and cash under the mattress, so be it.

So if anyone wants to help me with my money, I’m going to insist on complete transparency as to how they’re getting paid and how much they’re getting paid, and if it’s really a lot more than me, then I’ll know I can’t afford their services.

Which should have been obvious a long time ago. If a lot of other people come to similar conclusions, maybe we can bring some sanity to the money business."

"As NMHC chief economist Obrinsky noted, it is common in a recession for apartment vacancies to rise, as households double up by moving in with a friend or family member. However an added factor in this recession is all the single family homes being offered as rentals. This is additional competition for apartments and might also be impacting demand for apartments."

"[in 1999] ...McCain had joined with other Republicans to push through landmark legislation sponsored by then-Sen. Phil Gramm (Tex.), who is now an economic adviser to his campaign. The Gramm-Leach-Bliley Act aimed to make the country's financial institutions competitive by removing the Depression-era walls between banking, investment and insurance companies.

That bill allowed AIG to participate in the gold rush of a rapidly expanding global banking and investment market. But the legislation also helped pave the way for companies such as AIG and Lehman Brothers to become behemoths laden with bad loans and investments.

McCain now condemns the executives at those companies for pursuing the ambitions that the Gramm-Leach-Bliley Act made possible, saying that "in an endless quest for easy money, they dreamed up investment schemes that they themselves don't even understand.""