"Does any of this matter? Why should we be concerned about the effort to shift the blame for bad policies onto the general public?

One answer is simple accountability. People who advocated budget-busting policies during the Bush years shouldn’t be allowed to pass themselves off as deficit hawks; people who praised Ireland as a role model shouldn’t be giving lectures on responsible government.

But the larger answer, I’d argue, is that by making up stories about our current predicament that absolve the people who put us here there, we cut off any chance to learn from the crisis. We need to place the blame where it belongs, to chasten our policy elites. Otherwise, they’ll do even more damage in the years ahead."

"I have had an interest in tracking oil companies (for crude) and refineries (for oil products) trading in their own volume over the past 11 years. As I noted last week (in "Oil Inventories, Speculation, and Hedging"), anecdotal evidence is already emerging that vertically integrated oil companies (VIOCs) – those controlling the upstream/downstream process from field to refinery through retail outlet – were unusually active recently in trading in near-month futures contracts in their own product.
This occurred both when crude oil and gasoline prices were rising (through close on April 29) and thereafter, as crude plummeted almost 15% and gasoline over 13% as of the end of trading on May 6."

"That cyclical component accounts for a lot of the short-run variation in hiring, but if you’re estimating the response to a demand shock, longer-term supply trends matter too and often they matter a great deal.  If Ph.d. programs were stricter about enforcing standards of quality and relevance, rather than stringing along students to maintain the flow of revenue to the graduate program, the short run negative demand shocks would lead to a much less severe queuing problem.  That’s simple microeconomics, and it should be macroeconomics too."

"I'm not an economist, but we've got five applicants for every single job opening. If you tell me that the best response to that situation is to lay off hundreds of thousands of teachers, I will not accept that this means that you're smarter and more expert than I am. I will instead conclude -- regardless of your prestige or position or years of study -- that you're a moral imbecile. And knowing what I know about your inability to make moral judgments I will have no reason to trust you to make complicated macroeconomic ones."

"Good financial regulation and supervision are important in their own right. A good financial system will better serve the interests of borrowers and lenders. It will create benefits on the supply side. And financial crises will almost certainly cause demand to fall. But just because something causes demand to fall doesn't mean monetary and fiscal policy can't work. The whole point of Keynesian policy was that when (not if) something did cause demand to fall, monetary or fiscal policy could and should be used to increase it back again."

"Yves here. The end game of lending too much money is creditor losses. The better path is to accept writedowns and restructurings, for the lenders to take their lumps. The record of past financial crises is clear on this matter. Even though it leads a larger initial economic downturn, its duration is comparatively short. Even though US policymakers refuse to listen, the Japanese are strongly of the view that their prolonged slump is mainly the result of the failure to write down bad loans and recapitalize its banks, rather than insufficient fiscal and monetary stimulus. And a deflationary spiral produces the same result, creditor losses, in this case via default, with more damage to the economy and higher costs of repairing the financial system."

"The 1946-49 period isn't surprising since there was a flood of workers from the military (keeping income down), but people had significant savings from WWII when income far outpaced consumption. Of course, in the recent period, consumption was higher than income primarily because of mortgage equity extraction (The Home ATM).

The previous business cycle was "bad by any measure"."

"The biggest reason this is possible is because nobody realizes it. If it was conventional wisdom that a bunch of unelected bankers looking out for rich people were the reason everyone was out of work, politicians would be forced to explain to angry voters why we had this crazy system and might actually consider doing something about it. But, incredibly, it just seems like nobody has any idea. Voters don’t realize it, politicians don’t understand it, journalists don’t cover it. And, in fact, they’re so far from having any idea that it’s really difficult to explain it to them. When you say a bunch of unelected bankers are the reason there are no jobs, they just look at you like you’re crazy. I’ve just spent a page or two explaining it and you still probably think I’m crazy. But it’s true! This isn’t some Ron Paul-type crackpot idea; this is mainstream economics, from Paul Krugman to the head of George W. Bush’s Council of Economic Advisors."

"Think back to the dot-com era, when venture capitalists were spending all their money laying fiber-optic cable under the street. The right solution wasn’t for the Fed to raise interest rates until even punch-drunk venture capitalists could realize all this investment in fiber wouldn’t be profitable. The right solution was to take their money away. Give it to the poor, who will spend it on something useful, like food and clothing.

So those are Keynes’ prescriptions for a successful economy: low interest rates, government investment, and redistribution to the poor. And, for a time — from around the 1940s to the 1970s — that’s kind of what we did. The results were magical: the economy grew strongly, inequality fell away, everyone had jobs."

"The key, then, is to have good jobs waiting for workers when they are displaced due to inevitable (and desirable) technological change or to jobs moving overseas, jobs that are every bit as good or better than the jobs they left. That is where we are falling short. "

"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."

"My thoughts exactly, Don. Plus the durations target the drawdown precisely on the capital we need most. We're desperately short of 3 month working capital, and here comes Paulson to take $700 BB of what we've got left away and dump it in the mortgage industry. I don't think you could devise a worse plan. We might be better of if he *did* steal it."

"Bruised by stock market losses, Americans bought houses. The mortgage industry used securitised bonds to ensure that the people who initiated the mortgage did not worry about getting paid back; risk was packaged and sold to others. This time Mr Greenspan did not just stand aside. He said repeatedly that housing was a safe investment because prices do not fall. Home owners could wait out any downturn. Is it any surprise that so many people thought if the world’s financial genius held this view it must be all right?

Even as things went completely wild, Mr Greenspan dismissed those who warned that a new bubble was emerging. It was just a case of a little “froth” in a few areas. Later, after waiting until 2007, two years after he left office, he conceded that “froth” had been his euphemism for “bubble”. “All the froth bubbles add up to an aggregate bubble,” he told the Financial Times."

"...But those who speak for the Princes of Wall Street--well, they really believed that the Princes earned their fortunes by virtue of their virtue--their intelligence, their nerve, their skill, and their willingness to run great risks for great rewards. The idea that there is a public safety net to catch the Princes when they all fall off the tightrope at once--that they are not actually rugged Randite individualists running great risks--that they are people in the right place at the right time with enough low animal cunning to cover themselves with glue and then step outside at 57th and Park or on Canary Wharf as the money blows by so that a bunch of the money sticks to them--well, this strikes those who speak for the Princes of Wall Street on the editorial page of the Wall Street Journal or in Investors' Business Daily as a betrayal of the moral order."

"Those bad assets will have to move to banks' balance sheets... But putting them there requires huge amounts of cash."