Monthly Archives: March 2009

links for 2009-03-31

links for 2009-03-30

links for 2009-03-29

Quiet Coup

Lots of people have pointed to Simon Johnson’s The Quiet Coup, in The Atlantic’s online version. If you haven’t already read it, here’s another voice suggesting that you should. I’m not much of a fan of the IMF, but their perspective is supremely relevant to the panics of the moment, and Johnson’s experience allows him to find parallels that others might miss. Just one example:

…the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.

Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise…

But inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. Overborrowing always ends badly, whether for an individual, a company, or a country. Sooner or later, credit conditions become tighter and no one will lend you money on anything close to affordable terms.

Johnson warms to the task as he goes, and by the last paragraph one begins to hear the creak of the tumbril’s wheels:

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.

links for 2009-03-25

  • Really worth a read, especially for those who still harbor gristly bits (tending to lodge in back teeth) about their own educations and the choices offered and actually made.
  • money quote: "Though the bailout plan seems complex, simple examples demonstrate that it is a sucker's bet. But for some reason you won't see this kind of critical analysis on the front page of the New York Times. Instead, today's paper has headlines about A.I.G. returning $50 million in bonuses (one ten-thousandth of the bank bailout cost), along with a People-style front-page article focusing on Geithner's struggle to convince Wall Street plutocrats to take more free money…"

links for 2009-03-24

Lurching leftward

I must be getting soft-headed, or something. It just seems obvious to me that (a) Juan Cole’s Informed Comment is right about most of the issues it raises (for example, his treatment of Khamenei’s Speech Replying to Obama is vastly clearer than other stuff I’ve seen), and (b) Matt Taibbi’s The Big Takeover (“The global economic crisis isn’t about money – it’s about power. How Wall Street insiders are using the bailout to stage a revolution”) nails what happened/is happening better than most of what I hear or read. viz:

As complex as all the finances are, the politics aren’t hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.