Brooks's Challenge

David Brooks column today seems to me like a real challenge, not only to Republicana, but to Democrats. I want to write a lengthier appraisal tonight, but for now I'll just say that it's likely that, with this column and his Moderate Manifesto, he is giving voice to a not-insignificant group of centrists, from both sides, who, while they know that certain extreme things need to be done in this crisis, are still skepitical of the response so far. While these centrists (I'm one of them) think the Republicans are incapable of looking at the world through anything but Reagan-colored glasses (thus offering no plan and no thoughtful challenge to the Democrats), they are a little worried that the Democratic response has not been focused enough on the here and now. Obama's budget, from what Brooks argues, possibly makes too many assumptions about economic conditions over the next year, and consequently, is swinging for the fences when the better play is to go for a double. I disagree with Brooks in that some problems, like health care, simply can't wait to be fixed and are part of the overall problem (as the Obama Administration itself argues). But I think he offers a useful counterpoint to Obama's desire to want to do everything at once. It's a an argument that would have real resonance in the country, I think, Will the Republicans make it? Of course not.

First You'll Learn Something. Then You'll Laugh. Then You'll Be Infuriated.

I will put up a few posts this weekend, but for now enjoy these two pieces of fine media on the financial crisis. The first is the latest episode of This American Life. They have already produced some of the most lucid reporting on the financial crisis that I've seen with the episodes: The Giant Pool of Money and Another Frightening Show About the Economy. Now they have another episode on the collapse of the banking system. I can't say how it is as it just came out this week and I haven't had a chance to hear it, but I'm sure it's great. It's called, simply, Bad Bank.

The second piece is from last night's episode of The Daily Show. Stewart tears into CNBC for some of its atrocious coverage of the sub-prime crisis.

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

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New York: Back From The Depths!

I'm currently reading "How the Crash Will Reshape America" over at The Atlantic, describing the vast changes that the financial crisis is likely to make across the country. I'm not done yet, but It's opening section has optimistic things to say about my hometown and its future. In these frightening times, that's a good thing to have, so here you go:

...the financial crisis may ultimately help New York by reenergizing its creative economy. The extraordinary income gains of investment bankers, traders, and hedge-fund managers over the past two decades skewed the city’s economy in some unhealthy ways. In 2005, I asked a top-ranking official at a major investment bank whether the city’s rising real-estate prices were affecting his company’s ability to attract global talent. He responded simply: “We are the cause, not the effect, of the real-estate bubble.” (As it turns out, he was only half right.) Stratospheric real-estate prices have made New York less diverse over time, and arguably less stimulating. When I asked [famous urbanist Jane] Jacobs some years ago about the effects of escalating real-estate prices on creativity, she told me, “When a place gets boring, even the rich people leave.” With the hegemony of the investment bankers over, New York now stands a better chance of avoiding that sterile fate.

I'm going to live in Canada!

Fareed Zakaria on why Canada is getting through the financial crisis in much better shape than the U.S.

The "D" Word

This is kind of scary. Respected economist Tyler Cowen lists the eight reasons why he thinks we are in a depression:

1. We have zombie banks.

2. There is considerable regulatory uncertainty in banking and finance.

3. There is a negative wealth effect from lower home and asset prices.

4. There is a big sectoral shift out of real estate, luxury goods, and debt-financed consumption.

5. Some of the automakers are finally meeting their end, or would meet their end without government aid.

6. Fear and uncertainty are high, in part because they should be high and in part because Bush and Paulson spooked everyone.

7. International factors are strongly negative.

8. There is a decline in aggregate demand, resulting from some mix of 1-7.

He goes on to describe how we are handling, or not handling, each one.

This Picture Explains It All

This is from The Economist, 1987.

Today Is NOT Like The Great Depression

I just listened to a report on NPR that makes the excellent point that what is happening now is not likely AT ALL to devolve into something like the Great Depression. Then there was 25% unemployment, and 9000 bank closures. Today, as a result of the Great Depression we have learned how to handle economic crisis a lot better. In that time the government raised taxes, reducing the money supply and therefore economic activity. The relatively quick response of the government today is a result of learning from that crisis. Plus, today we also have New Deal institutions to help us out -- the FDIC, Social Security. It seems to me that if part of the current crisis is psychological, the financial media should bear some responsibility and not exaggerate the situation.

The Right Picture For The Occasion

Ever thought about the hard task of choosing the right photo to run with an article on the financial crisis? Here is a guide.

Another Frightening Show About Money

A few weeks ago I posted a link to a This American Life episode on the financial crisis called The Giant Pool of Money. Now comes part 2, Another Frightening Show About Money. It focuses on the last few weeks: Lehman, AIG, commercial paper, credit default swaps -- and it's really informative and clarifying, like the first episode. If you have an hour, it can really help you make sense of the crisis.

Apocalypse Watch

Nouriel Roubini knows how to be terrifying:

"It is now clear that the US financial system -- and now even the system of financing of the corporate sector -- is now in cardiac arrest and at a risk of a systemic financial meltdown. I don't use these words lightly but at this point we have reached the final 12th step of my February paper on "The Risk of a Systemic Financial Meltdown: 12 Steps to a Financial Disaster" (...)

So we are now facing:

- a silent run on the huge mass of uninsured deposits of the banking system and even a run on some insured deposits are small depositors are scared;

- a run on most of the shadow banking system: over 300 non bank mortgage lenders are now bust; the SIVs and conduits are now all bust; the five major brokers dealers are now bust (Bear and Lehman) or still under severe stress even after they have been converted into banks (Merrill, Morgan, Goldman); a run on money market funds; a serious run on hedge funds; a looming refinancing crisis for private equity firms and LBOs);

- a run on the short term liabilities of the corporate sector as the commercial paper market has totally frozen (and experiencing a roll-off) while access to medium terms and long term financings for corporations is frozen at a time when hundreds of billions of dollars of maturing debts need to be rolled over;

- a total seizure of the interbank and money markets.

This is indeed a cardiac arrest for the shadow and non-shadow banking system and for the system of financing of the corporate sector. The shutdown of financing for the corporate system is particularly scary: solvent but illiquid corporations that cannot roll over their maturing debt may now face massive defaults due to this illiquidity. And if the financing of the corporate sectors shuts down and remains shut down the risk of an economic collapse similar to the Great Depression becomes highly likely."

Oh. My. God.

Tragic Sign of the Times

This is an amazing report from Southern California about foreclosed houses that are being emptied of everything in them once the former owners leave. People's despair at losing their home is so great that what they leave behind is striking: computers, family pictures and even birth-certificates.

A Talk On The Financial Crisis

For anyone who has over an hour to kill and really wants to learn about the financial crisis, this video -- a talk given by Princeton economics professors -- is for you. (I know that means probably no one, but that's why it's my blog.) I haven't watched the whole thing yet, but I started too and it looks really informative.

The Giant Pool of Money

I haven't posted anything on the financial crisis because, well, since I don't know anything about the financial world, I wouldn't be able to come up with anything remotely insightful. But I CAN link to the most lucid explanation of how this all started that I know of: This American Life did an entire show on the issue back in early May. They interviewed all the types of people involved in the long chain of responsibility, from those getting the mortgages to the local bankers who approved them to big-time bankers on Wall Street who bought the mortgages and then re-sold them to investors all over the world. It really gives you a great sense of the big-picture, as well as the kinds of personalities involved. It all starts with the $70 TRILLION that makes up the world's savings, what the show calls the Giant Pool of Money.