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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: KyrosL who wrote (98411)	12/10/2008 9:42:08 AM
From: JohnM	Respond to of 541472

The Economic Crisis, getting the history right Capitalist Fools Behind the debate over remaking U.S. financial policy will be a debate over who’s to blame. It’s crucial to get the history right, writes a Nobel-laureate economist, identifying five key mistakes—under Reagan, Clinton, and Bush II—and one national delusion. by Joseph E. Stiglitz Vanity Fair January 2009 Just a terrific piece. Thanks.

To: KyrosL who wrote (98411)	12/10/2008 10:21:39 AM
From: Sam	Read Replies (1) \| Respond to of 541472

What is important about Stiglitz, IMO, is that he isn't mesmerized by theories about markets. He knows them, and can apply them without being dominated by them and their frequently self-serving purposes that have socially destructive ends. Like, for example, repealing Glass-Steagall. The most important consequence of the repeal of Glass-Steagall was indirect—it lay in the way repeal changed an entire culture. Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people’s money very conservatively. It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people’s money—people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risktaking. This was done by Rubin et al at the behest of commercial banks that wanted the advantages of being both a commercial and an investment bank. Well--make up your mind. There is a role for both in our society, and mixing the two is bad policy. Stiglitz saw this clearly and wasn't blinded by either free market theory or self-interest (or perhaps both). As I've said before (and will try not to say again), I would be happier with Obama's economic team if it included someone like him, who can say with enormous credibility that the emperor has no clothes when it comes to currently popular economic theories. Thanks for posting that.