Joe Scores Again
Joe Nocera sums up my reaction to the past week’s congressional circus:
By week’s end, I was more depressed about the financial crisis than I’ve been since last September. Back then, the issue was the disintegration of the financial system, as the Lehman bankruptcy set off a terrible chain reaction. Now I’m worried that the political response is making the crisis worse. The Obama administration appears to have lost its grip on Congress, while the Treasury Department always seems caught off guard by bad news.
And Congress, with its howls of rage, its chaotic, episodic reaction to the crisis, and its shameless playing to the crowds, is out of control. This week, the body politic ran off the rails.
There are times when anger is cathartic. There are other times when anger makes a bad situation worse. “We need to stop committing economic arson,” Bert Ely, a banking consultant, said to me this week. That is what Congress committed: economic arson.
The rest is here.
Nocera: Instead of these “raise your hand if you took a private jet to get here” exercises of outraged populism, we need hearings that educate and illuminate.
Raber: Absolutely on target. We elect politicians to turn back the mob with the pitchforks and piano wire, not to egg them on. Might be a good time to send one of those “wake up and die right” messages to your congressional representatives, asking them to take a more considered approach to the crisis.
Jean, do you mean seppuku? That’s what Senator Grassley seemed to be recommending and he’s a Republican!
But yes, Nocerra is spot-on.
Heavens, what an unfortunate choice of words on my part given Grassley’s recent weird remarks. We don’t need grandstanding or dead pols. We need people with smart brains and cool heads.
Nocera’s reference to Ferdinand Pecora rang a bell ( believe he once ran for mayor of New York City), but I had not known about the hearings he conducted. I’ve then discovered that Ron Chernow had an op-ed piece on him in the Times of January 6th:
http://www.nytimes.com/2009/01/06/opinion/06chernow.html?pagewanted=1
Here’s a portion:
“Whatever their failings, the Pecora hearings laid the groundwork for financial reform legislation. By the time they ended in May 1934, they had generated 12,000 printed pages of testimony, collected in several thick volumes. These documents have served generations of historians. Our national narrative of stock market mayhem in the 1920s is largely composed of characters and anecdotes gleaned from their pages.
Pecora not only documented a litany of abuses, but also paved the way for remedial legislation. The Securities Act of 1933, the Glass-Steagall Act of 1933 and the Securities Exchange Act of 1934 — all addressed abuses exposed by Pecora. It was only poetic justice when Roosevelt tapped him as a commissioner of the newborn Securities and Exchange Commission.
Our current stock market slump and housing bust can seem like natural calamities without identifiable culprits, creating free-floating anger in the land. A public deeply disenchanted with our financial leadership is desperately searching for answers. The new Congress has a chance to lead the nation, step by step, through all the machinations that led to the present debacle and to shape wise legislation to prevent a recurrence.”
Alas, the “new Congress” seems more interested in showboating.
Nocera was a guest this morning on NPR’s “Wait Wait…Don’t Tell Me!” show. He displayed a self-deprecating sense of humor. For example, when one of the regulars asked him what he is investing in these days, Nocera responded that the NYT requires that he put all his investments in a blind trust. “Therefore, I don’t know how much I’ve lost,” he said, “It’s fantastic!”
Nocera’s observations are right,but still incomplete. There will be no permenent correction of the financial markets untill congress gets serious about imposing high taxes on income above $1.0 million, not just bonuses and not just in the financial industry. On an inflation adjusted basis the marginal rate on income above $1.0 million untill the early 1980′s was 70% – and from 1950 through 1980 the economy experienced its highest rate of growth in the post war period. A 70% rate on income over one million dollars would permently end the personal moral hazard that is the root cause of the current crisis.
I think the Obama administration is doing very well with the crisis. They seem to be ignoring much of the hullabaloo calling for an immediate, gut-reaction solution to the crisis, and instead are continuing to lay important, thoughtful groundwork for the policies that (one hopes) will begin to get things settled down again. These aren’t problems that are going to be solved overnight. I’d be worried if they were doing sloppy, hurried work for the sake of satiating the worries of the political talking heads in the media.
Charles are you saying you want to go back to the economy of the late 70′s? Moral hazzard or not, I’d rather have people who are willing to take financial risks to create wealth keep more of it than use the tax code to enforce some sort of moral code.