Gloria Ferris

one woman’s view from a place by the zoo in the city

Archive for January 20th, 2008

a newer New Deal: rebuilding the infrastructure

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Again, from the New York TIMES, a commentary from Bob Herbert on the blindness a culture of panders for years to the wealthy–the investment bankers and venture capitalists and big businesses, those who provide the richest emoluments for our elected representatives–and then tries to mitigate the country’s losses by putting a band-aid on the problems of people who work and have no lobby. He concludes:

I’d start with a broad program to rebuild the American infrastructure. This would have the dual benefit of putting large numbers of people to work and answering a crying need. The infrastructure is in sorry shape. New Orleans comes to mind, and the tragic bridge collapse in Minneapolis.

The country that gave us the Marshall Plan to rebuild postwar Europe ought to be able, 60 years later, to reconstitute its own sagging infrastructure.

There are also untold numbers of jobs and myriad societal benefits to be reaped from a sustained, good-faith effort to achieve energy self-sufficiency. Think Manhattan Project.

The possibilities are limitless. We could create an entire generation of new jobs and build a bigger and fairer economy for the 21st century. If only we were serious.

Written by Gloria Ferris

January 20th, 2008 at 3:57 pm

Krugman nails it, making the distinction between sophistication, and sophistry

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Required reading, from Paul Krugman. I’ll quote a little bit below, and you can then go to the New York Times and read the rest for yourself.

The global origins of our current mess were actually laid out by none other than Ben Bernanke, in an influential speech he gave early in 2005, before he was named chairman of the Federal Reserve. Mr. Bernanke asked a good question: “Why is the United States, with the world’s largest economy, borrowing heavily on international capital markets — rather than lending, as would seem more natural?”

His answer was that the main explanation lay not here in America, but abroad. In particular, third world economies, which had been investor favorites for much of the 1990s, were shaken by a series of financial crises beginning in 1997. As a result, they abruptly switched from being destinations for capital to sources of capital, as their governments began accumulating huge precautionary hoards of overseas assets.

The result, said Mr. Bernanke, was a “global saving glut”: lots of money, all dressed up with nowhere to go.

In the end, most of that money went to the United States. Why? Because, said Mr. Bernanke, of the “depth and sophistication of the country’s financial markets.”

All of this was right, except for one thing: U.S. financial markets, it turns out, were characterized less by sophistication than by sophistry, which my dictionary defines as “a deliberately invalid argument displaying ingenuity in reasoning in the hope of deceiving someone.” E.g., “Repackaging dubious loans into collateralized debt obligations creates a lot of perfectly safe, AAA assets that will never go bad.”

In other words, the United States was not, in fact, uniquely well-suited to make use of the world’s surplus funds. It was, instead, a place where large sums could be and were invested very badly. Directly or indirectly, capital flowing into America from global investors ended up financing a housing-and-credit bubble that has now burst, with painful consequences.

Written by Gloria Ferris

January 20th, 2008 at 2:34 pm