Quote of the Day, Economic Recovery Edition
Floyd Norris cites John C. Dugan, the man whose agency was charged with regulating AIG Financial Products in the NYT:
[T]hey believe that the banking system on its own is unlikely to have the ability to provide enough credit to sustain an economic recovery in the United States.
Gosh, really?
Norris quotes Dugan:
“We need a vibrant, credible securitization market to help fund the real economy going forward,” Mr. Dugan said this week. He was preaching to the choir — a meeting of the American Securitization Forum — but it is an opinion widely held in financial markets.
Remind me again why all those banks were “bailed out”? Wasn’t it supposed to be to kick-start the economy again?
Come on, there are two sides to every transaction. Have you seen how demand for consumer loans is faring? http://www.federalreserve.gov/boarddocs/snloansurvey/201002/chartdata.htm
Scroll to the bototm. I see 18 consecutive quarters of falling consumer loan demand. And don’t blame it on the banks. Loan demand fell BEFORE banks were tightening credit. I’ll bring facts you can bring emotion.
Your series doesn’t tell much because it is an aggregate stock. You provide no information on the flows. Banks write-off part of an underwater homeowner’s mortgage (a good thing according to your ilk) and conumser credit falls (a bad thing accord to your ilk). Someone pays off the 19% interest rate credit card with their bonus rather than blowing it in Vegas (a good thing according to your ilk) and consumer credit falls (a bad thing according to your ilk).
Like I say, the contradictions here are as numerous as those in the Bible.
“Remind me again why all those banks were “bailed out”? Wasn’t it supposed to be to kick-start the economy again?”
Sorry to break it to you, but that was a lie. And if Paulson did not know it was a lie, he should have. A white lie, perhaps, but still a lie.
Jay,
I am here with ample emotion and no facts but I agree with you. The earliest signs of falling demand for loans lead to loan officers finding clever ways to sell second mortgages. Knocking on doors in fact and ‘recycling’ customers etc.
We will just have to disagree on something else. ( I did not spend much emotion here)
I don’t think it had much to do with Main St either. I think more of Simon Johnson’s “The Quiet Coup” and it’s tale of manufactured panic and deliberate confusion. The oligarchs were saving themselves, not anybody else.
***Remind me again why all those banks were “bailed out”?***
It was because of a “liquidity crisis”/”credit crisis” which, I’m sure you know, is economist speak for no one is lending money to anyone because of an entirely justified fear that they will never see their money again.
***Wasn’t it supposed to be to kick-start the economy again?***
No, as I understand it, it wasn’t. It was the fear that without a bail out, the economy that needed kick-starting would be only about 60% (or some similar number) of the size of the economy prior to the blow-up.
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That’s entirely different from the idea that we need a bunch of sleazeball financial types promoting really stupid financial practices so they can fill their pockets with whatever falls off the gravy train as it rolls through town. Mr Dugan apparently thinks we are pretty dumb. Based on the historical record, he’s quite possibly right.
My own feeling is that Mr Dugan and anyone else who thinks an economy based on securitizing additional consumer debt is a good idea really needs to spend more time with their family. That is basically the Martingale approach to economic success. Martingale systems are guaranteed to be long term losers if you use them long enough. They help make casino gambling profitable. They are NOT a viable, sustainable economic strategy.
If you want to know the adversary, shall we say the wolf dressed in other clothing, know who the players are and where they came from. Mr. Dugan is little known by thepublic, but a very revealing article appeared in the Nation this p[ast December, 2009, entitled The Master of Disaster by Zach Taylor. Below are the first two paragraphs. Go to the full article for a better understanding of how regualtion of the finance industry actually works, or doesn’t as the case seems to be. And remember that Dugan is still at the head of a major financial industry regulatory agency. Good grief.”Of all the architects of last year’s financial crash, John Dugan remains the most obscure, despite his stature as one of the most influential. While regulatory errors have made Larry Summers, Robert Rubin and Alan Greenspan household names, most people have never heard either of Dugan or his agency, the Office of the Comptroller of the Currency. But as the chief regulator for the largest US banks, Dugan and his staff are one of the most powerful engines of economic policy in the world.”
“Over the course of nearly a quarter-century, Dugan has proved himself a staunch ally of the American financial elite as a Senate staffer (1985-89), a Treasury official (1989-93) and a lobbyist (1993-2005), building a career that culminated in 2005 when George W. Bush appointed him comptroller of the currency. When the financial system finally succumbed to its own excesses in September 2008, Dugan’s fingerprints were all over the economic wreckage, but almost nobody noticed.”
Sorry, but I couldn’t figure out how to eliminate the bolding, above.
http://www.thenation.com/doc/20100104/carter
If you want to know the adversary, shall we say the wolf dressed in other clothing, know who the players are and where they came from. Mr. Dugan is little known by thepublic, but a very revealing article appeared in the Nation this p[ast December, 2009, entitled The Master of Disaster by Zach Taylor. Below are the first two paragraphs. Go to the full article for a better understanding of how regualtion of the finance industry actually works, or doesn’t as the case seems to be. And remember that Dugan is still at the head of a major financial industry regulatory agency. Good grief.
“Of all the architects of last year’s financial crash, John Dugan remains the most obscure, despite his stature as one of the most influential. While regulatory errors have made Larry Summers, Robert Rubin and Alan Greenspan household names, most people have never heard either of Dugan or his agency, the Office of the Comptroller of the Currency. But as the chief regulator for the largest US banks, Dugan and his staff are one of the most powerful engines of economic policy in the world.”
“Over the course of nearly a quarter-century, Dugan has proved himself a staunch ally of the American financial elite as a Senate staffer (1985-89), a Treasury official (1989-93) and a lobbyist (1993-2005), building a career that culminated in 2005 when George W. Bush appointed him comptroller of the currency. When the financial system finally succumbed to its own excesses in September 2008, Dugan’s fingerprints were all over the economic wreckage, but almost nobody noticed.”
http://www.thenation.com/doc/20100104/carter
“We need a vibrant, credible securitization market to help fund the real economy going forward,” Mr. Dugan said this week. [2010]
1974 –
-declining rates of return on equity (i.e., profits),
-tax laws that induce firms to raise capital in the form of debt rather than equity shares,
-investor preoccupation with “performance” as indexed by price/earnings multiples, and
-a generalized emphasis on rising standards of living now (i.e., consumption) at the expense of more output in the future (i.e., savings and investment).
-we have tried to raise living standards faster than investments in productive facilities could keep pace;
-investments, particularly those financed by equity capital, have lagged as a result of inadequate rates of return on capital; and
-we have substituted credit expansion for savings as the means to finance the growth of consumer and business spending. Another dose of the old medicine would only worsen the disease, in the longer run if not immediately.
It is important to understand that this conclusion rests basically on the argument that credit-financed expansion, beyond a certain point, leads to instability rather than further expansion. The conclusion does not rest on the dubious premise that the world is running out of resources.”
The Limping Giant: The American Economy 1974-75
Bruce K. MacLaury
January 1974
Thank you juan. In that Dugan has not been replaced as yet another facilitator of this crisis is beyond me.
My original comment to this post got lost in the new format. I’ll simply post the link to the Nation article by Zack Carter, A Master of Disaster, that appeared in December concerning the background of Mr. Dugan. The wolf is in the hen house.
http://www.thenation.com/doc/20100104/carter
Mortgage Calculators