On Thursday, June 24th, the U. S. Senate failed on a cloture vote to move to the floor a bill that would have extended jobless benefits to 1.2 million unemployed Americans. The bill also included an extension of the date for home purchases eligible for the income tax credit. The vote was 57 in favor and 41 opposed.
The Senate has one formal rule—Rule XXII—for imposing limits on the further consideration of an issue. Called the Cloture Rule (for closure of debate), Rule XXII became part of the Senate’s rulebook in 1917 and has been amended several times since. It calls for an affirmative vote of three-fifths of the entire Senate membership (60 of 100 votes) to end debate on a bill, amendment, or motion.
Majority Rule
Democracy Web is a site devoted to comparative studies in freedom. It has this to say about majority rule and minority rights:
“Democracy is defined in Webster’s Encyclopedic Dictionary as Government by the people; a form of government in which the supreme power is vested in the people and exercised by them either directly or through their elected agents; . . . . . a state of society characterized by nominal equality of rights and privileges.
What is left out of the dictionary definition of democracy is what constitutes “the people.” In practice, democracy is governed by its most popularly understood principle: majority rule. Namely, the side with the most votes wins, whether it is an election, a legislative bill, a contract proposal to a union, or a shareholder motion in a corporation. The majority (or in some cases plurality) vote decides. Thus, when it is said that “the people have spoken” or the “people’s will should be respected,” the people are generally expressed through its majority.
Anne-Marie Slaughter is the Dean of the Woodrow Wilson School of Government at Princeton University and Bert G. Kerstetter Professor of Politics and International Affairs. In 2007, she authored a small book entitled “The Idea That Is America,” essentially a primer on the essential principles on which our Nation was established, namely liberty, democracy, equality, justice, tolerance, humility and faith. She writes: “Largely the work of James Madison, the Constitution stands as the foundation of what has come to be known as American democracy.” She continues: “George Washington, James Madison, and Alexander Hamilton all saw big and important differences between a republic and a democracy. The revolutionary principle that they had fought for was self-government: government by the consent of the governed. Republican government and democratic government were both forms of self-government. A republic was a government in which voters must elect people to represent them. Democracy, on the other hand, meant pure majority rule—direct rule by the people themselves.” [Emphasis mine.]
Minority Rights
Our Founding Fathers may have embraced rule by majority, but they also were very concerned that it not evolve into tyranny. Going back to the Democracy Web article:
“Yet majority rule can not be the only expression of “supreme power” in a democracy. If so, the majority would too easily tyrannize the minority. Thus, while it is clear that democracy must guarantee the expression of the popular will through majority- rule, it is equally clear that it must guarantee that the majority will not abuse its power to violate the basic and inalienable rights of the minority. For one, a defining characteristic of democracy must be the people’s right to change the majority through elections. This right is the people’s “supreme authority.” The minority, therefore, must have the right to become the majority.
The American founders—Anti-Federalists and Federalists alike—considered rule by majority a troubling conundrum. In theory, majority rule was necessary for expressing the popular will and the basis for establishing the republic. The alternative—consensus or rule by everyone’s agreement—cannot be imposed upon a free people. And minority rule is antithetical to democracy. But the founders worried that the majority could abuse its powers to oppress a minority just as easily as a king.
In conclusion, this excellent essay brings out another important point:
“On a practical level, the application of majority rule and minority rights relies on a set of rules agreed to by everyone in a political community. How are majorities determined? What are the limits of debate and speech? How can members in a community propose a motion or law? Should a minority be allowed to prevent the majority’s will by abusing its rights? There is no one answer to these questions, and many democracies have answered them differently. But for those countries that follow an Anglo-Saxon tradition, one of the basic guides for democracy is Robert’s Rule of Order. Its beginning offers a concise statement of the democratic ideal:
American Parliamentary Law is built upon the principle that rights must be respected: the rights of the majority, of the minority, of individuals, of absentees, and rights of all these together.”
Considering the above, might one ask if the minority in the current Senate is abusing its rights? The democratic process provides an alternative, as noted above. It can take positions to enhance its electoral opportunities, and assume the majority role. However, in taking stances to improve that possibility, should the current opposition party be permitted to thwart the duly elected representatives of the people? Again, back to Democracy Web:
“British political philosopher John Stuart Mill, in his essay On Liberty wrote: The only purpose for which power can be rightfully exercised over any member of a civilized community against his will is to prevent harm to others. Mills no harm principle aims to prevent government from becoming a vehicle from the tyranny of the majority, which he viewed as not just a political but also a social tyranny that stifled minority voices and imposed a regimentation of thought and values.”
But the same line of thought can be aimed at the minority, which in this case could be viewed as exercising tyrannical powers.
In an interview with Ezra Klein published in the Washington Post, Stenny Hoyer, Democratic Majority Leader in the House of Representatives, is quoted as follows: “This is a United States Senate that has had more cloture votes in one year than in the 1960s and 1970s combined. They had three cloture votes on whether to extend unemployment benefits, and that bill passed [in the House] 97-0! The reason this issue needs to be raised is that, ultimately, the political representatives will respond to the demands of the public. Now, the public has been polarized. Every night on the television, they listen to polarizing people. We’ve gone from Walter Cronkite to angrier people who are trying to incite them. It’s very difficult [to fight that political logic]. The motivation that Congress has on each side of the aisle is to be in the majority so that it can set policy. But it’s very difficult for the institution to move forward on a bipartisan basis when the minority policy does not believe that that’s in their best interest to regain the majority. Rarely do you get a crowd ecstatic about a compromise. So the parties, to some degree, think the Gingrich strategy might be successful. And the only way to overcome that to happen is for the American people to know what’s going on.”
Up to this point, neither Democrats nor Republicans have shown any real interest in reforming Rule XXII, although it is 93 years old and instituted in a far different legislative world than we now live in. Why? The minority obviously sees it as a safeguard to its own positions. The majority seems to believe that the two-thirds vote that would be needed to make a rules change is unattainable. So here we are, in a virtual state of political paralysis in the Senate. The Nation deserves better.
Sunday, June 27, 2010
Saturday, June 26, 2010
LIBERTARIANISM--IDEOLOGY vs. GOVERNANCE
Wikpedia describes Libertarianism as a “maximization of individual liberty in thought and action and the minimization or even abolition of the state.” Further, “libertarians take liberty and property ownership to be inviolable natural rights and resist most collectivist approaches to social organization.” Going further, “libertarianism is increasingly viewed worldwide as a free market position.”
According to the Internet Encyclopedia of Philosophy “Libertarians are committed to the belief that individuals, and not states or groups any other kind, are both ontologically and normatively primary; that individuals have rights against certain kinds of forcible interference on the part of others; that liberty, understood as non-interference, is the only thing that can be legitimately demanded of others as a matter of legal or political right; that robust property rights and the economic liberty that follows from their consistent recognition are of central importance in respecting individual liberty; that social order is not at odds with but develops out of individual liberty; that the only proper use of coercion is defensive or to rectify an error; that governments are bound by essentially the same moral principles as individuals; and that most existing and historical governments have acted improperly in sofar as they have utilized coercion for plunder, aggression, redistribution, and other purposes beyond the protection of individual liberty.
In further defining the philosophy, the Internet Site “Libertarianism.com” states: “Libertarianism is, as the name implies, the belief in liberty. Libertarians strive for a free, peaceful, abundant world where each individual has the maximum opportunity to pursue his or her dreams and to realize his [or her] full potential. Libertarians believe you should be free to do as you choose with your own life and property, as long as you don’t harm the person and property of others.”
Libertarians advocate a high degree of both personal and economic liberty. They are in favor of free markets civil liberties [to an extent that will be elaborated on later in this article], and self-ownership. Libertarians believe that, on every issue, you have the right to decide for yourself what’s best for you and to act on that belief so long as you respect the right of other people to do the same and deal with them peacefully and honestly.
The Libertarian way is a logically consistent approach to politics based on the moral principle of self-ownership, Each individual has the right to control his or her own body, action, speech, and property. Government’s only role is to help individuals defend themselves from force and fraud.
They say “we believe that individual rights is the essential precondition for a free and prosperous world, that force and fraud must be banished from human relationships, and that only from freedom can peace and prosperity be realized. No person should initiate the use of force against another person.
All libertarian thought flow logically from this. For instance, taxation is undesirable since it is backed by the coercive force of the state.
Further, “ since governments, when instituted, must not violate individual rights, we oppose all interference by government in areas of voluntary and contractual relations among individuals.” In other words, libertarians oppose all interference by government in the areas of government enforcing relations among individuals.
Those are the key parts of libertarian philosophy. Most of it makes perfect sense, that is, until one looks at it from a practical point of view in today’s times.
The following is a specific instance where philosophy comes into conflict with policy. It was not more than a month ago that Rand Paul, who won the Republican primary in Tennessee, went on record for defending property owner’s rights to limit access to their business establishments, thus putting a big foot in his mouth as appearing in opposition to the Civil Rights Act. Now think of Paul’s position from a libertarian point of view. According to their “credo,” they oppose any government attempt to regulate private discrimination, including choices and preferences, in employment, housing, and privately owned businesses. The right to trade includes the right not to trade—for any reasons whatsoever; the right of association includes the right not to associate, for exercise of the right depends upon mutual consent.
It was over 45 years ago that Congress approved the Civil Rights Act. It has not been overturned to the best of my knowledge. Yet here is a libertarian point of view that is in exact opposition to the mandates of a constitutionally elected Congress that passed legislation banning discrimination in public places. It is said that libertarians can never admit even one instance of government intervention doing good overall for society as opposed to the effects of the market. That may be an exaggeration, or a statement that reflects the extreme position of libertarian thought. But such a philosophical conflict is but one among many.
The reality is that we do not live in an ideological or philosophical world. We live in real times, and confront real challenges to societal well being, peace and prosperity. This is particularly so in light of the economic turmoil we have experienced over the past four years.
If libertarian thought hold that free markets should be left on their own and that any government involvement is out of bounds,
According to the Internet Encyclopedia of Philosophy “Libertarians are committed to the belief that individuals, and not states or groups any other kind, are both ontologically and normatively primary; that individuals have rights against certain kinds of forcible interference on the part of others; that liberty, understood as non-interference, is the only thing that can be legitimately demanded of others as a matter of legal or political right; that robust property rights and the economic liberty that follows from their consistent recognition are of central importance in respecting individual liberty; that social order is not at odds with but develops out of individual liberty; that the only proper use of coercion is defensive or to rectify an error; that governments are bound by essentially the same moral principles as individuals; and that most existing and historical governments have acted improperly in sofar as they have utilized coercion for plunder, aggression, redistribution, and other purposes beyond the protection of individual liberty.
In further defining the philosophy, the Internet Site “Libertarianism.com” states: “Libertarianism is, as the name implies, the belief in liberty. Libertarians strive for a free, peaceful, abundant world where each individual has the maximum opportunity to pursue his or her dreams and to realize his [or her] full potential. Libertarians believe you should be free to do as you choose with your own life and property, as long as you don’t harm the person and property of others.”
Libertarians advocate a high degree of both personal and economic liberty. They are in favor of free markets civil liberties [to an extent that will be elaborated on later in this article], and self-ownership. Libertarians believe that, on every issue, you have the right to decide for yourself what’s best for you and to act on that belief so long as you respect the right of other people to do the same and deal with them peacefully and honestly.
The Libertarian way is a logically consistent approach to politics based on the moral principle of self-ownership, Each individual has the right to control his or her own body, action, speech, and property. Government’s only role is to help individuals defend themselves from force and fraud.
They say “we believe that individual rights is the essential precondition for a free and prosperous world, that force and fraud must be banished from human relationships, and that only from freedom can peace and prosperity be realized. No person should initiate the use of force against another person.
All libertarian thought flow logically from this. For instance, taxation is undesirable since it is backed by the coercive force of the state.
Further, “ since governments, when instituted, must not violate individual rights, we oppose all interference by government in areas of voluntary and contractual relations among individuals.” In other words, libertarians oppose all interference by government in the areas of government enforcing relations among individuals.
Those are the key parts of libertarian philosophy. Most of it makes perfect sense, that is, until one looks at it from a practical point of view in today’s times.
The following is a specific instance where philosophy comes into conflict with policy. It was not more than a month ago that Rand Paul, who won the Republican primary in Tennessee, went on record for defending property owner’s rights to limit access to their business establishments, thus putting a big foot in his mouth as appearing in opposition to the Civil Rights Act. Now think of Paul’s position from a libertarian point of view. According to their “credo,” they oppose any government attempt to regulate private discrimination, including choices and preferences, in employment, housing, and privately owned businesses. The right to trade includes the right not to trade—for any reasons whatsoever; the right of association includes the right not to associate, for exercise of the right depends upon mutual consent.
It was over 45 years ago that Congress approved the Civil Rights Act. It has not been overturned to the best of my knowledge. Yet here is a libertarian point of view that is in exact opposition to the mandates of a constitutionally elected Congress that passed legislation banning discrimination in public places. It is said that libertarians can never admit even one instance of government intervention doing good overall for society as opposed to the effects of the market. That may be an exaggeration, or a statement that reflects the extreme position of libertarian thought. But such a philosophical conflict is but one among many.
The reality is that we do not live in an ideological or philosophical world. We live in real times, and confront real challenges to societal well being, peace and prosperity. This is particularly so in light of the economic turmoil we have experienced over the past four years.
If libertarian thought hold that free markets should be left on their own and that any government involvement is out of bounds,
Tuesday, June 22, 2010
Maureen Forrester--A Tribute
Maureen Forrester, the Canadian-born contralto, died Wednesday night at the age of 79. She was an exceptional vocal artist, and one of the few singers who stood out in her prime as a leading proponent of the contralto range.
In her obituary in this morning’s New York Times, lead music critic Anthony Tommasini wrote “In her prime she was a classic contralto with a plumpy, deep set sound. Yet she had a full-bodied upper voice and could sing passagework in Handel arias with agility. She sang Mahler and German lieder with impeccable diction.”
She made many recordings during the 1950’s and 1960’s, several of which Tommasini mentions in his obituary, including a classic recording of Mahler’s Resurrection Symphony with the New York Philharmonic and Bruno Walter, and the same composer’s “Das Lied von der Erde,” with the same forces. My prized disc is of the same work, but with the Chicago Symphony and Fritz Reiner, recorded in the late 1960’s, with the English tenor Richard Lewis.
Reiner and his superlative orchestra are known for many landmark recordings. My father had an old 78-rpm set of Bizet’s “Carmen” that Reiner led at the Metropolitan Opera with Rise Stevens in the title role, and I to this day have never heard a better interpretation of this work. Of course, his readings of Richard Strauss’ “Also Sprache Zarathustra” and Bartok’s “Concerto for Orchestra” and “Music for Strings, Percussion and Celesta” have never been equaled, but in my opinion, no work under his baton is better than this Mahler “Das Lied,” and Forrester’s deep-hued contralto voice was never excelled in all other performances of this masterpiece. Her performances of German lieder were outstanding, but those were overshadowed at that time by the magnificent interpretations of Dietrich Fischer-Dieskau and Gerald Moore. Forrester seldom appeared on the operatic stage, with the notable exception of the performances at City Opera in their landmark production of Handel’s “Julius Ceaser” with Beverly Sills and Norman Triegle.
Her performance of “Das Lied” is available on a re-mastered CD issued by RCA/BMG. To hear a contralto voice that was truly exceptional, before the time of Dame Janet Baker, go out and acquire this recording. This was an exceptional voice and an artist of the highest quality.
In her obituary in this morning’s New York Times, lead music critic Anthony Tommasini wrote “In her prime she was a classic contralto with a plumpy, deep set sound. Yet she had a full-bodied upper voice and could sing passagework in Handel arias with agility. She sang Mahler and German lieder with impeccable diction.”
She made many recordings during the 1950’s and 1960’s, several of which Tommasini mentions in his obituary, including a classic recording of Mahler’s Resurrection Symphony with the New York Philharmonic and Bruno Walter, and the same composer’s “Das Lied von der Erde,” with the same forces. My prized disc is of the same work, but with the Chicago Symphony and Fritz Reiner, recorded in the late 1960’s, with the English tenor Richard Lewis.
Reiner and his superlative orchestra are known for many landmark recordings. My father had an old 78-rpm set of Bizet’s “Carmen” that Reiner led at the Metropolitan Opera with Rise Stevens in the title role, and I to this day have never heard a better interpretation of this work. Of course, his readings of Richard Strauss’ “Also Sprache Zarathustra” and Bartok’s “Concerto for Orchestra” and “Music for Strings, Percussion and Celesta” have never been equaled, but in my opinion, no work under his baton is better than this Mahler “Das Lied,” and Forrester’s deep-hued contralto voice was never excelled in all other performances of this masterpiece. Her performances of German lieder were outstanding, but those were overshadowed at that time by the magnificent interpretations of Dietrich Fischer-Dieskau and Gerald Moore. Forrester seldom appeared on the operatic stage, with the notable exception of the performances at City Opera in their landmark production of Handel’s “Julius Ceaser” with Beverly Sills and Norman Triegle.
Her performance of “Das Lied” is available on a re-mastered CD issued by RCA/BMG. To hear a contralto voice that was truly exceptional, before the time of Dame Janet Baker, go out and acquire this recording. This was an exceptional voice and an artist of the highest quality.
Will History Repeat Itself? Economic Recovery & The Debt Crisis
Bill Breakstone, June 22, 2010
Any analyst or economist watching the markets in the summer of 2009 must have breathed a sigh of relief as it became apparent that the world was stepping back from the precipice of disaster. There was still a long way to go, but it seemed that the worst had been avoided. We are now a year from that point, and signs of economic recovery continue, more in the United States, China, Japan and the BRIC countries than in Europe.
However, there are still troubling signs on the horizon. Here in the U.S., unemployment continues at an unacceptable level, and with much of the gains coming from the public sector, where Census employment has accounted for much of the gains and are about to end, jobless claims are expected to increase. The housing sector benefited from the tax credit for home buyers, but that incentive ended last month and the data for home sales has begun to decline again, and can be expected to do so even more over the summer.
In Europe, the debt crisis has prompted European Union governments to move toward austerity policies that are aimed at reducing sovereign debt, at the expense of hard-won benefits to their populations, and are resulting in civil unrest that could prove to be a politically destabilizing element to those governments, especially in the United Kingdom, where its new government assumed office with a minimal plurality, as well as in Spain, where a general strike has been called for on September 29th.
Here at home, Federal Reserve Bank Chairman Ben Bernanke is a student of economic policy during the Great Depression, and his Princeton University colleague, Paul Krugman, likewise is keyed into mistakes made in the 1930s as the world struggled to revive from economic catastrophe. A brief historical footnote here may be appropriate. After assuming office in 1932, the Roosevelt Administration implemented policies aimed at economic recovery, and those actions were successful. However, conservative political pressures resulted in Congressional initiatives that resulted in budgetary tightening, thus shorting recovery and prolonging the Depression. Were it not for World War II, that economic downturn may have continued for decades.
There may well be a natural tendency for our average citizen, and politician, to assume that since the worst now appears to be over, we can revert to philosophical positions that actually were responsible for bringing us to the brink, imitating the process of the mid-1930s. Bernanke is not one of them, and as Fed Chairman, his thoughts have a great impress upon Administration policymakers. Treasury Secretary Timothy Geithner has worked shoulder to shoulder with Bernanke throughout the economic crisis, and though his philosophical views are less certain than the Fed Chairman’s, his advice to the Administration is no doubt in line with Bernanke’s. As for Professor Krugman, his is not a voice that is heard within Obama’s economic policymakers. Rather, his podium is as a columnist for one of the world’s leading newspapers. His views are looked upon as coming from the far left of economic thought, unfairly in this writer’s opinion. But I’m sure his columns are read constantly by both Bernanke and Geithner, and by Obama and his economic team.
Krugman has written a number of articles concerning the wisdom of focusing on our national debt problem, given the fragility of the present economic recovery. He views the EU focus on that same priority in the same light. In his Op-Ed piece in yesterday’s NY Times, he addressed that.
He wrote: “Spend now, while the economy remains Depressed; save later, once it has recovered. America has a long-run budget problem. Dealing with this problem will require, first and foremost, a real effort to bring health costs under control—without that, nothing will work. It will also require finding additional revenues and/or spending cuts. As an economic matter, this shouldn’t be hard—in particular, a modest Value-added tax [VAT], say at a five percent rate, would go a long way toward closing that gap, while leaving overall U.S. taxes among the lowest in the advanced world.”
[As this piece is being written, the British government is proposing an increase in its VAT to between 20 to 30 percent.]
Krugman continues: “But if we need to raise taxes and cut spending eventually, shouldn’t we start now? No, we shouldn’t. Right now, we have a severely depressed economy—and that depressed economy is inflicting long-run damage. Every year that goes by with extremely high unemployment increases the chance that many of the long-term unemployed will never come back to the work force, and become a permanent underclass. Every year that there are five times as many people seeking work as there are job openings means that hundreds of thousands of Americans graduating from school are denied the chance to get started on their working lives. And with each passing month we drift closer to a Japanese-style deflationary trap.”
“So now is not the time for fiscal austerity. Eventually, however, as unemployment falls—probably when it goes below 7 percent or less—the Fed will want to raise taxes to head off possible inflation. At that point we can make a deal: the government starts cutting back, and the Fed holds off on rate hikes so that these cutbacks don’t tip the economy back into a slump.”
In conclusion, Krugman says” “Yes, we need to fix our long-run budget problems—but not by refusing to help our economy in its hour of need.”
What the author does not address in his article is the effect that EU austerity budgets, such as the one announced by England today, will have upon the world economic recovery. In today’s global economic environment, there will no doubt be repercussions. We here in America are fortunate that our debt concerns are relatively minor compared to EU economies. Still, it seems that those countries are determined to embark on economic policies that do not pay proper attention to the lessons of history.
Will History Repeat Itself?
Bill Breakstone, June 22, 2010
Any analyst or economist watching the markets in the summer of 2009 must have breathed a sigh of relief as it became apparent that the world was stepping back from the precipice of disaster. There was still a long way to go, but it seemed that the worst had been avoided. We are now a year from that point, and signs of economic recovery continue, more in the United States, China, Japan and the BRIC countries than in Europe.
However, there are still troubling signs on the horizon. Here in the U.S., unemployment continues at an unacceptable level, and with much of the gains coming from the public sector, where Census employment has accounted for much of the gains and are about to end, jobless claims are expected to increase. The housing sector benefited from the tax credit for home buyers, but that incentive ended last month and the data for home sales has begun to decline again, and can be expected to do so even more over the summer.
In Europe, the debt crisis has prompted European Union governments to move toward austerity policies that are aimed at reducing sovereign debt, at the expense of hard-won benefits to their populations, and are resulting in civil unrest that could prove to be a politically destabilizing element to those governments, especially in the United Kingdom, where its new government assumed office with a minimal plurality, as well as in Spain, where a general strike has been called for on September 29th.
Here at home, Federal Reserve Bank Chairman Ben Bernanke is a student of economic policy during the Great Depression, and his Princeton University colleague, Paul Krugman, likewise is keyed into mistakes made in the 1930s as the world struggled to revive from economic catastrophe. A brief historical footnote here may be appropriate. After assuming office in 1932, the Roosevelt Administration implemented policies aimed at economic recovery, and those actions were successful. However, conservative political pressures resulted in Congressional initiatives that resulted in budgetary tightening, thus shorting recovery and prolonging the Depression. Were it not for World War II, that economic downturn may have continued for decades.
There may well be a natural tendency for our average citizen, and politician, to assume that since the worst now appears to be over, we can revert to philosophical positions that actually were responsible for bringing us to the brink, imitating the process of the mid-1930s. Bernanke is not one of them, and as Fed Chairman, his thoughts have a great impress upon Administration policymakers. Treasury Secretary Timothy Geithner has worked shoulder to shoulder with Bernanke throughout the economic crisis, and though his philosophical views are less certain than the Fed Chairman’s, his advice to the Administration is no doubt in line with Bernanke’s. As for Professor Krugman, his is not a voice that is heard within Obama’s economic policymakers. Rather, his podium is as a columnist for one of the world’s leading newspapers. His views are looked upon as coming from the far left of economic thought, unfairly in this writer’s opinion. But I’m sure his columns are read constantly by both Bernanke and Geithner, and by Obama and his economic team.
Krugman has written a number of articles concerning the wisdom of focusing on our national debt problem, given the fragility of the present economic recovery. He views the EU focus on that same priority in the same light. In his Op-Ed piece in yesterday’s NY Times, he addressed that.
He wrote: “Spend now, while the economy remains Depressed; save later, once it has recovered. America has a long-run budget problem. Dealing with this problem will require, first and foremost, a real effort to bring health costs under control—without that, nothing will work. It will also require finding additional revenues and/or spending cuts. As an economic matter, this shouldn’t be hard—in particular, a modest Value-added tax [VAT], say at a five percent rate, would go a long way toward closing that gap, while leaving overall U.S. taxes among the lowest in the advanced world.”
[As this piece is being written, the British government is proposing an increase in its VAT to between 20 to 30 percent.]
Krugman continues: “But if we need to raise taxes and cut spending eventually, shouldn’t we start now? No, we shouldn’t. Right now, we have a severely depressed economy—and that depressed economy is inflicting long-run damage. Every year that goes by with extremely high unemployment increases the chance that many of the long-term unemployed will never come back to the work force, and become a permanent underclass. Every year that there are five times as many people seeking work as there are job openings means that hundreds of thousands of Americans graduating from school are denied the chance to get started on their working lives. And with each passing month we drift closer to a Japanese-style deflationary trap.”
“So now is not the time for fiscal austerity. Eventually, however, as unemployment falls—probably when it goes below 7 percent or less—the Fed will want to raise taxes to head off possible inflation. At that point we can make a deal: the government starts cutting back, and the Fed holds off on rate hikes so that these cutbacks don’t tip the economy back into a slump.”
In conclusion, Krugman says” “Yes, we need to fix our long-run budget problems—but not by refusing to help our economy in its hour of need.”
What the author does not address in his article is the effect that EU austerity budgets, such as the one announced by England today, will have upon the world economic recovery. In today’s global economic environment, there will no doubt be repercussions. We here in America are fortunate that our debt concerns are relatively minor compared to EU economies. Still, it seems that those countries are determined to embark on economic policies that do not pay proper attention to the lessons of history.
Any analyst or economist watching the markets in the summer of 2009 must have breathed a sigh of relief as it became apparent that the world was stepping back from the precipice of disaster. There was still a long way to go, but it seemed that the worst had been avoided. We are now a year from that point, and signs of economic recovery continue, more in the United States, China, Japan and the BRIC countries than in Europe.
However, there are still troubling signs on the horizon. Here in the U.S., unemployment continues at an unacceptable level, and with much of the gains coming from the public sector, where Census employment has accounted for much of the gains and are about to end, jobless claims are expected to increase. The housing sector benefited from the tax credit for home buyers, but that incentive ended last month and the data for home sales has begun to decline again, and can be expected to do so even more over the summer.
In Europe, the debt crisis has prompted European Union governments to move toward austerity policies that are aimed at reducing sovereign debt, at the expense of hard-won benefits to their populations, and are resulting in civil unrest that could prove to be a politically destabilizing element to those governments, especially in the United Kingdom, where its new government assumed office with a minimal plurality, as well as in Spain, where a general strike has been called for on September 29th.
Here at home, Federal Reserve Bank Chairman Ben Bernanke is a student of economic policy during the Great Depression, and his Princeton University colleague, Paul Krugman, likewise is keyed into mistakes made in the 1930s as the world struggled to revive from economic catastrophe. A brief historical footnote here may be appropriate. After assuming office in 1932, the Roosevelt Administration implemented policies aimed at economic recovery, and those actions were successful. However, conservative political pressures resulted in Congressional initiatives that resulted in budgetary tightening, thus shorting recovery and prolonging the Depression. Were it not for World War II, that economic downturn may have continued for decades.
There may well be a natural tendency for our average citizen, and politician, to assume that since the worst now appears to be over, we can revert to philosophical positions that actually were responsible for bringing us to the brink, imitating the process of the mid-1930s. Bernanke is not one of them, and as Fed Chairman, his thoughts have a great impress upon Administration policymakers. Treasury Secretary Timothy Geithner has worked shoulder to shoulder with Bernanke throughout the economic crisis, and though his philosophical views are less certain than the Fed Chairman’s, his advice to the Administration is no doubt in line with Bernanke’s. As for Professor Krugman, his is not a voice that is heard within Obama’s economic policymakers. Rather, his podium is as a columnist for one of the world’s leading newspapers. His views are looked upon as coming from the far left of economic thought, unfairly in this writer’s opinion. But I’m sure his columns are read constantly by both Bernanke and Geithner, and by Obama and his economic team.
Krugman has written a number of articles concerning the wisdom of focusing on our national debt problem, given the fragility of the present economic recovery. He views the EU focus on that same priority in the same light. In his Op-Ed piece in yesterday’s NY Times, he addressed that.
He wrote: “Spend now, while the economy remains Depressed; save later, once it has recovered. America has a long-run budget problem. Dealing with this problem will require, first and foremost, a real effort to bring health costs under control—without that, nothing will work. It will also require finding additional revenues and/or spending cuts. As an economic matter, this shouldn’t be hard—in particular, a modest Value-added tax [VAT], say at a five percent rate, would go a long way toward closing that gap, while leaving overall U.S. taxes among the lowest in the advanced world.”
[As this piece is being written, the British government is proposing an increase in its VAT to between 20 to 30 percent.]
Krugman continues: “But if we need to raise taxes and cut spending eventually, shouldn’t we start now? No, we shouldn’t. Right now, we have a severely depressed economy—and that depressed economy is inflicting long-run damage. Every year that goes by with extremely high unemployment increases the chance that many of the long-term unemployed will never come back to the work force, and become a permanent underclass. Every year that there are five times as many people seeking work as there are job openings means that hundreds of thousands of Americans graduating from school are denied the chance to get started on their working lives. And with each passing month we drift closer to a Japanese-style deflationary trap.”
“So now is not the time for fiscal austerity. Eventually, however, as unemployment falls—probably when it goes below 7 percent or less—the Fed will want to raise taxes to head off possible inflation. At that point we can make a deal: the government starts cutting back, and the Fed holds off on rate hikes so that these cutbacks don’t tip the economy back into a slump.”
In conclusion, Krugman says” “Yes, we need to fix our long-run budget problems—but not by refusing to help our economy in its hour of need.”
What the author does not address in his article is the effect that EU austerity budgets, such as the one announced by England today, will have upon the world economic recovery. In today’s global economic environment, there will no doubt be repercussions. We here in America are fortunate that our debt concerns are relatively minor compared to EU economies. Still, it seems that those countries are determined to embark on economic policies that do not pay proper attention to the lessons of history.
Will History Repeat Itself?
Bill Breakstone, June 22, 2010
Any analyst or economist watching the markets in the summer of 2009 must have breathed a sigh of relief as it became apparent that the world was stepping back from the precipice of disaster. There was still a long way to go, but it seemed that the worst had been avoided. We are now a year from that point, and signs of economic recovery continue, more in the United States, China, Japan and the BRIC countries than in Europe.
However, there are still troubling signs on the horizon. Here in the U.S., unemployment continues at an unacceptable level, and with much of the gains coming from the public sector, where Census employment has accounted for much of the gains and are about to end, jobless claims are expected to increase. The housing sector benefited from the tax credit for home buyers, but that incentive ended last month and the data for home sales has begun to decline again, and can be expected to do so even more over the summer.
In Europe, the debt crisis has prompted European Union governments to move toward austerity policies that are aimed at reducing sovereign debt, at the expense of hard-won benefits to their populations, and are resulting in civil unrest that could prove to be a politically destabilizing element to those governments, especially in the United Kingdom, where its new government assumed office with a minimal plurality, as well as in Spain, where a general strike has been called for on September 29th.
Here at home, Federal Reserve Bank Chairman Ben Bernanke is a student of economic policy during the Great Depression, and his Princeton University colleague, Paul Krugman, likewise is keyed into mistakes made in the 1930s as the world struggled to revive from economic catastrophe. A brief historical footnote here may be appropriate. After assuming office in 1932, the Roosevelt Administration implemented policies aimed at economic recovery, and those actions were successful. However, conservative political pressures resulted in Congressional initiatives that resulted in budgetary tightening, thus shorting recovery and prolonging the Depression. Were it not for World War II, that economic downturn may have continued for decades.
There may well be a natural tendency for our average citizen, and politician, to assume that since the worst now appears to be over, we can revert to philosophical positions that actually were responsible for bringing us to the brink, imitating the process of the mid-1930s. Bernanke is not one of them, and as Fed Chairman, his thoughts have a great impress upon Administration policymakers. Treasury Secretary Timothy Geithner has worked shoulder to shoulder with Bernanke throughout the economic crisis, and though his philosophical views are less certain than the Fed Chairman’s, his advice to the Administration is no doubt in line with Bernanke’s. As for Professor Krugman, his is not a voice that is heard within Obama’s economic policymakers. Rather, his podium is as a columnist for one of the world’s leading newspapers. His views are looked upon as coming from the far left of economic thought, unfairly in this writer’s opinion. But I’m sure his columns are read constantly by both Bernanke and Geithner, and by Obama and his economic team.
Krugman has written a number of articles concerning the wisdom of focusing on our national debt problem, given the fragility of the present economic recovery. He views the EU focus on that same priority in the same light. In his Op-Ed piece in yesterday’s NY Times, he addressed that.
He wrote: “Spend now, while the economy remains Depressed; save later, once it has recovered. America has a long-run budget problem. Dealing with this problem will require, first and foremost, a real effort to bring health costs under control—without that, nothing will work. It will also require finding additional revenues and/or spending cuts. As an economic matter, this shouldn’t be hard—in particular, a modest Value-added tax [VAT], say at a five percent rate, would go a long way toward closing that gap, while leaving overall U.S. taxes among the lowest in the advanced world.”
[As this piece is being written, the British government is proposing an increase in its VAT to between 20 to 30 percent.]
Krugman continues: “But if we need to raise taxes and cut spending eventually, shouldn’t we start now? No, we shouldn’t. Right now, we have a severely depressed economy—and that depressed economy is inflicting long-run damage. Every year that goes by with extremely high unemployment increases the chance that many of the long-term unemployed will never come back to the work force, and become a permanent underclass. Every year that there are five times as many people seeking work as there are job openings means that hundreds of thousands of Americans graduating from school are denied the chance to get started on their working lives. And with each passing month we drift closer to a Japanese-style deflationary trap.”
“So now is not the time for fiscal austerity. Eventually, however, as unemployment falls—probably when it goes below 7 percent or less—the Fed will want to raise taxes to head off possible inflation. At that point we can make a deal: the government starts cutting back, and the Fed holds off on rate hikes so that these cutbacks don’t tip the economy back into a slump.”
In conclusion, Krugman says” “Yes, we need to fix our long-run budget problems—but not by refusing to help our economy in its hour of need.”
What the author does not address in his article is the effect that EU austerity budgets, such as the one announced by England today, will have upon the world economic recovery. In today’s global economic environment, there will no doubt be repercussions. We here in America are fortunate that our debt concerns are relatively minor compared to EU economies. Still, it seems that those countries are determined to embark on economic policies that do not pay proper attention to the lessons of history.
Wednesday, June 16, 2010
Book Review--"The End of Wall Street" by Roger Lowenstein
Reviewed by Bill Breakstone
Somers, New York, Tuesday, May 11 2010
Here is yet another chronicle of the 2008—2009 financial collapse. It is a thorough re-telling of the tragedy, and though much will be found repetitive by those who have read many of the other books on the subject (and there are plenty of them) it does offer some significant new insights or interpretations that other authors may have mentioned in passing, but not with the specifics that Lowenstein offers. Additionally, the author concludes the history with a stinging indictment of the American financial system, not just Wall Street, but the underlying theories that were espoused by economists and our economic leadership over a three-decade period leading up to the present time.
There were so many crises that our financial leaders at Treasury, the Fed, the SEC and other regulators had to face that, regardless of the mistakes that were made, they must be admired for their stamina, endurance and willingness to modify their solutions and new worries arose day after day, and sometimes hour after hour. They are all detailed here by Lowenstein, who is particularly adept at tying them together in relationship to each other. Just as Paulson, Bernanke and Geithner came up with a rescue of Fannie and Freddie (“the Sisters”), less than 24 hours later they were faced with the demise of Lehman Brothers.
At many times during the crisis, the subject of moral hazard arose. It has reared its ugly head again this morning, as economists, bankers and commentators are beginning to see the EU rescue of the Greek economy as possibly setting up a European repeat of the reliance upon governmental rescue as an excuse for national economic action by the individual states affected by the debt crisis.
Lowenstein elaborates on the changing solutions that the “financial triumvirate” (Paulson, Bernanke & Geithner) attempted to institute as a solution to American banking debt. Bear Stearns was saved from complete failure by a government- sponsored (or should we say forced) takeover, thus establishing early on the moral hazard mentioned above. Next came the quasi-nationalization of the Sisters. During the intervening 5-plus months, Lehman’s finances deteriorated, its share price plummeted, and its management was encouraged to seek a merger partner or a buyer. Lehman’s management moved at a snail’s pace, until it was too late. Even up to those last days preceding the September 16, 2008 bankruptcy, there existed the hope of a rescue, which would have involved a government guarantee. But by that time, Paulson was dead-set against another “bailout” and refused Barclay’s request for a temporary guarantee, one that would have bridged the gap for a period of less than a week until Barclay’s shareholders could approve Lehman’s purchase.
With Lehman’s demise, the pressure mounted on every firm, as the trust so essential to the operation of capital markets evaporated. When our Triumvirate assessed the impact that AIG’s failure would have on the world’s economy, the “moral hazard” high-ground was quickly abandoned. As Bernanke said at the time, “There are no ideologues in financial crises.”
Here is the irony of Lehman’s demise. It had the b ad luck to be number one after Bear Stearns and before AIG. If the roles had been reversed, or if Bear had been allowed to fail first, Lehman might very well still be around.
As said above, the real meat of Lowenstein’s book come with the final two chapters. Let’s allow the author to speak for himself:
“The cost of the crash to ordinary citizens was astronomical. The total wealth of Americans plunged from $64 trillion to 5$51 trillion. Another cost—to be borne by future generations—was the huge growth in the federal deficit incurred to pay for the rescue.
The most punishing blow was the devastation in jobs, and for ordinary workers the pain continued long after the worst was over on Wall Street. In October 2009, unemployment hit double digits—10.2 percent. In California, cradle of the subprime loan, 12-1/2 percent of the population was out of work; in Michigan, devastated by the collapse in auto sales, 15 percent. As a measure of how disproportionate was the Wall Street scourge, Wall Street itself, presumably one of the prime agents of the bust, shed 30,000 jobs; the entire United States lost a total of eight million. Never, since the end of World War II, had so many jobs disappeared so fast, and never had the power of finance to inflict damage on the society it serves been so painfully clear. By the recession’s end, the economy had lost all the jobs that had been added during the boom years, and more. Even with a population that was 20 million larger, the job market was smaller. In sum, the U. S. spent nearly a decade losing ground—a decade that, according to the country’s highest sages, was to have ushered in an era of nearly uniformly advancing prosperity. The subprime binge that Bernanke had supposed was a contained problem turned out to be a symptom of a full credit mania. Ultimately, it destroyed the American workplace. Such was the bitter fruit of Wall Street’s folly.”
The final chapter continues:
“The crash put paid to the intellectual model that inspired, and to a large degree facilitated, the bubble. It spelled the end of the immodest faith in Wall Street’s ability to forecast. No better testimony exists than the extraordinary recanting of Alan Greenspan, the public official most associated with the thesis that markets are ever to be trusted. Ten days after the first round of TARP investments, Greenspan appeared at the House of Representatives to, effectively, repeal the credo by which he had managed the nation’s economy for seventeen years:
In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivative markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment.
This remarkable proclamation, close to a confession, was the intellectual counterpart to the red ink flowing on Wall Street. Just as Fannie, Freddie, and Merrill Lynch had undone the labors of a generation—had lost, that is, all the profits and more that they had earned during the previous decade—Greenspan undermined its ideological footing. And even if he partly retracted his apologia (in the palliative that it wasn’t the models per se that failed, but the humans that applied them), he was understood to say that the new finance had failed. The boom had not just ended; it had been unmasked.
Why did it end so badly? Greenspan’s faith in the new finance was itself a culprit. The late economist Hyman Minsky observed that “success breeds a disregard of the possibility of failure.” The Fed both embraced and promoted such a disregard. Greenspan’s persistent efforts to rescue the system lulled the country into believing that serious failure was behind it. His successor, Bernanke, was too quick to believe that Greenspan had succeeded—that central bankers had truly muted the economic cycle. Each put inordinate faith in the market, and disregarded its oft-shown potential for speculative excess. Excessive optimism naturally led to excessive risk.
The Fed greatly abetted speculation in mortgages by keeping interest rates too low. Also, the various banking regulators (including the Fed) failed to prohibit inordinately risky mortgages. The latter was by far the more damaging offense. The willingness of government to abide teaser mortgages, “liar loans,” and home mortgages with zero down payments, amounted to a staggering case of regulatory neglect.
The governments backstopping of Fannie and Freddie, along with the federal agenda of promoting home ownership, was yet another cause of the bust. Yet for all of Washington’s miscues, the direct agents of the bubble were private ones. It was the market that financed unsound mortgages and CDOs; the Fed permitted, but the market acted. The banks that failed were private; the investors who financed them were doing the glorious work of Adam Smith.
Rampant speculation (and abuse) in mortgages was surely the primary cause of the bubble, which was greatly inflated by leverage in the banking system, in particular on Wall Street. High leverage and risk-taking in general was fueled by the Street’s indulgent compensation practices.
The system of securitizing mortgages lay at the heart of Wall Street’s unholy alliance with Main Street, and several links in the chain made the process especially risky. Mortgage issuers, the parties most able to scrutinize borrowers, had no continuing stake in the outcome; the ultimate investors, dispersed around the globe, were too remote to be of any use in evaluating loans; these investors (as well as various government agencies) relied on the credit agencies to serve as a watchdog, and the agencies, being cozy with Wall Street, were abysmally lax. Wall Street’s penchant for complexity was itself a risk. Abstruse securities were more difficult to value, and multitiered pyramids of debts were far more susceptible to ruinous collapse.
The banks’ stock prices offered unsettling evidence of how thoroughly the market failed to appraise the possibility of loss. By 2007, the banks had all disclosed massive holdings of mortgage securities, and mortgage defaults were soaring. And yet, as late as that October, Citigroup was trading near its all-time high. That investors could be so blind refuted the strange ideology that markets were somehow perfect (“strange” because the boast of perfection is never alleged with respect to other human institutions). By analogy to the political arena, American society respects the will of the voters, as well as the institution of democracy, but it limits the power of legislatures nonetheless. Market referendums are no less needful of checks and balances.
Counter to the view of its apostles, the market system of the late twentieth and early twenty-first century did not evolve in a state of nature. It evolved with its own peculiar prejudices and rites. The institution of government was nearly absent. In its place had arisen a system of market-driven models, steeped in the mathematics of the new finance. The rating agency models were typical, and they were blessed by the SEC. The new finance was flawed because its conception of risk was flawed. The banks modeled future default rates (and everything else) as though history could provide the odds with scientific certainty—as precisely as the odds of in dice or cards. But markets, as was observed, are different from games of chance. The cards in history’s deck keep changing. Prior to 2007 and ’08, the odds of a nation-wide mortgage collapse would have been seen as very low, because during the previous seventy years it had never happened.
What the bust proved, or reaffirmed, was that Wall Street is (at unpredictable moments) irregular; it is subject to uncertainty. Greenspan faulted the modelers for inputting the wrong slice of history. But the future being uncertain, there is no perfect slice, or none so reliable as to warrant the suave assurance of banks that leveraged 30 to 1.
In particular, the notion that derivatives (in the hands of AIG and such) eradicated risk, or attained a kind of ideal in apportioning risk to appropriate parties, was sorrowfully exposed. . . . . . “
Lowenstein offers a few final salvos concerning the relegation of Keynesian economic theory to a premature historical rubbish pile, and the belief of Ronald Reagan and his intellectual sages that government regulation had become unnecessary, that as the former President famously said “government was the problem, not the cure.”
Then the author’s coup de grace: “Previous to the crash, it was casually assumed that no statutes or rules were needed to prevent banks from making foolish loans; after all, the theory went, why would institutions ever jeopardize their own capital? This cornerstone of efficient market theory—the view of economic man as always rationally self-interested—was rather embarrassingly upended. Similarly, the faith that bankers know best, that they could be counted on to preserve their firms was shattered.”
Somers, New York, Tuesday, May 11 2010
Here is yet another chronicle of the 2008—2009 financial collapse. It is a thorough re-telling of the tragedy, and though much will be found repetitive by those who have read many of the other books on the subject (and there are plenty of them) it does offer some significant new insights or interpretations that other authors may have mentioned in passing, but not with the specifics that Lowenstein offers. Additionally, the author concludes the history with a stinging indictment of the American financial system, not just Wall Street, but the underlying theories that were espoused by economists and our economic leadership over a three-decade period leading up to the present time.
There were so many crises that our financial leaders at Treasury, the Fed, the SEC and other regulators had to face that, regardless of the mistakes that were made, they must be admired for their stamina, endurance and willingness to modify their solutions and new worries arose day after day, and sometimes hour after hour. They are all detailed here by Lowenstein, who is particularly adept at tying them together in relationship to each other. Just as Paulson, Bernanke and Geithner came up with a rescue of Fannie and Freddie (“the Sisters”), less than 24 hours later they were faced with the demise of Lehman Brothers.
At many times during the crisis, the subject of moral hazard arose. It has reared its ugly head again this morning, as economists, bankers and commentators are beginning to see the EU rescue of the Greek economy as possibly setting up a European repeat of the reliance upon governmental rescue as an excuse for national economic action by the individual states affected by the debt crisis.
Lowenstein elaborates on the changing solutions that the “financial triumvirate” (Paulson, Bernanke & Geithner) attempted to institute as a solution to American banking debt. Bear Stearns was saved from complete failure by a government- sponsored (or should we say forced) takeover, thus establishing early on the moral hazard mentioned above. Next came the quasi-nationalization of the Sisters. During the intervening 5-plus months, Lehman’s finances deteriorated, its share price plummeted, and its management was encouraged to seek a merger partner or a buyer. Lehman’s management moved at a snail’s pace, until it was too late. Even up to those last days preceding the September 16, 2008 bankruptcy, there existed the hope of a rescue, which would have involved a government guarantee. But by that time, Paulson was dead-set against another “bailout” and refused Barclay’s request for a temporary guarantee, one that would have bridged the gap for a period of less than a week until Barclay’s shareholders could approve Lehman’s purchase.
With Lehman’s demise, the pressure mounted on every firm, as the trust so essential to the operation of capital markets evaporated. When our Triumvirate assessed the impact that AIG’s failure would have on the world’s economy, the “moral hazard” high-ground was quickly abandoned. As Bernanke said at the time, “There are no ideologues in financial crises.”
Here is the irony of Lehman’s demise. It had the b ad luck to be number one after Bear Stearns and before AIG. If the roles had been reversed, or if Bear had been allowed to fail first, Lehman might very well still be around.
As said above, the real meat of Lowenstein’s book come with the final two chapters. Let’s allow the author to speak for himself:
“The cost of the crash to ordinary citizens was astronomical. The total wealth of Americans plunged from $64 trillion to 5$51 trillion. Another cost—to be borne by future generations—was the huge growth in the federal deficit incurred to pay for the rescue.
The most punishing blow was the devastation in jobs, and for ordinary workers the pain continued long after the worst was over on Wall Street. In October 2009, unemployment hit double digits—10.2 percent. In California, cradle of the subprime loan, 12-1/2 percent of the population was out of work; in Michigan, devastated by the collapse in auto sales, 15 percent. As a measure of how disproportionate was the Wall Street scourge, Wall Street itself, presumably one of the prime agents of the bust, shed 30,000 jobs; the entire United States lost a total of eight million. Never, since the end of World War II, had so many jobs disappeared so fast, and never had the power of finance to inflict damage on the society it serves been so painfully clear. By the recession’s end, the economy had lost all the jobs that had been added during the boom years, and more. Even with a population that was 20 million larger, the job market was smaller. In sum, the U. S. spent nearly a decade losing ground—a decade that, according to the country’s highest sages, was to have ushered in an era of nearly uniformly advancing prosperity. The subprime binge that Bernanke had supposed was a contained problem turned out to be a symptom of a full credit mania. Ultimately, it destroyed the American workplace. Such was the bitter fruit of Wall Street’s folly.”
The final chapter continues:
“The crash put paid to the intellectual model that inspired, and to a large degree facilitated, the bubble. It spelled the end of the immodest faith in Wall Street’s ability to forecast. No better testimony exists than the extraordinary recanting of Alan Greenspan, the public official most associated with the thesis that markets are ever to be trusted. Ten days after the first round of TARP investments, Greenspan appeared at the House of Representatives to, effectively, repeal the credo by which he had managed the nation’s economy for seventeen years:
In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivative markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment.
This remarkable proclamation, close to a confession, was the intellectual counterpart to the red ink flowing on Wall Street. Just as Fannie, Freddie, and Merrill Lynch had undone the labors of a generation—had lost, that is, all the profits and more that they had earned during the previous decade—Greenspan undermined its ideological footing. And even if he partly retracted his apologia (in the palliative that it wasn’t the models per se that failed, but the humans that applied them), he was understood to say that the new finance had failed. The boom had not just ended; it had been unmasked.
Why did it end so badly? Greenspan’s faith in the new finance was itself a culprit. The late economist Hyman Minsky observed that “success breeds a disregard of the possibility of failure.” The Fed both embraced and promoted such a disregard. Greenspan’s persistent efforts to rescue the system lulled the country into believing that serious failure was behind it. His successor, Bernanke, was too quick to believe that Greenspan had succeeded—that central bankers had truly muted the economic cycle. Each put inordinate faith in the market, and disregarded its oft-shown potential for speculative excess. Excessive optimism naturally led to excessive risk.
The Fed greatly abetted speculation in mortgages by keeping interest rates too low. Also, the various banking regulators (including the Fed) failed to prohibit inordinately risky mortgages. The latter was by far the more damaging offense. The willingness of government to abide teaser mortgages, “liar loans,” and home mortgages with zero down payments, amounted to a staggering case of regulatory neglect.
The governments backstopping of Fannie and Freddie, along with the federal agenda of promoting home ownership, was yet another cause of the bust. Yet for all of Washington’s miscues, the direct agents of the bubble were private ones. It was the market that financed unsound mortgages and CDOs; the Fed permitted, but the market acted. The banks that failed were private; the investors who financed them were doing the glorious work of Adam Smith.
Rampant speculation (and abuse) in mortgages was surely the primary cause of the bubble, which was greatly inflated by leverage in the banking system, in particular on Wall Street. High leverage and risk-taking in general was fueled by the Street’s indulgent compensation practices.
The system of securitizing mortgages lay at the heart of Wall Street’s unholy alliance with Main Street, and several links in the chain made the process especially risky. Mortgage issuers, the parties most able to scrutinize borrowers, had no continuing stake in the outcome; the ultimate investors, dispersed around the globe, were too remote to be of any use in evaluating loans; these investors (as well as various government agencies) relied on the credit agencies to serve as a watchdog, and the agencies, being cozy with Wall Street, were abysmally lax. Wall Street’s penchant for complexity was itself a risk. Abstruse securities were more difficult to value, and multitiered pyramids of debts were far more susceptible to ruinous collapse.
The banks’ stock prices offered unsettling evidence of how thoroughly the market failed to appraise the possibility of loss. By 2007, the banks had all disclosed massive holdings of mortgage securities, and mortgage defaults were soaring. And yet, as late as that October, Citigroup was trading near its all-time high. That investors could be so blind refuted the strange ideology that markets were somehow perfect (“strange” because the boast of perfection is never alleged with respect to other human institutions). By analogy to the political arena, American society respects the will of the voters, as well as the institution of democracy, but it limits the power of legislatures nonetheless. Market referendums are no less needful of checks and balances.
Counter to the view of its apostles, the market system of the late twentieth and early twenty-first century did not evolve in a state of nature. It evolved with its own peculiar prejudices and rites. The institution of government was nearly absent. In its place had arisen a system of market-driven models, steeped in the mathematics of the new finance. The rating agency models were typical, and they were blessed by the SEC. The new finance was flawed because its conception of risk was flawed. The banks modeled future default rates (and everything else) as though history could provide the odds with scientific certainty—as precisely as the odds of in dice or cards. But markets, as was observed, are different from games of chance. The cards in history’s deck keep changing. Prior to 2007 and ’08, the odds of a nation-wide mortgage collapse would have been seen as very low, because during the previous seventy years it had never happened.
What the bust proved, or reaffirmed, was that Wall Street is (at unpredictable moments) irregular; it is subject to uncertainty. Greenspan faulted the modelers for inputting the wrong slice of history. But the future being uncertain, there is no perfect slice, or none so reliable as to warrant the suave assurance of banks that leveraged 30 to 1.
In particular, the notion that derivatives (in the hands of AIG and such) eradicated risk, or attained a kind of ideal in apportioning risk to appropriate parties, was sorrowfully exposed. . . . . . “
Lowenstein offers a few final salvos concerning the relegation of Keynesian economic theory to a premature historical rubbish pile, and the belief of Ronald Reagan and his intellectual sages that government regulation had become unnecessary, that as the former President famously said “government was the problem, not the cure.”
Then the author’s coup de grace: “Previous to the crash, it was casually assumed that no statutes or rules were needed to prevent banks from making foolish loans; after all, the theory went, why would institutions ever jeopardize their own capital? This cornerstone of efficient market theory—the view of economic man as always rationally self-interested—was rather embarrassingly upended. Similarly, the faith that bankers know best, that they could be counted on to preserve their firms was shattered.”
The Orchestra of St. at Carnegie Hall, March 21, 2010
Reviewed by Bill Breakstone, Somers, New York
The Orchestra of St. Luke’s has been the resident ensemble for the Caramoor Musical Festival in Katonah, New York for the past 31 years. Being a supporter of Caramoor, I have been very familiar with the artistic excellence of this ensemble. Many of its artists also contribute to various New York ensembles, including The Orpheus Chamber Orchestra and an ensemble that has performed at The Metropolitan Museum of Art under the direction of Kent Trittle. They presented a three-year series of Bach Cantatas at that venue. Many of these artists have also joined in chamber music presentations under the direction of Anthony Neumann at Bedford’s St. Matthews Church Chamber Hall, a delightful and intimate hall for such concerts.
Their concert at Carnegie Hall this past Sunday involved a full complement of chamber orchestra forces, led by Christian Zacharias, an internationally acclaimed artist who came to the forefront of musical attention first as a pianist in the mid-1970s, and subsequently as an orchestral conductor in the early 1990s. I had the pleasure of attending a performance he led by The New York Philharmonic several years ago in a classical program featuring compositions of Hayden and Mozart, which were quite delightful.
Yesterday’s fare was somewhat more diversified, and presented a three-movement symphony by Carl Philipp Emanuel Bach, Beethoven’s Third Piano Concerto in C Minor, a brief but engaging work for brass and woodwinds by Bernd Alois Zimmermann and Robert Schumann’s Rhenish Symphony, No. 3 in E-Flat Major.
The C. P .E. Bach work was masterly crafted, as one would expect given the composer’s pedigree, but lacking in both melodic
inspiration and musical substance. An early Hayden or Mozart Symphony, such as the G Minor No. 25 or “The Paris” would have been far more worthwhile.
Beethoven’s C Minor Concerto has always been one of my favorites, and the performance by soloist and orchestra was a joy to hear. One would think that a pianist would have his hands full just giving credit to the keyboard part, but Zacharias handled the dual role of soloist and pianist with no trouble at all. His keyboard performance was all one could hope for, and the orchestral accompaniment was lovingly rendered, though the enthusiasm of the kettle drum player at the conclusion of both the first and last movement could have been brought more into balance with the rest of the orchestra.
The Zimmermann “Rheinische Kirmestance’ is a brief work written for 13 winds and brass. The five dance movements are reminiscent of Richard Strauss’ “Die Bourgeois Gentilhome’, with a little of Stravinsky and Poulenc thrown in for good measure. It highlighted the excellent St. Luke’s wind and brass players, and proved a thoroughly enjoyable divertissement.
Which brings us to the concluding work, Robert Schumann’s Third Symphony in E-Flat Major. This is one of those works that immediately engages the listener from the first notes onward. There is no solemn introduction, just a flat out melodic statement of the principal theme followed by the usual classical format. But what wonderful melodic inspiration and finely crafted scoring. Our conductor’s reading was lyrical and incisive, brisk but not too rushed, and the orchestra’s playing impeccable.
All in all, a wonderful afternoon of music, and another example of how fortunate we New Yorker’s are to have such wonderful ensembles to enjoy music making at its best.
The Orchestra of St. Luke’s has been the resident ensemble for the Caramoor Musical Festival in Katonah, New York for the past 31 years. Being a supporter of Caramoor, I have been very familiar with the artistic excellence of this ensemble. Many of its artists also contribute to various New York ensembles, including The Orpheus Chamber Orchestra and an ensemble that has performed at The Metropolitan Museum of Art under the direction of Kent Trittle. They presented a three-year series of Bach Cantatas at that venue. Many of these artists have also joined in chamber music presentations under the direction of Anthony Neumann at Bedford’s St. Matthews Church Chamber Hall, a delightful and intimate hall for such concerts.
Their concert at Carnegie Hall this past Sunday involved a full complement of chamber orchestra forces, led by Christian Zacharias, an internationally acclaimed artist who came to the forefront of musical attention first as a pianist in the mid-1970s, and subsequently as an orchestral conductor in the early 1990s. I had the pleasure of attending a performance he led by The New York Philharmonic several years ago in a classical program featuring compositions of Hayden and Mozart, which were quite delightful.
Yesterday’s fare was somewhat more diversified, and presented a three-movement symphony by Carl Philipp Emanuel Bach, Beethoven’s Third Piano Concerto in C Minor, a brief but engaging work for brass and woodwinds by Bernd Alois Zimmermann and Robert Schumann’s Rhenish Symphony, No. 3 in E-Flat Major.
The C. P .E. Bach work was masterly crafted, as one would expect given the composer’s pedigree, but lacking in both melodic
inspiration and musical substance. An early Hayden or Mozart Symphony, such as the G Minor No. 25 or “The Paris” would have been far more worthwhile.
Beethoven’s C Minor Concerto has always been one of my favorites, and the performance by soloist and orchestra was a joy to hear. One would think that a pianist would have his hands full just giving credit to the keyboard part, but Zacharias handled the dual role of soloist and pianist with no trouble at all. His keyboard performance was all one could hope for, and the orchestral accompaniment was lovingly rendered, though the enthusiasm of the kettle drum player at the conclusion of both the first and last movement could have been brought more into balance with the rest of the orchestra.
The Zimmermann “Rheinische Kirmestance’ is a brief work written for 13 winds and brass. The five dance movements are reminiscent of Richard Strauss’ “Die Bourgeois Gentilhome’, with a little of Stravinsky and Poulenc thrown in for good measure. It highlighted the excellent St. Luke’s wind and brass players, and proved a thoroughly enjoyable divertissement.
Which brings us to the concluding work, Robert Schumann’s Third Symphony in E-Flat Major. This is one of those works that immediately engages the listener from the first notes onward. There is no solemn introduction, just a flat out melodic statement of the principal theme followed by the usual classical format. But what wonderful melodic inspiration and finely crafted scoring. Our conductor’s reading was lyrical and incisive, brisk but not too rushed, and the orchestra’s playing impeccable.
All in all, a wonderful afternoon of music, and another example of how fortunate we New Yorker’s are to have such wonderful ensembles to enjoy music making at its best.
Alan Gilbert & The New York Philharmonic, June 12, 2010
Reviewed by Bill Breakstone, Somers, New York, June 12, 2010
For the past three seasons, The New York Philharmonic has been presenting Saturday matinee programs that combine chamber music works featuring Philharmonic instrumentalists with orchestral masterpieces performed by the full Orchestra. This afternoon’s concert was an all-Brahms affair, offering the String Sextet in G Major, Op. 36 and the Second Symphony in D Major, Op. 73. The Philharmonic’s Music Director, Alan Gilbert, participated in the Sextet as second violist, and was on the podium for the Symphony.
The Sextet is as enjoyable a piece of chamber music as Brahms ever composed, and the D Major Symphony perhaps stands as the touchstone of his symphonic output. Both compositions received glowing performances by these Philharmonic musicians.
Gilbert was joined in the Sextet by assistant concertmaster Sheryl Staples, violinist Lisa Kim, violists Cynthia Phelps and Gilbert, principal cellist Carter Brey and cellist Maria Kitsopoulos, standing in at the last moment for assistant principal Eileen Moon. These six artists gave the Sextet as fine a performance as one will ever hear, one marked by relaxed tempi in the first three movements that emphasized the melodic lines and rhythmic invention that Brahms so often utilized in his works, and a thorough agreement among the musicians as to their individual parts as they relate to the whole. This was chamber music at its best.
After intermission, the start of the second half of the program was delayed for about 20 minutes as an orchestral member was late for the performance. Think of the 80-odd instrumentalists that participate in this symphony and try to imagine which musician was so indispensable that the performance had to be delayed. All parts except one were at least “doubled.” Can you guess the part? In any case, the delay [I had never witnessed anything like this] was more than compensated for by a performance that was truly exceptional.
The relaxed tempi in the opening movements of the Sextet were carried on in the performance of the Symphony. The music was allowed to speak for itself, yet the dramatic tutti’s carried the full power that they merit in this wonderful score. If one would include the D Major Serenade No. 1 as a symphonic partner, which the nature of that work deserves, Brahms can be credited with five, not four, works in that genre. Of these five, the Second Symphony stands as the most monumental of these works. The moderate pace that Gilbert applied in the first three movements allowed the music to speak for itself and the melodies to soar on their own. The allegro con spirito final movement was given a robust performance that brought out all the energy that such a great work deserves as its capstone.
Special mention should be made of the flawless execution of the horn solo in the adagio by principal Philip Meyers. This fiendishly difficult part, with its prolonged sosenuto line, can be the match for any horn player. In this instance, the playing was all one could ask for. Also outstanding was the performance of the rest of the large brass section, whose prominent role in the finale was perfectly balanced with the string sections.
This was the first Philharmonic performance that I had heard in person led by Alan Gilbert. One thing is for sure. There is a chemistry existing between this conductor and his instrumentalists that should produce music making of the highest order. The Philharmonic is in wonderful hands, and with Gilbert’s relative youth, New York audiences are in for a long period of orchestral and musical excellence.
For the past three seasons, The New York Philharmonic has been presenting Saturday matinee programs that combine chamber music works featuring Philharmonic instrumentalists with orchestral masterpieces performed by the full Orchestra. This afternoon’s concert was an all-Brahms affair, offering the String Sextet in G Major, Op. 36 and the Second Symphony in D Major, Op. 73. The Philharmonic’s Music Director, Alan Gilbert, participated in the Sextet as second violist, and was on the podium for the Symphony.
The Sextet is as enjoyable a piece of chamber music as Brahms ever composed, and the D Major Symphony perhaps stands as the touchstone of his symphonic output. Both compositions received glowing performances by these Philharmonic musicians.
Gilbert was joined in the Sextet by assistant concertmaster Sheryl Staples, violinist Lisa Kim, violists Cynthia Phelps and Gilbert, principal cellist Carter Brey and cellist Maria Kitsopoulos, standing in at the last moment for assistant principal Eileen Moon. These six artists gave the Sextet as fine a performance as one will ever hear, one marked by relaxed tempi in the first three movements that emphasized the melodic lines and rhythmic invention that Brahms so often utilized in his works, and a thorough agreement among the musicians as to their individual parts as they relate to the whole. This was chamber music at its best.
After intermission, the start of the second half of the program was delayed for about 20 minutes as an orchestral member was late for the performance. Think of the 80-odd instrumentalists that participate in this symphony and try to imagine which musician was so indispensable that the performance had to be delayed. All parts except one were at least “doubled.” Can you guess the part? In any case, the delay [I had never witnessed anything like this] was more than compensated for by a performance that was truly exceptional.
The relaxed tempi in the opening movements of the Sextet were carried on in the performance of the Symphony. The music was allowed to speak for itself, yet the dramatic tutti’s carried the full power that they merit in this wonderful score. If one would include the D Major Serenade No. 1 as a symphonic partner, which the nature of that work deserves, Brahms can be credited with five, not four, works in that genre. Of these five, the Second Symphony stands as the most monumental of these works. The moderate pace that Gilbert applied in the first three movements allowed the music to speak for itself and the melodies to soar on their own. The allegro con spirito final movement was given a robust performance that brought out all the energy that such a great work deserves as its capstone.
Special mention should be made of the flawless execution of the horn solo in the adagio by principal Philip Meyers. This fiendishly difficult part, with its prolonged sosenuto line, can be the match for any horn player. In this instance, the playing was all one could ask for. Also outstanding was the performance of the rest of the large brass section, whose prominent role in the finale was perfectly balanced with the string sections.
This was the first Philharmonic performance that I had heard in person led by Alan Gilbert. One thing is for sure. There is a chemistry existing between this conductor and his instrumentalists that should produce music making of the highest order. The Philharmonic is in wonderful hands, and with Gilbert’s relative youth, New York audiences are in for a long period of orchestral and musical excellence.
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