Before you think it's over, look at Steglitz, Roubini, Krugman, et. al. They were right before...
Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman
By Mark Deen and David Tweed
Sept. 13 (Bloomberg) -- Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.
“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”
Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”
A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.
While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.
Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action.
G-20 Steps
“We aren’t doing anything significant so far, and the banks are pushing back,” he said. “The leaders of the G-20 will make some small steps forward, given the power of the banks” and “any step forward is a move in the right direction.”
G-20 leaders gather next week in Pittsburgh and will consider ways of improving regulation of financial markets and in particular how to set tighter limits on remuneration for market operators. Under pressure from France and Germany, G-20 finance ministers last week reached a preliminary accord that included proposals to claw-back cash awards and linking compensation more closely to long-term performance.
“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”
Global Economy
Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.
“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”
The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.
“The question then is who is going to finance the U.S. government,” Stiglitz said.
It is eventualities like these that create the incentive to husband resources...
Krugman warns against economic complacency
‘Double dip’ a real risk, exit strategy should wait till 2011
October 15, 2009
Paul Krugman
The pace of Korea’s economic recovery, like those observed in many other countries, has been exaggerated, according to renowned economist Paul Krugman yesterday.
During a forum held in Seoul, Krugman, the 2008 Nobel Economics laureate and a professor at Princeton University, attributed the current rebound in the global economy to companies quickly selling the inventory accumulated during the worst of the crisis. Thus, government efforts to boost the economy should continue, he said.
“The bounce back should not be taken as an indication of continuing growth in manufacturing exports,” Krugman said while addressing the World Knowledge Forum hosted by Maeil Business News. “It’s too early to say Korea has [achieved] a rapid recovery because world demand, which drives the Korean recovery, will not be sustained,” he said.
The Korean economy grew 2.6 percent in the second quarter, its fastest growth in five and a half years, with industrial output rising for the second straight month in August from a year earlier. Yesterday, the National Statistical Office released improved employment data, marking the second consecutive on-year job increase.
However, Krugman said much of the recovery was not attributable to a rebound in global demand, which he said is still in the doldrums.
A second recession, the dreaded “double dip,” could hit the global economy next year, and on a more serious scale than expected, the economist warned.
That was the reason Krugman warned against quickly ending current expansionary policies. The global economy will take years to fully recover and putting the brakes on the stimulus too early could bring about disastrous results, he said.
“[It’s] alarming the large rising tide of people saying we’ve done enough, [that it’s] time to pursue an exit strategy,” he said.
Krugman said the implementation of an exit strategy should be delayed until unemployment in the United States falls to 7 percent, which he said will come in 2011 at the earliest.
In Krugman’s previous visit to Korea in May for a speech at a global financial conference, he said the lingering problems facing the American economy also hung over the entire world, and that the savings rate and housing and business investment, the three pillars of the real economy, would not fully recover in the United States for years to come.
The Nobel laureate then said the ongoing crisis, which at that time he called the worst since the Great Depression by far, will end probably in 2014.
That's five years from now! Think about it. Today the State of Illinois went $900 million further into the red, almost $13 billion now. Who will finance them?