Krugman Offers an Essay on Misdirecting Political Power. We can Control the Banks and prevent the Next Crises, but No Details, Just give us Power.

Abstract: Paul Krugman gives us a rosy scenario whereby some group of leftist politicians can sit in some Star Chamber and control the strings of our banking system and prevent the next banking crisis. All this while he has no problem with massive government spending far exceeding the 14 trillion dollars we are already in debt.  The blame for preventing an ideal solution to the control of the wayward banks is to be placed upon the opposition party and the 60 vote Senate Rule and that prevents the left from bringing us prosperity and social justice through bigger government and more spending.  This is a classic case of political propaganda of the misdirection type.  There are no details or framework offered here just the promise that his party is right and can identify bank problems before they occur and fix them and then chase after the culprits that caused them.  He offers us the only solution. The biggest threat to the banking system is the 14 trillion dollars in massive debt we have and Krugman has no problem with our having spending that and much more. The biggest threat to our banking system is debt thus Krugman attempts divert our attention away from his party so they can spend even more. The banks are not the problem so that is the center of this propaganda theme.

As we study the propaganda mechanism, using, of course, the premier example: the New York Times, we continue to learn the tricks of that particular trade. The goal is always to match or best the finest works of their most famous the revered Pulitzer Prize winner Walter Duranty.[1] Paul Krugman[2][3][4]  is one who portends to identify with Duranty and is one of these advanced professionals in the ideological propaganda games, specializing in the growth of government by any means but frequently showcasing the discredited Neo-Keynesian economics like a rummage box for talking points.

Today, Paul Krugman sounds the alarms about the need for some undefined group to ‘protect the masses’ from financial harm.  This is one of his better pieces in that he can pluck the heart strings of the most case-hardened liberal with soothing promises that we can prevent another bank crisis if only we put up some czar in fancy clothing with the mandatory Ivy League ‘education’ and allow  a cluster of these persons to micromanage the banking system. This intermezzo is accomplished like a Houdini performance where there are sparks and lights and tinsel but nothing of substance. The massive debt that will certainly bring down the banks is not mentioned.

We can prevent another crisis if we just ‘reform’ the banks:

“So here’s the situation. We’ve been through the second-worst financial crisis in the history of the world, and we’ve barely begun to recover: 29 million Americans either can’t find jobs or can’t find full-time work. Yet all momentum for serious banking reform has been lost. The question now seems to be whether we’ll get a watered-down bill or no bill at all. And I hate to say this, but the second option is starting to look preferable.”[5]--Financial Reform Endgame By Paul Krugman Op-Ed Columnist Published: February 28, 2010 [Emphasis is mine in all quotes.]

This is classic propaganda. Here, we are apprised of the ‘situation’ and offered some ugly history to reflect upon with a wide and maudlin vision of the  social wreckage at hand, even offering an approximate count of the victims,  and that the need for this non-defined process is some ‘banking reform’ legislation. The interesting part is the ‘solution’ to the problem is offered in terms of more tumorous government but the problems are not defined nor are the details for a solution enumerated.  The message is that some lofty intellectual group with control strings over the banking system could prevent another financial crisis.  Note that many think our government of the last 30 years set up the current position for a major financial crunch with massive debt and programs like ‘affordable housing,’ but now they know what they are doing.  They are recovering? There seems to be some frantic effort to control the banking system but no brakes are applied to the wild and uncontrollable spending by Congress:

Debt was the problem and more debt will bring a bigger problem:

"There's no question that the most significant vulnerability as we emerge from recession is the soaring government debt," Prof Rogoff told Bloomberg. "It's very likely that it will trigger the next crisis as governments have been stretched so wide."[6]—Kenneth Rogoff co Author of book This Time is Different: Eight Centuries of Financial Folly with Carmen M. Reinhart.[7]

If we look at the news and at Congress we find that closed doors have again spawned a wonderful and marvelous bipartisan solution and that is some “consumer protection division within the Federal Reserve[8]” that can deal with, as yet, undefined problems. Reading further into this reference we find:

The Eternal Power of the Division:

“The division would have some independent clout, as it would be headed by a presidential appointee and write regulations on its own -- regulations it would have the power to enforce, The Wall Street Journal reported Tuesday. It would also have its own budget.”[9]-- Reform bill inches along [Emphasis is mine in all quotes.]

Another Czardom?  Here we see the creation of yet another unconstitutional body that would have legislative power, enforcement power and its own budget. What a power house! But what problems would it solve? We get a hint of what this Star Chamber might do from the politically wooden and far leftist AARP:

“"They want clear information so they can make better, more informed decisions and greater transparency about the financial products available to them," said LeaMond.””[10]-- Survey: Seniors Support Increased Consumer Protections Seniors angry over lost retirement savings, AARP survey finds

Okay, banks must use “plain language” for their terms of loans, including mortgages, and also credit cards. This includes that fees for 401(k) retirement plans to be clearly delineated, to keep public records on investment advisors to see if they have any previous charges against them.  They already do that. Then, they want “the costs, risks and benefits of all the financial products they market and sell using plain language.” To this we add in  the 50 states that would have the independent ability to pass stronger laws than the federal and to hold counselors who engage in “deceptive marketing practices” accountable.[11] What a snarl, 51 flavors of madness.

This list of AARP demands reads like the Ten Commandments. Everything must be written down for the investor. The salient fact is that most investment is guess work and risk is not mentioned here. Why not just limit 401(k)-based retirement systems to sovereign debt? Oh, that wouldn’t be too good since many sovereign nations, including the US[12], have defaulted on that debt and will do so again very soon like the US because we cannot sustain 14 trillions in debt.  Or, to keep the AARP vote, why not tie loses in retirement plans directly to the deficit so no money is lost and only profits are possible? Why not have the Treasury underwrite the lower equity level in your house and pay the difference if you want to sell it in a down market?

As is customary in propaganda exercises, the use of vital and solution-solving references to programs with vague terms and rubber words with multiple potential meanings give rise to some process where nobody can predict where this is going. And, I don’t think they want to.  They want specific details on bank operations, but we can have no such rules of some regulatory body with Olympic powers. In this swamp of syntax and emotion Krugman is nonplussed and proceeds with his rubber stamp insipidness of first accusing Republicans of the blockage of some undefined bill and secondly throwing stones at the traditional senate majority rule of 60:

“The problem, not too surprisingly, lies in the Senate, and mainly, though not entirely, with Republicans. The House has already passed a fairly strong reform bill, more or less along the lines proposed by the Obama administration, and the Senate could probably do the same if it operated on the principle of majority rule. But it doesn’t — and when you combine near-universal Republican opposition to serious reform with the wavering of some Democrats, prospects look bleak.”-- Financial Reform Endgame

The implication here is that the liberals in charge have some reasonable example of reform and that it just might work unlike what legislative histories of the last few Congresses have shown us.  The opposite is true. As Krugman gives us bits and pieces of the politics here he takes a second shot at the Republican holdup on Healthcare:

Whatever it is pass it anyway!

”There are times when even a highly imperfect reform is much better than nothing; this is very much the case for health care. But financial reform is different. An imperfect health care bill can be revised in the light of experience, and if Democrats pass the current plan there will be steady pressure to make it better. A weak financial reform, by contrast, wouldn’t be tested until the next big crisis. All it would do is create a false sense of security and a fig leaf for politicians opposed to any serious action — then fail in the clinch.”--

Here is a convoluted essay of dogmatic elegance. He may indirectly admit that this reform is ‘imperfect’ but that we need something even if it is a farce. We further  learn that we can indeed pass some nebulous legislation because there is always some sincere effort to ‘revise’ the wreckage later, perhaps, like we successfully did with Social Security, Medicare, Fannie Mae, HUD, The Great Society and other monumental failures we inherited  from leftist Democrats.

The brutal facts are two fold:

[1] Congress is not capable of avoiding any massive risk to the banking system as we can see from previous evidence in the past 100 years. Financial episodes that threaten the economy always strike quickly as they did in Sep 2007 and they failed to completely understand the nature of the problem at hand and Congress was clueless as what to do other than follow the recommendations of Paulson and the Treasury. 

[2] If they had a crystal ball and could peer into the financial abyss then what prevents them from playing politics with that precious information given that they play at that game in every other circumstance including world wars, nuclear bombs and other national threats?

Gathering in the notion of lost wealth, it seems that many think the government should somehow replace lost wealth, equity in houses, 401(k) balances and jobs. The AARP is a hapless organization that acts as a servile footstool for government programs as long as they get some cut especially in insurance business and their members want some kind of assurance that their assets will continue on and that some committee somewhere in the ethereal clockwork of the Treasury or elsewhere can steer their ship away from the shoals. This is about as far away from reality as a fairy tale.

Krugman sums up in finality:

“The only way consumers will be protected under future antiregulation administrations — and believe me, given the power of the financial lobby, there will be such administrations — is if there’s an agency whose whole reason for being is to police bank abuses.”

We now hear about the only way! Spoken like a new dictator drunk with power and with a J. Edgar Hoover sized stack of FBI files containing dirty information on his enemies. He has the only solution! We know who the guilty parties are and where to go to take back the loot! All this prattle saturates the wall paper in Krugman’s cell as he has advocated that we continue spend and spend without known limits to get back to prosperity. This is a debt-driven deflationary spiral[13] we are in and we can use more debt to get out? No mention of the salient fact that even if the banking system were as sound as a box of rocks the inflation and potential collapse of the economy would proceed even with perfectly run banks. The banks are not the problem, thus the center of attention of this propaganda piece.

Krugman’s little essay today is a classic case of misdirection. The Republicans are to blame for everything and that list probably includes including Global Warming so only leftist politicians who sit in their little Star Chamber can work the levers of the banking system to protect us from disaster. This is a complete farce.

With Krugman it is always tax and spend or, to be novel, spend and then tax and for him this is not cynical posturing.

rycK

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