Krugman Searches for His Own Truth in an Irish Mirror. He Reflects upon the Mirror and Finds Himself as Originator of the Eternal Solution. Tax and Spend.

Abstract: Paul Krugman peers into his Irish Mirror and sees only his stale, leftist socialism. Continually scrubbing the mirror for clarity and advice the only visible words that appear are ‘more government’, ‘more spending ‘and higher taxes.’ Krugman is able to show by comparison and other feats of logic that borrows heavily from Conan Doyle that Fannie Mae, Freddie Mac and the Community Reinvestment Act were in no way responsible for the crash of the real estate asset bubble as Ireland does not have there wonders. It was greed and the lack of regulations. Krugman didn’t need a mirror to write this piece; he didn’t even need a newspaper.

Propaganda pieces frequently begin with a conundrum and announce the urgent need for the quest for the ‘facts’ so the guilty can readily be identified. This is the best opportunity to convince the mentally disnimble, the political zombies and the cognitively marginalized of an intrinsic truth buried in the original fog. The political truth, at least, can be delineated; we don’t know what happened, although it must have been the fault of the opposition. The opening paragraph of this current splash of leftist cant from the New York Times squirts great honors upon the eternal monument their infamous Pulitzer Prize winner Walter Duranty[1] and is of interest in this respect. Duranty’s were the best of times for the leftist print media. Here we read that the hard facts about financial crises are largely unknown but we can easily surge to the left with the [absurd] notion that our 10 trillion dollar housing asset bubble was not caused by lending to uncreditworthy persons and that the banks were not forced to make bad loans. The culprits, then, following the Doyle Logic, must have been the Republicans.

 "How often have I said to you that when you have eliminated the impossible, whatever remains, however improbable, must be the truth?[2]—Sherlock Holmes.

Krugman begins to work this elegant theorem into his little piece:

“Everyone has a theory about the financial crisis. These theories range from the absurd to the plausible — from claims that liberal Democrats somehow forced banks to lend to the undeserving poor (even though Republicans controlled Congress) to the belief that exotic financial instruments fostered confusion and fraud. But what do we really know?”[3]— An Irish Mirror By Paul Krugman Op-Ed Columnist Published: March 7, 2010 [Emphasis is mine in all quotes.]

His piece meanders a while until we come to the Irish Question and only then can the facts be clarified. They had a bubble too but without a Fannie Mae!  Negative evidence then prompts us to dig deeper and strengthen our conclusion before the facts are understood or even identified. Peering even further into this foggy reflection of reality, we clearly learn the hard facts that liberal Democrats could not have been responsible for the asset bubble as Republicans were in charge of Congress and that charge must make us assume that in acts such as the CRA [Community Reinvestment Act,[4][5] supposedly hefting the force of law] was somehow magically suspended during the reign of the right.  We learn new twists and turns about the financial escapades of the right today from Paul Krugman’s acute analysis and can now properly place blame.[6] Actually it was Bear Stearns in 1997 that started off this bundling or securitization of high risk mortgages and offered to ‘the poor’ at subprime rates.  With such deep thinking we can now safely wander the financial forests and Whistle While We Work or hope that Someday My Prince [Of Taxes] Will come to save us[7] 

But, in any good leftist saga, we need to see the truth bent a bit:

Although some think the banks were free to make all loans that were not risky or unsound the actual mechanism of control of the banks was based on this: “An institution's CRA compliance record is taken into account by the banking regulatory agencies when the institution seeks to expand through merger, acquisition or branching.”[8] Here is the conundrum: The Bank must avoid discrimination in lending even when many borrowers have poor credit but somehow must comply with CRA standards or be penalized indirectly by regulatory agencies. Thus, banks were intimidated into make  bad loans to dead beats but were offered the chance to chuck these carcasses in some convenient latrine in return for most of their money back and that sewer was Fannie Mae and her duller brother Freddie Mac, now holding some 3-5 trillion dollars in toxic assets from bad debts. That is how the scheme worked. But, our hero today belies that and looks for other reasons. We know who is to blame don’t we?

A light in the forest!

“Well, in a way the sheer scale of the crisis — the way it affected much, though not all, of the world — is helpful, for research if nothing else.”— An Irish Mirror By Paul Krugman

A big event is useful? In what way?

“We can also look at countries whose financial institutions and policies seemed very different from those in the United States, yet which cracked up just as badly, and try to discern common causes.”— An Irish Mirror By Paul Krugman

Now, we drift into more fog and distorted reflections and flee from the actual vision we see in the Mirror and we look closely at the Irish Case where they had a similar asset bubble and search for differences. If any differences between the Irish and the US systems are to be found then those uniquely employed by Republicans would be clearly identified as the root cause of the problem hence reprehensible. The theory slips here as there were many nations that suffered during this global asset bubble, but we can draw general conclusions from only one of these comparison cases if the outcome coincides with Krugman’s politics. Gather the apples.

The Irish Problem delineated:

“Ireland had none of the American right’s favorite villains: there was no Community Reinvestment Act, no Fannie Mae or Freddie Mac. More surprising, perhaps, was the unimportance of exotic finance: Ireland’s bust wasn’t a tale of collateralized debt obligations and credit default swaps; it was an old-fashioned, plain-vanilla case of excess, in which banks made big loans to questionable borrowers, and taxpayers ended up holding the bag.”— An Irish Mirror By Paul Krugman

Here, we find a second cleansing of Fannie Mae and its obvious non involvement in massive debt gifting to the ‘poor.’ We are now clearly, unless we are slow or are Neanderthal right-wingers, enlightened and enchanted from by the Irish Example that since there was no CRA that by inference we can conclude that the CRA had nothing to do with the US crash! That much is now clear. Dr Watson would be glad to hear that.

Krugman sums up:

“[1] First, there was irrational exuberance[9]: in both countries buyers and lenders convinced themselves that real estate prices, although sky-high by historical standards, would continue to rise.

[2] Second, there was a huge inflow of cheap money.[10]

[3] Third, key players had an incentive to take big risks, because it was heads they win, tails someone else loses. In Ireland this moral hazard was largely personal: “Rogue-bank heads retired with their large fortunes intact.” There was a lot of this in the United States, too: as Harvard’s Lucian Bebchuk and others have pointed out, top executives at failed U.S. financial companies received billions in “performance related” pay before their firms went belly-up.[11]

[4] But the most striking similarity between Ireland and America was “regulatory imprudence”: the people charged with keeping banks safe didn’t do their jobs. In Ireland, regulators looked the other way in part because the country was trying to attract foreign business, in part because of cronyism: bankers and property developers had close ties to the ruling party.”— An Irish Mirror By Paul Krugman

Do we, again, as the tautological rut in which Krugman’s krugmanical rants flow, hear a clarion call for more government and regulations? The proof here is that “insufficient regulation was in force” in both Ireland and the U. S. because bank executives made money! Maybe bank people should be civil servants!  Examples of “irrational exuberance” have been around the world since speculation in tulips and spices were fashionable in the 16^th century and way before. 

For [2], what do we need to avoid the problem? Expensive money? Interest rates at 12% or so? When Paul Volker put those in the 1970s to help us recover from the Jimmy Carter Malaise[12]  he received death threats. Then, we throw in cronyism? Can we wonder about Franklin Del Ano Raines,[13] as head of Fannie Mae, might have been  a crook or a crony  when  he made a cool $90,000,000 dollars in salary and bonuses even thought he was accused of crimes?[14] No, we don’t hear that about crooked minorities in the NYT. Raines was briefly in the Obama organization until his visibility tainted the apple barrel.

The solution! More government!

“So what can we learn from the way Ireland had a U.S.-type financial crisis with very different institutions? Mainly, that we have to focus as much on the regulators as on the regulations. By all means, let’s limit both leverage and the use of securitization — which were part of what Canada did right. But such measures won’t matter unless they’re enforced by people who see it as their duty to say no to powerful banks.”— An Irish Mirror By Paul Krugman

How about nos have ut focus quantus quantus in tempero ut in ordination![15]

“That’s why we need an independent agency protecting financial consumers — again, something Canada did right — rather than leaving the job to agencies that have other priorities.”— An Irish Mirror By Paul Krugman

We can only speculate what this term independent means in the current context. This is probably a hazy description of some new government regulatory agency of the Van Jones sort.

The problem with all this is the Mirror does not relay much information to us when our propagandist peers at his own countenance and recites from memory. Krugman always structures his misinformation pieces neatly divided with a meat ax into left and right halves and stresses the need to emphasize any faults shown or assumed to be part of the opposition while never denigrating people on the left. The social mantra of ‘affordable housing’ cannot be faulted here because the intent was pure and egalitarian. Equality must not be faulted. There is never any conclusion from this ragzine other than more government [see here] with more spending and more control.  He mumbles about regulators doing more regulation and does not mention that our banking system had 12,000 regulators in force at the time of the financial crisis. Nobody was complaining about the huge taxes being paid by investment bankers in New York City until the collapse happened. The predictions[16] that Fannie Mae was about to crash and become insolvent went unheeded by politicians and regulators alike. Maxine Waters told us we ‘don’t have problem with FM’. Barney Frank[17], tells us FM is “not financially insolvent.”[18] They are ‘well financed and not in trouble.”

The Financial Crisis of 2008 was a world-wide event and the only commonality among those who were hard hit and their banks wavered was the real estate asset bubble that burst upon all of us and the interlocking credit default swap system that is still in place. Places like Greece and California [financial lepers[19]] need such insurance against default to sell their risky junk-grade bonds.  The CDOs and other instruments were holding well until housing prices plummeted and then assets in the form of mortgages became toxic.  Krugman misses the opportunity to tell us that if private property were outlawed[20] in the US the prices of homes would have remained constant at government insistence and we would have escaped this mess. Cuba and North Korea escaped this bubble too.

This is the essential issue here. If a market like housing continues to rise then tax revenues increase with the taxable value of the homes and governments are happy to spend the proceeds. When such a market collapses, mortgage owners default and both tax revenues and wage taxes fall in a given area such as Baltimore City. The leftist theory must be buried somewhere that says if housing prices fall and home owners lose equity then a magical program like TARP  can slither along and replace that lost equity and the GDP will remain stable.  We have seen every conceivable and phony mortgage assistance program scattered about here and there with the ideas that minorities and others would have their second chance or would have the their loans adjudicated so that their principal and interest would be lower and they could remain in their houses. This even applied to hundreds of thousands of illegal aliens who got mortgages with zero down and with out even jobs.

These programs failed miserably. Krugman has been harping on this theme for a long time.[21] Notice that in these test cases where the previous refinancing recidivism rates of credit-poor people hit 70%[22] is apparently not evidence of a failed program!  This program doesn’t work!  How about the phony ‘jobs’ program where we spent $92,000 per job?[23]  Then we spent $24,000 per car on the Clunker Follies and a mere $43,000 per house on the housing scam.[24] And, none of these had a lasting effect. All of the money to do this was either borrowed or printed up quickie fashion by our government.  Maybe we need a regulation body for government spending? That is something Krugman would never propose.

Maybe Krugman’s beliefs are not what we think. Maybe he ‘believes’ that any scheme however sordid, illegal or silly that puts money in the pockets of the low class and encourages them to vote for democrats is his belief. Yet another liberal social program failed and Krugman cannot find a solution to any social or economic program other than more spending and taxation and bigger government. What else is new from the Wicked Queen? How many more poised apples can our economy take before it collapses?

What is coming if we cannot control spending is that we will, like the Irish, fall so far into debt that we cannot recover and there is no agency like the IMF who will or could rescue us.  We face a currency collapse if we keep printing money.[25]  The second bubble next up on deck is actually a mixture of two simultaneously occurring bubbles: commercial real estate[26] and consumer debt monthly in the form of credit cards. It is difficult to believe that major banks who issue millions of credit cards at 25% interest rates are losing money on the deal, but that is what they now report so a contraction in this credit market is now bubbling away and will commence.

The bubble after that is based on the outrageous spending of borrowed or deficit money and these expenditures may just create a green asset bubble[27]  that will eventually burst and those assets will be worthless and accordingly bring more debt and defaults.  So we keep right on spending because Paul Krugman sees little wrong with debt service rising to 3.5% [28]

rycK

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