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 Fine survey of capitalism's failure August 17, 2009
William Podmore (London United Kingdom)
Dean Baker is co-director of the Center for Economic and Policy Research in Washington DC. He shows how Clinton's high-dollar policy blew up the $10 trillion stock bubble and also started the $8 trillion housing bubble. The government pushed people to build assets, as if you could buy yourself rich.
The bankers banked on the bubble, governments and media pushed it, regulators didn't regulate it, and economists denied that it existed. The bull markets were a huge con. And it's really still all bull. For example, the Washington Post editorialised on 11 January 2008, "Nor is there any consensus that a recession, if one comes, will be severe; Goldman Sachs thinks it's likely to be short and mild."
By October 2008, the crash had cost US families $5 trillion, $70,000 per homeowner. This is the first postwar recession caused by a fall in investment: nominal investment fell by $50 billion in 2000-01. This slump, unlike earlier ones, is not curable by lower interest rates.
Clinton, to get elected, talked for two opposing policies - public investment and budget deficit cuts (just as Cameron and Brown do now). When elected, he did the latter, as the ruling class demanded. As Baker notes, "There has been extensive research on the economic impacts of reducing the federal budget deficit. The overall conclusion is that deficit reduction provides only a modest boost to economic growth." It would do nothing to increase demand: wages would rise by just 2% in total over the next ten years.
Finance is supposed to steer money from savers to borrowers - which it fails to do - it is not an end in itself. We may want many things, but we don't want yet more financial deals. In the 1960s, the financial sector got less than 10% of all corporate profits, by 2004, more than 30%. But Baker notes, "The fewer people and resources we need to do our banking, to provide insurance, and to meet our other financial needs, the better off we are."
What to do? Baker proposes - cut the value of the dollar, cut the incompetent and corrupt financial sector, hold the incompetents accountable, tax gambling in financial assets, stop the evictions, and increase government investment in industry.
Sets the standard for books on the 2008 financial collapse June 22, 2009
Stephen R. Laniel (Cambridge, MA USA)
0 out of 1 found this review helpful
There already are many books about the financial collapse of 2008, and there will be many more. Plunder and Blunder, for breadth, brevity, and readability alone, should be one of the few on your shelf if you care to understand how it all happened.
Baker chases down the causes of the boom to a number of places and a number of people: the Clinton White House's decision to maintain a cheap dollar in the '90s, Joe Lieberman's fight to have stock options not count as expenses under FASB rules, and the conflicts of interest -- bond-rating agencies getting paid by the companies whose instruments they rated, property-value assessors getting paid by homeowners, auditors paid by the companies they audit, corporate boards existing at the whim of their CEOs -- with which we've become so familiar in the past few years. His solution to these conflicts of interest is what you'd expect: enforce independence. A bond-rating agency would be chosen at random for a given bond issue, a home-price appraisal would be randomly assigned to a homeowner, and so forth.
Other solutions are maybe more controversial. Baker revisits the idea of a tax on stock-market transactions, proposed in 1989 (at the latest) by no less a personage than Larry Summers as a way to reduce speculation. Sometimes this seems like a good idea, sometimes not.
Plunder and Blunder is worth reading if only for two sections: a two-page sketch of how to identify stock-market bubbles in the future (using price-to-earnings ratios), and another on how to spot home-price bubbles. Home prices, says Baker, had not risen in real terms in one hundred years; the main allures of homeownership come through forced saving and some tax benefits. So any increase in home prices that exceeds inlation is immediately suspect.
Here would have been the place, by the way, for Baker to push for an end to the mortgage-interest deduction, which artificially increases demand for homes, artifically increases demand for larger homes, and benefits the wealthy substantially more than it benefits the poor. Baker didn't take the bait, and it's not clear to me why he didn't.
It's a quick, meaty read, and is a must-own.
 Plunder & Blunder May 24, 2009
Nora L. Halpert
1 out of 1 found this review helpful
I worked on Wall Street from 1970 to 1990.......and continued to be a spectutor since 1990.
It was the policies of Greenspan that laid the ground work for the financial mess we are in. I was saying that way back in 1992...Clinton being Clinton gave the green light to bankers and the financial community to do what ever they want. Any thing goes......
What I don't get is why no one is talking about it. Therefore, in Plunder and in Miltdown it as good to see someone say it.....and it felt good for me personally as confirmation that I was right.
Bye the way, I want two copies of "THE GIFT OF THE JEWS" also wanted the new book on Lincoln and Andrew Jackson: Hard Cover Used.
Have a nice day.
A good reference April 14, 2009
Faturachman
0 out of 1 found this review helpful
Baker's book is a good reference for those want to learn how mistakes and wrong policies caused gargantuan cricis. Fatur -- Indonesia
A pamphlet is rarely good research April 5, 2009
Jacques COULARDEAU (OLLIERGUES France)
2 out of 5 found this review helpful
In spite of the glossary at the end, this book is not a text book or even a factual approach of the present financial crisis. A good pamphlet for sure, but a pamphlet and nothing else. It aims at denouncing, even exposing the bubble economy founded on the rise and fall of various financial products with two recent cases: the stocks of the high tech and Internet businesses, most of them overnight start-ups, and the housing business with the growth of real estate prices out of proportion with the real value and even the market value of these houses leading subprime mortgages to a crash when the holders of these could no longer pay due to the parallel rise of the monthly payments, and then the crash of all commodities or loans founded on mortgages when the value of real estate started to nose-dive swiftly, especially since in the meantime these subprime loans and mortgages had been turned into stock, whose value was more than dubious. But the pamphlet attacks mostly Alan Greenspan and his Successor, along with the main CEOs, traders or financial officers of the banks and Wall Street businesses or institutions who got rich overnight, harvested the profit, put it away and then started to cry wolf and call for help when their greedy carelessness brought the system down. The tone of the book is certainly aggressive but selective in the targets of this aggression. It does not explain in details the technical laws or procedures used to deregulate the financial and real estate markets even when it was very clearly the objective of these laws and procedures. He is very nice with Clinton even qualifying the Lewinsky dumb caper as a miracle that stopped or prevented the privatization of the federal social security system. Both the Lewinsky business and the project to privatize this social security system should never have been, existed and even loomed in Clinton's mind. Bill Clinton should be qualified as what he was, an opportunist with a very agile tongue (I am of course talking of his speaking tongue, not any other agile tongue of his or any one else's he may have used). The problem of Dean baker is that he is a lobbyist in Washington more than a researching economist. You may be disappointed by his book, even a lot for some of you who would like to understand the economic mechanisms more than just be given one caustic point of view.
Dr Jacques COULARDEAU, University Paris 1 Pantheon Sorbonne, University Versailles Saint Quentin en Yvelines, CEGID
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