TagPaul Krugman

Paul Krugman: Money for Nothing

Furthermore, paying vast sums to wheeler-dealers isn’t just outrageous; it’s dangerous. Why, after all, did bankers take such huge risks? Because success — or even the temporary appearance of success — offered such gigantic rewards: even executives who blew up their companies could and did walk away with hundreds of millions. Now we’re seeing similar rewards offered to people who can play their risky games with federal backing.

So what’s going on here? Why are paychecks heading for the stratosphere again? Claims that firms have to pay these salaries to retain their best people aren’t plausible: with employment in the financial sector plunging, where are those people going to go?

No, the real reason financial firms are paying big again is simply because they can. They’re making money again (although not as much as they claim), and why not? After all, they can borrow cheaply, thanks to all those federal guarantees, and lend at much higher rates.

Paul Krugman: Money for Nothing

Newsweek profile of Paul Krugman

Krugman generally applauds Obama’s efforts to tax the rich in his budget and try for massive health-care reform. On the all-important questions of the financial system, he says he has not given up on the White House’s seeing the merits of his argument—that the government must guarantee the liabilities of all the nation’s banks and nationalize the big “zombie” banks—and do it fast. “The public wants to trust Obama,” Krugman says. “This is still Bush’s crisis. But if they wait, Obama will be blamed for a fair share of the problem.”

Obama administration officials are dismissive of Krugman’s arguments, although not on the record. One official made the point that pundits can have a 60 percent chance of being right—and just go for it. They have nothing to lose but readers, and Krugman’s many fans have routinely forgiven his wrong calls. The government does not have the luxury of guessing wrong. If Obama miscalculates, he could truly crash the stock market and drive the economy into depression. Krugman’s suggestion that the government could take over the banking system is deeply impractical, Obama aides say. Krugman points to the example of Sweden, which nationalized its banks in the 1990s. But Sweden is tiny. The United States, with 8,000 banks, has a vastly more complex financial system. What’s more, the federal government does not have anywhere near the manpower or resources to take over the banking system.

Newsweek: Attack from the Left: Paul Krugman’s Poisonous Pen

(via Disinfo)

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