The Chicago School's long descent

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Asia Times As a graduate of the University of Chicago (1959) and also of its Laboratory School (1955-56), I think my experience there confirms the picture portrayed by Henry Liu in his wonderful essay last week on Milton Friedman and the "Money Matters Controversy". (See Friedman's misplaced monument, Sep 5.) My introduction to the University of Chicago (UC) was via the Manhattan Project around 1948. I lived in Chicago neighborhood of Kenwood, just north of Hyde Park. We rented the top floor of our house to a physicist, Shuki Hayashi, who worked on the project at Stagg Field, under whose bleachers the project's atomic pile still continued. To bring me to the Lab School, he would put me on his bike (a ...

The Next Big Bail Outs: State, Local and Private Pensions

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Counterpunch Early on the morning of July 30, President Bush signed the act that the Senate had passed at a special session the previous Saturday. The new “housing act” (a more honest title would have been the “Financial Bailout Act of 2008”) authorizes the Treasury and Federal Reserve Board to provide unlimited credit to the mortgage packagers and insurers Fannie Mae and Freddie Mac, and infuse $300 billion of new lending power to the Federal Housing Administration (FHA) and localities to support the “real estate market.” This is a euphemism for saving mortgage lenders from the traditional response to falling property prices – defaults and walk-aways. The act’s press release claims that its purpose is “to provide mortgage relief for 400,000 struggling ...

Rewarding the Bubble's Enablers: Why the Bail Out of Freddie Mac and Fanny Mae is Bad Economic Policy

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A Counterpunch Special Report I am writing this article about Fannie Mae and Freddie Mac while sitting in the Queens Botanical Garden. This was not my plan today. The central air conditioning in my apartment broke down six weeks ago and still has not been fixed. (It’s a nice condominium building, but accidents happen.) It is over 90 degrees outside, and nearly 100 as a result of the greenhouse effect in my apartment. Yesterday I took refuge in the Forest Hills Public Library, but it is closed on Sunday. One of the few libraries near public transport that normally is open on Sunday is in Flushing. So I went there to write the final draft describing the past week’s financial turmoil. Unfortunately, ...

America's Free Lunch is Over: How Should the Middle East invest its Rising Trade Surplus?

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Published in the June 2008 issue of The Gulf, a weekly business news magazine published in Bahrain, and in Counterpunch Every week Mid Eastern countries acquire more dollars in payment for their oil and other exports, and also for rising U.S. investment in their stock markets and other property. This confronts them with a problem: What can they do with these dollars? Traditionally, exporters have saved their export earnings by building up their assets. But is it still realistic for them to acquire more dollarized assets? Central banks throughout the world presently hold some $2.5 trillion of U.S. Treasury bonds, and another trillion dollars in private-sector U.S. dollar debt. As the dollar’s exchange rate falls, these banks suffer losses when their holdings are ...

The Fed Sinks the Dollar: The Price-Wage Squeeze

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Counterpunch Against the recommendations of most economists and even the Financial Times of London, the Federal Reserve Board yesterday cut its discount rate by yet another quarter-point, to just 2%. Ostensibly, the intention is to try and spur economic “recovery” – as if a cut in the interest rates would do this. At first glance this seems to reflect the Fed’s ideology that manipulating the interest alone can expand or contract the economy – as if it is like a balloon, with its structure is pre-printed on it, to be inflated or deflated at will to control the level of activity. This simplistic philosophy was a hallmark of the Greenspan era. Changing the interest rate alone meant that the Fed didn’t have ...

Resurrecting Greenspan: Hillary Joins the Vast, Rightwing Financial Conspiracy

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Counterpunch On Monday, March 24, presumably representing Wall Street – as any New York senator must do in view of its dominant financial role in the state’s political campaigns – Hillary Clinton proposed that Congress show its bipartisan spirit by appointing an “emergency working group on foreclosures,” to be led by none other than Alan Greenspan and earlier Federal Reserve Chairman Paul Volcker, and Clinton Treasury Secretary Robert Rubin. Her idea was for them to come up with a plan to alleviate the subprime and financial crisis. This seems like calling in arsonists to help put out the fire that they and their own constituency had set in the first place. Their lifelong interest, after all, had been to promote deregulation ...

A Trillion-Dollar Rescue for Wall Street Gamblers, But No Money for Families and Retirees

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Counterpunch If the move to a Unitary Executive of unfettered presidential power frightens you, America’s radical right turn to Unitary Finance should compound your fears – and your debts as well. The financial events of the last two weeks of March 2008 demonstrate that the “economic royalists” and “money changers” whom Franklin Delano Roosevelt (FDR) drove from the temple of finance have returned to mismanage our economy into dire straits of unprecedented risk – debt creation, euphemized as “leveraging” and “wealth creation.” The few checks and balances that remain in the way of the financial sector’s increasingly centralized planning, especially at the state level, are being swept aside under the guise of “saving the system.” Few Wall Street beneficiaries who use this ...

A Grand Global Bargain? Save the Economy, Dismantle the Empire

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Counterpunch Today’s deepening financial and economic crisis cannot be alleviated without addressing a number of problems that the public does not really want to hear about. Even to cite them raises a wall of cognitive dissonance. For starters, today’s debt problem is not marginal, but has become structural – and structural problems cannot be solved with merely marginal palliatives. What Alan Greenspan called “wealth creation” turned out to be asset-price inflation – bidding up property values and the stock market on credit. The Bubble Economy loaded down households, real estate and entire companies with debt, while the Bush tax cuts for the higher tax brackets forced federal, state and local budgets much more deeply into debt. This policy could continue as long as ...

Why the “Miracle of Compound Interest” leads to Financial Crises

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Oslo conference, “Financial Crises in Capitalism”, Aug. 27, 2007 I first met Erik Reinert in 1994 at an economic history conference in Germany, and have been a member of his Reality Economics group since its founding. Erik Reinert’s Reality Economics group has revived the awareness of economists whose names have disappeared from most histories of economic thought, even as many schools have dropped courses in that topic itself. Most students only are taught today’s mainstream orthodoxy, not being informed of the equally long history of another canon – one that turns out to be more helpful in explaining economic history and today’s dynamics. Looking at today’s global economy, the obvious question to ask is why more economies haven’t achieved the technological potential ...