TAIBBI: Bernie or no Bernie, 'Times' columnist Paul Krugman is wrong about the banks

[kpete]

Why the Banks Should Be Broken Up

Bernie or no Bernie, 'Times' columnist Paul Krugman is wrong about the banks

Paul Krugman wrote an op-ed in the New York Times today called "Sanders Over the Edge." He's been doing a lot of shovel work for the Hillary Clinton campaign lately, which is his right of course. The piece eventually devolves into a criticism of the character of Bernie Sanders, but it's his take on the causes of the '08 crash that really raises an eyebrow.

By way of making a criticism of the oft-repeated Sanders charge that the big banks need to be broken up, Krugman argues that banks were not "at the heart of the crisis."

This is Krugman's assessment of who was responsible:

"Predatory lending was largely carried out by smaller, non-Wall Street institutions like Countrywide Financial; the crisis itself was centered not on big banks but on 'shadow banks' like Lehman Brothers that weren't necessarily that big."[/

i]


Forget about the Sanders-Clinton race, because it's irrelevant to the issue. Krugman is just wrong about this.

......................


Read more: http://www.rollingstone.com/politics/news/why-the-banks-should-be-broken-up-20160408#ixzz45KsrBJ85
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[Segami]

1. kick...

[think]

2. The mortgage fraud settlements, the LIBOR market rigging scandal, the drug cartel money laundering

just to name a few of the scandals that have occurred.

Krugman seems intent on ignoring any role the Wall Street banks played in any one of the many scandals surrounding them including their role in the 2008 market crisis.

[thesquanderer]

3. That's a great Taibbi piece.

It would be nice to see Krugman acknowledge it in some way.

[Snotcicles]

17. Matt Taibbi, is the best. nt

[tokenlib]

4. Hell, Krugman just wants a cabinet position.....

....his Bernie attacks have been non-stop in that pursuit.

[Yurovsky]

6. Yep, just feathering his nest...

get him a sweet cabinet gig, come out the other side being able to double, triple, or quadruple his speaking fees and book deals.

Krugman's pathetic...

[vintx]

7. That explains the actions of a lot of people

whom I used to respect.

[Octafish]

5. Krugman forgot Sinclair

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” -- Upton Sinclair

Sad day for me.

[Hydra]

8. Ya, I dislike seeing people who can see the issue clearly choose money over truth

But that's the whole point of this election, I think. Which is more important? I hope the truth wins.

[Octafish]

10. Like a noise machine.

If it's not disinformation from a person it's gray noise for the news media.

http://www.democraticunderground.com/?com=view_post&forum=1251&pid=1683952

Adults who believe in secret government have no place -- or business -- in Democracy.

[2banon]

13. Such a great Sinclair quote. Perfectly appropriate to this day, sadly.

[99Forever]

9. That's the problem when you sell-out to lying liars.

You end up looking like a lying liar yourself.

Way to totally fuck up your credibility Paul.

[Cheese Sandwich]

24. What is it about the Clintons that makes people willing to sacrifice their reputations.

It's sad.

[99Forever]

27. I think they are worried that the Clintons will go for revenge on them.

There is no dirty trick, lying smear, or filthy scheme the Clintons are above using. They have no conscience.

[frylock]

38. Fear.

[mmonk]

11. Truth. Systemic risk is risk to you.

[BernieforPres2016]

12. I hadn't read Krugman's column and didn't realize it was that stupid

He was actually trying to give the TBTF banks a pass on sinking the economy? I guess that's why they've paid roughly $250 billion in fines for illegal behavior.

It is incredible to watch somebody throw away his reputation. For what?

[BernieforPres2016]

14. What does it say about the media

When the best financial writer works for Rolling Stone (Taibbi) and the best investigative reporter and commentator on the U.S. political scene is a British comedian with a half hour weekly show on HBO (John Oliver)?

[2banon]

15. I have no memory of Krugman's columns during the crises

To the best of my recollection, the "go to" - "must-reads" were largely Matt Taibbi's pieces for me on this subject.

I don't recall Krugman's pov at the time and only slightly curious as to what his perspective put to print was then compared to now.

I used to read him a great deal back during the Bush era

Funny, that.

[Waiting For Everyman]

16. BOOM! Thank goodness we still have a few good writers

and good thinkers left who have a national audience. We need them more than ever now.

I can understand people selling out a lot better when they are really in need and don't have other options. But these well-to-do high level sell outs really disgust me. They do it merely for MORE. "I've got mine, screw the harm I put on everyone else".

It's not just about the money either, it's the pollution they put into our understanding, and our history. It's the thought pollution. For these professionals who do this sort of thing that Krugman has done, that is lower than pond scum.

I feel a big thanks to Matt Taibbi and others of their peers who confront them to clean a mess like this up.


The money quote, for me, from the piece:

"...these institutions have become so big that they can confront and defy the government."

That is why we need these mega-corporations cut down to size, and that is why we also need a top individual tax rate of 90% like we had in the 1950s-60s to cut the billionaire individuals down to size too. It is becoming a matter of good public policy not to allow wealth and power than can confront and defy our government. There's no reason why we should be allowing that, and it would cost us nothing to fix it, just passing a law that we used to have anyway -- for this very reason.

[dawg]

18. I know this won't be popular, but Krugman is right.

I voted for Bernie, and I think he'll make a fine President, but when people like Taibbi and Cenk Uygur try to criticize Paul Krugman on matters of economics, they are out of their depth.

It was the shadow banking system that was the chief cause of the crisis, not the "big" banks. In other words, it was entities like Goldman Sachs, Lehman Brothers, Bear Stearns, and AIG who were guilty of the most egregious crimes.

Big banks like Wells Fargo and Bank of America are far from being the stellar corporate citizens that we would like them to be. But they were not the epicenter of the crisis. And the reason for that was that big banks were still under at least some regulation. Shadow banks like Goldman were not.

A major part of the Dodd-Frank reforms was to pull the so-called "shadow banks" into a category where they would now be subject to regulation just like the big banks. It's imperfect, and it needs to be improved, but it's a good start.

When the likes of Uygur or Taibbi harshly criticize Krugman for laying out those facts, they only serve to discredit the left in the eyes of financial professionals who actually have an understanding of what we lived through eight years ago.

In general, I like Taibbi and Uygur and consider them to be allies. But it is unfounded arrogance for them to assume that they know more about the financial system than someone like Paul Krugman.

[Jim Lane]

23. Krugman is only half-right. That's the essence of Taibbi's criticism.

You look elsewhere for "the chief cause of the crisis," and you write that the big banks "were not the epicenter of the crisis." Taibbi acknowledges Krugman's point about the key role played by Countrywide and its ilk. One might justifiably call them the epicenter of the mortgage crisis.

But "not the sole culprit" and "not the epicenter" and "not the chief cause" are all different from "played no significant role." As I read Taibbi's article, he's accusing Krugman of promulgating a half-truth, one that can be misleading if not given proper context.

[dawg]

25. What I think Krugman is trying to get across is that simplistic thinking is not the answer ...

to the problems built into our financial system.

The financial crisis didn't happen because our banks were too big. Likewise, breaking up the big banks today wouldn't do all that much to make another crisis less likely. It's a "feel good" solution that sounds good to people who don't live and breathe this type of stuff, but it doesn't really address the true problems inherent to the system.

[Jim Lane]

32. Krugman's column is more simplistic than Taibbi's.

To be fair to Krugman, I think he has tighter space constraints. His column has to fit in a certain window on the Times op-ed page, but Taibbi's magazine articles can be of the length that's appropriate to his topic.

Nevertheless, the result is that Krugman's column is merely "Countrywide and other mortgage lenders caused the problem." Taibbi's column is much less simplistic: "Here's how mortgage lenders and big banks and other large financial institutions and rating agencies all acted together to cause the problem."

In a nutshell, the issue with large financial institutions is that, if they're too big to fail, then they acquire leverage over the government rather than vice versa. No one should think that this issue pits a simplistic politician against all the wise and knowledgeable economists, such as Paul Krugman. There are plenty of experts who agree with Sanders. The problem, as identified by another Nobelist, Joseph Stiglitz, is that propping up these companies rewards misconduct and sets the stage for future problems. If they're "too big to fail", though -- if letting them fail would have disastrous repercussions elsewhere -- then policymakers are afraid to do anything but prop them up. In a piece titled "Break up the Banks", Robert Reich, the Labor Secretary under Bill Clinton, sets out the case for size limitation. (He was writing in 2010, shortly before Dodd-Frank was enacted, but he addresses it prospectively, and in any case you've correctly pointed out that it's only a start. That he was writing in 2010 also means that he wasn't trying to prop up the Sanders campaign, although he's a current endorser.)

Speaking of people who write in 2010 and thus aren't looking to help a 2016 candidate, I think this quotation is apt:

My view is that I’d love to see those financial giants broken up, if only for political reasons: it’s bad to have banks so big they can often write laws.

I found that passage quoted here. The author is, of all people, Paul Krugman -- before he had an incentive to go all-out to bash an opponent of Hillary Clinton.

[rogerashton]

26. dawg is right.

I, too, am a Berniac. But the key point is that "breaking up the big banks" is not sufficient to reduce the probability of another crisis. Deconcentrating banking may help -- or it may not -- but it won't do the job.

Complexity doesn't sell well in a political campaign. We just have to judge which candidate has the commitment and boldness to work through the complexity to get the better result. I still think that's the candidate who believes we can. And that would be Bernie.

[Lucinda]

28. Agree with you about Krugman. n/t

[Cowpunk]

19. The Krugster has lost touch with the little people.

I've noticed his detachment getting more severe throughout Obama's presidency, as he took over the role of defending Obama and the Democratic establishment from foes both left and right.

[pat_k]

20. kick 'n' rec

[WhaTHellsgoingonhere]

21. This is going to be great!!!

Go Matt!

Here comes Krugman!!

[pat_k]

22. "wide-ranging foreclosure abuses" -- there's more to the story

Companies like Bank of America, Citi, Wells Fargo and Chase ended up being stuck with an additional $25 billion settlement just for the tawdry document-fudging "robosigning" scheme that helped accelerate the foreclosure crisis.

I am glad Taibbi included this, but there is more to the story than the mortgage fraud and abuses that got so much press.

One aspect that we hear almost nothing about is that fact that the banks that served as securitization trustees for those giant investment trusts refused to engage in the most basic loss mitigation procedures -- procedures that were previously standard practice throughout the mortgage industry. Had they done so, I have no doubt that a countless number of the foreclosures would never had occurred.

I have learned this from personal experience. My partner and were pro se litigants in a case involving Citibank that stretched from 2008 to 2014. It's a long story, but suffice it to say, in the course of the case we became experts of sorts on the unlawful, negligent, and bad faith conduct that permeated the system. (Much of which continues.)

By failing to engage in the most basic loss mitigation steps, the banks displayed a mystifying level of negligence and bad faith. They exhibited absolutely no interest in protecting the interests of the investors. Because they were selling the bonds to each other, their failure is a truly bizarre display of acting against their own interests.

Another thing we learned is the extent to which the state courts enabled the unlawful conduct. From beginning to end in our case, the law was clearly on our side. Nevertheless, we lost in superior court and the appellate division. It was truly mystifying.

Ultimately, the Center for Social Justice at Seton Hall took up the case and petitioned the Supreme Court of NJ on our behalf. Although we lost there too, the fact that the the center took up the case was vindication that we weren't "crazy."

[Cowpunk]

33. So to put that in simpler terms...

The big banks, unlike traditional mortgage holders, refused to work with delinquent borrowers and railroaded them into foreclosure instead?

[pat_k]

35. Yes. And they did the railroading with fabricated paperwork.

Just to add insult to injury.

Within the industry, there are numerous studies and publications demonstrating the advantages of working with borrowers to avoid filing default against them in the first place. In this day of instant decimation of public records, pretty much the instant default is filed, the value of the mortgaged property drops by about 30% or more.

If a borrower is willing to sell, it is, of course, far better to grant a forbearance to enable them to do so, particularly if there is equity in the property. It's a win win for everybody. Cost of foreclosure is avoided. The borrow has a shot at recovering equity if there is any. The mortgage holder gets paid back -- or at least maximizes the percent of loan paid -- and the borrower avoids having their credit ruined (which can make it harder to get job, raises interest on any unsecured debt, and so on). Short sales and deed in lieu have the same effect. The banks didn't offer these options until after they've initiated foreclosure proceedings. The property is still flagged as "distressed," and the credit of the borrower is still ruined.

Giving the borrower a chance to sell is just one of the many standard loss mitigation procedures they refused to engage in.

Even if the foreclosing entities had not initiated foreclosures when they knew they could not lawfully demonstrate a right to foreclose, it is almost the definition of bad faith to knowingly damage the other party by enforcing a contract when there is a clear alternative that minimizes loss for all involved. (Sure, a contract holder has every right to enforce a contract and financially ruin the other party for a legitimate business purpose, but inflicting damage on the other party and yourself is not a legitimate business purpose when you are well aware that the damage can be avoided or minimized.)

Evidence that they knowingly opened themselves up to civil liability is readily available. Published analyses warn them that they risk liability if they fail to take reasonable steps to modify the contract to avoid borrower default while minimizing damage to themselves.

Sorry to go on and on, but this aspect does not get enough attention. Misleading investors and fabricating documents to initiate foreclosures deserves all the attention it got. However, even without those aspects, initiating so many foreclosures in bad faith is also a central factor of the collapse of the world economy. Had they conducted themselves reasonably, the losses to bond holders would have been far less. (And thus, they would have minimized liability to them too.)

P.S. Although they supposedly cleaned up there act on fabricating documentation on subprime lending, ttrustee and servicer failure to engage in loss mitigation continues for securitized retail mortgages. Incentives for servicers in the trust agreements encourage "railroading" over protecting investors.

[dr60omg]

29. Krugman is not the only economist in the US

he is not the only extremely knowledgable economist in the US or internationally. He just writes a newspaper column and I would not say being at Princeton is the center of the economic universe. There are so many other "star" economists for example Joesph Stieglitz comes to mind

[Vinca]

30. This is Matt's area of expertise so I defer to him.

Curious about Krugman's last piece. Years ago he wrote a piece that said the exact opposite and agreed with Bernie.

[Freddie Stubbs]

34. I'm going to take the word of the Nobel Prize winning economist over a Rolling Stone columnist

[pdsimdars]

36. Krugman has lost it.

I know the Hillary supporters say,"Well he's a Nobel Prize winning economist."

And yes, he did win one in the past, but labels aren't what really matter, it's what a person is doing NOW that matters. There are many many examples of people who had great achievements in their past who blew it later on.

I thought of Judas. He was one of the original disciples. . But I wouldn't give hold him high just because of that, he did sort of 'mess up' a bit later on.

Same with Krugman. And other economists have been pointing it out.

[frylock]

37. Krugman has allowed his ambition to cloud his judgment..

again.