Finally,...

The New York Times finally opened up its editorial section (the only section that matters) to their free internet website. Translation: You'll see a lot more articles from Paul Krugman on this blog.

Here's his latest about the housing crash debacle. As Krugman points out, Greenspan, who oversaw unregulated lending and then cashed in by writing one of the most inane books in history, was (and is) a super-ultra-crazy-wacko libertarian conservative in the mold of his messiah, an equally insane writer by the name of Ayn Rand. Greenspan was lucky to oversee the late 90s economic boom, but unfortunately he will not be remembered for legitimating Bush's crippling tax cuts, allowing--and ENCOURAGING--the debt to explode, and setting up the conditions for a housing collapse...enjoy

Blindly Into the Bubble

By PAUL KRUGMAN

Published: December 21, 2007

When announcing Japan’s surrender in 1945, Emperor Hirohito famously explained his decision as follows: “The war situation has developed not necessarily to Japan’s advantage.”

There was a definite Hirohito feel to the explanation Ben Bernanke, the Federal Reserve chairman, gave this week for the Fed’s locking-the-barn-door-after-the-horse-is-gone decision to modestly strengthen regulation of the mortgage industry: “Market discipline has in some cases broken down, and the incentives to follow prudent lending procedures have, at times, eroded.”

That’s quite an understatement. In fact, the explosion of “innovative” home lending that took place in the middle years of this decade was an unmitigated disaster.

But maybe Mr. Bernanke was afraid to be blunt about just how badly things went wrong. After all, straight talk would have amounted to a direct rebuke of his predecessor, Alan Greenspan, who ignored pleas to lock the barn door while the horse was still inside — that is, to regulate lending while it was booming, rather than after it had already collapsed.

I use the words “unmitigated disaster” advisedly.

Apologists for the mortgage industry claim, as Mr. Greenspan does in his new book, that “the benefits of broadened home ownership” justified the risks of unregulated lending.

But homeownership didn’t broaden. The great bulk of dubious subprime lending took place from 2004 to 2006 — yet homeownership rates are already back down to mid-2003 levels. With millions more foreclosures likely, it’s a good bet that homeownership will be lower at the Bush administration’s end than it was at the start.

Meanwhile, during the bubble years, the mortgage industry lured millions of people into borrowing more than they could afford, and simultaneously duped investors into investing vast sums in risky assets wrongly labeled AAA. Reasonable estimates suggest that more than 10 million American families will end up owing more than their homes are worth, and investors will suffer $400 billion or more in losses.

So where were the regulators as one of the greatest financial disasters since the Great Depression unfolded? They were blinded by ideology.

“Fed shrugged as subprime crisis spread,” was the headline on a New York Times report on the failure of regulators to regulate. This may have been a discreet dig at Mr. Greenspan’s history as a disciple of Ayn Rand, the high priestess of unfettered capitalism known for her novel “Atlas Shrugged.”

In a 1963 essay for Ms. Rand’s newsletter, Mr. Greenspan dismissed as a “collectivist” myth the idea that businessmen, left to their own devices, “would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings.” On the contrary, he declared, “it is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.”

It’s no wonder, then, that he brushed off warnings about deceptive lending practices, including those of Edward M. Gramlich, a member of the Federal Reserve board. In Mr. Greenspan’s world, predatory lending — like attempts to sell consumers poison toys and tainted seafood — just doesn’t happen.

But Mr. Greenspan wasn’t the only top official who put ideology above public protection. Consider the press conference held on June 3, 2003 — just about the time subprime lending was starting to go wild — to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw.

Also in attendance were representatives of financial industry trade associations, which had been lobbying for deregulation. As far as I can tell from press reports, there were no representatives of consumer interests on the scene.

Two months after that event the Office of the Comptroller of the Currency, one of the tree-shears-wielding agencies, moved to exempt national banks from state regulations that protect consumers against predatory lending. If, say, New York State wanted to protect its own residents — well, sorry, that wasn’t allowed.

Of course, now that it has all gone bad, people with ties to the financial industry are rethinking their belief in the perfection of free markets. Mr. Greenspan has come out in favor of, yes, a government bailout. “Cash is available,” he says — meaning taxpayer money — “and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this.”

Given the role of conservative ideology in the mortgage disaster, it’s puzzling that Democrats haven’t been more aggressive about making the disaster an issue for the 2008 election. They should be: It’s hard to imagine a more graphic demonstration of what’s wrong with their opponents’ economic beliefs.

The Slow Demise of Professional Sports

Of course, the title is an exaggeration, but it gets the point across. Professional sports is and has been plagued for some time by a glaring structural problem that will probably not lead to its demise, but has and will taint athletics and I would argue become a major politico-economic problem that must be dealt with. What's the problem? MONEY. In particular, outrageous salaries to players.

I am a lifelong fan of professional sports, some would say a near fanatic especially for football and soccer. I love to pull for my teams and follow every detail with near obsession. But for as long as I fully understood it, I have been frustrated with the ridiculous salaries that professional athletes receive for less than half a year of "work" (if you can call playing a game work). Before I get to ways to change it, let me first go through why professional athletes do deserve high salaries.When I say high, I mean at most maybe 1-2 million dollars a year. That is about 20-40 times a normal salary.

Reason#1: Athletes can really only have a "career" in professional sports for at most 15 years, but more likely about 8-10 years. I'm perfectly comfortable allowing players to live their lives in leisure after they finish their careers (I feel this way because I realize that becoming a professional sports player usually means sacrificing the development of other marketable skills, despite what college athletic programs claim. It would be unfair to ask these athletes to work menial jobs the rest of their lives, if for no other reason than they'll be hounded by every janitor they're working with to sign autographs). Since professional athletes basically retire by age 32, they'll need enough income while they're working to cover expenses for the rest of their lives. To do that, they need pretty high salaries.

Reason #2: Jobs in the public eye demand higher salaries. The difference between an amateur olympic athlete and a professional athlete is that athletes in professional sports have to deal with ongoing public pressure and exposure. Normally, such occupations demand high salaries. Of course, there are plenty of athletes that face ongoing public pressure and don't get paid at all (Collegiate athletes, for example. These athletes do get paid in another way, though: scholarships to prestigious universities. Considering how profitable college sports are, particularly men's basketball and football, these players are actually grossly underpaid. Many of them are getting very poor educations. But that's all another diatribe...) In any case, high profile occupations generally command high salaries, so it is somewhat reasonable for players to ask for huge salaries, despite the fact they're only playing a game.

Reason #3: Professional athletes are entertainers. When you put their salaries up next to other entertainers, say in music or film, their salaries are actually relatively low.

Reason #4: Sports generate tons and tons of money. Since the players are the ones playing the game, don't they deserve to reap the benefits of their efforts? Who else deserves the money? The owners? The players drive the sports and their rare skills are what make watching them entertaining.

The above are the reasons that professional athletes deserve much higher than average salaries despite only playing about half of the year in 2-3 hour spurts. Yet, they do not deserve, nor should they receive, salaries in the range of tens of millions of dollars. After all, they are just playing a game and they are just serving a fan base. They contribute nothing particularly valuable to society (except for occasionally being good role models, which, by the way, they are not paid for being) and they are an elite few who have been given talent far beyond anyone else. No matter how hard I worked, I could never become a professional athlete. By random, these professional athletes have taken advantage of their God-given talents, which admittedly took a lot of work on their part, and are receiving ridiculous salaries because of their freak athleticism. How fast a WR can run his 40 or the wingspan of a small forward will have no corresponding change in our GDP or our standard of living. Ironically, a serious cutback in salaries will have negligible impact on how interested athletes are in joining professional sports teams. Professional sports will have plenty of applicants regardless of salary (in economics we call this an inelastic labor market). Cutting back on player salaries will not change little Johnny's boyhood dream to play for the Dodgers. Raising salaries will not attract any new entries into the sport. The continued growth of these salaries is an economic injustice.

So, how should we fix the problem. I have an easy solution. In fact it's so easy, there is no way it will ever happen. My solution calls for 2 steps:

Step 1: Packerfy all Franchise sports teams. In case you weren't aware, the Green Bay Packers are the only team in American sports that is publicly owned. The Packers are not owned by a person, but rather by the city of Green Bay. Management issues are dealt with through an advisory council, which, by the way, is the way about 90% of American sports teams are run. The big difference is that some jackass named Cuban, Steinbrenner, or Modell doesn't earn a profit on the team. All "profit" is reinvested in the team. Doing this would essentially Europeanize American Sports. This has some advantages and disadvantages. The advantages are that, like I said, some jackass isn't earning a profit on your outrageously priced seats and there is no way the team could pack up and leave. The disadvantage is that there would be no flexibility in where teams are located. For example, Los Angeles, as it turns out, is a surprisingly lousy place to be a football team. If all teams were public, the Los Angeles Rams, as an example, who would have been owned by a Greater Los Angeles District would remain there forever. But, in a way that I believe offsets any negatives to making the change, by Packerfying American sports, there would no longer be the tension between awarding profits to owners vs. players. This would also eliminate price gouging as the team would be serving whom they're supposed to be serving: the fans. An alarming trend in American sports is to outprice about 85% of the population by charging ridiculous fees by building smaller, grander stadiums with absurd numbers of luxury boxes. This is the most profitable way to run a team. If an owner is not accountable to the fans, they have no reason to do otherwise. Packerfying would also eliminate ruthless bargaining by sports team owners with city officials. 'If they won't build us the stadium we want to play 8 games a year in, we'll just leave.' And they can. Economically they should. Of course, losing a sports team can cost a city tens of millions of dollars a year, not to mention public outrage. It's such an enormous incentive, that cities will actually fork over the money to build such ridiculous stadiums.

Step #2: Of course, Europeanizing will only be half of a solution. After all, European soccer players make just as much money as American football players. But, Europeanizing will allow the second step because it will no longer favor the wildcat owner over the hard-working players: A Drastic and Heavy salary cap. A salary cap that would mean that top players make at the very most 3 million dollars a year, but more like 1-2 million dollars a year for most elite players. See, the reason that salaries have gotten so high is that teams understand that winning sells tickets. Since a couple of players can be the difference between a championship and being...the 49ers, owners are willing to pay those salaries because there is competition to do so and their team can still be profitable. If a salary that severely cut a team's payroll were enforced, and the team was Packerized, that money could be saved and reinvested, or even better...invested into the community. Since playing professional sports is so wage inelastic, one could set salaries at just about any amount and still attract sufficient (probably the same number of) applicants. As I mentioned earlier, professional athletes still should get paid a lot, but not as much as they're getting.

Placing this salary cap and Packerizing American Sports would have the following effects:
1. More investment in fan services
2. cheaper tickets
3. Less gross inequalities in our society
4. more connection between sports players and fans (which would be better for the game)
5. Less idealization of sports players. As is, professional athletics is unfortunately an inner-city African-American kid's perceived best shot at improving his lot in life (Why study in school when you could be practicing your free throws?)
6. An end to that uncomfortable situation where that creepy old guy lifts the Lombardi trophy and all your favorite players and coaches hail him for doing such a great job of making millions off of them.
7. No more blackmailing of cities by owners looking for bigger stadiums
8. More investment in the community through taxes or otherwise.
9. Better run teams (Al Davis has no idea what he's doing. He would have been voted out decades ago.)
10. A stop in the Bourgeiosefication of stadiums. Luxury Boxes could be filled with real fans, not hip yuppies looking for a seasoned Warriors game to go with their Brie and Merlot.

Honestly, sports is just one area where intense economic injustices are taking place. To truly tackle this problem and others like it, we must first rethink how he distribute wealth in our society and alter it accordingly. No matter how much A-Rod makes this year, the insanity of CEO salaries is far more egregious. Perhaps some of the strategies used to fix sports could be used to fix our society at large...I'll save that for another diatribe.

CIA sets record for worst excuse ever...

Yesterday, the Central Intelligence Agency broke the world record for worst excuse ever recorded when it claimed that it had destroyed interrogation tapes in 2005 to protect them from being leaked. They claimed they feared that keeping the tapes would result in the interrogators being vulnerable to attacks from Al Quada. The record breaking performance, which suprassed then 6 year-old Billy Johnson's 1913 claim that his dog ate his homework, ignored several obvious problems with the excuse that would have been obvious to...well a 6 year old. Among them, according to local grade schooler, Krystal Smith, was that "couldn't the CIA have destroyed all but one tape and kept that one in a safe or something...I mean you're telling me that the CIA doesn't think it can hold such a basic secret?," and "It is obvious that the tapes were destroyed because the interrogators were using illegal torture methods, as has been widely reported. There is absolutely no plausible reason to legally destroy those tapes" This is all not to mention, 3 year-old Thomas Somoza's point, "doesn't Al Quada have like a million people already on its list. It's not like the one thing stopping them from killing people is video evidence."

An outstanding performance.