Parts to Wholes: the Socionomic Systems Nexus

Finance Industry, Debt and Bonuses

So what did the Industry do with all that debt? Well juding by this chart, again from the WSJ, it looks like what it did was pay itself bonuses from the profits from loading up the rest of us with debt.

Just to draw the points home Wall St. compensation before WW2 was significantly higher than compensation in the rest of the economy and then went thru a huge equalizing drop. Then, after de-regulation, it sky-rocketed back to the mooney until it exceeded the relative levels seen during the 20s and 30s! So much for the argument that high bonuses are innate in the Industry or contribute to the overall health and well-being of the economy.

We won't go thru the charts or arguments but will mention that prior to de-regulation and bonuses excesses the US enjoyed both its highest rates of saving and its highest rates of economic growth. We'll also add that the last couple of years have seen an enormous destruction of wealth for the average citizen. In the readings you'll find very extensive links and excerpts to a huge inventory of readings that examine the business performance of the Industry, economic policy and the state of the economy. Let's summarize the findings so far, inclusive of those readings:

1. The Industry argues that bonuses are a natural part of the way it does business but not only is that not true but ALL the profits in the last two quarters were the result of proprietary trading, i.e. speculating on their own account. That'd be o.k. if it were their own money at risk but actually, between bailouts, Fed guarantees and bond purchrases, etc. it's our money and our risk but their profits and bonuses.

2. While efficient and effective finance is important we think we've also shown that an industry built on leverage, securitization and financial engineering has created a situation that has over-loaded the economy with debt and hampered growth. So much for the "social value" argument.

3. The "encumberances" on the rest of us are part of the problem but then again the Industry almost destoyed itself; in other words by blindly and apparantly mindlessly pursuing excess risks they didn't understand they destroyed the last decade's worth of what turned out to be paper profits inside the industry. In other words as businesses they performed abysmally.

4. Finally, and obviously of course, they almost brought down the entire economy and destroyed Western Civilization. Just in case you hadn't noticed! :).

Helmet Laws, Adult Supervision and Re-regulation

Peter Drucker tells us a business has three main purposes - it should 1) create value for society, 2) create an effective work environment that makes people effective and 3) it should contribute to the health of society. He further breaks down the last point into three major points about organizational social responsibility by arguing that any organization should also a) do no harm, b) act to correct harms innate in its activities and c) support the correction of society's problems because no organization can be successful in an un-healthy society.

How would you judge the Finance Industry on those criteria? Based on the points we've summarized above and document extensively in the readings?

People argued that seat belt or helmet laws are an unwarranted interference in private decision-making. We confess to having similar notions ourselves but then we thought about it. When some idiot goes ripping down the road without a helmet and crashes society is put to the problem of cleaning up the mess, treating the idiot and taking care of the innocent victims. This kind of external damage is why we end up with helmet laws.

The President and his administratin have been inviting the Industry since taking office to act responsibly and this last weekend many senior members of the Administration made appearances on the Sunday news shows to repeat and re-iterate the appeal. Not to mention the President's speech to Wall St. several weeks ago. We'd suggest that when you've got the President and many senior members of Congress mad at you you're making a major mistake. When it turns out your case for arguing with them is beyond wrong you're in a world of hurt. Yet the Industry continues to appear tone-deaf where these issue are concerned. If you don't think he's serious we suggest you listen to the CSpan vidclip....not just the words but the tone and body language. For Mr. Cool we'd suggest he's more than a little irate.

The Chinese Goldsmith vs the Special Interests

Mancur Olson in his book The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities about how special interest groups eventually seize control of the levers of power and begin acting in their own narrow interest and sacrificing the good of society tells an interesting story from the end of the last Chinese Imperial Dynasty. In seems an innovative goldsmith tried to introduce modern wire-drawing equipment from the West that would have enormously improved the productivity of his apprentices, let him make a lot more jewelry and sell it at much cheaper prices. The end result? His fellow goldsmiths found this change all together too threatening to their iron ricebowls and put him to death using the "Death of a Thousand Cuts"!

Now in this case who's the innovator and who's protecting their iron rice bowls? An excercise for the reader with, we hope, an obvious answer.

We'll leave you with a final hint...again channeling Herr Drucker. When an Industry refuses to correct a major problem it leaves society no choice but to step in and fix it, even when the fix is not ideal. He further adds that its a fundamental management responsibility to anticipate these problems and fix them before society is forced to. To otherwise is deeply irresponsible.

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Startup Readings

Obama aides upbraid Wall St. Top Obama administration officials sharply criticized Wall Street firms planning to pay big bonuses, pointedly contrasting the soaring profits some financial companies have recorded in recent days with continuing high jobless rates across the country.The firms are benefiting from government efforts, some initiated by the Obama administration, to stabilize and restore confidence to the capital markets after a global financial crisis that began last year. With their fortunes rebounding, the Wall Street firms plan to pay tens of billions of dollars to executives."The bonuses are offensive," Obama senior adviser David Axelrod said Sunday on ABC's "This Week," adding that banks must do more to support lending across the country and should stop their lobbying efforts aimed at blocking the passage of new financial regulations that are being prepared in Congress."They ought to think through what they are doing, and they ought to understand that a year ago a lot of these institutions were teetering on the brink, and the United States government and taxpayers came to their defense," Axelrod said. "They have responsibilities, and they ought to meet those responsibilities."The Obama administration has defied popular opinion in backing huge government bailouts to try to rescue much of the nation's auto industry and stabilize the financial system, steps it saw as critical to fostering an economic recovery. At the same time, it has attempted to tap into popular anger at corporate America with outspoken criticism of bonuses, perks and other practices that have long been staples of big business.Many banks and other firms have been enjoying fat profits this year in their trading and investment arms. But much of this success has come as a result of new government policies that have kept interest rates low -- on debt and mortgages, for example.The White House has been taking an increasingly confrontational tone against Wall Street bonuses and lobbying efforts to prevent its broad plan for new financial regulations. Obama has given at least two high-profile speeches in recent weeks urging the financial industry to stop lobbying Congress not to pass laws that would, among other things, create a new agency to police credit card and mortgage lending.

• Sen. Dodd and Kyl on Meet the Press
• Valerie Jarrett on MtP
• David Axelrod on ABC
  

The Banks Are Not All Right But it’s not a simple case of flourishing banks versus ailing workers: banks that are actually in the business of lending, as opposed to trading, are still in trouble. Most notably, Citigroup and Bank of America, which silenced talk of nationalization earlier this year by claiming that they had returned to profitability, are now — you guessed it — back to reporting losses.Ask the people at Goldman, and they’ll tell you that it’s nobody’s business but their own how much they earn. But as one critic recently put it: “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.” Indeed: Goldman has made a lot of money in its trading operations, but it was only able to stay in that game thanks to policies that put vast amounts of public money at risk, from the bailout of A.I.G. to the guarantees extended to many of Goldman’s bonds.So who was this thundering bank critic? None other than Lawrence Summers, the Obama administration’s chief economist — and one of the architects of the administration’s bank policy, which up until now has been to go easy on financial institutions and hope that they mend themselves.Why the change in tone? Administration officials are furious at the way the financial industry, just months after receiving a gigantic taxpayer bailout, is lobbying fiercely against serious reform. But you have to wonder what they expected to happen. They followed a softly, softly policy, providing aid with few strings, back when all of Wall Street was on the ropes; this left them with very little leverage over firms like Goldman that are now, once again, making a lot of money.But there’s an even bigger problem: while the wheeler-dealer side of the financial industry, a k a trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole.

Windfalls Show That Bonus Tax Makes Sense Government action is logical. There are two legitimate policy objectives: to encourage banks to build capital to support new lending; and to help cut fiscal deficits run up during the crisis. Ideally, governments should act together to avoid damaging competitiveness.One problem is where to levy the tax. Levy it on the banks and the lion's share of the profits already will have been distributed. A better option may be a one-off tax on individual bonuses. True, this won't help recapitalize the banks, but governments will at least recoup some of the cost of their support.Better still would be for governments to adopt a French proposal capping the proportion of revenue banks distribute as bonuses. That would ensure there was a much-larger profit pool to be shared among other stakeholders, including taxpayers and shareholders. If banks can't be trusted to do the right thing and exercise self-restraint, governments shouldn't be afraid to help. 

Finance Industry Performance vs Reform

More Darkside Earnings Tales: Banks,Goldman und Unsinn The last two posts tried to keep hammering what are the underlying realities behind the headlines - first on the economy and then on corporate earnings. Now it's time to go the dark side and talk about bank earnings, particularly Goldman-Sachs. The central message is that you have to look beneath the surface and make a real effort to understand what's going on - in a phrase, 'where's the beef?' !!! On the economic front, despite all the hoopla and hype, all we've done is stop cliff-diving not begin a recovery. Now it's time to talk about banks and their even more badly distorted earnings, particularly GS's. The bottomline is that everything we talked about in our previous assessment of the Industry was born out and the banks made money only on trading. The banks, i.e. GS, that traded more made more. The question is how did they make it besides that ? Other than the obvious strategic implications this matters because a market that was headed down all of sudden boomed on the back of those "amazing" bank earnings.

BaU vs. NN I: Finance Fumes, Realities and Pecora II In other words, on the whole, we find way too many executives just waiting to be saved by the magical miracle recovery so they can revert to BaU (is there a sad parody of Value at Risk here ?) instead of making the reset adjustments required to cope with a NN. Nowhere is this problem more acute than in the Finance Industry, whose surprise earnings drove the market rally but are actually more vaporware and fumes than anything else. Based on various combinations of government money, guarantees, proprietary trading, reduced competition and so on and so forth. And which do not address the continuing threats of over-valued assets, rising bad loans, and long-term shifts in the industry.

Ask Not For Whom the Siren Shrieks: Let the Finance Wars Begin The title is a play on words of course, taken from John Donne's Meditation VII, which starts, "No man is an island entire of itself; every man is a piece of the continent, a part of the main" and end with "And therefore never send to know for whom the bell tolls; it tolls for thee.". The message being in a society we are all mutually interdependent. Sadly, this is a message which not only seems to have been lost on the Finance Industry but they would appear, judging from last quarter's earnings and their source in proprietary trading profits, to turned on its head. Ask not for whom the bell rings for it rings for me, but never thee. Having been monitoring and analyzing the business performance of the Industry for two years now we were, and are, nonetheless very surprised. Because the other side of that coin is that society requires that it's major organizations and institutions provide a service that creates value. And, especially, does no harm to society. When the opposite is true, and when it looks likely that the behaviors will continue, society has no choice but to act. Well this week is the anniversary of Lehman's fall and it behooves us to ask what lessons have we learned, what have we done to fix the systemic and systematic problems and what will we do. Washington has been focused on saving us from our own and the industry's follies but the President marked the occasion with a speech to Wall St. putting them on notice that the reckless behaviors of the past will no longer be tolerated; and inviting them to constructively contribute to creating new regulatory regimes. An invitation they've had for months and been fighting in every possible way. The week ended with the Fed's announcement that they will start setting compensation policy. Meanwhile Barney Frank on MSNBC provided pretty clear indications of where he sees things going and Pecora II is about to kick off. Now it's a siren rushing to the crime scene and the results could be very ugly.

Pictures for a Prosecution: Wall St. Bonuses vs the Public Good (Add) It's likely our point of view is implicitly clear and if it's not then several of the last posts will make it clearer. One of the bloggers we both admire and have learned a lot from, Barry Ritholz of BigPicture, has defended the bonuses as the way the Street works and if we want it to recover and do its job that's the price. Aside from the moral reactions or the questions of good public relations we thought we'd speak directly to the implied assessment of the contributions of the Street and whether or not they are justified and earned. We have three major problems leading to a major challenge.1) Currently the Street's profits are entirely dependent on public policy ranging from reduction in competition to implicit guarantees of the TBTF banks to low interest rates to various quantitative easing programs, e.g. the Fed's purchase of mortgage-backed securities and the FHA's being the source of 80% of the mortgage market flow. The point being their profits are being made off our capital, not their own.2) There is no evidence that the perverse incentives where all the gains went to the high-earners thru trading gains (read speculation) while all the losses went to us are being corrected. Add to which the perverse structure led to the failure or near-failure (including GS which had a near-death experience and was only saved by government action) of the firms themselves as well as almost collapsing Western Civilization. 3) The really deep argument is that banks and financial institutions are the intermediaries that efficiently and effectively allocate capital to their highest and best use. Well the prior two points tend all on their own to destroy that argument entirely but, since we've been reviewing the record, let's review it. We won't repeat ourselves but will simply cite several graphics we've previously put up and let you pop them yourselves because, taken all together they reach a clear conclusion.

 Bonus Fantasies vs Political Realities: the Reform Firestorm This Time (Update) We've been on this topic for some time (years in fact) but particularly emphasizing it for the last several months and our take is that the Industry by pursuing business as usual and self-interested, narrow and short-sighted lobbying as traditional is building up a backlash that could swamp them. And under-estimating the commitment of the Administration, the magnitude of committed opponents on the Hill and the deep-anger of the American people. Now the Administration held out a hand to the interest groups in Healthcare literally days after taking office, and has slowly been pursuing its goals while continuing to offer them the opportunity to be constructive in helping shape the new legislation. Most of them were smart enough to take it and the Administration is in the process of winning this fight and getting a pretty good bill to boot. The Finance Industry was offered the same opportunity but has deliberately chosen to bite the hand that fed it. Much more so than any of the HC interest groups. The President's speech in early September was a declaration of war but recent administration speeches are a clear outline of intentions (Saddam Hussein are you listening?). The video clip above is a recent short speech by the President on a Consumer Protection Agency and financial reform in general. We urge you, again, to listen to it but not just for the content per se but for the tone and attitude. The President sounded as angry as we've ever heard him, and while much less strident than the folks on Rattigan's show, the language and tone were pretty similar. When you get the President that disturbed with you you are NOT in a good place.

Essays on Finance Industry Performance

The Broken Finance Industry: Credit, Crisis, Collapse and Broken Business Models

The credit crisis of 2007-2008 that metastasized into a collapse and nearly caused Great Depression 2.0 was largely created by broken business models based on bad practices, malfeasance, excess leverage and synthetic, structured investment products. We've all learned the hard way that the Finance Industry is more than just another industry but impacts us all. By looking back, perhaps in anger and certainly in dismay and puzzlement, we can understand more about how this all came to pass. And, as a result, more about what to expect because all of these problems remain with us. If you'd like to get a better understanding of how broke the Industry is and what the consequences are this is a place to start.

The Broken Finance Industry: Credit, Crisis, Collapse and Broken Business Models

The Finance Industry brought itself and us to the brink of disaster thru bad practices and poor management. But effective capital markets are vital to the health of the economy. Now we need to consider what's broke, how to fix and how govern the Industry for its own benefit and the health of society.

Facing the Firestorm: Finance Industry, Popular Anger and Re-regulation

The Finance Industry appears to have returned to profitability on the back of public funds and government support programs. Its refusal to acknowledge that debt is leading to a tidal wave of initiatives for regulatory and legislative reform which will be made worse by a refusal to constructively cooperate. Society needs a productive Finance Industry and will get it either voluntarily or otherwise. The Industry's refusal to see these pressures will make things more difficult than necessary, but are unavoidable without leadership and a sense of social responsibility.

The Corporation vs Society: Performance, Social Responsibility and the Win-Win

 The unfettered free market was supposed to bring enduring prosperity but recent history shows that markets and participants are not self-regulating. In fact markets require an institutional framework to work, publicly responsible behavior by participants and appropriate regulatory frameworks to balance private gain with public welfare. The results are better performing markets that are sustainable.

Economic Crisis vs Policy

Populist Panderings, the Candidates and Real Solutions Well the last of the debates are tonight and THE focal issue, as it should be, is the state of the economy. In our last post (Wobble Wheels Wakeup: Crisis, Response, Policy, Execution) we discussed the situation beyond the various worldwide rescue and re-vitalization efforts. In particular a key point we'll re-iterate is that once we get the wheels bolted back on the wagon we need to keep careening down a rather icy mountain sloped. A serious recession is pretty much in the cards and locked-in. The only real debate is how deep and how long; and this one is likely to be longer and deeper than anything many folks have seen for a long time. One of the "interesting" anecdotes making the rounds in the financial community is that all the advisers aren't getting any phone calls ! It would seem that people are so shell-shocked that they're still trapped in the 1,000-yard stare syndrome. For my own part the contacts from family, friends and network more than reinforces that. We saw a more than generational collapse in the markets all collapsed into basically week. They come by their shock very....very honestly. We had to talk a bunch of folks out of selling their existing portfolios on Mon. open - which meant they would have missed the run up that mostly recovered the worst day from last week. We're far from out of the woods yet. In the readings the first one, finally, puts the emphasis where it needs to be - all these worldwide interventions are NOT quick fixes. Now we've been talking up the economy as THE central issue in this election for months (WRFest 20Jan08(Economics): Oops...Recession Ahead,The Coming Economic Crisis,Standing Corrected: Education 2nd Avoiding Economic Collapse 1rst) and outlined our sketch of a multi-faceted program that moves beyond arresting the immediate problems to looking at what needs to be done next and then beyond that. Which we thought we'd review here a little more.

 First Things: Financial Crisis, Economy and Barry Otto, Furst von Bismarch, was not only a great statesman but an experienced, wise and witty politician; author of the "Sausage Factory" epigram we keep re-using. He had another, actually several but this one sticks, that when a crisis goes by grab its' coattails and ride for all it's worth. In this case we're facing multiple inter-lacing policy crisis that have been accumulating for decades, which nobody was willing to tackle to the can kept getting kicked in the ditch until it put itself back on the road and, worse, we actually knew what to do about all the cans. The thing about a crisis is that it not only represents danger but opportunity since it's likely that the will to change and do what is NOW clearly necessary can be mustered instead of continuing in denials. We're so much in that position that many on the inside of things are actually excited to finally get a chance to do what they've known needed doing for a long time. So much so that my alternative title was Economic Crisis=Opportunity, Danger and Change. While we're in the midst of the worst financial crisis since the '30s and the most serious economic downturn since the early '70s the cartoon is still more black humor than reality; but if we don't seize this opportunity it'll be more truth than anything. Fortunately not only is Barry picking the best economic team since Bretton Woods or the Marshall Plan with outstanding people in the right jobs (Hit the Decks aRunnin...Git 'er Done Barry) but he and they are moving with speed, urgency, accuracy and skill. He's already made more progress that's the right kind than the last three Presidents did in their first 18 months. Amazing and startling but to establish why we're going to have to take rather deep dive on the subject of economic policy by poking at the nature of business cycles and fiscal stimulus.

Miracles on Pennsylvannia Ave: Make it So, No. 1 !The big news from the last couple of weeks, at least domestically, is that we've succeeded in crafting and passing the largest peacetime suite of economics legislation in our history (the Stimulus Package plus the next round of TARP) with more to come as the other two legs of a 4-legged stool. Those being a Housing rescue package and a re-formulation of Financial Industry regulation. We also learned that the ME is not the only place where intransigent adherence to provably wrong shibboleths of policy, position and belief are rampant. Nonetheless the package is un-surpassed for size, scope, force and timeliness and as such gets a B+ on economics, an A- on politics and an A for pragmatic and realistic policy-making craftsmanship, admittedly grading on a curve. What do we mean by all that? First, make absolutely no mistake about it. This package is absolutely essential to saving the economy. We're in a very serious situation where the liklihood of a more pronounced downturn followed by a decade or better of Japanese Malaise is entirely possible. Further, the economy is unlikely to recover on it's own because the normal, organic self-correction mechanisms are broken. People and companies are, were and will be continuing to pull in their horns as the situation deteriorates; government is the ONLY possible source of the spending necessary to salvage things. Second, in a short-term view the notion that OMG it's spending is just utter and absolute nonsense, that in fact is the whole point. It doesn't matter if gov't employees steal everything and go to Vegas - it's still stimulative. Third, there are real tradeoffs between tax cuts (which are fast but don't give you much bang, direct spending which gives you a much better multiplier but is slower and investment, e.g. infrastructure, where you get the most bang but is much slower and complex. For example investment in new energy sources doesn't do much good if you haven't the power grid to move the new power. Fourth, given the spending if you can use some of it to both get high multipliers AND lay the foundations of downpayments in future improvements in the economy that's smart policy-making. Finally, this is a large, very complex under-taking for which the implementation mechanisms are lacking; as a result there's only so much spending you can do in certain timeframes and you need to build up your capabilities. You also need to get support and buyin. Taken all together the package is a very well-crafted balance among all these competing requirements, let alone in the time and with the ideological oppositions it faced. We've gone into some of this before.

To Boldly Go Where We Must: Speech, Budget and Dr. Noes Judging from the readership indicators we can move on to the next discussions but judging from the cartoons, talking heads and agitated feedback from my network we need to stay with the "Political Economy" of the Stimulus/Budget/Rescue efforts, so we will. Just in case you were on vacation last week it was one of the most momentous in post-war American history ioho - particularly for the speed, size and complexities of what was done. Mo saw the signing of a giant stimulus package, Tu a major national "suck-it-up" address that's largely gotten plaudits from almost all sides with the exception of diehard Rips, We saw the Phase 2 announcement of TARP II and Th the tabling of the most ambitious budget proposals we've seen in a very long time. Not to mention Chairman Bernanke's testimony that "yes a recovery was possible if everything went right AND we repaired the financial system". Any one of those things, or actually a subset of line items, would have been as much major news as we've been used to getting in a month in the last 8-12 years. Barry's striking while the iron is hot indeed.

Back in the US: Economic Realities vs Partisan PosturingsWe're going to circle back to the US and take up the state of the economy, economic policy, policy vs. politics and partisan political posturings and try and braid them together into a single rope of investigation. At the same time we are NOT leaving the topic of the state and outlook of the world because, as we argued in the first foreign affairs post in this series the US's role in maintaining and re-developing a new international system is critical and indispensable. And central to that role is the success of economic policy without which both the US and the world will face severe difficulties. In the readings we cover a lot of ground, as usual admittedly, starting with a survey of the state of the economy and real nature of proposed economic policy instead of what the headlines, pundits and partisans are telling you. If you read nothing else click thru and download Paul Kasriel's two essays on what did work in fact in the Great Depression (The Great Depression – Just the Facts, Ma’am) and on what role savings and investment will play in future growth (Paradox Squared). Then we shift to what the real challeng is - IMPLEMENTATION ! Then we segue to the partisan catfights where old shibboleths of the '80s are being revived to counter these policies when the facts on the ground  have changed ("when the facts change I change my mind. what do you do ?"). Finally we finish up with some readings on re-imagining what the new world could/should look and why a return to fundamental values revived in new clothes are essential to making this all work! To summarize our main points however we'd say: 1) the economic situation is very serious but fixable and we have strong historical evidence, 2) the biggest challenges are implementation AND laying future foundations. On the latter the Administration is doing many right things on the former it's early to say. However, 3) partisanship is proving to be a poisonous legacy, 4) the American people still haven't grasped the Administration's direction at a fundamental (gut) level and 5) the biggest danger is the knife-edge balances between impatience for what will take time, effort and perseverance against the all to real risks of backlashes, anger and a radicalization of American politics. Then all bets are off. We take our socio-political stabilities for granted but what happens if they aren't a self-renewing gift from past generations ? Then we're in for the same kinds of troubles that are threatening other nations !

 Re-building On A Rock: Policy, Economy & Values It's time to speak of many things, of kings, and cabbages, said the walrus. And speaking of things unless you've been hiding in the wilderness you've heard about Susan Boyle's stunning performance on the British Idol. Truly wonderful and a revelation. But beyond the singer and her voice one fascinating thing was watching the reactions of the audience and the judges - which we've tried to capture a bit here. But you need to watch the whole carefully as they move from snickers to shock to transformation to sheer joy. Amazing what's out there if only the opportunities are available, ain't it ? What she sang was "I Dreamed a Dream" from Les Mis, about the sundering of hope, ambitions and the cruelties of the world. Personally ironic but in light of the times we're living in more so for all of us. The question becomes what opportunities will we all have, what might be taken away and what do we do about it. One way to sneak up on those questions is to compare potential GDP - what the economy could produce at full employment, and actual GDP - what it produces when it's working at less than full capacity. The chart shows potential and actual real GDP per capita and they look pretty close from 1950-2008. Until you look at the differences between them ! Which is what the faint red line does while the heavy red line shows the trend. Notice that up until the late '90s things moved in a nice gentle cycle and then blipped up a bit. But the recent collapse is already more severe than anything we've seen in almost sixty years. And given that this downturn is going to go on for a while you can imagine where it will end up!

Existential Crisis in the Agora I: Economy, Policy and US Strategic Outlook If the news over the last few months hasn't made it crystal clear to you last Friday's bankruptcy filing by Chrysler, with GM likely to soon follow, should make it clear that we are in the eye of the biggest economic storms in over sixty years. We're facing fundamental changes in the structure, nature and direction of the US economy which will define the limits of policy and prosperity for decades to come. The good news is that the Administration is doing extremely well in putting the right policies in place quickly and implementing them about as well as could be expected. The bad news is two-fold. First we've got a long way to go before this is over and we reach a growing economy again. The worse news is that longer-term growth prospects are extremely poor and will be potentially lower than at any time in the post-war period. Now that's big picture stuff but presumably you've all heard about growing income inequality, businesses and industries disappearing forever and all the rest of the symptoms of underlying structural flaws that have been accumulating since 1980. If we'd like to return to a modicum of growth we need to get the economy and society on a new footing. The good news is that not only does the administration realize this but it's already putting in place the necessary programs and investments that stand a reasonable chance of making it happen. We just put up a major survey of the structure of the US economy which is complementary background reading for how the economy works. In fact we'd almost say mandatory: We've been covering the economic news for quite a while here, going back to early '08 at least so we won't dive into the details of the cycle, policies and politics as well as budgets. You can check back to skim over all that in the archive and/or we've listed some of the prior postings in the readings excerpts (NB: you'll also find a very extensive collection on the current situation, the long-term prospects for low growth, specific policy areas (Taxes, Regulation, Housing & Autos) and fundamental shifts in strategic policy which represent the biggest shift since 1980. Judging by the most recent poll results (discussed in the last post:Peace in the Public Square: the 100 Days and Re-emergence of Civitas (Updates) ) the public trusts the President and the Administration but still hasn't grasped the implications and is particularly angry about the on-going rescue of the Finance Industry. While the Administration has clearly laid out it's policies and how the pieces all work together the explanations are also still lacking something. We're going to take a shot at framing the discussion using three variations on a conceptual chart to try and read you into the context. No guarantees but let's see what we can do

Current State of the Economy

•  Realities vs Rhetorics: Economy, Policy, Real Data

• Interrupting Your Reported Data Distortions: More Darkside for the Economy

• Same 'Ol, Same 'Ol: Economic Cliff-bottoms vs Cliff-diving

• Welcome to the New Normal: More Frontline Tales of the Reset Economy

• Between Stalingrad and Kursk: Real Economy, Policy and Outlook

• Debt, Wealth, Finance & Outlook: Sixty Years of Bubbliciousness

• Refreshing the Economic Outlook: Fundamentals to Business Outlook

• Moscow, Stalingrad, Kursk: Edge of the Abyss to "Recovery"?

• From Mythologies to Realities: Economy, Employment, Credit & Trade