System Failures

Robert Pear writes in the New York Times that the recession is draining Social Security and Medicare of funds faster than expected. If current trends continue, Medicare will be out of money by 2017 and Social Security by 2037.

The situation with Medicare is especially bad news, coming at a time when we’re finally on the edge of maybe enacting real health care reform. Medicare’s situation will be more ammunition the Right will use to protect the private health insurance industry.

My fear is that we’re looking at cascading system failures. Everything is breaking down at once, and we can’t fix this until we’ve fixed that, but because that is failing we lack the resources to address several other things, etc. Government may not have been drowned in the bathtub, but it lacks the strength to stand up and dry itself off.

It may be that it’s too late to pull the nation out of the pit it’s in, and that hardships are going to continue to pile up for the next few years. That’s a possibility I think we have to face.

I haven’t seen much discussion on the blogosphere about this yet. For the past couple of years discussion of the looming shortfalls of Social Security in particular were actively shouted down as a right-wing talking point and not a real problem. However, it always has been a real problem; just not a problem that a health economy and some tweaking of the income cap couldn’t fix in time to avoid disaster. Now, not so easy.

Well, if you find any commentary that sheds light on this situation, please let me know.

Juxtapositions; or Kindle to the Rescue

The latest word on the possible Boston Globe closedown is that the Union blinked. The Globe will stay in business, for now.

Full disclosure: The Boston Globe is owned by the New York Times Company, as is the other site I write for, A couple of months ago the company announced it was cutting the stipend for those of us who write for on contract. Of course, we don’t have a union, so there wasn’t much we could say about it.

But also in today’s New York Times — will Kindle come to the rescue? I’ve never used one (although if you buy one from Amazon, please click through using the kindle widget on the sidebar so I get a cut, thanks). However, I can foresee a time when most of us will have broadband kindle-type devices with us all the time so we can download and read current news wherever we are. I would like that. No paper, no ink, no printing, big cost savings for newspapers. Not so good for printers, of course.

Paul Krugman discusses falling wage syndrome. Lots of people are taking wage cuts, and falling wages create more economic stagnation. Bill Anderson at LewRockwell sniffs,

You see, Krugman believes that there should be no consequences to an unsustainable boom, and that once a bubble bursts, then the spending that occurred during the boom must be continued at all costs. That is not economics, folks. That is nonsense.

Krugman wrote that an economy needs spending, or else it is stagnate. And if an economy is heading for stagnation, it needs more spending. I don’t see how anyone could argue with that. One thing defines the other; like if it doesn’t rain for a long time, it’s a drought. In other words, it’s not about what should happen, or what Krugman wants to happen, but what will happen. Hardly nonsense. But you know libertarians; Ann Coulter will win the Nobel Peace Prize before libertarians will admit Krugman might be right about something. He could say water flows downhill, and they’d argue with him.

The righties must have worn themselves out over the weekend defending the honor of hedge funds, because so far they’ve been quiet about the President’s plan to crack down on multinational corporations that use tax loopholes to avoid paying U.S. taxes. But Andrew Leonard writes,

But the president’s announcement Monday morning of a push to crack down on tax loopholes that allow multinational corporations to avoid paying what they owe to the U.S. government is already spawning half-hearted chatter on the cable news shows: It’s more proof of Obama’s antipathy to business.

The criticism is muted, however, because it’s just not a winning political proposition to defend multinational businesses that offshore jobs at a time when populist fervor rages so high.

Well, yeah. And if you missed it, be sure to catch the story about the Bush Administration’s American Jobs Creation Act of 2004 and how well that worked. It was great for business but bad for the economy, a circumstance that ought to cause heads to explode at LewRockwell.

Never fear for the rich, folks. Steve M tells us that in the past 100 days they’ve dropped $100 million on the George W. Bush Presidential Library. If they’ve got that much money to waste, I can’t feel too sorry for ’em.

Pity the Poor Hedge Fund!

This follows up the last post, on “Why Is There an Economy?” A blogger named Corky Boyd is outraged that the Obama White House is strong-arming business.

Yesterday (May 1) on Detroit’s Frank Beckman’s morning talk show (WJR), bankruptcy attorney Tom Lauria made the incendiary accusation that the members of the White House had threatened to use the “the full force of the White House Press Corps to destroy” his client’s reputation if it didn’t acquiesce to highly unfavorable terms of the government’s proposed Chrysler restructuring plan. Because of the strongarm tactics, Lauria’s client dropped its opposition. …

…There is a pattern here. Financial institutions holding billions of Chrysler’s secured debt are being held hostage by the TARP loans they are not permitted to pay back. They are being forced to accept just pennies on the dollar for loans they made in good faith less than two years ago. Just like mob loan sharks, the administration wants them under its thumb so they can extort more and more concessions.

This is an abuse of power that goes beyond Nixon.

Oh Noes! Why is the White House being so mean to the nice businessman?

Here’s the reason: The client who is being strong-armed is hedge-fund manager Perella Weinberg Partners LLP. Perella and a couple of other hedge funds that owned a part of Chrysler’s debt have been obstructing Chrysler’s attempts to restructure itself and avoid bankruptcy. The hedge funders wanted Chrysler liquidated so they could take their money, and too bad if the loss of Chrysler sets off a chain reaction of failed suppliers and other businesses that send the entire American economy into a tailspin. Not to mention what would happen to the retirees, who would lose their pensions, etc.

Lisa Lerer at The Politico explains what happened.

“Bankruptcy is only required today because of the greed of a few hedge funds that held a fraction of Chrysler’s debt,” said Rep. Candice Miller, (R-Mich.) “President Obama today stated that he did not stand with these hedge funds and neither do I.”…

…“The administration put a great deal of pressure on those entities to go forward,” said Rep. Gary Peters, (D-Mich.) “They gave these hedge funds every single possible opportunity to accept the deal.”

Last night, the Treasury department sweetened their $2 billion cash offer to holders of Chrysler’s secured debt by $250 million. The secured debt holders would have gotten the cash in exchange for retiring roughly $6.9 billion in debt. The administration also extended an original 6pm deadline to continue negotiating through the night.

Sen. Debbie Stabenow, (D-Mich.) blamed the breakdown in negotiations on three large hedge funds – Oppenheimer Funds, Perella Weinberg Partners and Stairway Capital.

“We’ve been working with them every day, last night, and up until this morning,” said Stabenow. “They pushed as hard as they could.”

The White House strong-armed Perella Weinberg Partners into signing on to the $2 billion deal in order to leave something left of Chrysler to restructure. This in turn will, it is hoped, save thousands of jobs (you’re saving not just Chrysler, remember, but also suppliers) and at least some portion of employee health and retiree benefits. And this is good not just for the employees and retirees, but for the state and local economies in which these businesses are located.

In other words, three hedge funds tried to hold a chunk of our nation’s economy hostage, and the White House didn’t let them get away with it. And this meathead blogger says the White House is abusing power. Jeez louise, people are stupid.

Update: A mouthpiece for Plutocracy called “Founding Bloggers” links here, saying,

Right on cue, here is a liberal blogger that makes the case against the evil capital investors who would dare exercise their rights under contract.

What the pea-brains aren’t noticing is that there are vast numbers of contracts that are being shredded or amended because of the plight of the automakers. These include contracts with suppliers and, probably, dealers as well as workers. Everybody else is taking a hit. The White House is trying to spread the pain around so that there’s something to salvage and the overall U.S. economy doesn’t take a bigger hit than it’s already taking.

In a perfect world the automakers would be making a profit and the capital investors would be making a nice return on their investment. But when the Titanic is going down it’s not the time to complain that you paid for a cabin with a better view and want a refund.

Some People Still Got Some Learnin’ to Do

Here are a couple of articles that ought to be read together. Paul Krugman points to an article in yesterday’s New York Times (no link provided, sorry; if you know what article he’s talking about, let me know) saying that the pay at investment banks is roaring up again, to pre-financial crisis levels.

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.


There’s a palpable sense in the financial press that the storm has passed: stocks are up, the economy’s nose-dive may be leveling off, and the Obama administration will probably let the bankers off with nothing more than a few stern speeches. Rightly or wrongly, the bankers seem to believe that a return to business as usual is just around the corner.

After you’ve read Krugman’s article, check out “The Wail of the 1%” by Gabriel Sherman in last week’s New York magazine. It expands upon Krugman’s premise, that Wall Street execs consider their “humongous paychecks” (Krugman’s words) part of the natural order of the universe. It’s their “normal,” in other words, and they fully expect to go right back to the compensation packages of 2007 as soon as this little financial crisis inconvenience is out of the way.

The sense of entitlement that Sherman captures is pathological, but it also goes a long way toward explaining why Wall Street Is Screwed Up. These people feel they are owed the humongous paychecks just because of who they are, not because of what they’ve accomplished. For example:

“No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?” e-mails an irate Citigroup executive to a colleague.

Well, no offense to anyone who went to Columbia or Wharton, but your diploma is not a ticket to welfare for life.

To Wall Street people who have grown up in the bubble, the meaning of the crisis is only slowly sinking in. They can’t yet grasp the idea of a life lived on less. “Without exception, Wall Street guys have gotten accustomed to not being stuck in the city in August. So it becomes a right to have a summer home within an hour or two commute from Manhattan,” says the Goldman vet. “There’s a cost structure of going with your family on summer vacation that’s not optional. There’s a cost structure of spending $40,000 to send your kids to private school that is not optional. There’s a sense of entitlement, that you need that amount of money just to live, that’s not optional.” …

… That was an argument I heard over and over: that the high cost of living like a wealthy person in New York necessitates high salaries. It was loopy logic, but expressed sincerely. “You could make the argument that $250,000 is a fair amount to make,” says the laid-off JPMorgan vice-president. “Well, what about the $125,000 that staffers on Capitol Hill make? They’re making high salaries for where they live, maybe we should cut their salary, too.”

Dude, you’re laid off. How much are you makin’ now?

Both Sherman and Krugman point out that one of the reasons Wall Street got so careless with money is that the people handling it were buffered from personal risk. Krugman:

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.


Bonuses were paid based largely on short-term profits. “It was the culture of what some called IBG-YBG: I’ll be gone, you’ll be gone,” says Jonathan Knee, a senior managing director at Evercore Partners. Wall Street championed the ethos of “Eat what you kill.” The most aggressive employees, those who took the greatest risks, thought of themselves less as members of a firm and more as independent contractors entitled to their share of the profits. In this system, institutions tended to be hostage to their best employees. “The feeling is, if people don’t get compensated adequately, they’re going to go out and do this on their own,” says Alan Patricof, who founded the private-equity firm Apax Partners.

Sherman points out that this cutthroat culture is generational. He spoke to a 55-year-old who says his age group missed out on the megabucks. The group that benefited the most graduated and got to Wall street 1990 and after. Sherman and Krugman both suggest that the reality that needs to be returned to is pre-1990 (I would argue pre-1980), not 2007. But that’s a reality the current generation of Wall Street execs don’t remember.

However, as pointed out in Simon Johnson’s Atlantic article “The Quiet Coup” and Thomas Geoghegan’s “Infinite Debt,” our nation’s financial survival depends on a financial sector run with some restraint and responsibility, not like a casino.

I’m not entirely sure what safeguards need to be in place, but somehow there must be assurance that the people running the financial sector cannot simply reward themselves as much as they like regardless of how their companies are performing. They have to be made to understand that if they take big, stupid risks and lose, they will live out their lives in the suburbs of Queens, driving their kids to public school in a Hyundai. And no one will pity them but themselves.

Otherwise, even if we bounce back from this financial crisis (I am skeptical) sooner or later there will be another financial crisis . And another. And another.

Signs of the Times

Paul Krugman writes in his column today that Ireland appears to be sinking into a genuine depression And he says the rest of the world could follow.

… to satisfy nervous lenders, Ireland is being forced to raise taxes and slash government spending in the face of an economic slump — policies that will further deepen the slump.

And it’s that closing off of policy options that I’m afraid might happen to the rest of us.

How did the Irish economy get into such a slump (emphasis added)?

By being just like us, only more so. Like its near-namesake Iceland, Ireland jumped with both feet into the brave new world of unsupervised global markets. Last year the Heritage Foundation declared Ireland the third freest economy in the world, behind only Hong Kong and Singapore.

BTW, if you want to see a study in psychotic denial, check out the Heritage Foundation issues page on the economy.

In other news, Ceci Connolly reports for the Washington Post that a downtown in manufacturing has caused a big bump in the number of North Carolinians without health insurance. One-fourth of the state’s residents have no health insurance, and another 9 percent are underinsured.

As a result, emergency rooms and nonprofit health services are being swamped by people needing basic medical care who cannot pay for it. Thanks to federal stimulus money, many nonprofit clinics are meeting the demands, but there are long waits.

The Big Tea(se)

Andrew Sullivan points out that the astroturf “tea parties” being organized and promoted mostly on Faux Nooz don’t seem to have a coherent purpose. They’re tea tantrums, not parties, he says.

What are they protesting? Tax hikes? Most of the people who will show up for the parties have just had their taxes cut. So scratch that. The big budget spending proposals and bank bailouts? Dudes, none of us likes running up the deficit and bailing out banks. It’s painful. It’s going to be hard to pay off that debt. But what are your workable alternative proposals to stimulating the economy and preventing the collapse of the banking system?

Cue: cricket chirps.

Finally, illegal immigration. A serious issue, but what did the Boston Tea Party have to do with that?

The Right Blogosphere responded to Sully mostly by calling him names (you guessed it; he’s not a “real conservative”) and throwing more tantrums. The most substantive response I could find still did not address much of what Sully wrote.

The Right expects a world-record tea party turnout on April 15, but just in case the parties fizzle, they’ve got an excuse ready — sabotage by ACORN infiltrators. I swear, ACORN is the new bogeyman.

John Cole:

The best part about all the attention the tea parties will get the next couple of days is that it will all be on film. The usual suspects are already trying to do damage control, pretending that they will have been infiltrated by no-gooders (who else- Soros funded ACRON!), but that is pure nonsense, and the country is going to get a good look at some pure, undiluted, right-wing crazy.

Pass the popcorn.

Leaving 20th Century Economics Behind

Eric Hobsbawm writes in The Guardian about the economic realities of the 21st century.

The 20th century is well behind us, but we have not yet learned to live in the 21st, or at least to think in a way that fits it. That should not be as difficult as it seems, because the basic idea that dominated economics and politics in the last century has patently disappeared down the plughole of history. This was the way of thinking about modern industrial economies, or for that matter any economies, in terms of two mutually exclusive opposites: capitalism or socialism.

This is exactly right, I think, but until a majority of our politicians and what passes for public intellectuals grasp this, our policies will drag way behind realities.

We have lived through two practical attempts to realise these in their pure form: the centrally state-planned economies of the Soviet type and the totally unrestricted and uncontrolled free-market capitalist economy. The first broke down in the 1980s, and the European communist political systems with it. The second is breaking down before our eyes in the greatest crisis of global capitalism since the 1930s.

The True Believers of both sides will argue no, no, no, pure Marxism/Free Market Capitalism has never been tried. But “pure” anything has never been tried. That’s the reality of our human condition. Any endeavor that requires human input is never pure. It will suffer some degree of corruption. Put together people, money, and power, and corruption is a certainty. That’s why any workable, sustainable model factors in corruption and makes some provision to keep it to a minimum.

That’s what the Marxists and the Ayn Rand culties cannot understand. Give all power to a central government planning authority, and you’re screwed. Give all power to an elite cabal of corporate heads, and you’re screwed. There has to be a way to reign in the power, to diffuse it, to oversee it and make it accountable to other power. That’s one reason the public and private sector need each other — to keep each other semi-honest.

The future, like the present and the past, belongs to mixed economies in which public and private are braided together in one way or another. But how? That is the problem for everybody today, but especially for people on the left.

From here, Hobsbawm talks about recent British history, New Labour and Thatcherism. But similar things go on here (is it the almost-common language?). Our Right has effectively taken itself out of the conversation (even though it won’t shut up) because it can’t let go of its old ideologies and aphorisms that don’t work any more. I’m not sure if what passes for a “Left” here is fully cognizant of the new reality, either.

But unlike the Right, the current Left has no one economic model that we all put on an altar and worship. At least some among us are looking hard at the current reality and thinking through solutions that might work in the real world, as opposed to solutions that make good sound bites and look good on a bumper sticker.

But a progressive policy needs more than just a bigger break with the economic and moral assumptions of the past 30 years. It needs a return to the conviction that economic growth and the affluence it brings is a means and not an end. The end is what it does to the lives, life-chances and hopes of people.

That’s something else that neither the Marxists nor the free-market Randbots ever understood.

Who’s Sorry Now?

Joe Conason has written some good articles at Salon lately, but Conason’s most recent article actually made me cry.

Like most of their continental neighbors, the nations of the north [i.e., north Europe, esp. Scandinavia] provide free or highly subsidized, high-quality child care that begins as soon as new mothers return to work. Nearly every child between the ages of three and six is enrolled in the public child care system, because it is staffed by well-paid and well-trained workers overseen by the national ministry of education. The results include not only better socialization and education of young children, but far lower poverty rates, especially among single mothers. And the security of European families is enhanced as well by the universal provision of decent old-age pensions and health care, which relieves the financial burden of supporting elderly parents while trying to raise children. So does free or low-cost university education.

Having raised two kids by myself, I remember the juggling act I did for years as a long, grueling ordeal of exhaustion, work and worry. For example, what do you do when a child is too sick to go to school and you’re out of work sick days? What do you do when the boss wants you to work late and the day care arrangement absolutely positively ends at 6 pm? I also remember that an upcoming school holiday meant I was spending hours on the phone (while at work, of course) trying to find babysitting. The cost of my son’s day care before he was old enough for first grade (I couldn’t send him to public kindergarten because it was only half day) cost thousands of dollars at a time I could barely afford to keep the electricity turned on.

Extreme example: I remember many years ago there were news stories about a mother whose child care arrangements had evaporated, so she kept her child in her car while she was at work. Her employer noticed she kept going out to her car, and checked it out and found the child. So there was a big scandal and much clucking about what a bad mother she was. But her perspective was that if she didn’t go to work she wouldn’t be paid and could lose her job altogether, and then what was she supposed to do? Our culture says that single mothers who don’t show up for work are bad people who just want to be on welfare. What were her alternatives? Frankly, she didn’t have any alternatives other than put her child at risk or lose her job, and none of the news stories picked up on that.

I’m not saying that keeping one’s kids stashed in a car is a good choice. It’s very dangerous. But parents are perpetually being put into these no-win situations in which they have to choose between job and children. Two-parent households may be more resourceful about it, but it’s still a problem. For single-parent households, really bad compromises are a constant reality. So sick kids get left home alone or left with babysitters of dubious character, and parents steal time from employers to take care of parent duties. It’s not so much how will I best take care of this, but who’s going to get the short end of the stick this time?

Well, I’ve ranted about that. Let’s go on.

Right wingers always get things backward. They see statistics that show unmarried people, especially mothers, are more likely to live in poverty, and their solution is to encourage people to get married. Like just about any struggling single mother wouldn’t be thrilled if a decent man she could care about popped into her life and wanted to marry her.

But my understanding of the sociology of thing is the other way around — people are not poor because they are not married; they are not married because they are poor. People hanging on to the edge of the economy by their fingernails live exhausting, chaotic lives that do not support stable relationships. And there is copious data showing that good marriages can come apart when a couple’s financial support collapses.

The Bush Administration sank $750 million into a “healthy marriage initiative” that did nothing whatsoever to relieve anyone’s financial burdens. Typical.

Jordan Stancil writes at The Nation that “the big meaning of the [economic] crisis for Europeans is the vindication of their ideas about how to run an economy.”

“I remember the days when American economists came to Germany and told us we had to privatize our community banks, that our small, family-owned industrial companies were not a strength, that we had to move closer to the Anglo-Saxon way of doing business,” Jens van Scherpenberg, an economist at the University of Munich who for several years led the Americas unit at the quasi-governmental German Institute of International and Security Affairs, told me. “If someone came here and said that today, the response would be laughter–sarcastic laughter.”

Paul Krugman keeps saying that Germany has some major economic problems that it lacks the political will to address, so their cockiness is a little misplaced. However, the social support Europeans receive from their governments means that the economic crisis is causing much less individual pain for Europeans than it is for us here.

This bit from Stancil’s article is fascinating:

Werner Abelshauser, an economic historian at the University of Bielefeld in Germany and a leading expert on differences in transatlantic economic cultures … argued that this is not about social justice; it’s about protecting skilled workers–the source of Europe’s competitive strength. He said this is in contrast to the United States, which doesn’t have, and never did have, as many skilled workers. “Production systems developed differently in each country,” Abelshauser said. “German industrialism always depended on high skill levels–and that was one of the main reasons for the establishment of the first social programs in Germany. It was not just about politics or social justice–it was about taking care of the skilled workers because they were economically valuable.” The profile of the US workforce was different, so American industry developed different production processes, ones that were suited to a lack of skilled labor.

It says a lot about our “every man for himself” mentality that we as a nation actually make it difficult for people to get job training and education beyond high school. You’re on your own to find the money and the time. I understand that in Europe there is much more support of apprenticeship programs that allow workers to learn advanced skills. Here, there are some vocational school-to-work programs, but they are always underfunded and mostly not taken seriously by either the education system or employers. Employers here may want skilled workers, but they don’t want to invest the money into training anyone. There are good apprenticeship programs run by the unions, but of course the Right has worked day and night to destroy the unions.

I’ve argued in the past that the Reaganomics-style, “free market,” unregulated economy we’ve been moving toward is unsustainable, and the only reason we haven’t crashed and burned a lot sooner is that the social/economic foundations laid by the New Deal and post-World War II programs kept us propped up. But now those props are just about burned.

For years the Right has predicted the European economies would collapse under the weight of “entitlement” programs like national health care and subsidized child care. From Europe’s perspective, it’s our — I should say, the Right’s — economic system that is unsustainable and sinking us rapidly.

Stupid, Greedy, and/or Delusional

Yesterday the House and Senate passed budget bills with no Republican votes whatsoever. Yet even without the GOP the bill passed the House with the biggest majority for a budget in 12 years. Carl Hulse writes for the New York Times,

Democrats said the two budgets, which will have to be reconciled after a two-week Congressional recess, cleared the way for health care, energy and education overhauls pushed by the new president. The Democrats said the budgets reversed what they portrayed as the failed economic approach of the Bush administration and Republican-led Congresses.

Of course, spending on health care, energy, education and other long-neglected matters is vital to any meaningful economic recovery. So what did the GOP offer? Tax cuts for the rich and a domestic spending freeze — during a recession, mind you –which is so breathtakingly wrongheaded one can only assume most congressional Republicans are either extremely stupid or extremely delusional. Or both.

I considered a third alternative, that they are extremely invested in protecting the wealth of the wealthy and don’t care if the rest of the nation turns into a third-world sinkhole. However, I think anyone who doesn’t understand even the wealthy eventually would suffer if the nation turns into a third-world sinkhole is either stupid or delusional.

The passage of the budget is particularly good news because all segments of the House Dems supported it, including many of the Blue Dogs. On the other hand, 38 Republicans voted against the GOP Clown Alternative.

Two Senate Dems voted against the budget — Ben Nelson of Nebraska and Evan Bayh of Indiana. Steve Benen: “Yes, Bayh is the new Lieberman.”

This CNN story has more details on the budget; see also Media Matters. Also note that in many ways passing the budget was the easy part. Crafting the health care, education, energy, etc. programs will be a fight. But maybe the Dems are learning they can, you know, do stuff without worrying about what the GOP thinks.

Which brings me to today’s David (“If I only had a brain”) Brooks column, titled “Greed and Stupidity.” Brooks writes that there are two competing explanations to the crash of the financial sector, which he calls “the greed narrative” and “the stupidity narrative.”

The greed narrative, he says, is explained in Simon Johnson’s Atlantic article “The Quiet Coup,” which many of us read this week. Brooks encapsulates Johnson’s article pretty well. “The U.S. economy got finance-heavy and finance-mad, and finally collapsed,” Brooks writes. (See also Thomas Geoghegan’s “Infinite Debt,” which you really can read online here.)

But then Brooks says, nah, that can’t be right. It’s more likely the captains of finance were just stupid.

The second and, to me, more persuasive theory revolves around ignorance and uncertainty. The primary problem is not the greed of a giant oligarchy. It’s that overconfident bankers didn’t know what they were doing. They thought they had these sophisticated tools to reduce risk. But when big events — like the rise of China — fundamentally altered the world economy, their tools were worse than useless.

Yes, Mr. Brooks, and what made them “overconfident” and “stupid”? To me, it’s obvious much of their hubris came from the fact that they had become such a force of power — a true oligarchy, as Simon Johnson says — that they felt untouchable. And much of the “stupid” was a by-product of greed. They didn’t see how fallible they really were because they didn’t want to see it.

Brooks likes the “stupid” narrative because, he thinks, the stupid problem doesn’t require a big-government regulatory solution, whereas the “greed” problem does. “Instead of rushing off to nationalize the banks, we should nurture and recapitalize what’s left of functioning markets,” he says. “To my mind, we didn’t get into this crisis because inbred oligarchs grabbed power. We got into it because arrogant traders around the world were playing a high-stakes game they didn’t understand.”

Brooks fails to explain why those causes are mutually exclusive. I say they’re both true.

Update: Reuters on unemployment:

The U.S. unemployment rate soared to 8.5 percent in March, the highest since 1983, as employers slashed 663,000 jobs and cut workers’ hours to the lowest on record, government data showed on Friday.

In a report underscoring the distress in the labor market, the Labor Department also revised its data for January to show job losses of 741,000 that month, the biggest decline since October 1949.

Yes, a domestic spending freeze is just what we need right now. And we can see how much Bush’s tax cuts for the wealthy “trickled down.”