Saturday, March 29, 2008

Krugman on Financial Crisis

Taming the Beast

America came out of the Great Depression with a pretty effective financial safety net, based on a fundamental quid pro quo: the government stood ready to rescue banks if they got in trouble, but only on the condition that those banks accept regulation of the risks they were allowed to take.

Over time, however, many of the roles traditionally filled by regulated banks were taken over by unregulated institutions — the “shadow banking system,” which relied on complex financial arrangements to bypass those safety regulations.

Now, the shadow banking system is facing the 21st-century equivalent of the wave of bank runs that swept America in the early 1930s. And the government is rushing in to help, with hundreds of billions from the Federal Reserve, and hundreds of billions more from government-sponsored institutions like Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Given the risks to the economy if the financial system melts down, this rescue mission is justified. But you don’t have to be an economic radical, or even a vocal reformer like Representative Barney Frank, the chairman of the House Financial Services Committee, to see that what’s happening now is the quid without the quo.

Last week Robert Rubin, the former Treasury secretary, declared that Mr. Frank is right about the need for expanded regulation. Mr. Rubin put it clearly: If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks.

Makes sense to me.

There's something that doesn't make a lot of sense to me, and hasn't for a long time. Government regulates in order to protect the public, in large part because companies make decisions to improve their profit margin, not to "establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity." That's the job of (the people as) government. The job of a corporation is to make money. As long as corporations have no social conscience, which is a rant for a different day, as long as corporations are tasked in this world with obligations other than providing for the common defense, promoting the general welfare, etc., they *need* to be regulated by the government.

So, whenever someone comes along and says we should deregulate some market somewhere, I think a) that's asking the government to abdicate its responsibility, and b) deregulation never seems to accomplish the goal my typical deregulation afficionado touts, which is something along the lines of better lives for all of us if only we'd let "the market" work. Well, "the market" never behaves the way they taught us in high school economics (yes, we used to have econ classes in high school. And civics in junior high. How 'bout that?) because "the market" is never, ever, the "perfect" market that you use in economics class hypotheticals.

I want environmental regulation of companies (hi, EPA). I want regulations that ensure I get paid overtime when I work overtime. I want regulations that protect my pension. I want regulation that protects my person (hi, OSHA!) from harm and I want regulations that protect my human dignity as well. Business is the business of America, but the real business of America is protecting the common good and promoting the general welfare. *That* is the mission statement of America, friends and neighbors.

In the broader social sense, the corporation is just a tool to achieve that goal. When properly regulated.

Wednesday, March 26, 2008

Global Warming Killing Antarctica

Cracking up: the ice shelf as big as Northern Ireland

"In this case things are happening more rapidly than we thought. We didn't really understand how sensitive these ice shelves are to climate change," said Dr Vaughan, who predicted in the 1990s that it would take 30 years for the ice shelf to break up.

Ice shelves form along the coasts and, because the ice is already floating on water, their disintegration does not affect sea levels. However, scientists believe that their rapid disappearance could lead to the faster movement into the ocean of the massive, land-based ice sheets and glaciers – which do raise sea levels.

The Wilkins ice shelf covers an area of about 5,282 square miles and satellite images taken at the end of February revealed that the rapid disintegration began after an iceberg the size of the Isle of Man broke away from its western edge.