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Sunday, May 18, 2014

Paul Krugman, "Springtime for Bankers": Fairy Tale Economics

And all this while you thought that Paul Krugman was a Keynesian economist? You were mistaken!

In his latest New York Times op-ed entitled "Springtime for Bankers" (http://www.nytimes.com/2014/05/19/opinion/krugman-springtime-for-bankers.html?partner=rssnyt&emc=rss), Krugman concludes:

"In the end, the story of economic policy since 2008 has been that of a remarkable double standard. Bad loans always involve mistakes on both sides — if borrowers were irresponsible, so were the people who lent them money. But when crisis came, bankers were held harmless for their errors while families paid full price.

And refusing to help families in debt, it turns out, wasn’t just unfair; it was bad economics. Wall Street is back, but America isn’t, and the double standard is the main reason."

Or something akin to Peter and the Big Bad Wolf.

But were bankers, i.e. financial institutions, really held harmless? Perhaps Paul would care to explain what happened to the likes of Lehman Brothers, Wachovia and Merrill Lynch. Or maybe Paul should explain why Citigroup shares are now selling for a tiny fraction of their 2007 prices.

Don't get me wrong: What happened in 2008 was all about greed gone wild and the absence of regulation. I remember well how the big banks were busy hawking newfangled real estate derivative packages (indeed akin to the Wicked Witch's poison apple) to their feeble-minded colleagues.

More to the point, what about today? Has greed disappeared from the landscape? Not a chance! Today we have high frequency trading, which is effectively placing a tax on anyone wishing to invest in shares. And there was the cancellation of the Uptick Rule, which enables hedge funds to manipulate share prices in any direction they please.

"Wall Street is back"? Heck no! Under the very nose of Krugman's beloved Obama administration, high frequency trading is sucking the life blood from the economy, but once again, when the parasite ultimately kills the host, the parasite is also destined to die.



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