There is a chilly remoteness to much of the material that this book will be dealing with. This is a choice. Tracing the inner workings of the Davos mind-set is not the only way to understand how power and money operated in the course of the crisis. One can try to reconstruct their logic from the boot prints they left on those they impacted or through the conformist and contradictory market-oriented culture that they molded.13 But the necessary complement to those more tactile renderings is the kind of account offered here, which attempts to show how the circulation of power and money was understood to function—and not to function—from within. And this particular black box is worth prizing open, because, as this book will show, the simple idea, the idea that was so prevalent in 2008, the idea that this was basically an American crisis, or even an Anglo-Saxon crisis, and as such a key moment in the demise of American unipolar power, is in fact deeply misleading. (Location 361)
Note: Wtf
But when it comes to analyzing the onset of financial crises in an age of deep globalization, the standard macroeconomic approach has its limits. In discussions of international trade it is now commonly accepted that it is no longer national economies that matter. What drives global trade are not the relationships between national economies but multinational corporations coordinating far-flung “value chains.”21 (Location 422)
In the event of a major financial crisis that threatened “systemic” interests, it turned out that we lived in an age not of limited but of big government, of massive executive action, of interventionism that had more in common with military operations or emergency medicine than with law-bound governance. And this revealed an essential but disconcerting truth, the repression of which had shaped the entire development of economic policy since the 1970s. The foundations of the modern monetary system are irreducibly political. (Location 456)
Note: This is vital as it attacks the fundamental logic of the free market thinker, which is that instiutions such as government accept “the market” is a repositoorory of decisiion making and knowlege. In fact the stagtemsnt becomes “as long as its supporting the strucctures we favour ”
This is hugely illuminating. It gives economic policy a far greater grip. But it exposes something that is deeply indigestible in political terms. The financial system does not, in fact, consist of “national monetary flows.” Nor is it made up of a mass of tiny, anonymous, microscopic firms—the ideal of “perfect competition” and the economic analogue to the individual citizen. The overwhelming majority of private credit creation is done by a tight-knit corporate oligarchy—the key cells in Shin’s interlocking matrix. At a global level twenty to thirty banks matter. (Location 498)
Note: To what extent does this refutec classic free msrket logic
It is a short step from there to concluding that the hidden logic of the eurozone crisis after 2010 was a repetition of the 2008 bank bailouts, but this time in disguise. For one sharp-tongued critic it was the greatest “bait and switch” in history.37 But the puzzle is that if this were so, if what was happening in the eurozone was a veiled rerun of 2008, then at least one might have expected to have seen American-style outcomes. As its protagonists were well aware, America’s crisis fighting exhibited massive inequity.38 People on welfare scraped by while bankers carried on their well-upholstered lives. But though the distribution of costs and benefits was outrageous, at least America’s crisis management worked. Since 2009 the US economy has grown continuously and, at least by the standards set by official statistics, it is now approaching full employment. By contrast, the eurozone, through willful policy choices, drove tens of millions of its citizens into the depths of a 1930s-style depression. It was one of the worst self-inflicted economic disasters on record. That tiny Greece, with an economy that amounts to 1–1.5 percent of EU GDP, should have been made the pivot for this disaster twists European history into the image of bitter caricature. It is a spectacle that ought to inspire outrage. Millions have suffered for no good reason. But for all our indignation we should give that point its full weight. The crucial words are “for no good reason.”39 (Location 535)
This is not to say that the individual actors in the drama—Germany, France, the IMF—lacked logic. But they had to act together and the collective result was a disaster. They inflicted social and political harm from which the project of the EU may never recover. (Location 553)
Far from being beneficiaries of EU crisis management, business was one of its casualties, and the European banks above all. Since 2008, it is not just the rise of Asia that is shifting the global corporate hierarchy. It is the decline of Europe.40 This might ring oddly to Europeans used to hearing boasts of Germany’s trade surplus. But as Germany’s own most perceptive economists point out, those surpluses are as much the result of repressed imports as of roaring export success.41 The inexorable slide of corporate Europe down the global rankings is clear for all to see. Though we might wish otherwise, the world economy is not run by medium-sized “Mittelstand” entrepreneurs but by a few thousand massive corporations, with interlocking shareholdings controlled by a tiny group of asset managers. (Location 557)
If we take the cynical view that the basic mission of the eurozone was not to serve its citizens but to provide European capital with a field for profitable domestic accumulation, then the conclusion is inescapable: Between 2010 and 2013 it failed spectacularly. (Location 566)
And the obvious political implication should not be dodged. Conservatism might have been disastrous as a crisis-fighting doctrine, but events since 2012 suggest that the triumph of centrist liberalism was false too.50 (Location 632)
Meanwhile, in the wake of the botched handling of the eurozone crisis, Europe witnessed a dramatic mobilization on both Left and Right. But rather than being taken as an expression of the vitality of European democracy in the face of deplorable governmental failure, however disagreeable that expression may in some cases be, the new politics of the postcrisis period were demonized as “populism,” tarred with the brush of the 1930s or attributed to the malign influence of Russia. (Location 640)
As Clinton’s Treasury secretary, Robert Rubin’s great boast was to have turned the deficits of the Reagan era into substantial budget surpluses. Since then under the Republicans, America was headed fast in the wrong direction. In June 2001, in the wake of the dot-com bust and a disputed election, the Bush administration had delivered a tax cut estimated to cost the federal government $1.35 trillion over ten years.6 This paid off key constituencies, but it also wiped out Rubin’s surpluses and it did so deliberately. The Republicans had convinced themselves that surpluses tended to encourage more government spending. Their approach was the obverse, what Republican strategists of the Reagan era first dubbed “starving the beast.”7 By entrenching tax cuts and courting a fiscal crisis they would create an irresistible imperative to slash spending, curb entitlements to social welfare and shrink the footprint of government. (Location 724)
The crisis that will forever be associated with 2008 was not an American sovereign debt crisis driven by a Chinese sell-off but a crisis fully native to Western capitalism—a meltdown on Wall Street driven by toxic securitized subprime mortgages that threatened to take Europe down with it. (Location 975)
By one estimate, the share of American real estate in global wealth is as much as 20 percent. (Location 990)
Those same households were the greatest source of demand for the world economy. In 2007 American consumers bought c. 16 percent of global output, and nothing made them feel better than surging real estate prices. (Location 992)
Real estate is not only the largest single form of wealth, it is also the most important form of collateral for borrowing.4 It is mortgage debt that both amplifies the broader economic cycle and links the house price cycle to the financial crisis. (Location 998)
It was an end not just to inflation but to a large part of the manufacturing base in the Western economies, and with it the bargaining power of the trade unions. No longer would they be able to drive up wages in line with prices. (Location 1020)
Note: Also presumably because manjfacturing declined with no one to sell to
It is a deep irony that the era in which America is commonly thought of as leading the world in a market revolution saw its housing market become dependent on a government-sponsored mortgage machine descended from the New Deal. (Location 1061)
interferences of the GSEs were responsible for the disaster that was beginning to unfold in 2006. The GSEs had political mandates set by progressives to funnel money into underserved communities. They had a market-distorting funding advantage due to their attachment to the federal government. When you distort the market, crises are inevitable. (Location 1073)
It was this conservative critique of the GSEs that shaped the Republican reaction when the crisis reached fever pitch in 2008. (Location 1075)
This was powerful mobilizing rhetoric for the Republican base. But as an explanation of the crisis that was brewing in 2006, this political critique is wide of the mark. (Location 1078)
The GSEs didn’t support the kind of low-quality, subprime loans that were beginning to fail in droves in 2005–2006. Those toxic loans were the products of a new system of mortgage finance driven by private lenders that came into full force in the early 2000s. (Location 1080)
Who had an interest in maintaining quality? Perhaps it was not the government subsidy but these perverse incentives that led to the huge boom in bad lending and the crisis of 2007–2008.24 It is a theory that would have a superficial plausibility if the 1990s model of GSE-centered mortgage finance had still been dominant in the early 2000s. But, in fact, in the early 2000s, when the subprime boom unfolded, the industry had changed again. (Location 1139)
A giant bank like Citi could envision itself as a provider at every stage, originating, securitizing, selling, holding and dealing in MBS. (Location 1214)
If any one of these investment banks was to lose access to the repo markets, at a stroke its business model would collapse, taking its entire balance sheet—not just its MBS business, but its derivatives book, currency and interest swaps—down with it. (Location 1397)
But the mortgage securitization mechanism systematically produced this race to the bottom in mortgage lending quality. (Location 1415)
Note: Ie the important word is systematic (not individual fraud)
Americans liked to think of their problems as American and outsiders were only too happy to concur. As the mortgage meltdown spread like a lethal virus across urban America in 2007–2008, European commentators took up the narrative of an American national crisis. “Feral” financial capitalism, like the Iraq war and climate change denial, was part of a toxic Anglo-American variant on modernity.1 When the storm broke in 2008, the Schadenfreude among European politicians was palpable. (Location 1569)
But in the riskier segment of the securitized mortgage business it was Europeans, not Asians, who led the way. (Location 1590)
And the scale of this activity is revealed if we look not at the net flow of capital in and out of the United States (inflows minus outflows), which has its counterpart in the trade deficit or surplus, but at the gross flows, which record how many assets were bought and sold in each direction. As the gross inflow data show, by far the largest purchasers of US assets, by far the largest foreign lenders to the United States prior to the crisis, were not Asian but European. Indeed, in 2007, roughly twice as much money flowed from the UK to the United States as from China. (Location 1671)
Note: this is the crucial insight – the level of the transactioanl exposure was colossal
In the North Atlantic financial system it flowed both ways, both in and out of the United States. This was in the logic of the market-based banking model. (Location 1679)
In the aftermath of World War II, the Bretton Woods monetary system had sought to restrict speculative capital flows. This gave the US Treasury and the Fed controlling roles. The aim was to minimize currency instability and to manage the global shortage of dollars. But it meant that the US authorities had to operate the kinds of controls that we now associate with China. This was a fetter on private banking. From the 1950s, with connivance of the UK authorities, the City of London developed as a financial center that sidestepped those constraints.18 British, American, European and then Asian banks too began to use London as a center for unregulated deposit taking and lending in dollars. Among the first to avail themselves of these “eurodollar” accounts were Communist states that wanted to keep their export earnings safe from meddling by the US Treasury. They set a trend. By the 1960s eurodollar accounts in London offered the basic framework for a largely unregulated global financial market. As a result, what we know today as American financial hegemony had a complex geography. It was no more reducible to Wall Street than the manufacture of iPhones can be reduced to Silicon Valley. Dollar hegemony was made through a network. It was by way of London that the dollar was made global.19 Driven by the search for profit, powered by bank leverage, offshore dollars were from the start a disruptive force. They had scant regard for the official value of the dollar under Bretton Woods and it was the pressure this exercised that helped to make the gold peg increasingly untenable. (Location 1729)
From the 1980s Dublin set out to establish itself as a low-tax, low-regulation jurisdiction, attracting bankers from Europe and North America. A case in point was the German bank Depfa. Founded in 1922 at the time of the Weimar Republic by the government of Prussia to make subsidized housing loans, Depfa moved to Dublin’s International Financial Services Center in 2002 to take advantage of Ireland’s welcoming tax laws. Depfa soon became known across the world as an adventurous financer of infrastructure, providing credits to the Spanish city of Jerez, giving financial advice to Athens and financing a conference center in Dublin and a toll road between Tijuana and San Diego. (Location 1805)
Of course at every stage in the construction of global capital markets, think tanks, economists and lawyers contributed ideas and argumentation to justify the next move. Technological change gave banks massive new information-processing capacity. The complex financial instruments they produced exuded an energizing charisma.53 The clannish society of the bankers created a social force field of common assumptions and an overweaning superiority complex. They were the masters of the universe. They could not fail. (Location 1897)
But the basic driver of expansion and change was the competitive search for profit, played out in the force field of financial engineering, transnational capital movement and competitive deregulation between Wall Street, the City of London and Basel. It was not that the key players were completely oblivious to risk. But they believed in their capacity to manage it and were totally committed to maximizing the rate of return. (Location 1901)
Mervyn King, a thoroughbred macroeconomist, was little interested in the technical issues of financial stability. (Location 1915)
The only central banks that held these kinds of sums were in China and Japan. Against the backdrop of a sanguine view about financial markets, their “hoarding” of dollars was widely seen as a sign of insecurity, an aftereffect of the trauma of the 1997 crisis. (Location 1923)
To backstop the sprawling banking system of the eurozone, the European Central Bank had little more than $200 billion on hand. What did this say about their assumptions about both financial risk and financial sovereignty? When asked later how he justified such minimal reserve holdings prior to the crisis, one of the most outspoken central bankers of the period paused for a minute, smiled at a point well taken and then said quite simply: “Given our long history of relations with the Fed, we didn’t expect to have any difficulty getting hold of dollars.” In other words, there was a presumption that collaboration would be forthcoming and in an emergency the Fed would provide Europe, and London in particular, with the dollars it needed. Given the scale of the offshore dollar business there could be no other answer. But for that same reason, it was also an astonishingly audacious assumption, an expectation so exorbitant that it was better left unspoken. (Location 1927)
Both crisis narratives play to type: mercenary Americans, squabbling European nationalisms. (Location 1940)
The Bush administration might have been political poison in Europe. But in the late 1990s, Clinton’s Democrats had been an inspiration for Gerhard Schroeder’s Red-Green coalition.24 Merkel was nothing if not an Atlanticist. But if there was a common agenda, there were common blind spots too. For all the focus in the eurozone on the need to make labor responsive to the demands of global competition, for all the calls for common fiscal discipline, there was an almost total lack of recognition of the destabilizing forces unleashed by global finance. In Europe, as in the United States, it was politicians, workers and welfare recipients who were seen as the problem, not banks or financial markets. (Location 2070)
Over the resistance of the Bundesbank, repo was adopted as a core operational model by the ECB. (Location 2091)
Unsurprisingly, this produced a dramatic convergence of yields as investors bid up the price of higher-yielding debts from countries like Greece, Italy, Portugal and Spain, which in the eyes of the ECB were now equivalent to Bunds, Germany’s rock-solid government bonds. The result was a self-reflexive loop in which the ECB relied on markets to exercise discipline over public borrowers while the markets came to assume that the ECB’s “one bond” policy implied an implicit European guarantee for even the weakest borrowers. (Location 2103)
The result was that Greece and Portugal could borrow on terms that were better than ever before in their history, and one might have expected this to produce a huge surge in new public borrowing. (Location 2107)
But overall, the Maastricht rules limiting deficits exercised an effective restraint, especially when one considers the inducement to borrow provided by the convergence of yields. (Location 2111)
What made Greece’s situation dangerous, however, was not the pace of borrowing after 2001 but the debts built up in the 1980s and 1990s, when modern Greek democracy had been established on the back of a huge surge in government spending and expensive borrowing.34 (Location 2123)
It may fly in the face of conservative assumptions about “democratic deficits” and the spendthrift habits of irresponsible politicians, but the formation of the eurozone without an ironclad fiscal constitution did not lead to a festival of unrestrained sovereign borrowing. (Location 2132)
The backdrop to the eurozone crisis was, indeed, a gigantic surge in debt, but it was in the private, not the public, sector. (Location 2133)
In effect, by setting low rates, the ECB prioritized the need to stimulate the German economy over restraining the boom in the periphery. (Location 2448)
If the EU’s business statistics are to be believed, investment in Spanish tourism and real estate offered rates of return of 30 percent or more. Little wonder that investment crowded in.39 In a world of globalized finance, the ECB could no more limit the flow of funds to such a hot spot than the Fed could choke off the capital inflow to the United States. Ireland’s banks were a case in point. They sourced their funding wholesale in the City of London, outside the ECB’s immediate purview.40 (Location 2450)
Europe’s population accepted the gradual push for ever closer union without enthusiasm but also without protest. The EU is not an obtrusive presence. Contrary to prevailing myth, the EU is by no means a gigantic bureaucracy. The EU employs fewer people than most medium-sized cities. (Location 2585)
If a true constitution was no longer a viable proposition, Europe would have to proceed by the tried-and-tested formula of intergovernmental treaty. This gave a key role to Germany, and from November 2005 this meant Chancellor Angela Merkel. (Location 2603)
The question was whether a shared and interconnected prosperity could be given a common political meaning. (Location 2953)
Market analysts recognized the bimodal quality of this experience. It was a “massive game theory,” one commented.21 In trilateral repo, given the unimpeachable quality of the collateral used, there was effectively no price adjustment mechanism. One day the investment banks, dealers and those they borrowed from and lent securities to all functioned as a gigantic trillion-dollar machine based on confidence and widely acceptable collateral. The next day even a very large player in the system could be shut out. (Location 3259)
back. In search of profit, a cash-rich insurance company sitting on a giant portfolio of high-quality securities had turned itself into a dangerously leveraged shadow bank with a serious maturity mismatch. And to make matters worse, it was dealing with some of the most heavy-hitting players in global finance. (Location 3288)
One of the plays that would see Goldman through the crisis was the big short position it had built, betting against mortgage-backed securities. (Location 3293)
Though it was dazed bankers with boxes of belongings stumbling out of office towers in London and New York that attracted the TV cameras, it was young, unskilled blue-collar workers who suffered the worst.68 In the United States, the epicenter of the crisis, the month-on-month fall in employment over the winter of 2008–2009 was breathtaking. In the worst period, the monthly rate of job losses topped 800,000. Among the African American population the surge was particularly dramatic, with unemployment rising from 8 percent in 2007 to 16 percent by early 2010.69 Young black workers were particularly hard hit, with their unemployment rate surging to 32.5 percent by January 2010. At the very bottom of the pile were young African American men with no high school diploma. (Location 3444)
There is no reason to doubt the sincerity of these professions. It was a fearful situation. But the metaphors—terrorist attack, car wrecks and unexploded improvised explosive devices—are telling. They position the crisis-fighting team as first responders facing a compelling emergency. And they place us, their audience, by their side. Who would not root for the fatherly Ben Bernanke trying to keep the family car on the bridge, or Geithner’s heroic bomb disposal team? Politics is set aside as we anxiously watch our heroes struggle to rescue us from disaster. There is no time to ask why this is happening. We are “all in this together.” But it is precisely with that assertion that a political economy of the crisis begins.83 Which system was it that needed to be saved in the autumn of 2008? Who was being hurt? Who was included in the circle of those who needed to be protected? And who was not? (Location 3500)
But beyond such immediate rescue measures, did the all-out focus on the financial system really serve the interests of the real economy?86 Was the inability to borrow causing a failure of investment and thus the ongoing depression? Or were the collapsed housing market and cash-strapped households curtailing economic activity such that there was no incentive to invest and thus no demand for loans? (Location 3517)
To mobilize trillions of dollars on the credit of the taxpayer to save banks from the consequences of their own folly and greed violated maxims of fairness and good government. (Location 3530)
But given the risk of contagion, how could states not act? Having done so, however, how could they ever go back to the idea that markets were efficient, self-regulating and best left to their own devices? (Location 3531)
The main mechanisms for intervention were fourfold: (1) loans to banks; (2) recapitalization; (3) asset purchases; and (4) state guarantees for bank deposits, bank debts or even for the entire balance sheet. (Location 3543)
The crisis snapped the fragile bond between the GOP’s managerial, big-business elite and its right-wing mass base. (Location 3657)
Strict advocates of moral hazard logic would forever after argue that it was the Bear rescue that set up the Lehman disaster.17 With one investment bank having been rescued, Lehman’s management felt safe. (Location 3690)
and I was getting the living daylights beaten out of me by our Congress publicly, I needed to call the Chinese regularly to explain to the People’s Bank of China, ‘listen this is our political system, this is political theatre, we will get this done.’ And I didn’t have quite that much certainty myself but I sure did everything I could to reassure them.” (Location 3720)
The right wing of the party could not be counted on to give support to measures that were unpopular and distasteful, but were clearly necessary to save “the system.” (Location 3730)
Note: Odder than it looks
It stopped the run, but it left Ireland, with a population half the size of New York City, guaranteeing 440 billion euros in bank liabilities. (Location 3981)
They would become the telltale link connecting the banking crisis of 2008 to the eurozone sovereign debt crises of 2010. (Location 3982)
see no reason why we should mount a US-style programme in Europe.” The crisis came from the United States. It was deeper there. Europe could get by with national solutions. (Location 4006)
Note: This is weak
Gordon Brown came away impressed by the sense that the Europeans thought the crisis to be an American problem.74 As one disillusioned British official remarked, the Europeans “didn’t see it coming. They didn’t understand the economics. They didn’t understand how collective action could work.” (Location 4011)
You know what she said to me? ‘Chacun sa merde!’ (To each his own shit!).” According to the German side, the chancellor’s language had been less vulgar. “Merkel had quoted a proverb taken from … Johann Wolfgang Goethe: ‘Ein jeder kehre vor seiner Tür, und rein ist jedes Stadtquartier’ (Everyone should sweep in front of his door and every city quarter will be clean).”76 (Location 4015)
When Wells objected to bailing out New York banks, Paulson coolly pointed out that Wells Fargo was sitting opposite its regulator. If they did not take the capital on offer that afternoon, they would be notified the following morning that they were undercapitalized. They would find themselves locked out of capital markets. When they came back to Paulson for help, the terms would be less attractive than those available that afternoon. (Location 4183)
The Treasury’s aim was to persuade all banks to participate en masse so as to ensure that state support was not taken as a signal of weakness that would attract the attention of short sellers. (Location 4213)
As one American journalist put it, the Fed’s proposal “ran up against a strong effort,” on the part of the ECB, “to pin the Great Panic on the United States.” The ECB’s reply to the Fed was blunt: “[I]t’s a dollar problem. It’s your problem.” (Location 4431)
Prior to the crisis, the transatlantic offshore dollar system had lacked a manifest center of leadership. Indeed, it had developed “offshore” so as to avoid national regulation and control. (Location 4522)
Not the least remarkable thing about the Fed’s crisis response was its politics, or rather the lack of explicit political legitimation. (Location 4526)
But from the point of view of the Fed, it was far better that the swap be done with a central bank than with the fragile banks themselves. (Location 4533)
Note: “banging the television with $”
Clearly, the dollar-based financial system had experienced an existential crisis. For avowed skeptics and critics of American power it was an unmissable opportunity to score points against Anglo-Saxon finance. But given the extraordinarily heavy dependence of both individual banks, such as Deutsche and Paribas, on Fed support and the huge swap line facility provided to the ECB, it is hard to see how either Steinbrück or Sarkozy could have been more out of touch with reality. (Location 4664)
It was economic management by personal intimidation of the telegenic tub-thumping variety.21 The message was clear. Ten years on from the humiliation of 1998, there were men in charge who would see to it that things “got done.” (Location 4782)
Over recent months, Gao Xiqing remarked, the world had watched as America, “after months and months of struggling with your own ideology, with your own pride, your self-righteousness,” had finally applied “one of the great gifts of Americans, which is that you’re pragmatic.” (Location 5079)
Though they were not coordinated policies, they made real the vision of a G2: China and America leading the world. (Location 5271)
Most at risk in 2008 was South Korea, whose famous corporate export champions, the chaebol—Daewoo, Hyundai, Samsung—and their giant steel plants, shipyards and car factories suffered a shuddering blow. (Location 5363)
As chair in closed session, Brown delivered what was, by all accounts, a domineering, high-energy performance that struck several witnesses as bordering on the inappropriate. (Location 5605)
Despite the radical expectations projected onto him, Obama was by inclination a bipartisan centrist. What he had not reckoned with was the sheer violence of the conservative hostility toward him. (Location 5880)
In 2009 the Republicans were in a minority in both the House and the Senate. But their relentless guerrilla war and the drumbeat of their media outlets had real and immediate effects.6 Above all they shifted the balance within the broad-church coalition of the Democratic Party. The fact that the administration needed (Location 5890)
the Democrats to vote en bloc in favor of the stimulus gave leverage to so-called moderates—the Blue Dog Coalition and the New Democrat Coalition—free-market, antispending Democrats who were anxious to preserve their hard-won probusiness credentials.7 As a result, rather than bidding the stimulus up from $775 billion, the congressional “moderates” tended to whittle it down. (Location 5892)
Note: this seems critical to me - a useful lesson in how politics can be dragged rightward (or leftward)
the government’s spending was to shrink the government’s share in overall economic activity. But if this was the case, if the stimulus worked, why didn’t the Obama administration ask for more?13 There were political risks in asking for a figure bigger than $1 trillion. But there were risks to undershooting as well. By 2010, America’s unemployment was still stuck above 10 percent. Foreclosures and forced sales were destroying entire communities. Millions of young people left schools and colleges without jobs. Men and women in the prime of life were shut out of the workforce. Many would not return. In the elections of 2010 and 2012 the Democrats fought on the back foot against the backdrop of a limping economy and resurgent Republican activism. They retained the presidency but lost control of Congress. Obama’s administration never built the constituency of Democrats-for-life that was shaped by Roosevelt’s New Deal. (Location 5914)
Inside the administration, Christina Romer cut an increasingly lonely figure in her demand for a bigger fiscal effort. On occasion she would get the backing of Larry Summers. But when she became outspoken in favor of a second round of stimulus, as she did over the winter of 2009–2010, Romer was brutally silenced by Obama himself.42 (Location 6095)
Though the arguments were apparently more transparent, the politics of fiscal policy in the wake of the crisis were in their own way no less opaque than those that framed monetary policy. (Location 6110)
In Britain, the most egregious case was RBS, a now majority state-owned bank that announced in February 2009 that it intended to honor £1 billion in bonus contracts. (Location 6133)
Alan Greenspan, who as a young man had sat at the feet of free-market goddess Ayn Rand, told the Financial Times: “It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring …. I understand that once in a hundred years this is what you do.” (Location 6152)
Note: Lol?
What was remarkable in 2009 was how little the Obama administration asked in return for the protection it offered. To the amazement of the hardened Wall Street deal makers, the only item on the table on March 27 was voluntary restraint on compensation. (Location 6209)
But how did Geithner define that public interest? First and foremost his commitment was to upholding the stability of “the financial system,” because without that, the entire economy was bound to fail.21 That was his key article of faith. (Location 6224)
But that put a premium on crisis prevention, and that points to the truly significant change brought about by Dodd-Frank. It perpetuated and institutionalized the stress-testing regime begun in the spring of 2009, and as such it was one of the pioneers of a new type of governance known as macroprudential regulation. (Location 6440)
It was a harsh and high-risk approach, whose appeal to the German public was consistent with the fact that they tended to blame “other people’s” banks and to underestimate the exposure of their own country’s financial institutions. (Location 6885)
One could hardly ask for a clearer statement of the “bait and switch” substitution, by which a problem of excessive bank lending was turned into a crisis of public borrowing. (Location 7149)
Restructuring “would have had immediate and devastating implications for the Greek banking system, not to mention broader spillover effects.” This was what was ultimately decisive. (Location 7159)
Whether this was economically effective or politically sustainable and what it would mean for the democratic politics of Europe was another matter altogether. (Location 7167)
Following their surprise bestseller This Time Is Different: Eight Centuries of Financial Folly, in January 2010 Reinhart and Rogoff launched a research paper with the title “Growth in a Time of Debt.”2 This purported to show that as public debts passed the threshold of 90 percent of GDP, economic growth slowed down sharply. It was a slippery slope that ended in a cliff. Excessive debt weighed on growth, which made the debt even less sustainable, further slowing growth. To avoid this fate, it was crucial to take action sooner rather than later. On closer inspection, Reinhart and Rogoff’s analysis turned out to be riddled with errors. Once their Excel spreadsheet was properly edited, there was no sharp discontinuity at the 90 percent mark and the case for emergency action was far weaker than they made out. (Location 7186)
The year 2010 would become a turning point in the recovery. Using Greece as its exemplum, an alliance of convenience among right-wing fearmongers, conservative political entrepreneurs and centrist fiscal hawks shifted the political balance. Though unemployment remained high, though output was limping back, stimulus was abandoned. Earlier and more sharply than in any other recession in recent history, the fiscal screw was turned. On both sides of the Atlantic the result was to stunt the recovery. (Location 7205)
When Keynesians worried about domestic demand, the German answer was exports. An aging continent should be exporting to the world and building up a nest egg of financial claims on the fast-growing emerging markets. (Location 7347)
If there was any justification for the protracted torture of Greece, it was the fear that an immediate debt restructuring would unleash contagion to other sovereign debtors across the eurozone and destabilize Europe’s banks, thus causing a far wider crisis. So the immediate priority for European economic policy ought to have been to use the time bought by extend-and-pretend to strengthen the resilience of the eurozone financial system and the health of the banks. If one were to follow the American example, the obvious next step was to conduct a stress test to estimate likely losses, and then to carry out an energetic recapitalization with either public or private funds. (Location 7372)
Whose interests were served by a lopsided deficit debate in which minor tax increases were traded for huge cuts in entitlements? (Location 7619)
“We should discuss this in secret, in the Eurogroup …. If we indicate possible decisions, we are fueling speculations on the financial markets and we are throwing in misery mainly the people we are trying to safeguard from this …. I am for secret, dark debates …. I’m ready to be insulted as being insufficiently democratic, but I want to be serious …. When it becomes serious, you have to lie.” (Location 7795)
In the general crisis of legitimacy in 2010–2011 there was no Archimedean point. (Location 8018)
Since January 2009 the Obama administration had been straining every muscle to put the lid on popular discontent. Rather than seeking to mobilize the indignation simmering in American society, it had found one technocratic fix after another. Two years later the result was a spectacular delegitimization from both the Left and the Right. (Location 8043)
The very least one can deduce is that the optimistic dogma under which democracy and markets were seen as natural and necessary complements—the mantra of the aftermath of the cold war—was dead. (Location 8070)
Over the summer Dexia had passed the third European stress test with flying colors. (Location 8255)
As had been true in the case of the big short, there was a race between market sentiment and the ability of the contrarian investor to stay liquid. (Location 8267)
The restructuring that was forced on the creditors of Greece between February and April of 2012 was the largest and most severe in history, larger in inflation-adjusted terms than the Russian revolutionary default or Germany’s default of the 1930s. (Location 8650)
This substitution was the one constant in the endlessly shifting politics of Greek debt: public claims replaced private debts. (Location 8692)
the summer of 2012 its staff revisited the forecasts they had made in the spring of 2010 as the eurozone crisis began and discovered that they had systematically underestimated the negative impact of budget cuts. Whereas they had started the crisis believing that the multiplier was on average around 0.5, they now concluded that from 2010 forward it had been in excess of 1.21 This meant that cutting government spending by 1 euro, as the austerity programs demanded, would reduce economic activity by more than 1 euro. So the share of the state in economic activity actually increased rather than decreased, as the programs presupposed. It was a staggering admission. Bad economics and faulty empirical assumptions had led the IMF to advocate a policy that destroyed the economic prospects for a generation of young people in Southern Europe. (Location 8746)
Centrist liberal crisis management had prevailed. In America’s new century, diversity, world openness and technocratic pragmatism would go hand in hand. (Location 9019)
Nevertheless, the data they released in October 2013 were astonishing. From the latest round of tax releases they calculated that of the growth generated by the economic recovery since 2009, 95 percent had been monopolized by the top 1 percent. (Location 9148)
Already in 2007 deaths from drug overdose had overtaken road accidents as a major cause of death in the United States. (Location 9179)
What Reich now recognized was that much of this was “insufficient,” if not “beside the point,” because it overlooked a “critically important phenomenon: the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs …. The problem is not the size of government but whom the government is for.”33 (Location 9236)
“Creating value isn’t enough—you also need to capture some of the value you create.” That depended on market power. “Americans mythologize competition and credit it with saving us from socialist bread lines,” but Thiel knew better. As far as he was concerned, “[C]apitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition, all profits get competed away. The lesson for entrepreneurs is clear … [c]ompetition is for losers.” (Location 9267)
“Democrats and business are on the same side on a range of issues …. The Tea Party has dragged the Republican Party so far to the right that business is now closer to mainstream Democrats than Republicans.” (Location 9414)
Was one of the unintended side effects of the stability generated by the Fed to free politics from market constraints and thus enable Republican extremism? (Location 9425)
Did America’s ability to ride out short-term budget crises like those of 2011 and 2013 lead contemporaries to underestimate the future dangers that the degeneration of American democracy might bring with it? (Location 9426)
In September 2012 Zambia issued its first dollar-denominated bond. (Location 9459)
A year later a state-backed tuna-fishing venture in Mozambique raised $850 million. (Location 9460)
In May 2013 the boom reached its peak, with the $11 billion ten-year bond issued by Petrobas, Brazil’s state-owned oil company. It was the largest bond issue ever by an emerging market corporation. Demand was so great that the yield on the Petrobas issue fell to as little as 4.35 percent, less than many sovereign borrowers. (Location 9462)
Note: See Perry Anderson in lrb
“Interdependence” was one of the nostrums of the age of globalization. And it was all very well to call for greater cooperation. But why should the Fed listen to such demands? In 2008 it had provided liquidity to the entire world economy. Now it was doing its best to sustain the revival. But its mandate was national. It was responsible for the American economy, not the wider world. As far as the Fed was concerned, the really compelling argument was that of blowback. (Location 9561)
As in 2008–2009, in 2013 the public bluster about the need for a new monetary order and a “de-Americanized world” distracted from the reality that a powerful new network of liquidity provision was being rolled out across the world economy. (Location 9641)
But the UK, which was doing everything possible to court Chinese business, took up the offer from Beijing to become a founding member of the Asian Infrastructure Investment Bank. (Location 9706)
Since 2011 Russia had been developing its Eurasian Customs Union into a more comprehensive Eurasian Economic Union. It was clearly intended as an alternative to the EU’s Eastern Partnership. The details of its agreements were far less onerous than those demanded by the EU. But they meant entering into a lopsided relationship with Russia, and the customs union included setting a common external tariff. (Location 9754)
Under the anodyne labels of association, cooperation and convergence, a heavy geopolitical weight was being imposed on a fragile region under considerable economic and political stress. (Location 9765)
Among Fidesz’s heresies was its refusal to separate the questions of political sovereignty and financial dependence. (Location 9779)
Since freeing itself from the Soviet yoke, over the past twenty years Hungary “had to bitterly experience the validity and truth of the old wisdom that a nation can be subjugated in two ways—with the sword or with debt.” (Location 9782)
In the context of the emerging market boom, foreign lenders looked leniently on Orban’s nationalist experiment. (Location 9791)
In the fall of 2013 a deal was on the books to lease to China an enormous holding of 7.5 million acres of prime farmland—5 percent of the entire land mass of Ukraine, 10 percent of its arable land, an area the size of Belgium. China was not just after Lebensraum. (Location 9823)
In light of subsequent events, Yanukovych’s decision would come to be seen as the Pavlovian response of a pro-Moscow stooge. It was quite possible that he was subject to Russian blackmail. But setting such rumors aside, his choice was hardly inexplicable. (Location 9850)
They were driven by enthusiastic, fired-up minorities inspired by hopes and fears of Russia and Western Europe and an eclectic range of political imagery drawn from every part of the political spectrum. (Location 9864)
The Cameron government talked a good game, but was less quick to act. (Location 9917)
So devastating, in fact, that it has raised the question of whether this conjunction was entirely coincidental, or whether the United States and the Saudis were collaborating to launch a strike against Russia. (Location 9991)
To clear the air, Michel Sapin, the French finance minister, proposed that they just “get it all out and tell one another the truth to blow off steam.”74 The group therapy didn’t go well. The ensuing conversation was described by one participant as “extremely hard, violent even.” (Location 10525)
To allow the left-wing majority to take power would be a false signal. (Location 10628)
Now, in an extraordinarily high-risk bid to channel and manage the politics of popular nationalism, the Tory government was putting London’s position as a crucial node in the network of the global economy in play. (Location 10676)
For the City of London and British big business, the vote was a breathtaking shock. And for some commentators it was precisely this body blow that offered the prospect of a grand rebalancing. Was this a moment at which the structures of power and money that had consolidated around the City of London since the 1970s might be cracked open? Mody hailed the result because it shattered the “nexus between an ever larger financial sector and a strong pound …. The only people who truly lose from the pound’s depreciation are those who borrowed short-term dollars to invest in long-term property assets. This ‘elite’ group continues to hold the microphones of policymaking and its words reverberate through the financial press.” (Location 10969)
Greenspan declared, because “(we) are fortunate that, thanks to globalization, policy decisions in the US have been largely replaced by global market forces. National security aside, it hardly makes any difference who will be the next president. The world is governed by market forces.”34 This was the mantra of an age of globalization without alternatives. (Location 11293)
Globalization was not a natural process, opposed to politics. It had been shaped since the 1940s by an alliance of America’s politicians, business elites and policy experts like Greenspan. The election of 2016 revealed how severely the crisis of 2008 had shaken that alliance and the world it had fostered. Most fundamentally, the crisis had exposed the deep unreality of Greenspan’s conception of a world governed by markets. (Location 11298)
Were the Trump and Sanders campaigns crazy or simply stating what should have been obvious: the fiasco of the project of Greenspan’s generation. (Location 11315)
In fact, a deep dive into the poll data showed that Trump’s voters were better off than the average American.40 The voters with the lowest incomes—overwhelmingly minorities—continued to vote Democratic. But a detailed accounting of the electoral statistics did show a significant shift to the Republicans among white male voters with less than a college education. It was less immediate misery than anxiety about the future that drove the Trump vote, fears that in the white population were associated with hostility to Latinos and black Americans, and among men with hostility to upwardly mobile women. (Location 11328)
If Donald Trump had been elected president, who actually ruled America? Surely some branch of the establishment would intervene to constrain or redirect this aberrant popular choice. (Location 11347)
Trump’s populism revolved not so much around policy as around the pure realization of power. (Location 11393)
As far as Wall Street was concerned it turned out that the game of politics was heads I win, tails you lose. Neither the politicians nor Wall Street gave a second thought to the angry voters who had actually put Trump in the White House. (Location 11531)
The only likely movement in the yuan was upward. Put the two together and you had the ingredients for a profitable “carry trade”: borrow in dollars; invest in yuan; repay the dollar loan from the proceeds of the booming Chinese economy at an appreciating yuan exchange rate.6 If China’s exchange regulations made it difficult to import US dollars directly, one or two further steps were added: borrow in dollars; buy commodities; use the expected receipts from the sale of the commodities as collateral to borrow in yuan; invest the yuan in China. (Location 11797)
In 2015–2016 the world economy dodged a third installment of the global crisis. The emerging market recessions remained confined to individual economies—Russia, Brazil, South Africa—and particular commodities—notably oil. The downturn did not become generalized. It did not spread to the advanced economies. (Location 11882)
Unlike South Korea, Japan or Europe, China is not a subordinate part of the American global network. (Location 11931)
When the United States extended swap lines in 2008, it was acting in a zone that is both a depoliticized realm of economic activity and yet framed by a deep power relationship. (Location 11932)
And experience on the frontier of Western power in Eastern Europe hardly gives grounds for optimism about the ability of either Washington or the Europeans to conduct financial diplomacy in areas of real geopolitical tension. (Location 11935)
No doubt the Trump administration is unpredictable, but it was on Obama’s watch, with Hillary Clinton as secretary of state, that relations with Russia and China escalated to this degree. (Location 11941)
As the great economist Abba Lerner once cuttingly remarked, “Economics has gained the title Queen of the Social Sciences by choosing solved political problems as its domain.”22 The future of China’s political economy and its relations with the West do not belong to that domain. (Location 11947)
It is this juxtaposition that frames the narrative of this book: large organizations, structures and processes on the one hand; decision, debate, argument and action on the other. (Location 11957)
One way to think of such moments is in terms of the metaphors of emergency, or of firefighting. Among American crisis fighters, military vocabulary was commonplace: maximum force, the Powell Doctrine, shock and awe, big bazooka. But one might also say that what is called for is that intangible and volatile thing, political leadership and action. This depends on formulating plans and programs, rallying support and fending off opposition. (Location 11958)
Whose will, stamina, endurance, interests and willingness to compromise would prevail? It is shocking, perhaps, that this degree of indeterminacy should characterize one of the most vital pivots of the global order. But building such ad hoc and lopsided political coalitions is what the governance of capitalism under democratic conditions entails. In the twentieth century, it was what made the difference between the Treaty of Versailles and the Marshall Plan, or Herbert Hoover’s and FDR’s responses to the Great Depression. The political in “political economy” demands to be taken seriously. (Location 11970)
A. Tooze, Statistics and the German State: The Making of Modern Economic Knowledge (Location 12040)
A. Baker, “Restraining Regulatory Capture? Anglo-America, Crisis Politics and Trajectories of Change in Global Financial Governance,” International Affairs 86 (2010), 647–663. (Location 12338)
A. Appadurai, Banking on Words: The Failure of Language in the Age of Derivative Finance (Chicago: University of Chicago Press, 2015). (Location 12351)
V. A. Schmidt and M. Thatcher, “Why Are Neoliberal Ideas So Resilient in Europe’s Political Economy?,” Critical Policy Studies 8, no. 3 (2014): 340–347. (Location 13484)
P. Anderson, “The Center Can Hold,” New Left Review 105 (May/June 2017). (Location 14155)
