HOW THE FISCAL CRISIS CAME ABOUT

Paul Krugman, NY Times - Lets recall how we got into our current mess. America emerged from the Great Depression with a tightly regulated banking system. The regulations worked: the nation was spared major financial crises for almost four decades after World War II. But as the memory of the Depression faded, bankers began to chafe at the restrictions they faced. And politicians, increasingly under the influence of free-market ideology, showed a growing willingness to give bankers what they wanted.

The first big wave of deregulation took place under Ronald Reagan - and quickly led to disaster, in the form of the savings & loan crisis of the 1980s. Taxpayers ended up paying more than 2 percent of G.D.P., the equivalent of around $300 billion today, to clean up the mess.

But the proponents of deregulation were undaunted, and in the decade leading up to the current crisis politicians in both parties bought into the notion that New Deal-era restrictions on bankers were nothing but pointless red tape. . . .

And the bankers - liberated both by legislation that removed traditional restrictions and by the hands-off attitude of regulators who didn't believe in regulation - responded by dramatically loosening lending standards. The result was a credit boom and a monstrous real estate bubble, followed by the worst economic slump since the Great Depression. Ironically, the effort to contain the crisis required government intervention on a much larger scale than would have been needed to prevent the crisis in the first place: government rescues of troubled institutions, large-scale lending by the Federal Reserve to the private sector, and so on.

ANTI-USURY CAMPAIGN TAKES OFF

William Greider, Nation - [A] campaign seeks a legal ceiling of ten percent imposed on the interest rates for credit cards and predatory practices like "payday loans." Ten percent approximates the old ceiling on interest rates before 1980, when deregulation repealed the federal law against usury. Ten percent is also the tithe religious adherents give to their churches. As one campaigner put it, "If 10 percent is good enough for God, it should be enough for the bankers."

The anti-usury initiative was launched in mid-summer, from Boston to North Carolina, from New York City to the Midwest, and has already produced some startling results. In Massachusetts, the leading candidate for Ted Kennedy's old Senate seat, Attorney General Martha Coakley, answered "yes, yes, yes, yes" to the demands expressed by the Greater Boston Interfaith Organization, when 800 of its members turned out to address the candidates. . .

The most startling development for the anti-usury campaign is the endorsement from the CEO of Citigroup, Vikram Pandit. Like other leading banks, Citi has been kicking up its credit-card rates as high as 30 percent, even as Citi is kept afloat with billions from the taxpayers. Nonetheless, Pandit told editorial writers at the Boston Globe he would support a legal ceiling on interest rates if it is applied industry-wide. "We're completely in support of having a rational rate structure." Pandit said.

The Citigroup executive did not endorse a specific ceiling, but cited the example of the 10 percent credit cards his bank introduced several years ago, believing other banks would follow and lower their rates too (when they didn't, Citi lost money in the venture). The Globe's exchange with Pandit was most likely inspired by news stories about the anti-usury actions in Boston.

Pandit made the telling observation that sky-high interest rates are among the impediments to ending the recession. If interest rates are curbed, he explained, banks would likely defend profitability by reducing the available credit and some high-risk borrowers would doubtless be cut off (the banking industry is already pursuing this strategy). However, Pandit added, a dramatic reduction in rates would help deeply indebted families recover their purchasing power. "I don't disagree," he said, "with the notion that having high rates in this environment is not conducive to driving economic recovery."

ANTI USURY CAMPAIGN

YOU CAN'T RECOGNIZE A RECOVERY IF YOU USE THE WRONG INDICATORS

Jonathan Rowe, Yes Magazine - One reason that the nation has not made more progress toward an economic "recovery" is that the people in charge really don't know what one would look like. The top economists in Washington don't appear to have asked the obvious question, "Recovery of what-and for what?" Instead they have followed the old drill, tried to rekindle the old flame, and remained wedded to the old guideposts that leave them looking at yesterday and trying to see tomorrow.

Just recently, the president of France realized the stupidity. He has decided that his nation's measures of economic health need to change to account for today's challenges instead of yesterday's. As Washington gears up to spend billions in more "stimulus," it would help to ask exactly what it is trying to stimulate-and most importantly, exactly what would constitute success.

Economic indicators are our national psyche's main gauges, the mirror into which we look to see how things are going. In a market culture-which is to say, a money culture-the prospects for money become the prospects for ourselves. Such metrics as the Gross Domestic Product have an oracular status; reporters watch them obsessively, policy experts steer by them, and politicians march to their command.

Yet for the most part the indicators are a crock and testimony to the grip of yesterday upon the expert economic mind. The prime example is the GDP, the anachronism of which is a secret, it seems, only within the media and policy establishments that invoke it constantly. Any measure that portrays an increase in car crashes, cancer, marital breakdown, kinky mortgages, oil use, and gambling as evidence of advance-as the GDP does-simply because they occasion the expenditure of money has a tenuous claim to being reality-based discourse. Metrics are silent rulers, in both senses of the word. In defining the task, they also define the steps we must take to carry it out. . .

Another example is "productivity," which, if anything, is even more totemic. An increase in output per hour worked-which is the reigning definition-is deemed the stairway to economic heaven, and the goal most devoutly to be sought, no further questions asked. Thus the excitement recently when the Commerce Department reported that productivity had increased at an annual rate of 9.5 percent during the third quarter of 2009.

But exactly why is this such good news? "Generally, when U.S. workers are more productive that's a really good thing for the economy," observed a writer on the Atlantic's website. "It means a higher GDP will result." The statement is standard issue, and remarkable only in its circularity (and that the ratio of fallacy to sentence is one to one. . .