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'Depression Economics'

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The panic of 1907 made people see the necessity of a federal banking system. What kind of institution is this crisis going to make us see the necessity of?
The basic principle is that anything that needs to be rescued like a bank needs to be regulated like a bank. If the likes of Lehman Brothers can bring the system down, then we need to have prudential regulations of them. The most obvious thing is capital requirements, which is basically limits on the degree of leverage. Authorities have to know what's going on if they're going to intervene in the situation.

Publishing lead times being what they are, the last bits of this were written a couple of months ago?
Less than that, actually. It was done in a frantic week in October, mostly.

You say in the book that the world economy is not in a depression and probably won't fall into a depression, though you're a little unsure on that. How has your level of certainty changed in the intervening weeks?
The last few weeks have been terrible. This was a book written after Lehman, so we knew the world was in big trouble, but what we've seen in the last couple of weeks has been awesomely bad. Things are falling fast. We're probably losing jobs at a rate of 350,000 to 400,000 a month. If you had asked me even three months ago about the chances we'd go above 10 percent unemployment, I'd have said pretty small, but now I'd say one in three.

I've written a column this week on who is the worst banker in the world. I'm wondering if you have any thoughts.
Just because he's easy to hate, I'd say Angelo Mozillo. Citigroup, also. They didn't have the worst behavior, but just because they're so big. When you have somebody that big doing things that bad, then it's way up there on the list. There's a lot of naked emperors out there these days.

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Posted By: Vigilance @ 04/01/2009 1:00:41 PM

Raise, and stabilize, the interest rates. It sounds counterintuitive, but most of the money in the system is concentrated at the top right now. Lenders need an incentive to lend, and borrowers need an incentive to make sure they don't take on foolish loans at teaser rates.
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Posted By: Horrible Bastard @ 12/12/2008 10:38:02 AM

Hey, Yanks. Give the bailout to me, and I will fix everything! No, really. Simply deposit the money, care of Horrible Bastard, in the First Bank of the Terrible Marching Powder, Medellin, Columbia, and I'll take it from there. Hey, it will do exactly as much good as giving the money to AIG, right?

Act now! If you don't give me a bailout, the economy will collapse, gays will get married, and terrorists will kill you and make your children GAY! For God's sake, HURRY!
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Posted By: Tan Boon Tee @ 12/07/2008 11:45:45 PM

Paul Krugman may have been right all this while.

The November 2008 employment report says with more than half a million jobs lost in the month, the unemployment rate has gone up by 0.2% to 6.7%. Indeed, even without the current financial eclipse, many jobs could have been redundant.

Inflating unnecessarily to expand the base of employees and growth of infrastructure so as to bloat the image of corporate during the so called ???good times??? in past decades, a good number of companies are over-employing. Now, in bad times, superfluous staff would certainly have to go first. And compulsory reduction of work force will follow gradually. This is the price to be paid in a recession induced depression, as Krugman might want to put it.

Things can only get worse, at least for the year 2009. There is no need to pretend to be optimistic. Reality is both ugly and cruel. Just face it with calm and dignity.
(Tan Boon Tee)