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Some excerpts from Stiglitz' new book Freefall
To me, the issue of transparency is really about deception. American banks were engaged actively in deception: they moved risk off the balance sheet so no one could appropriately assess it. The magnitudes of the deceptions that had been achieved were mind-boggling. Lehman Brothers could report that it had a net worth of some $26 billion shortly before its demise and yet have a hole in its balance sheet approaching $200 billion.
American corporations (and those of many other countries) are only nominally run by the shareholders. In practice, to a very large extent, they are run by and for the benefit of the management.
When private rewards are well aligned with social objectives, things work well; when they are not, matters can get ugly. (he gets into this in more detail but ie if someone produces a great new electric car and makes great profits great. If someone charges large fees for predatory mortgages and makes huge bonuses as their companies are going bankrupt not so great)
Economic policy involves trade-offs -- winners and losers -- and such trade-offs can't be left to the technocrats alone. (ie Congress should keep an eye on the Fed, especially when it has moved so strongly into fiscal policy such as buying up trillions of dollars worth of mortgages at taxpayer expense)
The perception and reality, that the rescue packages were "unfair" -- unfairly generous to the bankers, unfairly costly to ordinary citizens -- has made dealing with the crisis all the more difficult.
The Bush and Obama administrations had made a simple mistake -- inexcusable given what had occurred in the years prior to the crisis -- that the banks' pursuit of their own self-interest was necessarily coincident with what was in the national interest.
To me, the issue of transparency is really about deception. American banks were engaged actively in deception: they moved risk off the balance sheet so no one could appropriately assess it. The magnitudes of the deceptions that had been achieved were mind-boggling. Lehman Brothers could report that it had a net worth of some $26 billion shortly before its demise and yet have a hole in its balance sheet approaching $200 billion.
American corporations (and those of many other countries) are only nominally run by the shareholders. In practice, to a very large extent, they are run by and for the benefit of the management.
When private rewards are well aligned with social objectives, things work well; when they are not, matters can get ugly. (he gets into this in more detail but ie if someone produces a great new electric car and makes great profits great. If someone charges large fees for predatory mortgages and makes huge bonuses as their companies are going bankrupt not so great)
Economic policy involves trade-offs -- winners and losers -- and such trade-offs can't be left to the technocrats alone. (ie Congress should keep an eye on the Fed, especially when it has moved so strongly into fiscal policy such as buying up trillions of dollars worth of mortgages at taxpayer expense)
The perception and reality, that the rescue packages were "unfair" -- unfairly generous to the bankers, unfairly costly to ordinary citizens -- has made dealing with the crisis all the more difficult.
The Bush and Obama administrations had made a simple mistake -- inexcusable given what had occurred in the years prior to the crisis -- that the banks' pursuit of their own self-interest was necessarily coincident with what was in the national interest.
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