stiglitz - freefall; america, free markets, and the sinking of the world economy (2010)

[...]... lack of aggregate demand the total of all the goods and services that people throughout the world want to buy In the world of globalization, global aggregate demand is what matters If the sum total of what people around the world want to buy is less than what the world can produce, there is a problem—a weak global economy One of the reasons for weak global aggregate demand is the growing level of reserves—money... the system also trot out a third line of defense, the same one used a few years earlier at the time of the Enron and WorldCom scandals Every system has its rotten apples, and, somehow, our “system”—including the regulators and investors—simply didn’t do a good enough job protecting itself against them To the Ken Lays (the CEO of Enron) and Bernie Ebbers (the CEO of WorldCom) of the early years of the. .. Greenberger, now professor of law at the University of Maryland and director of the Division of Trading and Markets of the Commodity Futures Trading Commission during the critical period in which there was an attempt to regulate derivatives, and to Randall Dodd, now of the IMF but formerly of the Financial Policy Forum and Derivatives Study Center, for enhancing my understanding of what happened in the derivatives... Woodward To me, and to most of those in East Asia, the policies foisted on them by the IMF and the U.S Treasury at the behest of the “Committee to Save the World had made the crises far worse than they otherwise would have been The policies showed a lack of understanding of the fundamentals of modern macroeconomics, which call for expansionary monetary and fiscal policies in the face of an economic... me to Iceland, and now serves as the governor; Luigi Zingales of the University of Chicago; Robert Skidelsky of the University of Warwick; Yu Y ongding of Beijing’s Institute of World Economics and Politics; David Moss of the Tobin Project and Harvard Law School; Elizabeth Warren and David Kennedy, also of Harvard Law School; Damon Silver, director of policy of the AFL-CIO; Ngaire Woods of Oxford;... combined with the rapidity with which the situation was deteriorating and the banks’ high leverage (they, like households, had financed their investments by heavy borrowing), meant that the banks didn’t know whether what they owed to their depositors and bondholders exceeded the value of their assets And they realized accordingly that they couldn’t know the position of any other bank The trust and confidence... failure To the critics, the policies of the IMF and U.S Treasury had made things worse To their supporters, they had prevented disaster And there is the rub The questions are, What would things have been like if other policies had been pursued? Had the actions of the IMF and U.S Treasury prolonged and deepened the downturn, or shortened it and made it shallower? To me, there is a clear answer: the high... hard and were at the forefront of modern technology They had overcome the disadvantages of a remote location, harsh weather, and depletion of fish stocks—one of their traditional sources of income—to generate a per capita income of $40,000 Today, the reckless behavior of their banks has put the country’s future in jeopardy I had visited Iceland several times earlier in this decade and warned of the. .. enormous risks they faced on their own balance sheets, as the mortgages they held were going sour and other losses mounted They knew how precarious their own conditions were and they could only guess how precarious the position of other banks was The collapse of the bubble and the tightening of credit had inevitable consequences They would not be felt overnight; it would take months, but no amount of wishful... The richest country in the world was living beyond its means, and the strength of the U.S economy, and the world s, depended on it The global economy needed ever-increasing consumption to grow; but how could this continue when the incomes of many Americans had been stagnating for so long?2 Americans came up with an ingenious solution: borrow and consume as if their incomes were growing And borrow they . against them. To the Ken Lays (the CEO of Enron) and Bernie Ebbers (the CEO of WorldCom) of the early years of the decade, we now add Bernie Madoff and a host of others (such as Allen Stanford and. New York, NY 10110 Library of Congress Cataloging-in-Publication Data Stiglitz, Joseph E. Freefall : America, free markets, and the sinking of the world economy / Joseph E. Stiglitz. p. cm. Includes. Treasury at the behest of the “Committee to Save the World had made the crises far worse than they otherwise would have been. The policies showed a lack of understanding of the fundamentals of modern