7 ms·

The Big Zero

42 points by hack_edu 17y ago

michael_dorfman 17y ago
Hard to argue with this: So here’s what Mr. Summers — and, to be fair, just about everyone in a policy-making position at the time — believed in 1999: America has honest corporate accounting; this lets investors make good decisions, and also forces management to behave responsibly; and the result is a stable, well-functioning financial system. What percentage of all this turned out to be true? Zero.
- pwnstigator 17y ago
  In 1999, I was 16 and thought the world was run mostly by idiots, scumbags, and criminals, and that it was going to fall to pieces within a few years. Everyone thought I was just expressing "teenage angst" and that I'd be proven wrong by maturity. By 2008, these sentiments-- established to be largely true-- were common knowledge. Even the liberals of the time (e.g. Clinton) had a steadfast belief in corporate benevolence as a general principle. You were seen as a whiner and a loser (envious, insecure) if you suggested otherwise. Now? Turns out the "whiners" were right.
  - pavel_lishin 17y ago
    In 1999, I was 16 and thought that the world wasn't being run at all.
    - darien 17y ago
      In 1999, I was 13 and thought Y2K was a computer virus.
  - foldr 17y ago
    I think the truth is somewhere in the middle. You were just expressing teenage angst, but by coincidence you happened to be right :)
    - pwnstigator 17y ago
      Fair enough. I was expressing teenage angst, in part, because I knew things were going wrong. The angst might have been there even if society had been in a better state. It certainly was better than it is now.
    - roc 17y ago
      I think it's more 'by definition' than 'by coincidence': the world has always been run by idiots, scumbags and criminals and it falls to pieces every decade or two like clockwork. Youthful angst is just a condition where you think no-one else notices and that the problem is solvable. Maturity is when you realize that anyone paying attention has always known and simply decided that playing along leaves more time to get on with life than railing against the game.
      - foldr 17y ago
        >I think it's more 'by definition' than 'by coincidence': the world has always been run by idiots Maybe so, but it's certainly not run by idiots "by definition", if you have the normal meaning of the phrase in mind.
        roc 17y ago
        I didn't mean to suggest that every person 'running things' was accurately described by each label. I meant "idiots, scumbags and criminals" as a domain. I wouldn't even rule out that an exception or two might not fit into any of those labels. I just don't think they're statistically significant.
        foldr 17y ago
        I just mean that I don't see that he was right by definition. That would mean that the world is run by idiots by definition, which is obviously false (that fact, if it is a fact, doesn't follow from the definitions of any of those words).
      - sethg 17y ago
- byrneseyeview 17y ago
  If SarBox applied to the government's own accounting, most Federal officials would be doing hard time. Meanwhile, the vast majority of corporations don't end up restating their earnings. It's one thing to say that people are flawed, and are dishonest when they can get away with it; but it's another idea entirely to imagine that government regulation does a better job. Madoff's competitors called him a scam artist before the SEC got involved; Paulson made a fortune by correctly betting that housing was overpriced; the Enron story was pushed by short sellers and journalists, to the point that the government didn't get involved until after the bankruptcy. So why would we trust the government--which has failed miserably so far--to suddenly do a better job than the private sector?
  - roc 17y ago
    Luckily it's not an either/or. There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks. The only real problem we just suffered, was that certain institutions were allowed to become integral parts of our financial system and were allowed to play fast and loose with their own solvency. If those banks weren't absurdly leveraged, the housing bubble would have just been another recession. Lesser problems were the risk ratings that were tantamount to fraud and the short-sighted financial focus of your average corporate entity which lead to the over-leveraging. But I'm comfortable conceding that ground to caveat emptor and letting the SEC sweep up the most egregious trouble-makers a day late, as usual. Because I honestly have no idea how you could actually _fix_ those problems without breaking something far more important.
    - anamax 17y ago
      > regulation prevents those mistakes from growing into systemic risks. Regulation creates systemic risks. Regulation is why all big US banks took a huge hit when Fannie and Freddie hit the skids. Regulation is also why banks were holding "insured" mortgage pools.
    - lionhearted 17y ago
      > There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks. You missed the largest problem - the Federal Reserve set the price of borrowing money artificially low, almost to the point of being free. Whenever you set the price of borrowing money (interest and fees) lower than the rate of inflation, you're going to get some sort of massive financial problem. It's in everyone's rational interest under that scenario to borrow as much as they can. Of course, that leads to catastrophe.
- drewr 17y ago
  Not hard to argue at all. This narrative is worn out. The populist belief that Corporate America was a down-home hoe down where good guys get together and make deals with a handshake is revisionist at best. Summers perfectly illustrates that the financial system is a nepotistic web of USG, banks, and investors which is heavily regulated to maximize profits at all endpoints. The fact that it only comes crashing down every few decades is a testimony to the small remnants of capitalism one might find in the edifice. Krugman is economics theatre.
logicalmind 17y ago
The elephant in the room here is campaign financing. As long as a person* with great wealth can outweigh the desires of the majority of people we will get the government that we deserve. *By person I mean a legal person http://en.wikipedia.org/wiki/Legal_person http://en.wikipedia.org/wiki/Legal_person
- anamax 17y ago
  > The elephant in the room here is campaign financing. As long as a person* with great wealth can outweigh the desires of the majority of people we will get the government that we deserve. The fix, making it impossible for ordinary people to contribute useful amounts of money to political causes in which they believe, makes things worse. Note that we didn't actually have rich people buying elections before the various campaign finance restrictions. Out of fear of a then-imaginary problem, we set up a system where the problem actually occurs. Malice or incompetence - either way, it's not much of a recommendation.
  - logicalmind 17y ago
    I don't think that ordinary people are the problem. If by ordinary people you mean natural persons* . In the US government, the elected officials should represent the will of the people who elected them. The problem is that special interests find that money is better spent through lobbying. This allows them to buy votes and even write laws. A massive amount of money is spent lobbying: http://www.opensecrets.org/lobby/index.php http://www.opensecrets.org/lobby/index.php This money obviously has an effect. Ordinary people aren't creating lobbying groups. *http://en.wikipedia.org/wiki/Natural_person http://en.wikipedia.org/wiki/Natural_person
    - anamax 17y ago
      > I don't think that ordinary people are the problem. I didn't say that they were. I said that they were the ones adversely affected by campaign finance restrictions. The rubes think that that's an accident and that it could be fixed. The cynics think that that was the goal and know that it won't. The realists know that it was inevitable. > The problem is that special interests find that money is better spent through lobbying. That's because "we" keep voting for folks who set up programs "to do good". That always fails because regulatory capture always happens. Either we're insane or we want to be fleeced. The only way to stop being fleeced is to insist that govt stop doing things.
olegk 17y ago
This decade has been really really good for IT, especially salary-wise. There were tons of successful startups.
- WilliamLP 17y ago
  > This decade has been really really good for IT, especially salary-wise. Yet somehow I'm making a lot less than I did in 1999, before inflation. Part of that is my fault, but still!
Tichy 17y ago
But it gave us the iPhone! Perhaps we could call it the "iCade" or something like that?
- WilliamLP 17y ago
  Basically the decade involved a ridiculous penetration of cheap phones, cameras, and texting, along with vastly improved TV and monitor technology. Along with this came an extreme social change towards being plugged into a social and media network at all times, toward where this is now near its logical conclusion of the devaluation and death of individual thought.
  - dandelany 17y ago
    [citation needed]
kees 17y ago
My life is improved so much due to technology. Remember only your computer and the internet in 1999..... The same counts for almost every other product you're using. Maybe financially there wasn't much progress, but the silent and steady motor of improving daily life is still running.
- habitue 17y ago
  Yeah this is what I thought when reading this. He does, however, preface his statement that "nothing good happened" with "economically speaking", and he makes a good case from that perspective.
mmphosis 17y ago
The good news is that there is only one way to go once you hit rock bottom. The bad news may be that I don't think that we've hit bottom. And, we don't necessarily know what the bottom is. The Big Zero is a nice round number, but I think we've been borrowing towards an unpayable debt for longer than ten years, and we are only falling further. Planes, both figuratively and literally, continue to keep dropping out of the sky. If it was left up to me, I would get right to the bottom of it.

42 points by hack_edu 17y ago

Hard to argue with this: So here’s what Mr. Summers — and, to be fair, just about everyone in a policy-making position at the time — believed in 1999: America has honest corporate accounting; this lets investors make good decisions, and also forces management to behave responsibly; and the result is a stable, well-functioning financial system. What percentage of all this turned out to be true? Zero.

pwnstigator 17y ago
In 1999, I was 16 and thought the world was run mostly by idiots, scumbags, and criminals, and that it was going to fall to pieces within a few years. Everyone thought I was just expressing "teenage angst" and that I'd be proven wrong by maturity. By 2008, these sentiments-- established to be largely true-- were common knowledge. Even the liberals of the time (e.g. Clinton) had a steadfast belief in corporate benevolence as a general principle. You were seen as a whiner and a loser (envious, insecure) if you suggested otherwise. Now? Turns out the "whiners" were right.
- pavel_lishin 17y ago
  In 1999, I was 16 and thought that the world wasn't being run at all.
  - darien 17y ago
    In 1999, I was 13 and thought Y2K was a computer virus.
- foldr 17y ago
  I think the truth is somewhere in the middle. You were just expressing teenage angst, but by coincidence you happened to be right :)
  - pwnstigator 17y ago
    Fair enough. I was expressing teenage angst, in part, because I knew things were going wrong. The angst might have been there even if society had been in a better state. It certainly was better than it is now.
  - roc 17y ago
    I think it's more 'by definition' than 'by coincidence': the world has always been run by idiots, scumbags and criminals and it falls to pieces every decade or two like clockwork. Youthful angst is just a condition where you think no-one else notices and that the problem is solvable. Maturity is when you realize that anyone paying attention has always known and simply decided that playing along leaves more time to get on with life than railing against the game.
    - foldr 17y ago
      >I think it's more 'by definition' than 'by coincidence': the world has always been run by idiots Maybe so, but it's certainly not run by idiots "by definition", if you have the normal meaning of the phrase in mind.
      - roc 17y ago
        I didn't mean to suggest that every person 'running things' was accurately described by each label. I meant "idiots, scumbags and criminals" as a domain. I wouldn't even rule out that an exception or two might not fit into any of those labels. I just don't think they're statistically significant.
        foldr 17y ago
        I just mean that I don't see that he was right by definition. That would mean that the world is run by idiots by definition, which is obviously false (that fact, if it is a fact, doesn't follow from the definitions of any of those words).
    - sethg 17y ago
byrneseyeview 17y ago
If SarBox applied to the government's own accounting, most Federal officials would be doing hard time. Meanwhile, the vast majority of corporations don't end up restating their earnings. It's one thing to say that people are flawed, and are dishonest when they can get away with it; but it's another idea entirely to imagine that government regulation does a better job. Madoff's competitors called him a scam artist before the SEC got involved; Paulson made a fortune by correctly betting that housing was overpriced; the Enron story was pushed by short sellers and journalists, to the point that the government didn't get involved until after the bankruptcy. So why would we trust the government--which has failed miserably so far--to suddenly do a better job than the private sector?
- roc 17y ago
  Luckily it's not an either/or. There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks. The only real problem we just suffered, was that certain institutions were allowed to become integral parts of our financial system and were allowed to play fast and loose with their own solvency. If those banks weren't absurdly leveraged, the housing bubble would have just been another recession. Lesser problems were the risk ratings that were tantamount to fraud and the short-sighted financial focus of your average corporate entity which lead to the over-leveraging. But I'm comfortable conceding that ground to caveat emptor and letting the SEC sweep up the most egregious trouble-makers a day late, as usual. Because I honestly have no idea how you could actually _fix_ those problems without breaking something far more important.
  - anamax 17y ago
    > regulation prevents those mistakes from growing into systemic risks. Regulation creates systemic risks. Regulation is why all big US banks took a huge hit when Fannie and Freddie hit the skids. Regulation is also why banks were holding "insured" mortgage pools.
  - lionhearted 17y ago
    > There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks. You missed the largest problem - the Federal Reserve set the price of borrowing money artificially low, almost to the point of being free. Whenever you set the price of borrowing money (interest and fees) lower than the rate of inflation, you're going to get some sort of massive financial problem. It's in everyone's rational interest under that scenario to borrow as much as they can. Of course, that leads to catastrophe.
drewr 17y ago
Not hard to argue at all. This narrative is worn out. The populist belief that Corporate America was a down-home hoe down where good guys get together and make deals with a handshake is revisionist at best. Summers perfectly illustrates that the financial system is a nepotistic web of USG, banks, and investors which is heavily regulated to maximize profits at all endpoints. The fact that it only comes crashing down every few decades is a testimony to the small remnants of capitalism one might find in the edifice. Krugman is economics theatre.

logicalmind 17y ago

The elephant in the room here is campaign financing. As long as a person* with great wealth can outweigh the desires of the majority of people we will get the government that we deserve. *By person I mean a legal person http://en.wikipedia.org/wiki/Legal_person http://en.wikipedia.org/wiki/Legal_person

anamax 17y ago
> The elephant in the room here is campaign financing. As long as a person* with great wealth can outweigh the desires of the majority of people we will get the government that we deserve. The fix, making it impossible for ordinary people to contribute useful amounts of money to political causes in which they believe, makes things worse. Note that we didn't actually have rich people buying elections before the various campaign finance restrictions. Out of fear of a then-imaginary problem, we set up a system where the problem actually occurs. Malice or incompetence - either way, it's not much of a recommendation.
- logicalmind 17y ago
  I don't think that ordinary people are the problem. If by ordinary people you mean natural persons* . In the US government, the elected officials should represent the will of the people who elected them. The problem is that special interests find that money is better spent through lobbying. This allows them to buy votes and even write laws. A massive amount of money is spent lobbying: http://www.opensecrets.org/lobby/index.php http://www.opensecrets.org/lobby/index.php This money obviously has an effect. Ordinary people aren't creating lobbying groups. *http://en.wikipedia.org/wiki/Natural_person http://en.wikipedia.org/wiki/Natural_person
  - anamax 17y ago
    > I don't think that ordinary people are the problem. I didn't say that they were. I said that they were the ones adversely affected by campaign finance restrictions. The rubes think that that's an accident and that it could be fixed. The cynics think that that was the goal and know that it won't. The realists know that it was inevitable. > The problem is that special interests find that money is better spent through lobbying. That's because "we" keep voting for folks who set up programs "to do good". That always fails because regulatory capture always happens. Either we're insane or we want to be fleeced. The only way to stop being fleeced is to insist that govt stop doing things.

olegk 17y ago

This decade has been really really good for IT, especially salary-wise. There were tons of successful startups.

WilliamLP 17y ago
> This decade has been really really good for IT, especially salary-wise. Yet somehow I'm making a lot less than I did in 1999, before inflation. Part of that is my fault, but still!

Tichy 17y ago

But it gave us the iPhone! Perhaps we could call it the "iCade" or something like that?

WilliamLP 17y ago
Basically the decade involved a ridiculous penetration of cheap phones, cameras, and texting, along with vastly improved TV and monitor technology. Along with this came an extreme social change towards being plugged into a social and media network at all times, toward where this is now near its logical conclusion of the devaluation and death of individual thought.
- dandelany 17y ago
  [citation needed]

kees 17y ago

My life is improved so much due to technology. Remember only your computer and the internet in 1999..... The same counts for almost every other product you're using. Maybe financially there wasn't much progress, but the silent and steady motor of improving daily life is still running.

habitue 17y ago
Yeah this is what I thought when reading this. He does, however, preface his statement that "nothing good happened" with "economically speaking", and he makes a good case from that perspective.

mmphosis 17y ago

The good news is that there is only one way to go once you hit rock bottom. The bad news may be that I don't think that we've hit bottom. And, we don't necessarily know what the bottom is. The Big Zero is a nice round number, but I think we've been borrowing towards an unpayable debt for longer than ten years, and we are only falling further. Planes, both figuratively and literally, continue to keep dropping out of the sky. If it was left up to me, I would get right to the bottom of it.