African Americans after Obama election

The factors may overlap, but they aren't perfectly identical. I think there are some significantly different cultural factors, as well as other structural ones (unequal de facto school segregation being one example racism being another).

This information is from President Clinton's New Markets Tour & Clinton-Gore Administration - Appendix A2


Real Wages for African Americans Rising Sharply After A Decade of Decline

• 1981-1991. Median weekly earnings dropped 3%, after adjusting for inflation.
  
• Today. Median weekly earnings rose 7.3% between 1996 and 1998, after adjusting for inflation (Source: Bureau of Labor Statistics).
  

Real Wages for Hispanics Rising After A Decade of Sharp Decline

• 1981-1991. Median weekly earnings dropped 8.5%, after adjusting for inflation.
  
• Today. [1999] Median weekly earnings rose 3.8% between 1996 and 1998, after adjusting for inflation (Source: Bureau of Labor Statistics).
  

Poverty For African-Americans Dropped to Lowest On Record

• 1981-1992. Between 1980-1992, the poverty rate for African American remained at 30% or more.
  
• Today. The poverty rate for African Americans dropped to 26.5 % -- the lowest on record and lifting 1.8 million people out of poverty since 1993. [Source: Bureau of the Census=
  

Poverty For Hispanics Dropped to Lowest Since 1979
1981-1992. Today. Since 1993, the Hispanic poverty has dropped to 25.6 percent-the lowest since 1979.


Family Income Up More Than $5,000 Since 1993
1988-1992. Median family income (in inflation-adjusted 1998 dollars) fellToday [2000]. Since 1993, real median family income has increased by $5,046 , rising to $46,737 in 1998.




Also, between 1979 and 1987 the bottom 10% of the income bracket experienced a 18% decline in family income while a 1992 Congressional Budget Office study found that the top one percentile of the income bracket experienced a 60% rise in income after taxes over the decade.


Source: Dan T. Carter. From George Wallace to Newt Gringrich Race in the Conservative Counterrevolution 1963-1994. (Baton Rouge: Louisiana State Press, 1999), 63. Carter is a Bancroft prize winning historian fyi.

see a description of income disparities under recent presidents' tax plans starting on page 4
http://www.nytimes.com/2008/08/24/magazine/24Obamanomics-t.html

Here's a graph of household debt vs GDP covering the 20th century -- note that slope dramatically steepens in the beginning of the Bush term; and note that the only two times in US history that the household debt has been 100% of GDP are 2008 and 1929:
NPR: Household Debt Vs. GDP

Here's a graph of inflation-adjusted real estate prices from 1975-2008:
http://www.lesjones.com/2008/11/25/inflation-adjusted-us-house-prices-1975-2008/

I'd also recommend that you listen to the "Planet Money" podcasts from NPR, and in particular the three combined episodes they've done with "This American Life" about the subprime crisis, about bank failures, and about insurance gambles (like credit default swaps and AIG).

This is a tangent of the classic trickle down argument, but dollar-for-dollar money in the hands of wealthy people has a smaller economic multiplier because much of it is either saved or reinvested for personal wealth generation. In the hands of poor people it's usually spent right away, which actually goes to capital for businesses.

Its main advocates have been the AMA, the American Academy of Pediatrics, the American Academy of Family Physicians, and various social advocacy groups like Families USA. These are different than lobbyists for Pfizer or Merck or Kaiser-Permanente or Blue Cross. Industry tended to back the bill, but they haven't had much of a stake in its outcome -- the main thought is that they've been trying to win favor with the new democratic majority.

Then how do you know it will work?

You really need to listen to the podcast "The Giant Pool of Money". It's fascinating. I don't dispute what you've written, and I fully agree that Greenspan's obsession with lowering Treasury rates to spur economic growth was a MAJOR contributor. But as you'll find in this podcast, part of the impetus for the subprime crisis was an enormous increase in global wealth in recent years, which fueled an extremely lucrative mortgage market. I mean China's economy has been growing at what 10% a year and they've invested untold billions in Fanny, Freddy, and the major US investment banks, which has directly fueled the craving for mortgage-backed securities. China has been so drunk with investing in US dollars that it's put itself in a position of having to bail us out just to maintain the value of its investment.

Uh, I'm not sure if you included the right link, but what you've linked is completely irrelevant to the point. If you're a bank, and you've got 30:1 leveraging and your assets are securitized subprime mortgages, well, you get to experience what Bear Sterns, Lehman Bros, Fannie, Freddy, AIG, etc all experienced when the foreclosures started hitting the fan.

There's a great article in the NY Times magazine about the complete ineptitude of risk models on Wall Street. It's not that people are dumb -- it's that it's not in their competitive advantage to be honest about risk unless the risk is too great for them to survive. But the problem is that if you're not honest about the risk, you won't recognize it until it's too late to survive.

http://www.nytimes.com/2009/01/04/magazine/04risk-t.html

In general I agree. But the problem is so widespread throughout the world, and that so much wealth is paper wealth and not real assets, that the global economy does not have the reserve to absorb these defaults.


It has to be legislated nationally and enforced by the US Treasury, just as banking regulations are enforced by them.

They have to have better risk metrics, better transparency, and they can't be as incompetent as the SEC has been. But that's not an argument to scrap regulation any more than 9/11 is an argument to scrap the FBI and CIA. The problem is that 1) almost no one truly understands the financial system, 2) the people who DO understand the financial system manipulate it to their own benefit, and 3) there is no way that for-profit financial institutions will self-police when they are competing against one another.

http://www.nytimes.com/2009/03/11/business/economy/11leonhardt.html?_r=1

I hear you, I mean in the medical profession we are required to give full disclosure of financial agreements we've made with industry before we can get a research grant, publish an article, or give a talk.

Hank Paulson is an example of someone who seemed to remain more beholden to his buddies at Goldman-Sachs. Geithner was head of the NY Federal Reserve, i.e. he was regulating the institutions and not participating in them before going to the Treasury. Ben Bernanke was in academia before going to the Fed. Larry Summers was president of Harvard and was in the Clinton administration before that.

But if you were in Obama's shoes who could you appoint? I mean you need people who actually understand this problem, and I'm not sure there are many people out there who do.

Aedes,

First I need to make a note. I was writing this and realized how much my language does make it seem like the government "is out to get us". As you read this, please understand that I speak teleologically about the government only to communicate my opinion more simply. I do not believe there is an entity called the government that exists with the sole purpose to screw people over. I simply believe that this government behavior is systematic and fundamental. I have no doubt that you can relate, as it is very similar to the manner in which evolution is often described as if it were purposeful.

I think we may have a general irreconcilable difference of opinion that transcends this topic, but I do not consider you to be off-base. I simply think that you are not accounting enough for the easy money policies and the arbitrage creating tax and regulation codes in examining the distortion of market prices.

I would even go so far as to say that, under current levels of government intervention within the market (all of which is pro-centralization, pro-big business, pro-liability), that regulation is necessary. However, that is only under the government intervention.

I believe that, were interest rates not constantly manipulated to create an artificial supply of money, the government to stop its implicit and explicit insurance of large banking and investment establishments, and regulation not fundamentally reactionary and as such creating new avenues of arbitrage leading to massive financial market migration, the regulation you call for would simply not be necessary.

You seem to buy the general trends that I speak of, yet you think that there are some major exceptions to the rule that demand regulation. I think this is the majority opinion. I also do not believe that eliminating regulation will make everything perfect, and I don't believe that corporate managers, investors, and bankers are ethical paragons (quite the opposite, I think they are worse than politicians, thats part of my point). I just take the market to be at all times self-regulating, and government intervention is necessarily a usurpation of that process. In fact, economic calculation is only possible through the pricing mechanisms of the market. Government intervention in the market necessarily disables or skews the pricing functions of the market.

You spoke of transparency, now it is my turn: the market is transparent and economic calculation is only possible to the degree that the government does not interfere.

Even worse than all of this is the general attitude that the government promotes. The government is not satisfied with simply wrangling markets into the form it wants, it also seeks to manipulate public opinion concerning markets. Politicians seem to have no better method for marketing themselves than to induce fear and then cast themselves as saviors. As such, politicians will always look to give the idea that the market is either very healthy or bound for a recovery.

This means that government intervention always carries with it a general carelessness in economic agents. It would take a general detachment from reason and reality to say that investors don't take government supervision and guarantee for granted, and adjust their risk accounting accordingly. With that said, it follows that a lesser government presence in economic matters would lead to greater vigilence, while greater government presense would lessen vigilence.

Considering the omnipresense of the US government, the largest government in history, it seems a minor miracle that some private entities were predicting and warning against the present crisis years ago. You keep yourself very educated on these matters, so I have no doubt that you too saw this coming, even if you weren't quite sure of what might trigger it.

In sum, we have two factors here:

First, government intervention necessarily negates the self-regulating functions of the market. Risk-reward assessment is skewed, pricing functions become cloudy and confusing, and resources are directed into artificial and unproductive avenues.

Secondly, government intervention necessarily creates complacent and "dumb" economic agents.

As an aside, it is ironic that I believe his economic advisors to be extremely capable economists. Volcker and Summers especially. The thing is that they are as staunchly anti-regulation, pro-market economists as Obama could find. As soon as they begin to interfere with the market, however, they will immediately beholden to big money interests.

60 minutes interview with Fed Chair Bernanke:

Part 1:
The Chairman Part 1 - CBS News Video

Part 2:
The Chairman Part 2 - CBS News Video

I do agree with this. I mean the low federal funds rate made credit extremely easy. But this was coincident with massive wealth accumulation in foreign treasuries, which decided to invest in high risk / high return entities like mortgage-backed securities, rather than US Treasury bonds, which were safe but low return.

In the credit-default swap market, there were something like $12 billion of bond guarantees for every $1 billion of actual bonds. So once financial institutions started to fail, there was no way that insurers like AIG and other holders of credit-default swaps (like investment banks and hedge funds) could pay up for all the defaulted bonds. The problem was that an enormous world of insurance developed without any public disclosure and without any regulation to dictate how much capital an entity had to have to sell X amount of insurance.

The market is not at all transparent. The stock market is transparent, and the bond markets are transparent. But that's not at all where the problem arose.

1. The credit-default swap market is solely a buyer-seller arrangement. It is 100% private, and there is no public "exchange" by which you can see the demand and price. Selling credit-default swaps on, say, Lehman brothers, became extraordinarily lucrative as Lehman started to look weak. So this incentivized people to sell credit-default swaps for ever increasing returns. But for lack of transparency, no one knew how much in the hole they would be if Lehman actually defaulted on its bonds. And when Lehman tanked, AIG suddenly had like $400 billion in bond insurance it couldn't pay out -- and no one knew this.

Look under regulatory concerns:
Credit default swap - Wikipedia, the free encyclopedia

2. All these financial instruments, including mortgage-backed securities, were bundled and then sold in pieces to thousands of investors. Thus, there was no way to trace who actually owns what. If I'm a bank and sell you a mortgage so you can buy a house, that's easy. You and I share equity in the house as you pay for it, and you pay me in interest. But if I sell Morgan Stanley 10,000 mortgages as a single group, and they let 1000 buyers invest in that one security, then who actually owns what? All 1000 of those investors own part of your house, but they also own parts of other houses.

3. Banks and other entities like AIG did NOT honestly re-value bad assets. So if you've got a bank that owns 10 mortgages worth $500,000 each, then you've got $5 million in assets. But if the market craps out and the houses are worth $250,000 now on the market, that means you have to draw down $2.5 million in capital to balance the bank balance sheet. Bank balance sheets are available and transparent. But the banks did NOT recalculate their balance sheets based on the sub-prime defaults and the dropping real estate value, because that would have meant less investment in them. So they grossly overstated their assets, and there was no transparency until they began to fall into default themselves (and couldn't get credit on their own).