Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman By Mark Deen and David Tweed Sept. 14 (Bloomberg) -- Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc. âIn the U.S. and many other countries, the too-big-to-fail banks have become even bigger,â Stiglitz said in an interview yesterday in Paris. âThe problems are worse than they were in 2007 before the crisis.â Stiglitzâs views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obamaâs administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing âexcessively.â A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.âs assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis. While Obama wants to name some banks as âsystemically importantâ and subject them to stricter oversight, his plan wouldnât force them to shrink or simplify their structure. Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action. G-20 Steps âWe arenât doing anything significant so far, and the banks are pushing back,â said Stiglitz, a Columbia University professor. âThe leaders of the G-20 will make some small steps forward, given the power of the banksâ and âany step forward is a move in the right direction.â G-20 leaders gather Sept. 24-25 in Pittsburgh and will consider ways of improving regulation of financial markets and in particular how to set tighter limits on remuneration for market operators. Under pressure from France and Germany, G-20 finance ministers earlier this month reached a preliminary accord that included proposals to reduce bonuses and linking compensation more closely to long-term performance. âItâs an outrage,â especially âin the U.S. where we poured so much money into the banks,â Stiglitz said. âThe administration seems very reluctant to do what is necessary. Yes theyâll do something, the question is: Will they do as much as required?â Global Economy Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is âfar from being out of the woodsâ even if it has pulled back from the precipice it teetered on after the collapse of Lehman. âWeâre going into an extended period of weak economy, of economic malaise,â Stiglitz said. The U.S. will âgrow but not enough to offset the increase in the population,â he said, adding that âif workers do not have income, itâs very hard to see how the U.S. will generate the demand that the world economy needs.â The Federal Reserve faces a âquandaryâ in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said. âThe question then is who is going to finance the U.S. government,â Stiglitz said. Stiglitz gave the interview before presenting a report to French President Nicolas Sarkozy that urged world leaders to drop an obsession for focusing on gross domestic product in favor of broader measures of prosperity. GDPâs Shortcomings âGDP has increasingly become used as a measure of societal well being and changes in the structure of the economy and our society have made it increasingly poor one,â Stiglitz said. Assessing governmentâs contribution to economic output, which ranges from 39 percent in the U.S. to 48 percent in France, is one of the shortcomings of the GDP model, as is its difficulty in estimating improvements in quality of products such as cars instead of just quantity, Stiglitz said. Similarly, increased household debt may drive up output numbers, even though that doesnât amount to a real increase in wealth, he added. While Stiglitz doesnât recommend dropping GDP altogether, he wants governments to consider such matters, along with issues of environmental sustainability, in policy making. âMost governments make a fetish out of it. If you take one message out of our report, make it avoid GDP fetishism,â he said. âThe message is to encourage political leaders away from that.â To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.netDavid Tweed in Paris at dtweed@bloomberg.net Last Updated: September 13, 2009 18:00 EDT
How about (Per-capita GDP Growth)/(Mortgage Debt + Consumer Debt)? Ratio >1.0 is growth Ratio <1.0 is recession
"Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult,......" I think that says it all. The bank lobbyists pretty much run D.C., so the TBTF are simply getting bigger. This only makes the day of reckoning that much more disastrous.
Meanwhile, trillions in derivatives await the blasting cap that blows the world economy to smithreans.
And the professional response by the almighty govt. Summers, Bernanke, Geithner ????? Here it is..... OH..... OH THAT..... OH MY.....