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Business Roundtable

Posted by Charles II on May 24, 2009

The NY Review of Books has an interesting roundtable with Paul Krugman, Nouriel Roubini, Robin Wells, and George Soros, along with ex-Sen. Bradley, and also Niall Ferguson for comic relief.

To his credit, Bradley says we should nationalize the banks.

Nouriel says that things are and will be bad, but probably not catastrophic. He says that the solution is to convert debt into equity to reduce leverage, which I think isn’t right: basically this means flooding the market with major corporations priced as penny stocks. It might have worked when stock prices were near $100, but won’t work with stock prices below $20. If you could “induce the unsecured creditors to convert their claims into equity,” then they would have balance sheet problems. He also says this, which gets at the heart of what this means to the solution of the crisis:

But there are only a few ways of resolving that debt problem: either you default on it as countries like Argentina did; or you use the inflation tax to wipe out the real value of the debt; or you have to raise taxes and cut government spending.

Robin Wells seems to have pegged what I would call the ultimate source of the crisis:

I think this story starts really in the Eighties. During the Reagan years, we experienced chronic fiscal deficits, and we began to abdicate our responsibility to raise tax revenue that could sustainably finance government. In order to do that, we had to borrow, and who did we borrow from? We borrowed from countries that were running persistent trade surpluses.

Krugman says,

We are currently in debt about 60 percent of GDP. We have in the past been as high as 100 percent of GDP at the end of World War II without having a crisis, but your ability to go that high does depend upon people’s belief that you will behave responsibly, and that is somewhat in question

There’s more. It’s a conversation worth reading.

2 Responses to “Business Roundtable”

  1. Niall Ferguson? Um, why him? Was it just to make sure they had a conservative voice so as to keep the screams of “Commies!” down to a dull roar?

    That being said, it was good to see the adults in the discussion talking about things in an adult manner.

  2. Charles II said

    Ferguson is the Official Spokesman of Respectable Conservatism. PBS gave him hours. Since he’s a college professor, I listened to him thinking he’d start to make sense after a while, but after 45 minutes, I realized that in the empty interstices of his vapid presentation, there was nothing.

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