Bob (Rubin), Paul K, Brad DL, and the Changing Budget Outlook

January 10th, 2014 at 6:33 pm

Brad DeLong and Paul Krugman go after former Clintonista Bob Rubin based on a Rubin oped in today’s FT wherein he invokes the Krugman confidence fairy by claiming things like: “Business leaders frequently cite our fiscal outlook as a deterrent to hiring and investment.”

Though I thought Rubin’s piece had some redeeming qualities–he calls for a jobs stimulus and getting rid of the sequester–and he surely talks to more business leaders than I do, if that’s true, it’s a) very strange, and b) suggestive that his friends are telling him what they think he wants to hear.

Re ‘a,’ the damn deficit has come down from 10% of GDP in 2009 to 4% in 2013, the largest four-year drop since 1950–that’s even before I was born!  And what business person thinks this way?: “Hmmm…let me see.  There’s a lot of demand for the thing I produce, and I can still borrow very cheaply.  But despite the sharp decline in the budget deficit, CBO says that by 2040, the debt-to-GDP ratio will be really high.  So…better not expand.”  If there is someone out there doing that calculus, then with respect, they probably should go out of business.

But here’s the part of Bob’s piece that stuck me as misguided:

Recent reductions in deficit projections do not change the basic structural picture – except that healthcare cost increases are slowing – and are partly based on sequestration, a terrible policy that already looks too onerous to stick.

According to our own long-term forecasts here at CBPP and to CBO’s recent estimates of the impact of the health cost slowdown on the budget, the structural picture has in fact changed significantly.  Given the dominance of health costs in driving the long-run picture, that little phrase in Bob’s quote acknowledging this trend is especially curious.

Just look how much the debt/GDP projection declined since our 2010 projection.  Yes, it’s still rising in ways we’ll need to deal with, and Bob’s right on point in arguing for higher revenues to do so.  But that’s a big, structural shift that he doesn’t seem to have incorporated into his perspective.


And given that the primary driver of future deficits is the increase in health care spending, the extent to which lower health care costs are in play here matters a great deal.  My CBPP colleague Paul Van de Water made this graph earlier this week showing 10-year savings of $1.2 trillion from recent CBO forecasts.

Since March 2010, CBO has lowered projected Medicare spending in 2020 by $137 billion (15 percent) and projected Medicaid spending by $85 billion (16 percent).  Over the 2010-2020 period, CBO has lowered its projections of Medicare and Medicaid spending by $1.2 trillion.


The message here is twofold.  First, it’s essential to update one’s fiscal outlook to account for both recent and future improvements in that outlook.   I see no reason to be impenetrable to that evidence.  Second, given how much they’ve changed in just a few years, these long-term budget forecasts are clearly far from etched in stone.  As you see, they’ve recently moved in very favorable ways but that too could change.

Anyone who’s basing there fiscal analysis on such data needs to account for these facts.  Anyone who’s basing their hiring or investment plans on them is kinda crazy.

Print Friendly, PDF & Email

7 comments in reply to "Bob (Rubin), Paul K, Brad DL, and the Changing Budget Outlook"

  1. Perplexed says:

    -“…and he surely talks to more business leaders than I do, if that’s true, it’s a) very strange, and b) suggestive that his friends are telling him what they think he wants to hear.”

    And what percentage of the electorate are these people? How is that one man can be responsible for so much damage to so many, not only in the U.S., but throughout the world, and still have such outsized, unquestioned influence in a democracy? What’s wrong with this picture?

  2. readerOfTeaLeaves says:

    In ‘Race Against the Machine”, computer scientist Martin Grotschel is quoted as stating that between 1988 and 2003, the improvement in computing (faster processors + better algorithms) increased 43 millionfold. (p. 19)

    That’s a lot of productivity gain; Wikipedia, blogs, and streaming video don’t even begin to illustrate its significance. Arguably, these productivity gains have powerfully shifted the economic power of capital at the expense of labor; whoever controls ownership of the algorithms hoovers up the capital gains. This is an iterative process, and the benefits for capital continue to compound. However, Mr. Rubin fails to mention these profound shifts in the distribution of economic benefits.
    They are clearly illustrated here:

    Meanwhile, during that same time period, over 60 *billion* microprocessors were created to automate much of what we do.

    There were huge productivity gains for technologies based on microprocessors – like logistics used by FedEx and DSL. To cite another example: Wal-Mart could never have become a behemoth without microprocessors, which are essential to its inventory and distribution systems. The development of microprocessors also translated into productivity gains for manufacturing, health care, education, and other sectors.

    Logistics, inventory, and distribution networks are all capital resources that reduce the costs of labor – sometimes dramatically.
    Mr. Rubin’s OpEd makes no mention of these shifts.

    Considering the technological shifts of the past 20+ years, and their impacts on the relationship between capital and labor, an article in this week’s Guardian Business section — about the tiny profit margins for PC manufacturers — is all the more intriguing. If this article is correct, then hardware makers may be making as little as $15 to $1.25 profit on the sale of a PC priced from $530 – $599.
    (Yes, you read that correctly — as little as one dollar profit on a $530+ consumer product (!))

    Assuming the figures in the Guardian business article to be accurate, it’s hard to see how ‘labor’ (i.e., manufacturing, production of real goods) is generating much income relative to ‘capital’ (i.e., patents and trademarks for computer design, operating system software, software upgrades). Indeed, this is like putting capital on steroids, at the direct expense of those who labor to produce the computers.

    The economy has been going through a fundamental transition.
    One theme that emerges repeatedly is the way that capital continues to become more powerful relative to labor; this shift appears to be accelerating – and compounding – as a result of digitization.
    If this is the case, then how is it possible that Mr. Rubin fails to mention it in his OpEd? Does he not see it? (And if he doesn’t see it…?! But I digress…)

    Rubin’s assumptions about deficits appear to rest on a model of the economy that is based in early 20th-century industrial-era economics. It assumes the economy is a ‘closed’ system.

    This seems extremely odd, given Rubin’s role in financializing the US economy. (Financialization required algorithms, computer and telecomm networks, and capital control of intellectual property).

    We are living through vast shifts that are unique in human history, and for which we have poor economic models. (For starters, we humans are very bad at visualizing exponents, and the capital increases are all exponential.) Falling back on economic models that worked as recently as the 1980 is worrying; many of the shifts in technologies began in the 1980s, and accelerated rapidly with the growth of the Internet, surging in the late 1990s. The 1980s was a time of Deficit Fetishes; the Reagan-era insistence that ‘government spending crowds out private investment’ continues to haunt American intellectual debate. This conversation has been perpetuated ever since, to our collective detriment.

    Judging from Rubin’s OpEd, it appears that the Deficit Fetish is alive and well, and continues to drive [what passes for] debate in D.C. This is deeply discouraging. Why doesn’t Rubin cut to the chase and admit that he is simply rearranging deck chairs on the Titanic, and the H-E-double-hockey-sticks with attempting to grapple with the fundamental shifts that are affecting the nature and productivity of the American economy, and American workers?

    Unfortunately, it’s no longer credible that policies like ‘cutting deficits’ can grapple with the magnitude of changes that are occurring in the nature of the economy. If the economy is undergoing a fundamental restructuring – and that appears to be the case – then there are plenty of new economic opportunities. But also a heightened need for more strategic public policies.

    It’s hard to imagine that such policies could be developed without a much better examination of the way that capital has come to dominate labor: how compounding capital is altering economic relationships, economic behavior, and political power.

    • Jared Bernstein says:

      Very compelling and resonant analysis, RoTL. A few questions, thoughts (and apropos, this is written on one of those low-margin Acer’s). The deficit debate sounds like pretty much a ‘key-dangler’ within this framework.

      First, say more about the financialization linkage. I get how increased computer power and algorithms created say, flash traders and quant shops, but is there a linkage to housing bubbles inflated by securitization and crap underwriting? Would not that sort of thing have occurred under other imaginable IT regimes? Is not the issue there bad oversight of a volatile sector?

      Second, and related, I think–not sure–that there’s an implicit connection here between capital’s dominance that’s related to IT and it’s accelerated power and design (faster hardware teaming up with more advance algos). But it’s not clear that IT is behind this in the sense that we would not have seen such shifts if the innovation came from some other sector–(though it’s not clear that it isn’t, either). Are these IT advances playing out the same way in other countries with more balanced political systems…I don’t think so.

      Anyway, great stuff.

      • Perplexed says:

        -“First, say more about the financialization linkage. I get how increased computer power and algorithms created say, flash traders and quant shops, but is there a linkage to housing bubbles inflated by securitization and crap underwriting?”

        Have you seen this paper yet:

        A commenter on Dean Baker’s blog posted a link to it the other day:

        “The housing bubble was driven by major banks changing the banking multiplier using AIG
        written by Brian, January 06, 2014 1:09

        The paper, Release of the Kraken, explains precisely how the banking multiplier was modified by the purchase of CDS contracts to insure loans, and how that allowed the major banks to then move the insured loan back into their capital account, where it could be used again to make a loan. Being able to do so changed the classical banking multiplier asymptotic limit from 1/r to a complex equation that for most practical purposes has no limit.”

        Its pretty important new research that exposes and describes the underlying mathematics of what ultimately drove the mortgage counterfeit fraud the banks engaged in. As long as they could keep new money coming in and turning over these mortgages (a rather sophisticated “Ponzi scheme in other words) they had (and still have) a virtual profit generating machine that puts the public at tremendous risk and just throws off money to bankers and their accomplices. They needed the counterfeit mortgages to keep feeding the machine and it fell apart when the “music stopped” and the huge amount of scam mortgages were uncovered. Ultimately its a scam the scale and scope of which makes Bernie Madoff and Charles Ponzi look like mere “pickpockets”  and amateurs in comparison. This will go down as the biggest, most sophisticated crime ever committed in all of recorded history, and the perpetrators of the crime got away with it with the assistance of the government in covering it up and selling indulgences to criminals. No one even got prosecuted! (In the 80’s Savings and Loan scandal, more than 1,000 bankers went to jail; the scope of that scandal was miniscule relative to what went down here).  Danny Ocean has been outdone by many orders of magnitude. Charles Ponzi would have been awestruck at this scheme (although probably upset that he didn’t think of it himself).

        -“Second, and related, I think–not sure–that there’s an implicit connection here between capital’s dominance that’s related to IT and it’s accelerated power and design (faster hardware teaming up with more advance algos).”

        If we don’t separate the effects of “capitalism” from the effects of government provided “monopolies” we might just lose “capitalism” altogether as the monopolies take capitalism down with it. Were it not for the monopolies, the prices would be falling to where mr=mc and all would benefit from the technological advances; that’s not happening, the prices are set to optimize monopoly profits. IT’s “accelerated power” is just a new (& improved?) version of monopoly power. There’s nothing new going on here just as there was nothing new when counterfeit fraud mortgages showed up when they were easy and extremely profitable to the criminals. We’re simply seeing old things in new costumes. What is the marginal cost of software? What is the price? What is the marginal cost of an i-phone? What is the marginal cost of cancer drug? What are the prices? Where are the economists that can tell “We the People” what fraction of the economy is rents? This is unsustainable; we must address it sooner or later.

        As readerOfTeaLeaves points out “It’s hard to imagine that such policies could be developed without a much better examination of the way that capital has come to dominate labor: how compounding capital is altering economic relationships, economic behavior, and political power.”

        As many do, readerOfTeaLeaves singles out “capital” and “capitalism” as the “force” that is “dominating” labor when it is politics and the resulting monopolies that are dominating labor. As I’ve pointed out before here, “…Labor “markets” don’t clear because “labor” is exempt from the 1914 Clayton Act anti trust provisions. Labor “markets” don’t clear because we allow tyranny of the majority and don’t enforce Constitutional provisions “insuring” “equal protection under the law.” Those whose product is “labor” (the 95%) are powerless against the buyers of their “product” because they lack equal protection under the law which allows them to be coerced by preventing laborers from “pooling their risk” of being unemployed and empowering employers to decide “at will” which “producers” of labor will be “excluded” from “market” participation and bear the entire cost with no ability to spread the risk. The Clayton Act is coming up on its 100th anniversary this year; That’s 100 years of “market” exclusion, employee coercion, and full employment for economic “scientists.” Maybe we should celebrate the anniversary be renaming the Clayton Act, the “Economists’ Full Employment Act.” While one would think that economists as a group would be the most ardent protectors of actual free markets, this tyranny of the majority could not survive without their collective defense of the tactic. What we need are some mathematicians who can measure and show some “charts” of the accumulated damage to victims of this tyranny over the last 100 years.”

        Its the reverse of “insurance.” It forces labor to “conduct business” with no access to insurance and therefore no ability “pool risks.” Think of what would happen to the automobile industry if owners were forced to go without insurance. People (with the support and encouragement of economists) believe that allowing “free markets” in labor would reduce the power of labor and put their jobs at risk (because the unemployed will come and take them all and make everyone work for peanuts! This is ludicrous, where’s the evidence for this?) when the reverse is true. Allowing free markets would produce instant insurance and risk pooling as no one could be coerced, explicitly or implicitly, with the threat of joblessness. There would have to be another solution (reduced work hours, weeks, etc. to spread the available hours across all of the available workers.) It would also increase the political power of labor dramatically as all would share the costs of unemployment (by each paying a tiny share, through reduced hours or wages, just like a premium), and would collectively punish any politician that supported legislation that benefited exporting jobs from the U.S.

        We have allowed the coercion enabled by the Clayton Act and we have assisted the emasculation of labor in the process. We have allowed the monopoly pricing to concentrate the wealth and income, and we have allowed the propaganda that suggests something else, some other “previously unknown force” is at work. There is no group more powerful to reverse this damage than economists. It could not be sustained without their support. Someone needs to explain to the public how this is really working in practice. Will it be economists or do we need another “science” to run the actual numbers?

      • readerOfTeaLeaves says:

        Will cogitate and attempt to respond with better analysis. And citations.

        But briefly:
        (1) I’m convinced that there are multiple linkages to housing bubbles inflated by securitization and crap underwriting. For instance, by the mid-2000s, WaMu employees were writing mortgages using twelve (12!) different software programs, none of them related to one another. In addition, the whole MERS mess that drove much of the fraud closure could never have occurred without (really terrible) IT. There’s no way things could have played out the way they did without a lot of lousy IT.

        The linkages between securitization and bubbles were not inevitable; they were the result of: (a) technical IT issues, (b) bad modeling (which required IT), (c) deplorable corporate mismanagement, and (d) lack of meaningful government oversight.

        (2) We might have seen shifts in the dominance of capital if innovation had come from other sectors, but I’m intrigued by the economic implications of digitization. In some unique respects, digitization enables capital to function like a Sorcerer’s Apprentice: it duplicates itself; it can duplicate its duplications, and then multiply those duplications to the tenth power. This is not true of technologies like steam engines, railroads, or even telegraphy.

        Deficit Fetish = key-dangling.
        In view of the stats you provide in that post about SNAP, it’s bizarre that the CEO of a large US-based financial corporation fails to offer a trenchant analysis of the shifting relationships between capital and labor. Economic restructuring will inevitably affect his business model; consequently, I’d expected analysis and insight, rather than ‘key-dangling’.

        • Perplexed says:

          -” I’m convinced that there are multiple linkages to housing bubbles inflated by securitization and crap underwriting.”

          -“The linkages between securitization and bubbles were not inevitable; they were the result of: (a) technical IT issues, (b) bad modeling (which required IT), (c) deplorable corporate mismanagement, and (d) lack of meaningful government oversight.”

          Unfortunately, our “free press” has been almost completely “crowded out” by entertainment “news” shows which deliver the “entertainment” the “market” desires (and advertisers pay for) instead of informing the public. Thus the “cost” of being truly informed has escalated dramatically in terms of time (although the internet has done a lot to offset at least some of these costs). For one of the best (IMHO) “accountings” of “linkages to housing bubbles inflated by securitization and crap underwriting” that I’ve come across, read some (or all) of this complaint (downloadable pdf) which was pretty thoroughly researched and documented by the attorneys for Allstate:

          If you put this together with the document ( that I posted a link to in my earlier reply to Jared’s comment, I think you’ll see that ” (a) technical IT issues, (b) bad modeling (which required IT), (c) deplorable corporate mismanagement,” played very little, if any role in the scam. It was “managed” as intended to produce the desired results (enormous profits from counterfeit mortgages) that were based on very good “models” of the enormous profits that could be generated while the greatest risks of loss were shifted to those who had little or no knowledge of the risks being shifted to them ( American Citizens, American homeowners, investors all over the world in mortgage backed securities and investments of any kind “derived” from these assets, un-involved businesses and corporations, bank bondholders, and bank stockholders). This is EXACTLY how counterfeit fraud works, how it has always worked (it s nothing new and long precedes modern “technological innovations” of any kind). The counterfeiters benefit and the costs are imposed on others. The only real trick to it is to not get caught, prosecuted, convicted and thrown into jail, and have all of your “bounty” “clawed back” and taken away from you. So, in this case, success, success, success, and success; success on all counts. Counterfeit fraud has brought down jet airliners, mechanical equipment and structures of all kinds (think Chinese “grade 8,” bolts, one the strongest bolts used in structures and heavy equipment, that did not come close to meeting the standards of grade 8 bolts), and is an ongoing source of the risks and costs of crime throughout history. (Check with the airline industry and FAA to get a sense of the lengths they go to prevent it) “Creating” a story that this is something “new” and somehow related to modern “IT” and technology is a complete fabrication intended to cover up the reality of what is simply another (this is certainly not the first) “financial form” of counterfeit fraud. A viable press would have never a let a story of this magnitude get written for them by the perpetrators and their accomplices; they used to “live for” uncovering these types of scams, it was, at one time (think Woodward & Bernstien) one of biggest drivers of success, accomplishment, and recognition in the “industry.” The fact that they’ve been so inept at preventing the propaganda this time around is substantial evidence of how “sick” this “free press” “industry” has become and should gravely concern us all.

  3. readerOfTeaLeaves says:

    Qu 1: Is there a link between housing bubbles and securitization + crap underwriting? Yes.
    Here’s one way of making sense of it:

    In 1975, something called the Black-Scholes formula was published. As Richard Bookstaber relates in his superb “Demons of Our Own Design” (p. 9, pbk), “Adopted from the mathematics of the heat transfer differential equation of physics and employing the new tools of stochastic calculus, [the Black-Scholes formula] appealed to an academic core that seemed to derive a twisted pleasure from the mathematically arcane.” As I interpret the history, by the 70s, concepts of mechanical engineering that tested and analyzed heat flows and cooling patterns in engines became transferred to finance.
    Yes, as crazy as it sounds, that is what appears to have happened.

    Take an engine, and imagine a heat map of it cooling: faster on the edges (more blues, more greens) and slower in the center (more oranges, reds, yellows). Then imagine cutting that engine into a grid: cutting it sidewise, horizontally, and vertically. Basically, you have a grid of squares, and now you want to ask ‘what is the likelihood that if a square at location [0,1,1] will cool at the same rate as the square at location [200, 40, 180]… ? et cetera.
    So, for each square on your grid, you can create multiple calculations — each square’s probability of cooling at the same rate, or faster, or slower, than any other square. If there are 2000 squares in the grid, then you have at least 2000×2000 possibilities. One begins to see how this kind of ‘let’s-all-pretend-that-finance-works-pretty-much-like-the-way-engines-cool’ can employ lots of physics and math PhDs. And all of them work in the FIRE sector, and they all make oodles of moolah for programming in these esoteric calculations about the probability of one location on the grid cooling at the same rate as another location on the grid.

    Incredibly, this image of a cooling engine appears to have become the basic metaphor for finance – for the idea that the probability a person would pay their mortgage — or go into foreclosure — could be calculated. Not only could it be calculated, it could be compared against the likelihood of some other mortgage going into foreclosure. These were calculated using a copula (most likely Li’s copula) to compare it with some other mortgage.

    So the notion that all these probabilities could be calculated, and that all these mortgages could be assessed for the probability that they would be paid off, created a whole new sub-industry of quants centered in London and NYC. Goldman Sachs, UBS, Citigroup, Wells Fargo, and other banks (and firms like Lehman) charged pension funds, investment funds, and corporate customers for ‘hedging’ risk by creating endless sequences of probabilities.
    For a handy explanation, here’s one on Gaussian copulas:
    Here’s a great article on Li’s copula:

    So the quants seem to have been creating – and programming – probabilities on Wall Street.
    To feed the ‘grids’ that they were using to create those probabilities, they needed mortgages. Because each mortgage was one ‘square’ on their grid. And the more squares, the more probabilities they could calculate. And the more probabilities they could calculate, the more $$$ they could make… wheeee!

    Enter several factors: deregulation of banking **and of derivatives** in the late 1990s, and also the development of the Internet.
    In addition, in the late 1990s, computer languages were undergoing a fundamental shift, as something called Object Oriented Programming (OOP) began to replace the older, procedural languages. This created a lot of confusion in a lot of places, probably including banks and financial firms. (Competition for good programmers was fierce, and still is.)

    In 1995, something called MERS was first created – basically, to allow mortgages to be recorded without having to pay local county and city recording fees. Traditionally, all records of property transferral had to be recorded locally — this goes back hundreds of years, back before the Renaissance in the British system of laws that we still use as the basis of property law.
    By April 1997, MERS had morphed into a national eRegistry for mortgages. The Internet was taking off; was still only selling books at that time, and iTunes did not yet exist.
    I’ve never looked into the basics of MERS’s database design, but Yves Smith at NakedCapitalism has done phenomenal work covering the rise of MERS and its role in what became fraud closure. The number of bank employees across the US who were allowed to login to MERS and change data related to mortgages was absolutely stupefying. It’s one of the most promiscuous databases that I’ve ever heard of — a title agent or bank employee could access the system, and who knows what changes they could make to the ownership information on a mortgage (!). So MERS was one more element in a system that was ripe for massive fraud. (I can’t imagine a well-run corporation allowing such promiscuous access to their system; what I’ve read at NakedCapitalism completely blew my mind.)

    In addition, because of banking deregulation, banks were buying up other banks — and the software systems were not merging well. New attempts to create better systems were falling apart and companies were writing off millions in bad software implementation.
    In “The Lost Bank” The Story of Washington Mutual — the Biggest Bank Failure in American History”, there is a description of how Kerry Killinger’s CEO hired a bunch of new executives around 2003, many with ‘advanced degrees’. The old, traditional, conservative bankers were viewed as ‘legacy losers’ and many left as the corporate culture shifted to making loans, loans, loans! This process of making shoddy mortgages was made more possible as the employees of WaMu used any of 12 different software loan programs. (p. 99, pbk)

    But it gets worse – some of the WaMu software failed to record when people made their payments, and as a result they were sent notices that they were in default. (p. 99)
    This is a ‘Sorcerer’s Apprentice’ problem. There’s a case to be made that this is the kind of ‘mismanagement’ that can be created to deliberately mask fraud; a reputable, well-run institution would not have tolerated this kind of confusion. WaMu continued to make loans, among which Option ARMS were the most profitable for loan officers. Few customers understood the implications of an Option ARM on their personal long-term financial health. It was a no-brainer that this system could only continue *as long as house prices continued to escalate.* Option ARMS would have been more easy to calculate using the software developed in the 1990s; the old, reliable 30-year mortgage was mathematically simpler, but not as profitable.

    As Perplexed points out in a comment, Peter Wallison wants to blame all of this mess on government housing policies.
    Having listened to much of “Reckless Endangerment” (Morgenson and Rosner), there’s certainly a linkage to Federal housing policies, but that explanation is misleading and attributes all blame to the government. The mortgage bankers and home lenders prodded the politicians who then made those housing policies; this mess was far more circular than Wallison credits. In addition, even with the Federal housing policies, none of this mess would have been possible without:
    — MERS and its inability to correctly track home ownership documents, and what appears to have been its vulnerability to hacking (!)
    — shoddy corporate systems, like WaMu’s inability to insist on correct mortgage documentation, enabled by shoddy software and driven by Wall Street’s ferocious appetite for mortgages to securitize (which was due to deregulation of derivatives…)
    — the fundamental mis-categorization of Black-Scholes formula, which should have been limited to engines and applied within the sub-field of mechanical engineering — and should never have been applied to finance
    — the development of new approaches to computer programming in the 1990s, which occurred right around the time that MERS, the Internet, and online loan applications were being implemented
    — the deregulation of derivatives, and the phenomenal profits that Wall Street was making by creating them (by paying quants a ton of money to write copulas about the probabilities of default on Mortgage [204, 38, 162] vs Mortgage [30, 56, 156]).

    All of this is a long-winded way to think through one of your questions, but also to think about the role of capital in all of this economic activity.
    I have not included the background employment shifts that were also occurring in the 1990s and 2000s, which made housing seem like a safer bet than other forms of wealth. This comment is already far too long, and may unfortunately repeat what Dr. B understands about this entire Mortgage Meltdown and its technical and intellectual roots.

    Nevertheless, all the securitization, the MERS activity, the banking activity, and the mortgages are forms of capital: unless someone actually owned part of MERS, or owned bank stock (i.e., CEOs and execs) the basic structure of this system had a lot of service sector employees. The people who made the money were the people who owned the networks, the computers, the intellectual property.

    It is worth noting that, according to The Wikipedia, the same Robert Rubin who is in a tizzy insisting that deficits are a big problem made $126,000,000 from Citigroup between 1999 – 2009. I truly wonder whether he ever, even once, asked a quant to come to his office and walk him through a CDO.

    Did he ever insist that they explain to him just exactly *what* [ridiculous nonsense and charlatan foolery] his bank was selling, and what those CDOs were actually worth?!

    Actually, I don’t wonder; I suspect that he didn’t want to know. After all, who in their sane mind would ever admit that they made $126 million based on flawed math equations that were premised on the notion that mortgage business will ‘cool’ and mortgage payments will ‘default’ simply because in the 1970s, a couple of mechanical engineering professors realized they could quantify how engines cooled.

    But the craziness was, IMVHO, a way to pretend that the economy was doing well, and that mortgages would be ‘the engine’ that kept the American economy afloat. DeNile is not just a river in Eqypt…

    (I realize this is so long it is beyond the blog guidelines, but being the Conscientious Type, since I said that I would provide a few citations… so…)