Laffey Raises a Point It’s Easy to Forget

This line from Stephen Laffey at the Operation Clean Government event at which he spoke is a helpful reminder:

“It’s over for Providence. … It’s over for Rhode Island,” he said. “You people have to publicly humiliate your elected officials.”

For my part, I know I tend to wrongly assume that people who bear responsibility for such things as driving a city or state into a ditch would be humiliated purely by that fact alone. Of course, self delusion can be a powerful force, especially when abetted more broadly, as Laffey goes on to describe:

He took a not-so-thinly-disguised swipe at former Democratic Providence Mayor David N. Cicilline who is serving his first term in the U.S. House of Representatives. In the early days of democracy, “they used to tar and feather” people for disservice to their government, Laffey said, but “now, they elect people who destroy a city to Congress.”

ADDENDUM:
Wouldn’t it have been great if somebody worked full time for Anchor Rising and had therefore been able to post video of this event within hours of its completion?
Just saying.

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michael
michael
10 years ago

They can complain about organized labor all day long but heaven forbid they throw in some “dues” and start their own organization to balance things among middle class, middle of the political road voters*
*not so thinly disguised swipe at the cheapskates around here who are free with the criticism but have short arms and long pockets

ANTHONY
ANTHONY
10 years ago

Hear,hear…a full time position at AR is in order. I would strongly advise all who care about RI and what AR does to get on the monthly donation plan. We are well past the 11th hour.

Dan
Dan
10 years ago

Michael still fails to grasp the critical difference between mandatory union monopolies established by state law through “closed shop” legislation and voluntary associations of individuals as might occur in a right-to-work state. Until he understands and acknowledges this distinction, his criticisms will continue to be misguided and irrelevant.

Warriington Faust
Warriington Faust
10 years ago

Why does it seem astounding when someone states the obvious?
It only serves to show how deeply ingrained some attitudes are.

Warriington Faust
Warriington Faust
10 years ago

Why does it seem astounding when someone states the obvious?
It only serves to show how deeply ingrained some attitudes are.

Russ
Russ
10 years ago

Me, I say it’s easy to forget everything Laffey says. And I for one haven’t forgotten those responsible…
tinyurl.com/55f6yt

bella
bella
10 years ago

Steve is like the high school hotshot who graduates but still loves to come home and lurk around the school party circuit on the weekend, trying pick up the teen girls because the college women are wise to his act.
In Colorado, he probably doesn’t get the attention he desperately craves.

Mike Cappelli
Mike Cappelli
10 years ago

Thanks michael for, once again, demonstrating the utter ignorance that prevails amongst the public union maggots in this state -the notion taxpayers should need to spend additional time and money to counter the corruption of those who supposedly “work for them”.
It will make it all the more enjoyable watching you pigs have your pensions cut.

Max Diesel
Max Diesel
10 years ago

Russ,
That was sarcasm, right? It is 2011 and this is Rhode Island.

OldTimeLefty
10 years ago

Dan, the Cafeteria Libertarian Man, writes that “Michael fails to grasp mandatory union monopolies established by state law through ‘closed shop’ legislation…” Dan does not seem grasp the fact that 5 (Arizona, Arkansas, Florida, Mississippi, and Oklahoma) of the 22 regulate the right to work in their constitution. Here’s the Florida Constitution on the subject:

It is here now declared to be the policy of the state, in the exercise of its sovereign constitutional police power, to regulate the activities and affairs of labor unions, their officers, agents, organizers and other representatives, in the manner, and to the extent hereafter set forth. (Enacted 1943, amended effective July 1, 1997.)

It seems to me that one can make a Libertarian argument either for or against, depending on whether the focus is on the freedom of the employee or the freedom of the employer – for example, the Libertarian Party’s affiliate in the state of Georgia includes an endorsement of right-to-work laws in its party platform. The national Libertarian Party includes talking points in its platform that explicitly call for repeal of private sector right-to-work laws.
Libertarian Party 2010 Platform, Section 2.7,Labor Markets

We support repeal of all laws which impede the ability of any person to find employment. We oppose government-fostered forced retirement. We support the right of free persons to associate or not associate in labor unions, and an employer should have the right to recognize or refuse to recognize a union. We oppose government interference in bargaining, such as compulsory arbitration or imposing an obligation to bargain.

Dan, the Cafeteria Libertarian Man has picked and chosen his way among the many tenants of Libertarianism, and predictably has landed on the side of his pre-established convictions.
OldTimeLefty

Dan
Dan
10 years ago

OTL – you simply do not understand the libertarian objection in those instances, nor is it even relevant to the issue in the first place. Many libertarians are against gay marriage also, for the reason that they don’t believe government should be involved in marriage at all. Please go away and stop speaking about things you don’t understand.

Dan
Dan
10 years ago

P.S. OTL, the National Libertarian Party does not represent me or even most libertarians in this country. There is a reason why LP candidates typically get 0-1% of the vote while a much larger chunk of the population leans or self-identifies as libertarian. In fact, most libertarians I know want nothing to do with the LP. Their former presidential candidate supported the Iraq War also and wanted to keep most drugs illegal, you can guess how many libertarian fans that got them. I guess I’m inconsistent or “cafeteria” now for not agreeing with those two arbitrary positions either? Like Russ, you seem to have a chronic problem of not being able to deal with arguments at face value. More name calling is sure to follow.

BobN
BobN
10 years ago

That is “tenets”, not “tenants”. It’s always amusing to watch Leftists strut around as if they are some higher order of human, while they can’t even manage simple grammar and usage. Lefty’s post is the rhetorical equivalent of walking through the bar with toilet paper stuck to his shoe.
Actually, all of his posts are like that.
Lefty’s post also contains a factual error, also known as as a “lie”. There is no honest reading of the bit he quoted from the Libertarian Party platform that could conclude that it opposes “right-to-work” laws. I suspect that Lefty has never read the text of a “right-to-work” statute.

Tommy Cranston
Tommy Cranston
10 years ago

“Me, I say it’s easy to forget everything Laffey says. And I for one haven’t forgotten those responsible…”
Neither have we Russ baby.
The party that’s been running/ruining this state since 1934.
The collection of homosexual pathics, cronies, illegals and government/non-profit tit suckers of every sort.
Your party.

Russ
Russ
10 years ago

No, Max. Totally serious about that, although in fairness I could have blamed Clinton and a host of others as well because of things like the Gramm–Leach–Bliley Act.
http://www.cepr.net/index.php/publications/reports/the-origins-and-severity-of-the-public-pension-crisis

There has been considerable attention given in recent months to the shortfalls faced by state and local pension funds. Using the current methodology of assessing pension obligations, the shortfalls sum to nearly $1 trillion. Some analysts have argued that by using what they consider to be a more accurate methodology, the shortfalls could be more than three times this size. Based on these projections, many political figures have argued the need to drastically reduce the generosity of public sector pensions, and possibly to default on pension obligations already incurred.
This paper shows:
– Most of the pension shortfall using the current methodology is attributable to the plunge in the stock market in the years 2007-2009.
– The argument that pension funds should only assume a risk-free rate of return in assessing pension fund adequacy ignores the distinction between governmental units, which need be little concerned over the timing of market fluctuations, and individual investors, who must be very sensitive to market timing.
– The size of the projected state and local government shortfalls measured as a share of future gross state products appear manageable.

BobN
BobN
10 years ago

Once again, Russ quotes from well-known Leftist front groups as though they were objective, authoritative experts on the topic. Look at the board of directors of CEPR.
The article he quotes may be spinning politically at high RPM, but it’s a fat curveball to anyone with eyes.

Russ
Russ
10 years ago

I’m quoting a noted economist (and, yes, a liberal one). You guys are quoting Steve Laffey and have the nerve to question my source? Ha!
Notably, Dan doesn’t even attempt to question the content of the report or my contention that the housing bust and Bush recession were the causes of the current pension “crisis.”

While state and local government pensions should be funded at levels that allow them to weather the impact of cyclical downturns, it is important to recognize that the current downturn is by far the longest and deepest of the post-war period. The managers of these funds obviously failed to recognize the housing bubble and the dangers it posed to the economy, but this was true of the vast majority of economic and business analysts at the time. Certainly state and local pension funds were not well served by the professional managers who advised them. It might be reasonable to ask why financial experts, who were often highly compensated for their services, failed to see such an obvious threat to the economy and the stock market as the collapse of a housing bubble. However, this is an issue of the failings of the financial industry, not the failings of state and local governments, except insofar as they exercised poor judgment in buying the industry’s services. [my emphasis]

Dan
Dan
10 years ago

I’m not going to read your continuous stream of hyperlinked tripe from so-called progressive experts, Russ. I’ve wasted more than enough time plodding through the progressive narrative ramblings of your “education expert” Alfie Kohn. Let me take a wild guess as to the content of your current blockquote and hyperlink spamfest – “corporate greed” is to blame for all of society’s problems.

Russ
Russ
10 years ago

Well, Dan, as always you’re welcome to take Laffey’s word for it. As they say “ignorance is strength.”
If you want to call it “corporate greed” that’s fine with me. I might be more likely to describe it as the product of deregulation stemming from a corrupt political system, awash in special interest cash.

BobN
BobN
10 years ago

Well, Russ, if Laffey is an impeached source in your mind, are you defending Cicilline? That’s what it sounds like.

Dan
Dan
10 years ago

“If you want to call it “corporate greed” that’s fine with me. I might be more likely to describe it as the product of deregulation stemming from a corrupt political system, awash in special interest cash.”
As I suspected, the same old ignorant and ideologically convenient progressive narrative fallacy. The housing bubble is directly traceable to actions and policies of the Federal Reserve, the FDIC, GSEs Fannie and Freddie, and Congressional mandates such as the Fair Housing Act. Any “account” that leaves out the roles of these entities should be dismissed out of hand. Wall Street investment was the mechanism through which the subprime mortgage market collapsed, but blaming them for the perverted market incentives that coordinated their purchasing behavior and made it profitable is like saying forks are responsible for obesity. I assume by “deregulation” you are referring to the repeal of the Glass-Steagall Act, which reputable real banking experts (not to be confused with “progressive” armchair economists) can tell you was grossly out of date and would have had essentially no effect on the investment behavior anyway.

Russ
Russ
10 years ago

It wasn’t my intent, but if pointing out that the problems were largely beyond the control of Cicilline or any other mayor in the state is defending him, then yes.

Dan
Dan
10 years ago

*Replace Fair Housing Act with Community Reinvestment Act in the above post.

Russ
Russ
10 years ago

…but blaming them for the perverted market incentives that coordinated their purchasing behavior and made it profitable is like saying forks are responsible for obesity.

Yes, AIG Financial Group had no choice but to run the company into the ground. They’d have been fools not to!

chuckr
chuckr
10 years ago

That is “tenets”, not “tenants”.
Well, lefties love what rent seeking does for the extension of government power. For them , ‘tenants’ are more valuable than tenets or principles.

Dan
Dan
10 years ago

Russ – You are only revealing how little you comprehend about how and why the subprime mortgage crisis came about. Please stop embarrassing yourself and wasting everyone’s time with ignorant progressive narratives based solely on your hatred of and misunderstandings about market economies.

Russ
Russ
10 years ago

What’s tired is the old fallback of personal attacks.

Patrick
Patrick
10 years ago

Russ, you wrote:
“I might be more likely to describe it as the product of deregulation stemming from a corrupt political system, awash in special interest cash.”
But yet earlier, you put the blame on GWB. Does any fault at all lie with Bill Clinton, if you’re going to blame deregulation and people like Alan Greenspan? It wasn’t any one party or any one small group of people to blame for the massive housing crash. It was many years in the making, all administrations and most of Congress who fed that monster.
And if the current administration is completely clean in it all then why have there been no indictments of anyone on Wall Street? It would seem that the Obama administration is just as deep in their pockets as the Republicans.

Russ
Russ
10 years ago

Yep, no argument from me there Patrick. I just thought that photo of Bush was funny. I posted above, “in fairness I could have blamed Clinton and a host of others as well…”.
Why Isn’t Wall Street in Jail?
http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216

That’s the way it’s supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who’s in office or which party’s in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.

Patrick
Patrick
10 years ago

Everyone focuses on Wall Street, but the biggest criminals in the whole meltdown is without a doubt, the three ratings agencies. Moody’s, Fitch and S&P should not only be out of business, but the majority of them should be in jail. They are the ones who screwed the whole thing up and screwed over everyone from small town USA to Ireland, Spain and Iceland.
There’s lots of blame to go around but anyone who starts pointing fingers at the housing market meltdown without starting with those three just doesn’t know the whole story and how the crisis occurred.

Dan
Dan
10 years ago

No disagreement there, Patrick, but I’d argue that the rating agencies were also responding to the demand of Wall Street created by the perverted subprime housing market incentives. That degree of coordinated malinvestment simply does not occur randomly and is clearly the result of a central authority intervening in the market.

Mike Cappelli
Mike Cappelli
10 years ago

Russ,
You have a sophomoric understanding of this entire issue. The beginning of the end of the housing bubble came when the stupid liberals decided to hijack housing policy and use it to drive social policy, AKA Community Investment Act (CRA). Your fat perverted friend Barney Rubble was one of the prime drivers of this. Bet you didn’t know the Fannie Mae and Freddie Mac had increasing requirements on them to buy mortgages which should never have been made under the stupid liberal theory that home ownership is a right.
You think the banks wanted to make those loans?? That’s why they learned how to securitize them and offload risk on the crap they were being forced to fund.

Patrick
Patrick
10 years ago

But Dan, the ratings agencies know they can’t be just driven by the demand of Wall Street because there are many other agencies that depend on their ratings, as this whole crisis proved. There were many retirement funds around the world that stocked the “safe” portion of the fund with these triple-A rated bonds. Triple A basically meant “cannot fail”. However, when people actually started looking at the mortgages that these triple A rated bonds covered, they were actually crap.
Even worse, there were people who sounded the alarms at the proper times explaining what crap all of this was and how the ratings agencies were either incompetent or criminally negligent. Either one of those should have put them behind bars. Instead, we still trust them to do proper ratings and believe their word.

OldTimeLefty
OldTimeLefty
10 years ago

Dan,
Cut the dance.
1. What do you think of the 5 states constitutional regulation of the “right to work”?
2. What do you think of constitutions in the first place?
3. What do you think of attempts to regulate private property – Okay with you if a neighbor sets up a pig farm next door?
4.On which side of the Libertarian argument do you place your personal focus; are you for or against the freedom of the employee or the freedom of the employer? How do you distinguish? What’s the tipping point?
5. What about restrictive building codes; are you ready to have $20,000 prefabs and the town dump next to multi-million mansions?
Playing dodge ball by making unfounded assertions simply avoids the issues as you pick and choose your way to your preconceptions.
OldTimeLefty

Dan
Dan
10 years ago

1. I support right to work legislation inasmuch as it abolishes corrupt mandatory union legislation. I do not support the employer-based closed shop prohibition riders that some states have attached, although in practice they are of virtually no consequence because employers as a rule do not want a mandatory union in their business, so I don’t know why you are making such a big hooplah about it.
2. I like the protections Constitutions afford citizens from their governments. However, I do not believe that ours goes nearly far enough. Some mission creep is inevitable, so even with a constitution our individual liberties require eternal vigilance.
3. The pig farm parade of horribles doesn’t usually have much basis in residential reality, but hypothetically I would move away or seek restitution if my property was significantly adversely affected. Libertarianism doesn’t mean people can do whatever they want or create negative externalities for other people, you might be surprised to learn.
4. See #1
5. See #3

BobN
BobN
10 years ago

WTH does Lefty’s arrogant, off-topic interrogation of Dan have to do with this discussion? At the very least let’s see Lefty answer his own questions, too.
Has Lefty, or any of the other little terrorist wannabes here, ever affirmatively offered a solution to anything, or provided a logical explanation of his position on an issue?
The answer is no. All they do is deflect, change the subject, and insult.

Dan
Dan
10 years ago

To be honest, I don’t really *want* to hear OTL explain his Marxist views because it’s a childish and economically discredited ideology which has failed every time it has been tried and doesn’t extend much farther intellectually than “employment = exploitation” and “give me more power to fix everything.” Besides its glaring overreliance upon pure altrusism, Marxism has no price mechanism and therefore has no functional informational network to evaluate actual supply and demand. It is literally the most inefficient resource allocation model devisable. More than enough said on that topic.
Unlike OTL, Michael, Russ, and others here, I answer all questions asked of me within reason, provided that they do not infringe upon my personal privacy.

Russ
Russ
10 years ago

“You think the banks wanted to make those loans??”
Yes, of course. Those loans were wildly profitable at the time. I know a number of folks at the major banks who warned of the risk but were unable to stop the investments.
http://www.nytimes.com/2010/01/08/opinion/08krugman.html

Why did the bankers take on so much risk? Because it was in their self-interest to do so. By increasing leverage — that is, by making risky investments with borrowed money — banks could increase their short-term profits. And these short-term profits, in turn, were reflected in immense personal bonuses. If the concentration of risk in the banking sector increased the danger of a systemwide financial crisis, well, that wasn’t the bankers’ problem.

Russ
Russ
10 years ago

Found a good article on the Community Reinvestment Act nonsense (debunked numerous places but sure not to convince those that think markets can never be wrong)…
prospect.org/csnc/blogs/ezraklein_archive?month=04&year=2008&base_name=liberals_and_the_shtpile

First, there’s the timing. CRA came in 1977. The crisis came in 2007. Indeed, by 2004, the Bush administration had weakened the CRA — and after that (though not, presumably, because of it), bubble lending really took off. Further, CRA only governs a certain class of federally insured banks. Problem is, half of the subprime loans came from mortgage companies with no CRA involvement at all. Another 25%-30% came from companies with very little CRA exposure. For those who left their abacus at home, that’s 80% of the loans which were fully or largely outside CRA jurisdiction. More than that, the non-CRA mortgage firms made subprime loans at twice the rate of CRA-covered firms. Which basically leaves a stake in the heart of this particular theory. Indeed, until now, some conservatives have been moaning that no one is talking about the CRA part because it’s so racially charged. Poppycock. It’s just a false charge that’s not worth talking about. As Gordon says, in one of my favorite kickers in some time, this “is not political correctness. It is correctness.”

Dan
Dan
10 years ago

Blockquoting economist turned progressive pundit Paul Krugman as a source of authority on the subprime mortgage crisis… sad.

Dan
Dan
10 years ago

Russ now blockquotes a website called “The American Prospect – Liberal Intelligence” and asserts that if we don’t accept its conclusions then we are ignorant and brainwashed. How painfully ironic.
Russ, do you understand that when you do things like this you only illustrate what a pathetic amateur and sheep you are? Blockquoting progressive websites and pundits can only undermine your credibility here further, if that is even possible. Just put yourself in our shoes and imagine if we were blockquoting Beck or Limbaugh to you as some source of authority.

Mike Cappelli
Mike Cappelli
10 years ago

Russ, you’re bringing a knife to a gunfight pal.
“Further, CRA only governs a certain class of federally insured banks. Problem is, half of the subprime loans came from mortgage companies with no CRA involvement at all..”
It’s the loan – not the companies that made them – that count. If the loan is in a certain MSA it counts for CRA credit when purchased, by certain entities, no matter who made the loan. That’s a little lie liberals like Krugman don’t talk about.
Why would a company that receives no credit for CRA loans make them?….because someone else who needed it could get the credit by simply buying it.
This was an “adverse selection market” created by the government interference in the market, with entirely predictable results. As always, the law of unintended consequences that stupid liberals never get.
And right along, your fat pervert friend Barney Rubble maintaining in Sept 2003:“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Monique
Editor
10 years ago

“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,”
Gosh, where else have we heard such an utterly false reassurance about the fiscal condition of an entity???
Oh, yes! October, 2010. On the campaign trail for RI’s First Congressional District.
It was as big a lie and cover-up by David Cicilline about Providence as by Barney Frank about Fannie Mae and Freddie Mac.

OldTimeLefty
10 years ago

Dan, Thanks for your response to my questions. Perhaps a real dialogue can ensue. I promise not to define Libertarianism for you if you promise not to define Marxism for me. You wrote 1,2,and 3 below. My comments are in italics. 1. I support right to work legislation inasmuch as it abolishes corrupt mandatory union legislation. I do not support the employer-based closed shop prohibition riders that some states have attached, although in practice they are of virtually no consequence because employers as a rule do not want a mandatory union in their business, so I don’t know why you are making such a big hooplah about it. I am against corrupt mandatory legislation of any kind. Most people are against corrupt legislation of any kind. The problem occurs when one tries to define “corrupt”. So I don’t think that you supplied much of an argument in #1 above. That’s why the hoopla. 2. I like the protections Constitutions afford citizens from their governments. However, I do not believe that ours goes nearly far enough. Some mission creep is inevitable, so even with a constitution our individual liberties require eternal vigilance. I agree that individual liberties require eternal vigilance. Who doesn’t? Again the problem occurs when one tries to define which liberties are under siege. For example, equating dollars with free speech is an abomination to me and to 4 members of the Supreme Court; 5 members disagree. Likewise with treating a corporation as a person. I am vigilant about these things, I assume you are not very much bothered by them. So we agree on #2, but aren’t vigilant about the same things. Radical differences here on what a constitution should protect. 3. The pig farm parade of horribles doesn’t usually have much basis in residential reality, but hypothetically… Read more »

Dan
Dan
10 years ago

OTL – I do not support corporate personhood because limited liability cuts against the very foundation of the libertarian philosophy and Austrian economics. You may be surprised to learn that I also support some form of public elections, because the election process is so fundamentally entwined with government that there is no way to “marketize” the process through political donations without making it even worse and corrupting it further. I don’t see much difference between bribery and political contributions (especially in RI where they are required for many jobs) and to say that political contributions equate to free speech is like saying bribery of the police is free speech. The solution in my opinion is to reduce the size and power of government so that there are fewer favors and unfair advantages worth buying. A lot of your objections to zoning laws could be handled privately through various means such as covenants, contracts, etc. but my goal is not to rebut every objection to purist libertarianism because I don’t claim to have every answer; nobody does. Suffice it to say that people are very good at innovating when allowed and incentivized to do so. I don’t view the “low hanging fruit” objections regarding roads and zoning laws that progressives trot out again and again as a refutation of libertarianism, any more than Marxists and progressives view the hundreds of millions of deaths and economic disasters resulting from top-down economic controls as a refutation of their own philosophies. The difference I see with libertarianism, however, is that it has never been attempted on a state or country-wide basis and where it has been implemented even in part in a state like New Hampshire, the results have been extremely promising. In other words, “freer” countries do much better than “unfreer” countries, so… Read more »

mangeek
mangeek
10 years ago

Russ, it’s true that most of the shortfalls nationwide are now ‘underfunded’ due to the financial collapse of 2008, but Rhode Island is a special case where we were nowhere near healthy before the trouble started.
It’s my understanding that RI actually fared pretty well, because we weren’t as heavily invested in the stuff that took the biggest hits.

Russ
Russ
10 years ago

Just put yourself in our shoes and imagine if we were blockquoting Beck or Limbaugh to you as some source of authority.

If Beck or Limbaugh had Nobel Prizes for Economics, you might have a point. As is, the comparison only shows how off the deep-end some folks have gone.

Russ
Russ
10 years ago

btw, if you’d prefer here’s Judge Posner on what caused the depression (his word): http://www.law.columbia.edu/media_inquiries/news_events/2008/november2008/posner As a staunch proponent of free trade and minimal regulation, U.S. Court of Appeals Judge Richard Posner told a packed audience at Columbia Law School that he surprised even himself by placing the blame for the current financial crises not with Washington but with the free-market system. “It’s a painful acknowledgment,” Posner told the crowd… With hindsight, the reasons for the failure are obvious, Posner said. Excessive deregulation enabled excessive risk-taking. Add to that mix the abundant credit made possible by the Federal Reserve’s loosening of purse strings following 9/11 and the abundant capital of the oil-boom years, and the world faced an economic house of cards of historic proportions… What disturbs him most, he said, is that all of the risk-takers – from CEOs to the day traders to home buyers – were behaving rationally, which free-marketers such as Posner generally believe should act as a bulwark to protect against such catastrophes. The bankers, for example, were rational in betting on mortgage-backed securities and other housing-related investments, even long after they recognized that their entire industry was, in fact, standing deeply inside an enormous, overstretched bubble. “Even if you know you’re in a bubble, it’s extremely difficult to get out,” said Posner. Pulling up stakes before the bubble explodes means telling investors to expect smaller short-terms rewards. “I think that is a very hard sell,” he said… Posner also cited the win-win structure of most top executives’ contracts: If their high-risk decisions result in big gains they receive huge bonuses, and if the gambles fail they result in huge severance packages. He noted the $161.5 million awarded last year to outgoing Merrill Lynch chief Stanley O’Neil. “Very, very generous compensation incentivizes executives to maximize… Read more »

Russ
Russ
10 years ago

“…but Rhode Island is a special case where we were nowhere near healthy before the trouble started.”
That’s true, but that doesn’t mean that assuming a 7.5% rate of return is appropriate, or that Baker’s conclusion is any less valid:

In most states the unfunded liabilities are well under 0.2 percent of future income. This implies that increased revenue equal to 20 cents of every $100 of future output would be more than sufficient to eliminate the shortfall. Even in the states with largest shortfalls, the burden appears manageable. In Ohio, the shortfall is equal to 0.47 percent of future output, in Illinois it is 0.37 percent of future output, and in Mississippi and Rhode Island it is equal to 0.36 percent.

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