Partying Like It’s 1929

By PAUL KRUGMAN

If Ben Bernanke manages to save the financial system from collapse, he will — rightly — be praised for his heroic efforts.

But what we should be asking is: How did we get here?

Why does the financial system need salvation?

Why do mild-mannered economists have to become superheroes?

The answer, at a fundamental level, is that we’re paying the price for willful amnesia. We chose to forget what happened in the 1930s — and having refused to learn from history, we’re repeating it.

Contrary to popular belief, the stock market crash of 1929 wasn’t the defining moment of the Great Depression. What turned an ordinary recession into a civilization-threatening slump was the wave of bank runs that swept across America in 1930 and 1931.

This banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure.

As the decades passed, however, that lesson was forgotten — and now we’re relearning it, the hard way.

To grasp the problem, you need to understand what banks do.

Banks exist because they help reconcile the conflicting desires of savers and borrowers. Savers want freedom — access to their money on short notice. Borrowers want commitment: they don’t want to risk facing sudden demands for repayment.

Normally, banks satisfy both desires: depositors have access to their funds whenever they want, yet most of the money placed in a bank’s care is used to make long-term loans. The reason this works is that withdrawals are usually more or less matched by new deposits, so that a bank only needs a modest cash reserve to make good on its promises.

But sometimes — often based on nothing more than a rumor — banks face runs, in which many people try to withdraw their money at the same time. And a bank that faces a run by depositors, lacking the cash to meet their demands, may go bust even if the rumor was false.

Worse yet, bank runs can be contagious. If depositors at one bank lose their money, depositors at other banks are likely to get nervous, too, setting off a chain reaction. And there can be wider economic effects: as the surviving banks try to raise cash by calling in loans, there can be a vicious circle in which bank runs cause a credit crunch, which leads to more business failures, which leads to more financial troubles at banks, and so on.

That, in brief, is what happened in 1930-1931, making the Great Depression the disaster it was. So Congress tried to make sure it would never happen again by creating a system of regulations and guarantees that provided a safety net for the financial system.

And we all lived happily for a while — but not for ever after.

Wall Street chafed at regulations that limited risk, but also limited potential profits. And little by little it wriggled free — partly by persuading politicians to relax the rules, but mainly by creating a “shadow banking system” that relied on complex financial arrangements to bypass regulations designed to ensure that banking was safe.

For example, in the old system, savers had federally insured deposits in tightly regulated savings banks, and banks used that money to make home loans. Over time, however, this was partly replaced by a system in which savers put their money in funds that bought asset-backed commercial paper from special investment vehicles that bought collateralized debt obligations created from securitized mortgages — with nary a regulator in sight.

As the years went by, the shadow banking system took over more and more of the banking business, because the unregulated players in this system seemed to offer better deals than conventional banks. Meanwhile, those who worried about the fact that this brave new world of finance lacked a safety net were dismissed as hopelessly old-fashioned.

In fact, however, we were partying like it was 1929 — and now it’s 1930.

The financial crisis currently under way is basically an updated version of the wave of bank runs that swept the nation three generations ago. People aren’t pulling cash out of banks to put it in their mattresses — but they’re doing the modern equivalent, pulling their money out of the shadow banking system and putting it into Treasury bills. And the result, now as then, is a vicious circle of financial contraction.

Mr. Bernanke and his colleagues at the Fed are doing all they can to end that vicious circle. We can only hope that they succeed. Otherwise, the next few years will be very unpleasant — not another Great Depression, hopefully, but surely the worst slump we’ve seen in decades.

Even if Mr. Bernanke pulls it off, however, this is no way to run an economy. It’s time to relearn the lessons of the 1930s, and get the financial system back under control.

Original here

Career Lessons From NBC’s The Office

You can find answers to your job problems at Dunder Mifflin Scranton

For those of us who toil away under fluorescent lights, working on projects that don't always inspire, alongside coworkers with questionable social skills, nothing eases the pain—other than a ginormous raise, of course—more than knowing we're not alone.

In an age of cubicles, the characters from NBC's The Office have come to represent our everyday lives (oddly enough, at desks sans cubicles). Asking how to succeed at The Office, then, is not just a hypothetical question—it's what a lot of us are trying to do every day.

That is why U.S. News picked the career-challenged denizens of the hit comedy to illustrate how to solve the common problems that prevent many of us from getting ahead or finding jobs that make us happy in today's workplace. The central conceit of the show—about to resume a strike-delayed fourth season on April 10—is that it is, in fact, a cinéma-vérité-style documentary about an actual office environment. And both the style and substance of The Office make for a pretty true-to-life depiction. Dunder Mifflin, the fictional regional paper company at the heart of the show, is facing an increasingly competitive marketplace. Like many smaller players, it just can't compete with the low prices charged by big-box rivals like Staples and Office Depot, and it seems to be constantly bleeding corporate customers that are focused on cutting costs themselves.

Amid this struggle to retain clients, the Scranton, Pa., branch, where most of the show's action takes place, is under constant pressure from the company's New York headquarters to boost sales and has already narrowly escaped being shuttered. (Instead, it merged with the Stamford, Conn., branch.)

In addition to those familiar economic pressures, employees must suffer through modern-day office culture, including team-building exercises, malfunctioning PowerPoint presentations, and an incompetent boss—Michael Scott—who loves practical jokes.

The surest path to success in such an environment, at a branch that seems destined for certain failure, might be to get out as quickly as possible. Indeed, that is what many career experts would recommend. Jim Halpert, for example, a smart 20-something who seems constantly bored at work, should probably make a fast break for a different industry altogether. Jan Levinson, of course, had no choice but to pack up and leave after she was fired from her executive job at Dunder Mifflin corporate; it's now up to her to reinvigorate her career by first figuring out what she truly wants to do with her life, besides draining boyfriend Michael's bank account.

But leaving Dunder Mifflin isn't the only way. Someone like supersalesman Dwight Schrute, who dreams of being boss, should probably consider picking up business classes at night while taking on some little management projects. For those with a hobby that could be a career, such as receptionist Pam Beesly, devoting more off hours to it might be the quickest path to a satisfying profession. Michael could benefit from management courses, and perhaps a therapist's couch, which may lead him in a new direction altogether. (High school basketball coach, perhaps?)

And for those who plan to stick out Office life indefinitely, there's only one thing to do: laugh.

Original here

Olympic torch lit despite protest

A protester briefly ran behind Beijing's envoy as he spoke

Ceremony protest

The Olympic torch has been lit at a ceremony in Greece that was briefly disrupted by pro-Tibet activists.

Two protesters from media rights group Reporters Without Borders broke through the cordon of 1,000 police officers in Olympia as China's envoy spoke.

Activists had vowed to protest over the violence in and around Tibet.

The torch will now be carried around Greece before being sent to China to start a journey through 20 countries, returning to Beijing on 8 August.

The route includes the torch being taken to the top of Mount Everest and through Tibet.

See map of Olympic torch relay route

As Liu Qi, head of the Beijing Olympic organising committee, spoke ahead of the torch lighting, two men ran up behind him attempting to display a black flag depicting the Olympic rings made from handcuffs.

The men were from the France-based media rights watchdog Reporters Sans Frontieres (Reporters Without Borders, or RSF), which has called for a boycott of the opening ceremony of the games.

The torch is the link between all athletes and citizens of this world... It has the force to unite humanity and to stand for harmony Jacques Rogge, IOC President In pictures: Torch ceremony

They were quickly bundled away by police and Mr Liu continued his speech uninterrupted.

The camera cut away from Mr Liu and the protesters until they had been removed from the scene.

"We cannot let the Chinese government seize the Olympic flame, a symbol of peace, without denouncing the dramatic human rights situation in the country," RSF said in a statement.

Later, as the torch began its journey, pro-Tibet activists unfurled banners and shouted slogans before Greek security wrestled them away.

'Boycott unwanted'

Actors dressed in ancient Greek costume then lit the torch in the traditional manner by using a parabolic mirror to focus the sun's rays.

There were fears that stormy weather would prevent the torch being lit in the customary way.

The ceremony, beside the Temple of Hera, was moved forward by an hour and the sun shone through a break in the clouds.

Despite cloudy weather, the torch was lit using the sun's rays

The head of the International Olympic Committee (IOC) has defended the decision to hold the Games in China saying there was "no momentum" for a boycott.

"The major political leaders don't want a boycott," IOC President Jacques Rogge said ahead of Monday's ceremony.

Before the ceremony, a Tibetan activist confronted Mr Rogge in a hotel lobby and said there should be free access for all media inside China, including Tibet, during the Games.

In his speech during the ceremony, Mr Rogge said the Olympic torch relay and the Games should take place in a peaceful environment.

"The torch is the link between all athletes and citizens of this world; between all of us who believe in Olympism and the virtue of sport. It has the force to unite humanity and to stand for harmony."

He told the Associated Press news agency on Monday that he was engaged on a daily basis in "silent diplomacy" with Beijing on Tibet and other human rights issues.

Tibet unrest

The Olympic torch will be carried in a 136,000km (85,000 miles) around-the-world relay that will see it pass through 20 countries before arriving in Beijing for the start of the Games on 8 August.

Tibet activists are angered that the torch's route will take it through the Himalayan region and to the top of Mount Everest, which straddles the border between Nepal and Tibet.

China sent troops to Tibet in 1950 and since then there have been periods of unrest and sporadic uprisings as resentment of Beijing's rule has persisted.

The latest round of anti-China protests began in Tibet's main city, Lhasa, on 10 March - the 49th anniversary of a failed uprising - and gradually escalated.

Lhasa saw at least two days of violence and there have also been protests in provinces which border Tibet.

China says 19 people were killed by rioters and accuses Tibetan spiritual leader the Dalai Lama of inciting the violence.

The Tibetan government in exile says at least 130 people have died in a crackdown by Chinese troops and deny any role in the protests.

OLYMPIC TORCH ROUTE

Torch lit in Olympia on 24 March and taken on five-day relay around Greece to Athens

After handover ceremony, it is taken to Beijing on 31 March to begin a journey of 136,800 km (85,000 miles) around the world

Torch arrives in Macao on 3 May. After three-month relay all around China, it arrives in Beijing for opening ceremony on 8 August

Original here

Exposing a closed Congress to Open Source: Change Congress

Stanford law professor Lawrence Lessig launched his Web-based Change Congress campaign Thursday at a National Press Club event sponsored by the Sunlight Foundation as part of the pro-transparency non-profit's annual Sunshine Week. The goal of Change Congress, Lessig explained, is to fight the influence of money in politics by exacting pledges from candidates and lawmakers to personally eschew lobbyist and PAC money, as well as supporting a series of legislative reforms, and then using the distributed eyes of the Internet to ensure that they stick to their promises.

The first half of Lessig's remarks closely tracked the inaugural lecture on corruption he delivered at Stanford last year, after announcing that he would be abandoning the work on cyberlaw and free culture that had made him a geek superstar in order to study the ways money's influence distorts the political process. He detailed how, on an array of "easy questions" in areas ranging from copyright terms to dietary recommendations to climate change to military procurement, the interests of funders had driven a wedge between policy formation or academic inquiry and the overwhelming consensus of impartial experts. He also offered conservatives, who have often been skeptics of campaign finance reform, a rationale to share his concerns: "Why is government so big?" Lessig asked rhetorically. "Because congressmen must get elected." He claimed, for example, that legislators had been reluctant to establish a more deregulated telecommunications framework for the Internet in the 1990s because the looming threat of regulation kept campaign contributions rolling in from telecom firms.

This time, Lessig sketched his plan to attack the problem with Change-Congress.org, using a "three layer" strategy. First, the site would ask candidates and elected officials to make any or all of four pledges: To refuse contributions from lobbyists and political action committees, to support a ban on legislative "earmarks," to promote legislation that increases government transparency, and to support public financing of political campaigns. Candidates could then download badges for display on their websites indicating which planks of the Change Congress platform they have endorsed, a feature similar to the customizable intellectual property licenses produced by Creative Commons, which Lessig also helped to found. Second, by exploiting a variety of existing transparency resources online, Change Congress would create a wiki-like platform allowing users to track both the positions held by politicians on these four points and how well they live up to their stated views in practice. Finally, it would ask voters to make a parallel pledge to support candidates who adhere to the Change Congress platform.

Open-source principles

Though Lessig did not frame it in quite these terms, the project is a clear attempt to use distributed peer-production processes to overcome one of the fundamental political problems identified by public choice analysis, in much the same way open-source production allows for the creation of informational public goods that, on traditional economic models, would tend to be underproduced in the absence of government subsidy or artificial monopoly grants, such as copyrights or patents. The political equivalent of the public goods problem is what public choice theorists often describe as the problem of "concentrated benefits, diffuse costs". The problem arises when a poor policy produces a large benefit for a small number of actors, but distributes the costs (whether in the form of direct taxation or regulatory inefficiency) across the much larger general population. The beneficiaries have a powerful incentive to ally themselves and lobby for the policy in question, but the transaction costs of organizing and low individual burden on any one taxpayer or consumer mean ordinary citizens have little motivation to mobilize in opposition.

Open source can solve the public goods problem for software because digital networks and widespread computer ownership lower transaction costs and allow large projects to be broken into small enough pieces that individual coders are willing to lend a hand even when they can't directly internalize the marginal market value of their contributions. Change Congress attacks the parallel political problem in two ways. First, it bundles together many discrete bad policies under the aegis of a procedural reform. Lessig's favorite analogy here is to alcoholism: An alcohol problem leads to a variety of further personal, professional, and medical ills, none of which can be effectively dealt with until the alcoholic resolves to give up the bottle. But this approach also helps to aggregate the costs of those particular bad policies in the eyes of citizens, helping to overcome the incentive problem that results when each policy is considered in isolation. Second, the wiki format disperses the cost of monitoring politicians' professed positions and compliance with their promises, lowering the investment demanded of any particular activist.

There are, however, a few obvious hurdles this approach will have to face. First, there is a chicken-and-egg problem. Candidates will find it worth their while to forsake the significant benefits of accepting PAC and lobbyist money only if they are persuaded that it is outweighed by the electoral advantage to be gained by wooing Change Congress voters. But the widespread adoption of the Change Congress platform by voters will depend in part on the existence of candidates who are prepared to take the pledge. Second, and perhaps more seriously, there's the poor track record of previous efforts that rely on voluntary pledges by politicians. U.S. Term Limits and Americans for Tax Reform have sought promises from candidates to restrict their own tenure in office and to oppose all tax increases, but both promises have been routinely broken by officeholders without any obvious political backlash. But then, for the man who spent a decade trying to upend American copyright law, an uphill battle is nothing new.

Original here

KGB plot fears as London oligarch vanishes and traces of blood are found in his mansion

Missing: City AM backer Leonid Rozhetskin, pictured with his wife, former model Natalya Belova

An international manhunt was launched last night for a Russian-born British media magnate whose mysterious disappearance has possible links to the murder of former KGB spy Alexander Litvinenko.

Jet-setting billionaire Leonid Rozhetskin, an outspoken critic of Russian President Vladimir Putin, vanished from his £1 million home just outside the Latvian capital Riga a week ago.

Last night, Latvian authorities expressed fears that Mr Rozhetskin, one of the co-founders and major shareholders in British business newspaper City AM, may have been murdered.

Latvian police say they have approached Scotland Yard for help in the light of Litvinenko's death from radiation poisoning from polonium-210 in London in November 2006.

The move prompted fears that 41-year-old Mr Rozhetskin, who was a regular visitor to London for board meetings, may have been the victim of a political murder plot.

A Latvian police spokesman added that Mr Rozhetskin had disappeared in "extremely worrying circumstances".

Traces of his blood were found in the main sitting room of his home in the upmarket resort of Jurmala, where furniture was upturned and windows smashed.

More blood was later found in his 4x4 car.

The Latvian authorities indicated it was possible that KGB agents who had been operating in London could have returned to Moscow before carrying out a mission in Latvia.

A Latvian police spokesman said: "Agents have been operating freely on the streets of London, and it is for this reason that we have approached the Metropolitan Police.

"If they have entered Latvia and approached this missing person in some way, then it is up to us to try to find out what is going on.

"We require all the information we can get hold of, and this is the reason that speaking to foreign police – including the British – is essential."

Mr Rozhetskin's six-bedroom mansion, in the most expensive residential area of Latvia, is set in its own gardens and surrounded by thick woods.

It enjoys views of Riga Bay which, at 25 miles long, boasts the longest white sand beach in the Baltic states.

The beach is surrounded by tall pine trees and sand dunes, which specialist police search officers with tracker dogs were yesterday combing for clues.

Mr Rozhetskin owns one third of a Dutch firm which, in turn, owns 50 per cent of the London-based business newspaper City AM. He is also a director and founding shareholder of the newspaper.

He was last in London just days before his disappearance, when he stayed at The Dorchester hotel.

Scroll down for more...

High life: Mr Rozhetskin with wife Natalya, left, and model Victoria Silvstedt at a French Riviera party in 2006

Read more...

• One strangled, one shot ... Two more victims join Russia's toll of murdered journalists

Mr Rozhetskin disappeared early last Sunday morning, after his private plane flew into Latvia.

It is believed that a number of men arrived at his holiday house on the so-called Latvian "Riviera" in the early hours.

Mr Rozhetskin's car was seen driving out of the gates and was later found abandoned near a market place in a suburb of Riga.

His private jet also went missing for 48 hours, before it arrived in Zurich with no passengers on board.

Detectives are focusing on events in Mr Rozhetskin's home between 12.15am and 7.30am last Sunday.

State police chief Aldis Lieljukskis said: "We are examining blood stains in the house, and there are also traces of blood in the car. Forensics experts are currently combing the entire area."

Latvian Interior Minister Mareks Seglins added that there was evidence to suggest murder. He said: "If there's no body, then there's no factual proof of that.

"However, there is a clear line of evidence that suggests a potential homicide."

As well as his Latvian hideaway, Mr Rozhetskin also owns homes in the South of France, Los Angeles and Moscow. He had been due to return to LA last Tuesday.

Bizarrely, he is also registered on the British electoral roll – in an area of Kilmarnock called Moscow.

The address is a nondescript semi-detached bungalow that appears abandoned, with barely a stick of furniture inside and sheets covering the windows.

The missing oligarch is married to former model Natalya Belova, with whom he has a three-year-old son, but he has also been the subject of rumours that he was gay.

Scroll down for more...

Last dance: Mr Rozhetskin and two friends visited Riga's XXL gay nightclub before he disappeared

On the night he went missing, Mr Rozhetskin – who has dyed blond hair – was said by local sources to have taken a taxi from his home to the centre of Riga with two men.

The three were dropped outside the XXL gay nightclub, which bills itself as "a modern club of European glamour" and has rooms in which gay films are screened.

Its website claims: "In XXL club, everything is possible."

Mr Rozhetskin – who often mixed with fellow jetsetters such as Domenico Dolce, founder of the fashion label Dolce & Gabbana, and model Victoria Silvstedt – disappeared soon after visiting the club.

But suggestions of a sexual motive for the billionaire's disappearance were being dismissed last night, because his removal would have required a high degree of military-style planning, not least to have flown his jet out of Latvia with air traffic clearance.

The murky affair is further complicated by a continuing row involving Britain, Russia and Latvia.

Moscow has accused MI6 of orchestrating a spy scandal in Latvia after three Russian diplomats were sent home for allegedly trying to buy Nato secrets.

Russia claims the affair is part of an ongoing dispute over the fact that Latvia's spy chief Janis Kazocins is a retired British Army General.

He was born the son of Latvian refugees in Peterborough, Cambridgeshire, 56 years ago and was trained at Sandhurst.

Bone of contention: Relations between London and Moscow have soured since Scotland Yard tried to extradite Andrei Lugovoi, prime suspect over the murder of Alexander Litvinenko, below

The twice-married General, who has two grown-up children living in the Midlands, helped plan the first Gulf War in 1991 and was later seconded to the Latvian Army after the fall of the Soviet Union.

Relations between London and Moscow also remain sour after Scotland Yard unsuccessfully tried to extradite Andrei Lugovoy, the prime suspect in the Litvinenko poisoning murder.

Mr Rozhetskin was born in St Petersburg but moved to America in 1980 and is now a US citizen.

He amassed his fortune in the mobile phone industry during the privatisation of Russian telecom companies.

He is also the joint owner of a Los Angeles-based movie company, L+E Productions, along with Eric Eisner, the son of former Disney chief executive Michael Eisner, one of the richest men in Hollywood.

Their first movie, Hamlet 2, an American high school comedy starring Steve Coogan, is due for release in August.

Mr Rozhetskin was also due to produce a movie about the Russian mafia, called Three Wolves.

He has been a fierce critic of the current regime in Russia. In 2006, Russian prosecutors placed him on an international wanted list for his role in an alleged £20million fraud.

Mr Rozhetskin was alleged to have sold a stake in a mobile-phone company to one firm when he had already promised first refusal to another, IPOC, which has been linked to Leonid Reiman, the Russian Communications Minister and a friend of Vladimir Putin.

A tribunal in Zurich two years ago ruled that Mr Reiman was IPOC's owner and had abused his government position.

Mr Reiman has denied the allegations and the Moscow arrest warrant for Mr Rozhetskin remained in force.

Mr Rozhetskin's spokesman Andrei Fomin last night denied rumours circulating among Moscow business chiefs that his client's disappearance may be a publicity stunt to attract attention to his first movie.

Mr Fomin said: "I have no idea where he might be. No suggestions at all.

"Last time I saw him was in Los Angeles in February, then later we talked on the phone when he was in London.

"I think the idea that he staged the kidnapping to promote his new movie is absolutely stupid. To pour human blood for some sort of PR trick would be completely sick.

"I can't imagine he would do that. I think this is all extremely serious and I desperately hope there is a happy ending to it."

Jens Torpe, managing director of City AM, said last night he had "no idea" where Mr Rozhetskin was or how he had disappeared.

He said: "Obviously, we all hope he is found safe and well."

A Scotland Yard spokesman said Latvian police were taking the lead in the investigation and that it was "natural" for them to have made contact with the Met.

Original here