Joseph Stiglitz

Rogue economist Joseph Stiglitz has a new book out, Freefall: America, Free Markets, and the Sinking of the World Economy, excerpted here by the Huffington Post:

The entire series of efforts to rescue the banking system were so flawed, partly because those who were somewhat responsible for the mess–as advocates of deregulation, as failed regulators, or as investment bankers–were put in charge of the repair. Perhaps not surprisingly, they all employed the same logic that had gotten the financial sector into trouble to get it out of it. The financial sector had engaged in highly leveraged, non-transparent transactions, many off balance sheet; it had believed that one could create value by moving assets around and repackaging them. The approach to getting the country out of the mess was based on the same “principles.” Toxic assets were shifted from banks to the government–but that didn’t make them any less toxic. Off-balance sheet and non-transparent guarantees became a regular feature of the Treasury, Federal Deposit Insurance Corporation, and Federal Reserve. High leverage (open and hidden) became a feature of public institutions as well as private.

Worse still were the implications for governance. The Constitution gives Congress the power to control spending. But the Federal Reserve was undertaking actions knowing full well that if the collateral that it was taking on proved bad, the taxpayer would bail it out. Whether the actions were legal or not is not the issue: they were a deliberate attempt to circumvent…