Krugman 1998 what happened to asia

Paul Krugman: "The banks are like zombies"
: “Really worrying
is the powerlessness of politicians. "

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The Nobel Prize winner sees black: the world economy is out of control. But the US lacks the courage and Europe fails. An interview about the economic crisis.

FORMAT: Mr. Krugman, do you remember September 15th last year?
Krugman: Yes of course. It was a Monday, the collapse of the Lehman Brothers investment bank.
FORMAT: What was on your mind when you heard about it?
Krugman: I was totally shocked. I just couldn't have imagined that the American government would let this bank go bankrupt. The risks seemed unbearable to me. Russian roulette was played. That day was something of a critical moment in history.
FORMAT: Does the Nobel Prize winner Krugman have an explanation for how the world slid into disaster - despite
of all warnings?
Krugman: Well, I knew we had huge problems in America, like the real estate market with its trillion losses. But then it became clear that it was a global credit bubble, from the US to Europe. In addition, the global financial system was much more fragile than even a notorious pessimist like me could imagine. Above all, this included the shadow banking system, all those bank-like institutions that could act outside of any regulation. Until the outbreak of the crisis, hardly anyone seems to have realized how important this system had become. Then all hell broke loose.
FORMAT: In your books you have written several times about the financial crises of the 1980s and 1990s. Each a warning in itself.
Krugman: Much was like a prologue to what's happening now. The Japanese crisis in the 1990s showed the consequences of a wrong monetary policy. In 1998 they had reached a national debt that was higher than the gross domestic product. And the current tremors in Eastern Europe are so similar to the financial crises in Asia and Latin America at the time that it is almost eerie. Latvia seems to be the new Argentina, Ukraine like Indonesia. The USA is playing a role that was otherwise only intended for third world countries.
FORMAT: Why was no more learned from the crises?
Krugman: Perhaps because these crises were always seen as problems in individual countries. Astonishing blindness, almost terrifying.
FORMAT: A man like Alan Greenspan, the powerful head of the US Federal Reserve for decades, couldn't see what was going to happen?
Krugman: It was going well, apparently. And there were people who made a lot of money during that time. $ 20 million a year - that wasn't anything special. We tend to idealize people who make a lot of money. We want to believe that for that reason alone they have everything under control. As it turns out, the majority of them simply stole money. Up to $ 400 billion a year went to the financial sector for waste, abuse and fraud. Overall, Wall Street bankers were given far too much respect.
FORMAT: At least that has changed fundamentally.
Krugman: A man like Greenspan is down now. Others have to deal with the chaos he has made. But the new US Treasury Secretary Timothy Geithner still believes the state is not a good banker and that Wall Street is actually doing a good job. In doing so, we may have only had illusions. The average American family now has fewer than it did eight years ago. But many believed they had gotten richer. Because for a while the value of the houses rose faster than the debts that were incurred. Almost like a pyramid scheme - like an illusion.
FORMAT: They are considered extremely grumpy.
Krugman: only when I have reason to.
FORMAT: Were you happy when Barack Obama won?
Krugman: And how. Barack Obama is arguably the smartest president we've ever had. And his draft budget makes me downright happy. Because he is putting the USA on a fundamentally new course. Finally there is money to reform the health system. The planned introduction of emissions trading shows that the US is serious about the fight against climate change. Obama's plan to bail out the banks makes me grumpy again.
FORMAT: Among other things, extensive financial aid from the state is planned. To this end, a "bad bank" is supposed to buy the banks' bad loans. What's wrong with that?
Krugman: Unfortunately, that is not much better than what has already been heard from President Bush. The banks are like zombies. They exist, but they can no longer provide credit. So the state has to step in. And if he is pumping that much money into it, then the state should also take decisive control. But apparently they don't want that in the Treasury. Unfortunately.
FORMAT: Are you calling for the banks to be nationalized?
Krugman: Not on principle and not forever. Otherwise, the taxpayer bears the risks again and the private sector has the benefits. That would be socialism for the rich and capitalism for the poor.
FORMAT: What are you asking of Barack Obama?
Krugman: A new "New Deal".
FORMAT: So a government stimulus plan like in the 1930s. But isn't that exactly what Obama launched - a $ 800 billion stimulus package?
Krugman: This program is a step in the right direction. But it's not enough. It will slow down the crash, but not stop it. I do arithmetic and arithmetic, but I always come to the same conclusion: Obama's stimulus package is dangerously small. He would have to be a lot braver.
FORMAT: Who should pay such amounts?
Krugman: Please understand: the danger is extremely high that the economy will now enter a deflationary downward spiral. You can't really paint the situation black enough. For the first time in two generations there are deficits on the demand side of the economy. We consume too little to utilize the available production capacity. This fact has become the number one brake on prosperity in large parts of the world.
FORMAT: Do you have a recipe for salvation?
Krugman: It is as the economist John Maynard Keynes said: "We have problems with the ignition." That is, the economic engine is working, but it needs start-up help. And quickly. The whole world needs a rescue. Comprehensive, coordinated economic stimulus programs, bank bailouts. Maybe even moderate inflation. Because that's not necessarily dangerous devil stuff. An expected price hike could discourage people from hoarding their money.
FORMAT: What should Europe do?
Krugman: Europe fails. I see no signs of joint action, especially in financial policy. This is a huge disappointment and a big problem.
FORMAT: Does the upcoming G-20 conference on regulating the global economy give you at least some hope?
Krugman: Would be nice. I really would like to be a little happier. But I have to disappoint you - and me -. What is really worrying is the powerlessness of politics. The politicians will want to reassure us once more. We'll hear that everything is under control. But this is not about a world economy that has a problem and needs new rules. The world economy is out of control. To a degree that may still be beyond our imagination.

The interview was conducted by "Stern" editor Katja Gloger

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