Guest Post: Five Years In Limbo (And Counting)

Tyler Durden's picture

Authored by Joseph Stiglitz, originally posted at Project Syndicate,

When the US investment bank Lehman Brothers collapsed in 2008, triggering the worst global financial crisis since the Great Depression, a broad consensus about what caused the crisis seemed to emerge. A bloated and dysfunctional financial system had misallocated capital and, rather than managing risk, had actually created it. Financial deregulation – together with easy money – had contributed to excessive risk-taking. Monetary policy would be relatively ineffective in reviving the economy, even if still-easier money might prevent the financial system’s total collapse. Thus, greater reliance on fiscal policy – increased government spending – would be necessary.

Five years later, while some are congratulating themselves on avoiding another depression, no one in Europe or the United States can claim that prosperity has returned. The European Union is just emerging from a double-dip (and in some countries a triple-dip) recession, and some member states are in depression. In many EU countries, GDP remains lower, or insignificantly above, pre-recession levels. Almost 27 million Europeans are unemployed.

Similarly, 22 million Americans who would like a full-time job cannot find one. Labor-force participation in the US has fallen to levels not seen since women began entering the labor market in large numbers. Most Americans’ income and wealth are below their levels long before the crisis. Indeed, a typical full-time male worker’s income is lower than it has been in more than four decades.

Yes, we have done some things to improve financial markets. There have been some increases in capital requirements – but far short of what is needed. Some of the risky derivatives – the financial weapons of mass destruction – have been put on exchanges, increasing their transparency and reducing systemic risk; but large volumes continue to be traded in murky over-the-counter markets, which means that we have little knowledge about some of our largest financial institutions’ risk exposure.

Likewise, some of the predatory and discriminatory lending and abusive credit-card practices have been curbed; but equally exploitive practices continue. The working poor still are too often exploited by usurious payday loans. Market-dominant banks still extract hefty fees on debit- and credit-card transactions from merchants, who are forced to pay a multiple of what a truly competitive market would bear. These are, quite simply, taxes, with the revenues enriching private coffers rather than serving public purposes.

Other problems have gone unaddressed – and some have worsened. America’s mortgage market remains on life-support: the government now underwrites more than 90% of all mortgages, and President Barack Obama’s administration has not even proposed a new system that would ensure responsible lending at competitive terms. The financial system has become even more concentrated, exacerbating the problem of banks that are not only too big, too interconnected, and too correlated to fail, but that are also too big to manage and be held accountable. Despite scandal after scandal, from money laundering and market manipulation to racial discrimination in lending and illegal foreclosures, no senior official has been held accountable; when financial penalties have been imposed, they have been far smaller than they should be, lest systemically important institutions be jeopardized.

The credit ratings agencies have been held accountable in two private suits. But here, too, what they have paid is but a fraction of the losses that their actions caused. More important, the underlying problem – a perverse incentive system whereby they are paid by the firms that they rate – has yet to change.

Bankers boast of having paid back in full the government bailout funds that they received when the crisis erupted. But they never seem to mention that anyone who got huge government loans with near-zero interest rates could have made billions simply by lending that money back to the government. Nor do they mention the costs imposed on the rest of the economy – a cumulative output loss in Europe and the US that is well in excess of $5 trillion.

Meanwhile, those who argued that monetary policy would not suffice turned out to have been right. Yes, we were all Keynesians – but all too briefly. Fiscal stimulus was replaced by austerity, with predictable – and predicted – adverse effects on economic performance.

Some in Europe are pleased that the economy may have bottomed out. With a return to output growth, the recession – defined as two consecutive quarters of economic contraction – is officially over. But, in any meaningful sense, an economy in which most people’s incomes are below their pre-2008 levels is still in recession. And an economy in which 25% of workers (and 50% of young people) are unemployed – as is the case in Greece and Spain – is still in depression. Austerity has failed, and there is no prospect of a return to full employment any time soon (not surprisingly, prospects for America, with its milder version of austerity, are better).

The financial system may be more stable than it was five years ago, but that is a low bar – back then, it was teetering on the edge of a precipice. Those in government and the financial sector who congratulate themselves on banks’ return to profitability and mild – though hard-won – regulatory improvements should focus on what still needs to be done. The glass is, at most, only one-quarter full; for most people, it is three-quarters empty.

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ZippyBananaPants's picture

To bring Republicans and Democrats together, the New Yorker's John Cassidy calls for ... a stock market crash:; float: none; font-family: arial, sans-serif; font-size: 14px; line-height: 18px; background-position: 0% 0%; background-repeat: no-repeat no-repeat;">

Had this situation arisen in the not-so-distant past, it’s conceivable that some older, wiser heads from both parties would have gotten together and hashed out a deal that allowed each side to claim victory. But given the G.O.P.’s lurch to the right, and the White House’s understandable reluctance to buckle in the face of reckless brinkmanship, such a statesmanlike solution is difficult to envisage. Something more drastic is needed, and my candidate is a stock market crash.

Cassidy makes an argument based on precedent: in 2008 after Congress failed to pass an initial TARP bank bailout bill, Wall Street dropped almost 800 points in a day – and Congress abruptly reversed itself. Read the full piece here.

AlaricBalth's picture

Very compelling article.

What Mr. Stiglitz fails to understand is that he has been a part of the problem for years. Columbia Professor, Clinton Administration advisor, World Bank Chief Economist, etc.

Stiglitz is a firm proponent of unfettered money printing as a means to grow an economy, which has proven to be a false premise.

As Ken Rogoff said, "You seem to believe that if a distressed government issues more currency, its citizens will suddenly think it more valuable. You seem to believe that when investors are no longer willing to hold a government's debt, all that needs to be done is to increase the supply and it will sell like hot cakes...The laws of economics may be different in your part of the gamma quadrant, but around here we find that when an almost bankrupt government fails to credibly constrain the time profile of its fiscal deficits, things generally get worse instead of better."

NOTaREALmerican's picture

Re:  part of the problem for years

It's very difficult for people who thrived in a era of perpetually growing debt to comprehend why more debt won't make more growth.

If the space aliens did invade and Krugman did get his Big-SpaceDefense program would we return to Reagan era debt-growth prosperity again?   

Hard to tell people no, when they lived through that era.


SWRichmond's picture

The elite saved themselves, at our expense.  No surprise there.

In the words of one commentator: "The people who mind don't matter, and the people who matter don't mind".

Boris Alatovkrap's picture

Boris Theory of Motion...

Like water and electricity, money is must also remain in constant motion. More important than is amount of money, is velocity of money. Evil bankster is recognize this, so is create devise of sophistication like collateral back security, credit default swap, erotic derivative. But for everyone, circulation of money is critical of nature for human productivity and creation of wealth. To proof of theory, consider all person save 100% of earning. Economy is ground to halt.

So, great question is not interest rate, amount of debt, or even unemployment, but is how lubricate flow of money. Flow is lubricate at point of transaction, every transaction creating aggregate. What is KY Jell-o of economy?... Trust. This is cause of multi-year limbo. Obamanomics is destroy trust at every transaction because Obama is constant break law through scofflaw edict, both local and global, of course with help of Central Bank and globalist elite.

... but what is Boris know?

Boris Alatovkrap's picture

When all is have hammer, everything is look like nail.

prains's picture

Boris know his wodka theory Kold!

AlaricBalth's picture

It took a few decades, but the law of diminishing returns, as it relates to our debt fueled economy, reached an inflection point. Now, adding more debt is causing a decrease in total production and the result is having a negative impact on real economic returns. This would be reflected in the official data if only the true erosion of purchasing power were utilized, as opposed to the bullshit BLS number. 

dark pools of soros's picture

No.   The one difference is the acceleration of globalization.  If we were more like Japan and most of the printed money stayed in house then it can be kicked for a longer time


This guy says Japan is at the bottom which I think is good for Japan..  stay out of the Globization quicksand as long as it can



Boris Alatovkrap's picture

Boris write haiku for Japan:


ui raiku ra fuishu

ito rotsu obu raisu

ando ada-ruto meiru

raiku anime kosupurei

Shell Game's picture

Consensus through manufactured crisis, the new reality in this Idiocracy.  Can you imagine what buddies the Two-Headed Hydra will be when we lose Reserve Currency status..?

Boris Alatovkrap's picture

Dracula squid monster is have two head?

booboo's picture

"But given the G.O.P.’s lurch to right, and the White House’s understandable reluctance to buckle in the face of reckless brinkmanship" Well thats some fine horseshit there now, not withstanding the fact that ACA, the bill they are fighting to defund is not even the same fucking law that was passed, remember now, many changes, exemptions and fiddle fucking was done after the fact. So yea, a huge "lurch to the right" bullshit. The Redumbasses can barely hold that effort together. As far as "Brinkmanship" who is trying to ram a law down our throats that technically is null and void since it does not resemble the law passed.


Urban Redneck's picture

Given the douchebag intellect of the source combined with its political and social proclivities, one phrase come to mind-

Luke 23:34

regardless, bring it on.

kaiserhoff's picture

Great post.

Everyone is waiting for clarity and a return to real prices and somewhat free markets.

Hope I live long enough to see it.

Haus-Targaryen's picture

The free world is run by a Zionist Jew!?!?! 

robilla's picture

Are you sure?! I thought they were Zionist-Muslims

Mike in GA's picture

No no!  The president just told us 7.5 million new jobs have been created on his watch!

The deficit is down by more than 1/2 since he took office, the fastest in over 60 years!

That only his policies could have rescued us from the brink of GREAT DEPRESSION II, thank Allah for Him.

So things HAVE to be rosy.  I just heard the scenario.

robilla's picture

Like I didn't know this already

Pooper Popper's picture

Support "Truckers to washington,this Friday"
Shut it down truckers,we support you!

Areest them all!

ebworthen's picture

3/4's empty, and not for lack of trying.

My trust is 100% empty.

NOTaREALmerican's picture

The top 10% are doing great, and the top 20% are doing pretty good,  the top 30% not bad... 

In Merica, when have the bottom 70% ever mattered to anybody?

GeorgeHayduke's picture

Nothing will change yet again when all of this arguing over the budget is done with for this year's political theater show.

The one constant we can always count on is none of the wealthy, powerful and well-connected will have to take a big financial hit of any kind. While they will gut or change this or that government program that helps or hinders poor to middle class folks, those programs that provide welfare for the 0.1% will remain intact, and will get some gains from the money taken from those programs formerly aimed at the 99.9%.

My basic premise is that the financial problems are unfixable without vast, major changes and there isn't a politician in DC with the ability to make these changes. And if there were, that politician would be the next assassination everyone is talking about as yet another 'lone gunman' when batshit crazy and shot this person for some esoteric reason.

In other words, this system is built to maintain the status quo of protected welfare for the already wealthy and dog-eat-dog "free markets" with barriers of entry and policies biased towards existing wealth and power for everyone else. It is not built to address the issues we face. Expecting it do so is irrational. Yet that's what everyone keeps waiting for.

NOTaREALmerican's picture

Re:  Yet that's what everyone keeps waiting for

As long as the peasants have enough to eat, how bad can things be.

But, you are right.    The Red and Blue Team true believers help keep the scam going by thinking that if ONLY their Team ran the entire show everything would be fixed and we'd return back to our glorious past.

The smart-n-savvy people keep the dumbasses fighting and arguing about nonsence while they loot the system.    

Not sure any other system is possible in a country this size tho.    In a small country, with an ethnic identity, surrounded by hostile ethnic groups, it might be advantagous for the country's smart-n-savvy people to keep their peasants happy, if for no other reason than ethnic survival.   Mericans don't have that luxury.   We used to have the godless commies to hate, but they disappeared and we can't work of enough fear over the goddless Chinese commie capitalist to keep our smart-n-savvy people from helping them out more than our own peasants.  

Teddy Tenpole's picture



...white napkins and brown paper bags now, just not as fun is it?

TrustbutVerify's picture

I agree changes need to be made...but let's see your list of the changes you recommend.  

I really enjoy Zerohedge postings and even the responses but how about some rational, real suggestions being made.  

pitz's picture

Hundreds of thousands of unnecessary workers have been imported on the H-1B visa over the past 5 years while business 'leaders' lie in the media about the availability of US tech talent.  Things are now so bad that 2/3rds of the graduates from many of our top STEM-oriented university programs go unemployed upon graduation.  Tech firms receive hundreds of resumes for a single open available job.  This is a giant travesty towards some of the nation's best and brightest young scientists and engineers.

Sudden Debt's picture

well actually... my salary has rissen over 25% in the last 5 years and all is well. So this European doesn't complain that hard :)

Shell Game's picture

Good on ya, SD.  I'm sure your boss yielded quickly as he saw you approaching, arms flailing, teeth gnashing...   ;)

Teddy Tenpole's picture



The only people complaining are you boomer doomers who missed the market move.  Now you're getting crushed as rates move up...  work till death for all of you.

Haha, and most on here justify 'it' by defending the poor.  Fuck the poor, they are lazy and weak.  You dumb fucks should read all about tragedy of the commons.

There is no real wealth to create as the boomer generation has already brought too much consumption forward.  So we go sideways for a decade or so... look at Japan. Obama said we're energy self sufficient so watch for oil prices to collapse as demabd keeps shrinking. 

Buffet can then shove all his rail cars up his ass!

No matter how you slice it, party over.  Wonder why all the gold is disappearing?

For wealthy people it was bonds to stocks and now stocks to gold then it will be gold back to bonds, rinse and repeat.  debt slavery for the rest of you mutts.



venturen's picture

It is clear to all but the most obtuse(find a mirror) that the bankers will play their games till the system implodes. They are building a doozy. They don't learn lessons they just need to DIE....Bear, lehman, time Chase, Goldman, etc. 

I am sure you were long real estate in 2006. 

Pretending you are ahead of the curve, is laughable. 

Son of Captain Nemo's picture

"The financial system may be more stable than it was five years ago"...

Oh Yeah? JHFC !!!

Shell Game's picture

I'm betting not many of us have been 'In Limbo' for the last five years.  Quite on the contrary.  Busy little bees we've been...

hugovanderbubble's picture

Limbotrading is a term created by Hugo Peterssen, expressing all the farce we are living in the financial markets vs main street. The divergence is baumgartnered¡

Mr.Stiglitz quote me¡

Spain is in default














orangegeek's picture

and in conclusion, thanks Ben and Barry


now, the both of you, can go fuck yourself.

Al Huxley's picture

Fuck, I just find it such a sad/funny comment on our idiotic current reality that a statement like

anyone who got huge government loans with near-zero interest rates could have made billions simply by lending that money back to the government


is even possible to articulate, let alone describe reality.  So the banks, who are fucking broke, borrow money from the also broke governments, and then lend it back to the governments at interest, and use the interest to cover their losses from the 2008 meltdown (which really should be referred to as 'when everybody almost came to their fucking senses for a brief moment'). 


How is it possible that ANYBODY can read the above statement and not immediately draw the conclusion that 'there's no fucking way this can continue much longer'?

wearef_ckedwithnohope's picture

In order to (attempt to) avoid a complete and utter collapse and depression, the Fed/Treasury sold their souls (the Fed never had one to start with).


The ultimate kicking the can down the road while rewarding the perpetrators.  Our economy can never fully recover.  Because the mechanism that the most powerful organization in the world - the Fed - utilizes is fatally flawed.  And that is entrusting the Primary Dealers to inject their "free" money into the economy.


No.  They will only inject (like heroin addicts) into their own fees and bonuses structure by creating synthetic derivatives and securities which offer no value to anyone but themselves.  There are trillions of dollars of "nothingness" out there which is gonna blow very soon.


SubjectivObject's picture

"The financial system may be more stable than it was five years ago, ..."

Should we assume/interpret that Mr. Stiglitz is privy to what the big banks see sloshing around in their dark pools of leveraged quadrillion$, illiquidity. and unregulated (interest rate sensitive) derivatives? 

Take away QE, mark to market, let PM's trade unencumbered, and lets see how stable things are. 

world_debt_slave's picture

I recommend playing the actual game Limbo to take your mind off of the destruction going on now

Joebloinvestor's picture

The absurditiy of it can be seen in the Greek announcement of a return to "prosperity" in 2014.

COMPLETE AND UTTER BULL SHIT when you read the fine print.

They announce another LIE to qualify for more handouts.