By Ben Cohen
Paul Krugman pours cold water over Larry Summers prediction that the recession is bottoming out. Quoted in the Huff Post:
"We are moving towards at least a pause," said Krugman. "All the news
said that the economy is getting worse ... industrial production is
falling, unemployment is rising, all the measures you use about the
health of the economy continue to deteriorate, but they are getting
worse more slowly. So Larry is right. We were crashing but it looks
like it is leveling off. But if you look at history, there were several
points like that during the Great Depression, so it is not clear that
this is the end of the story."
Krugman also responded to the 'Stress Test', saying it was essentially a way for banks to build up self esteem:
"This stress test, I have to say, it is sounding like a class of
self-esteem: 'You are all wonderful, each in your own way. I don't think they are going to let
anybody fail."
I've been speaking with people in the banking industry over the past few days, and can attest that most of them are pretty happy with the bailout. This is invariably a bad sign as it means the lessons haven't sunk in, and the same mentality pre-crash will resurface. The Obama Administration has sent a firm message to Wall St that no matter how badly they cock up, the government will always be there to bail them out, and the consequences for bad behaviour will lead to no more than a slap on the wrist.
