Some interesting notes from Paul Krugman- “Dow 36,000″ and your pension

“Dow 36,000″ and your pension

So in 2007 the Pension Benefit Guarantee Corporation — which stands behind corporate pensions — switched from bonds only to lots of stocks, buying in at, natch, the peak of the market. Oops. And this is big stuff: the Bush administration may have left us all a gratuitous loss of hundreds of billions.

Why did this happen? I’m sure we’ll find some nasty stuff, but at least part of the reason was that the Bush administration, like many conservatives, was under the spell of the following pseudo-syllogism:

1. The stock market captures the essential spirit of capitalism.

2. Capitalism roolz!

3. Therefore, stocks will go up.

The most influential disseminator of this fallacy is the Wall Street Journal, which as far as I can tell has cheered on every bubble since the 1920s, always dismissing the skeptics as fools and promoting the dumbest bull-market arguments available. I don’t have time to search for it right now, but I think there was an editorial circa 2000 saying precisely that anyone who questioned the bull market of the time was anti-capitalist.

And now the cost for that attitude is falling on you and me.

Leaking under stress

John Hempton has a good question, which other people have asked me: who is leaking about the stress tests?

Traditionally, leaks to the press come from officials trying to curry favor with journalists, who will treat them favorably in the future. (See Woodward, Bob.) But that’s kind of hard to see as a motive in the case of the relevant economic officials here — possible, or maybe it’s people on the political side of the White House, but it doesn’t feel right.

Alternatively, there’s Yves Smith’s version: these are all trial balloons to see how outsiders will react to different stress reports.

But that just adds to the bad feeling about all this. Even Brad DeLong, who has been relatively sympathetic to the administration here, is disturbed by the idea that regulators are negotiating with the banks about the test results. Now it seems as if the report’s contents may also be dictated by what, based on the response to leaks, the informed public is willing to swallow. (”Would you believe it if we say Citi is fine? OK, what if we say they need $5 billion? Not enough? How about 10?”)

I hope I’m not being too cynical here. But it would be nice if the administration would, just once, do something to dispel that cynicism.