Weblog Archives

  Monday  August 5  2002    01: 26 AM


Bubble Capitalism

One bubble burst, then another and another. Enron, Global Crossing, WorldCom. The rectitude of auditors--pop. Faith in corporate CEOs and stock market analysts--pop, pop. The self-righteous prestige of Citigroup and J.P. Morgan Chase--pop and pop again. The largest bubble is the stock market's, and it may not yet be fully deflated. These dizzying events are not an occasion for champagne music because the bursting bubbles have cast millions of Americans into deep personal losses, destroyed trillions of dollars in capital, especially retirement savings, and littered the economic landscape with corporate wreckage. Ex-drinker George W. Bush explained that a "binge" is always followed by the inevitable "hangover." What he did not say is that the "binge" that has just ended with so much pain for the country was the conservative binge. [read more]


The Bigger They Are, The Harder They Fall: An Estimate of the Costs of the Crisis in Corporate Governance (PDF)

'The two largest bankruptcies in US history, WorldCom in July 2002 and Enron in December 2001, stem from corporate mismanagement, and symbolize the broader crisis in corporate governance. We provide a ballpark estimate of the costs of the crisis, based on estimates of the effects of the crisis on stock market wealth, calibrated according to the Federal Reserve Board’s model of the US economy. We estimate that if the S&P 500 Index stays roughly where it was on July 19 – or near 850 – the crisis will lower US GDP in the first year by $35 billion in our base case. For comparative purposes, this is in the range of what the federal government spends per year on homeland security, or a $10 increase in the per barrel price of crude oil'
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thanks to also not found in nature