Ezra Klein: Was the economy of the '90s really so bad?

[flpoljunkie]

One of the constant refrains in the debate over regulating derivatives is that if we do anything to tamp down on this massive market for customizable derivatives that are built-to-order by the five largest banks, we'll do some terrible damage to the economy. Or something.

But look at the graph atop this post: The real explosion in customized derivatives came in the aughts, and in particular, after 2005. Why after 2005? There are a couple of theories, but the most convincing is that the bankruptcy reform bill gave derivatives favorable treatment during bankruptcy proceedings. That made them a better investment than other types of financial products, and so demand exploded.

That's all in the game. But then, what reason is there for believing they're crucially important to a healthy and balanced economy. Was the economy of the 1990s really so bad? Was the period between 2005 and 2008 such a wondrous time for the American middle class? Have there been structural changes to the nature of American prosperity that customized derivatives -- and lots of them -- are necessary in 2010 while they weren't back in 1996? Maybe there's a good answer to that question, but I haven't really heard it.

By Ezra Klein
May 3, 2010

http://voices.washingtonpost.com/ezra-klein/2010/05/was_the_economy_of_the_90s_rea.html

[damntexdem]

1. A rec, but for working and middle class people, the economy was stacked against them since the 80s.

Yes, there was great economic expansion under Clinton, but many didn't do so well even then, because of the policies favoring the rich that started under Reagan.

[flpoljunkie]

2. Can't disagree with your assessment, damntexdem.