Beyond Craziness Economics
Oct 30th, 2008 | 4 responses
Beyond Craziness Economics
When I was working at Bloomberg Financial News a few years back I saw up close what was going on in markets and thought it was crazy. The Wall Street crowd was slicing and dicing the same assets and selling the pieces as if they were new assets. And the risk management derivatives that were supposed to take the place of regulation were nothing more than modeling constructs concocted by mathematical geniuses who didn’t know a bond from an option much less have the slightest understanding of the intrinsic value of the securities whose worth they were purporting to define.
Crazy as the markets I saw while working at Bloomberg, however, they were nothing when it came to craziness compared to what’s going on now, as panic-stampeded government officials around the world throw money at anyone who will take it in hopes of fending off the serious recession their own past laxitude did so much to create. The world economy today is not just exploring where none dared go before. It’s exploring where no one with an ounce of sense and a smidgin of prudence would consider going.
Striped of all the fuzzy economic rationales used to justify current government attempts to prop up world economies, what’s happening now is this: the future of the world’s people is being mortgaged to bailout past errors. Governments aren’t using reserves and won’t have tax income to pay off the astonishingly large new debts they are undertaking. And they aren’t investing this debt in new assets that will make its payback even vaguely plausible. Instead, governments are simply replacing equity that has been lost by financial bunglers in the marketplace, as well as the lost income and savings of people who invested in these mistakes.
Has the past greed of private sector gamesters who didn’t know what they were doings with other people’s money frightened you? If so consider carefully, really carefully, the present panic-driven actions of public gamesters who don’t have the vaguest idea of how their present actions will shape our collective futures.
And be afraid. Very, very afraid.
4 Responses to “Beyond Craziness Economics”
Are these the same public gamesters who the “free-markets have failed” crowd wants to regulate us into financial sanity?
Michael –
1. It's “stripped,” not “striped” (like a zebra or a candy cane at Christmas).
2. The bubble was not only the fault of the “gamesters” as you call them, but the many members of the lay public who were greedy who believed that stock prices, then home prices, would continue to rise indefinitely; they also wanted in many cases much more house than they could afford, and they chose to engage in not only silly but wrongful behavior when it came to home loans and home equity loans. These people were more gamester-like than how you depict people in finance.
3. The consequences of what is currently happening have been ridiculously hyped and grossly sensationalized, and you are guilty of the same here.
4. If you advise us to be “afraid, very afraid,” irresponsibly so, aren' t you also being panicky?
5. Ironically, in any industry or part of the economy, the most qualified are the participants in it, those in the industry concerned. Government bureaucrats aren't as qualified, obviously, and they likely will make things worse, not better.
6. What about the more broad view of the economy (rather than obscession with depicting the finance industry, but not where most of the problem is, with the borrowers in the housing bubble)? Rudi, if you had a chance to look at that book by Roger Bootle, take note. First, the banks who have been given money are sitting on it, rather than lending it — they can't be made to lend it (nor should they be). They aren't lending it and may call in other bad loans due to risk aversion. Second, the Federal Reserve just lowered the interest rate to the lowest it has been since the 1950s. We are already approaching zero per cent. The “ammunition” metaphors (which are in Bootle's books and on the lips of others, such as guests on NPR) are starting to be heard already (because at zero the ammunition supply will be exhausted). Concern about deflation is not crankish, but very sound.
After realizing that stocks cannot rise faster than economic growth in the long run or realzing that housing prices cannot really climb faster than economic growth and the rise of real wages, the citizens of the U.S. will get to experience a government that believes that taxes and government spending can increase faster than the economy grows without any negative side effects.
They view government not only as their parent, but as Santa Claus, their Fairy Godmother, their magic genie, as I've written numerous times before.
Super D: What happens when some naive, gullible youth (Obama voters, perhaps even ambitious Obama himself) decides that we don't just need a rainy-day fund (to be routinely plundered by Congress, as with Social Security “trust funds” of no actual value whatsoever now — they merely are future claims on additional revenues that will have to be raised somehow, no matter what the idiot Denialist-defenders keep yammering) but that we need to ape other nations and develop a US “sovereign fund” ourselves, to make the US government openly and directly a large-scale institutional investor? (If in the USA and even elsewhere, expect scumbag activism, demands for “social responsibility,” “Israel divestiture,” labor-and-enviro fad-following, and so on) — it would be grotesque as well as repellent to people of quality.