Christopher Caldwell writes in the Weekly Standard about history, central banks, bubbles, and capitalism. I'm not informed enough to evaluate what he says, but wanted to pass along some striking statements. To what extent this is mystification aimed at getting the unwashed to submit, I can't say.
Everyone is always hollering for clear rules and transparency. But a dirty secret of regulation is that it frequently influences conduct most effectively when it is capricious and opaque. Any regulatory system will reveal its vulnerabilities over long use. If it addresses economic problems in a predictable way, savvy investors will find a way to "game" that predictability.
Certainly I've seen the analagous behavior in students as I tried to conscientiously play my role as sorter-out for the "meritocracy".
Where Bagehot [the 19th-century British writer] would agree with Marx is in his belief that there is something predictably destabilizing about modern economies. You don't need banks to have a precarious economy, or one liable to speculation--Bagehot noted that there were no banks, as we would understand them, in 1720, at the time of the South Sea Bubble and the Mississippi Scheme. But modern banking is precarious by design. "In exact proportion to the power of this system is its delicacy," he wrote. "I should hardly say too much if I said its danger." The power, delicacy, and danger all have the same source. In fact they are just different names for the same thing: leverage.
There's more on leverage here, including a nice exposition for economic idiots like me on why economic actor A must buy on credit or succumb to competition with economic actor B who does so.
The problem with central banking is that it reacts to a system that has been mismanaged by rewarding the managers.
I love this one, but the next is my very favorite. It nicely captures the "it is because we say it is" character of the financial world.
To be blunt, credit is successfully reestablished when financial elites say, "When." Credit is close to a synonym for the mood of the ruling class. To say an economy is based on credit is to say it is based on animal mysteries. Glamour, prestige, élan, sprezzatura, cutting a figure .??.??. that is what the economy is made of. It is a rather terrifying thought.
I bet Caldwell isn't scared though. Only the little people need fear.
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oh dear
don't you know better than to believe anything that comes from a Murdoch property?
oh dear yourself
I thought there was interesting conversational fodder there, regardless of Murdoch-ness.
Policy not party!
I think this is Keynes's "animal spirits"
So, we need to make the rich happy to end The Big Shitstorm. What should I do? Donate a kidney?
"First they ignore you, then they ridicule you, then they fight you, then you win." -- Mahatma Gandhi
I'd bet he is scared.
There are lots of them out there. Some have more money than others.
They share one thing in common: they all have a lot to lose.
This isn't over. That should scare everyone.
This message from the Right is the same as it's been since
12-12-2000: You will submit.
JFK has been shot, we miss him a lot
He always knew what to do
-- Philly Cream
It's a conservative apologetic
pretending that the current crisis was inevitable and even trying to lay it off on "democracy" to some extent.
Even Caldwell concludes the first paragraph quoted above by admitting: "In the same way, no matter how good the content of a regulatory regime, it must change periodically if big market players are to be kept from profiting off it." Which is not to say de-regulate, but re-regulate, or refine regulation - something no one at the Weekly Standard has advocated since the Nixon years at least.
But Caldwell's interpretation of why businesses need leverage or why people who kept their money in banks in the 1990s "lost out" (in his appraisal) is a one-sided view. Caldwell cites Bagehot's explanation of leverage and return on investment, but fails to make the distinction between using credit to invest in a going concern with a high probability of success, vs. trying to leverage an investment in a perpetual motion machine, or the Wall Street equivalents that are collapsing right now. The first is prudent investing and beneficial to society, the second is driven mostly by the greed Caldwell wants to pretend isn't a factor, or stupidity, which Caldwell fails to mention at all.
Caldwell ignores the 2 out of 3 businesses that fail, and the ones that can't repay the borrowed money they thought they could leverage, and the people who invest in vehicles they don't understand sold by people who they shouldn't be trusting. In his example (quoting Bagehot) of how leverage confers greater benefit than being unleveraged, he doesn't mention what happens to the company that borrows if it fails to sell its product or fails to make a profit at all, or even has phenomenal sales and high profits on paper, but lacks the cash flow to service its current debt and can't secure additional credit to do so. Those are the more usual situations.
Similarly people who held their money in savings accounts at 2 or 3% during the 1990s got a lower return than people who achieved the 15% average return over that decade that Caldwell cites. But Caldwell doesn't mention that, unless you timed the market perfectly, which is nearly impossible, you lost a big chunk of those big returns when the market finally went south. People who got a lousy return on bank deposits still had their principle and interest when the bubble popped.
Just like all those big returns on Maddoff's funds are now turning to shit - it doesn't do much good to get 100% return on principle if you lose both the gains and all of the principle when the scheme collapses.
Caldwell is nothing more than an apologist spouting the same kind of "New Economics" ideas that even Greenspan subscribed to before the dot-com bust, or the "housing prices will always rise" wisdom that fueled the current mess. He describes how the greedy (whom he pretends don't exist or affect markets) think about leverage - not the way a prudent investor or producer does.