Is this the final failure of capitalism?
 

Ok... so the root of the current crisis is an asset bubble that burst (in housing): but is this more than just the usual violence of the invisible hands of Adam Smith? I can only speak for the UK, but there was a weekend when it was touch and go if 3 of the 4 main banks would be able to open on Monday morning before the govt poured in billions of taxpayers money.

Normal people probably mostly dont understand hedging and securities and so on... but they do see bankers rolling in million pound salaries and then getting bailed out. How much more indignity can the people be subjected to, how much more barefaced robbery - before we start to ask the question: humankind as a collective is capable of producing a set amount of resource, and why should it not be shared out equally, rather than be plundered by robber barons and pirates who are bailed out with tax money if they fail? (will we be called cynics if note that most members of govt retire into non exec board membership of big companies)

Each depressions, each shock, each crash is worse than the last... how many more before the people challenge the lies of the elite that "there is only one way"?

probably not.
diamat isn't terribly helpful in sussing out what's happening in real time---the correlate of the schema is that at a certain point the proletariat will recognize it's objective interests and will act as a class to push this cycle of crisis in a revolutionary direction---but that cannot account for the transformation in both material and political conditions of working folk. i could go on and on...

what i think we're moving through is a significant rearrangement of the capitalist game though. it seems like most folk who a year ago were neoliberals are now more or less talking a social-democrat game, with varying degrees of coherence--with the americans bouncing along at the rear of the coherence train. the leading symptom of that is the fracturing of the hegemony of neoliberal discourse as the lingua franca of the dominant media's collective way of talking about the world. it hasn't disappeared, but it's self-evidently irrelevant. it's generating a cognitive dissonance amongst conservatives that you can almost hear buzzing in their skulls when you pass them on the street. but the immediate future is, as it always is really, open-ended.

what i think is going to happen is a political reconfiguration of the existing transnational order. while i think the principal loser in it will be the united states, it isn't obvious yet what shape that'll take or, by extension, what it will mean. in terms of the domestic ideological situation in the states, so far as i can talk about something that big, i think we are in stasis, in a strange interzone, adrift and waiting for the bush people to fuck off into a richly deserved oblivion (if there were any sense of justice in the world, their pathway to oblivion would be tracked by trials for war crimes)---but this is obviously not an unambiguous situation. look at gaza if you doubt this--look at what the americans are and (mostly) are not doing. it's obscene. the interzone is one of waiting for obama, and the reasons the dominant ideological apparatus if focused that way is that it maintains a veneer of legitimacy for the existing order.

my more revolution-oriented side sees possibilities in the next phase of things--if for example the lingua franca of the dominant ideology shifts toward a more social-democratic frame, that opens space to it's left that has been entirely foreclosed as the us has passed through the past 7 year of fascism-lite. and historically, it is the periods after the crises of capitalism that are the most volatile from a revolutionary viewpoint, particularly if the crisis unfolds across a phase of weakness for the left--and this is beyond weakness---this is atomization.

what cannot happen is a simple reversion to either the theoretical frameworks of modes of thinking political action from the old left tradition. i'd be happy to talk about this, but won't get started on it now. let's see how the thread unfolds.

I think we should take a hard look at trading certain 'commodities' that should have regulated pricing instead of going to the person with the most money. There may be shortages, but you won't see the rich investors being able to make money off the basic needs of the population.

The question I think you should ask is if it is the end of unfair globalization? There was only so long that we could continue to export the basic jobs overseas before you get a large amount of people not working (and not counted in unemployment numbers), and don't have the money to buy up houses and cars among other things. While the other countries economies start improving and they are able to buy oil and raw materials to buy products made by their own factories.

But there are certain industries that should have some more government oversight and be somewhat regulated and taxed correctly. It will be interesting to see what kind of changes happen in the next few years.

I don't agree that there was an asset value bubble burst at the root of the current crisis. In the US housing market what we had was speculative building/development in a few areas of the country (granted big areas, but generally limited), if we adjust national data taking out places like South Florida, Nevada, Southern California, Arizona most US real estate value is still relatively high on a historical basis adjusted for inflation. I would also argue that speculative value is illusion and that when speculative value goes away and you are left with real intrinsic or economic value that the change was needed and that rationally looking at intrinsic value we may find there was no real decline. The greater fool theory holds that the greatest (or the last) fool is the one who gets burned and that this is more a commentary on the foolish than the market.

Then there is the issue of liquidity. currently due to over building and limited access to new credit we have about an 11 month inventory of houses on the market. Until this inventory shrinks it is going to be difficult to sell a home anywhere in this country. The banking crisis is in part due to leverage that causes any drop in housing prices to be magnified many times over in the accounting records of banks. With pressure on reserves and to meet reserve requirements some banks ran into a shortage of cash which caused them to either need to sell assets at distressed prices or to stop lending. Reserve requirements are a regulatory issue and has little to do with fundamental economic strength. Regulators could assign a reserve requirement of 10% on banks or they could lower it to 5%, or make it 15%, given the smae bank with the same records, and given those three reserve requirements the bank could face going out of business or being able to aggressively loan new funds to customers. I would argue our current plight is not a failure of capitalism but a failure of centralized banking controls.

At the very least, we ought to retire the myth of rational self interest.

Capitalism will never die in the US: it is our state religion. Like all religions, its failure can be used by the crafty to self validate. Notice the folk who blame the current unpleasantness on TOO MUCH regulation. Or the people who blame the failure of the big 3 automakers on unions.

If only we had let the invisible hand do its thing, they lament.

The funny thing about an invisible hand: you can never tell when it's giving you the finger.

The funny thing about an invisible hand: you can never tell when it's giving you the finger.[/QUOTE]


The best quote I've seen that totally resembles the Bush Years in the USA.
HA! Now what?

I don't think it's a failure of capitalism so much as a failure of the current neocolonial brand of capitalism in place. We're operating on an economic system that, on the macro scale, literally makes no sense. Creating money from debt is as logical as killing people in the name of increasing the population. This may not be the final straw, but I'm of the belief that, until we alter our economic system so that money represents value and not debt, we will be on the road to a royal ass-kicking of some sort.

Said asskicking is now underway. Fiat money, at least in the US, is beginning to fall apart in the usual way...only this time it's got the potential to take the whole bloody world down with it. Only time will tell if this is an accidental or controlled implosion, but the effects will likely be the same in either case.

interesting.

here's something i've never understood about the libertarian critiques of "fiat currency."
maybe you can help me out with it.
generally, such critiques are linked to a demand for a return to the gold standard.
how is the value of gold any more or less a matter of convention than is the value of paper?

best i can figure it, there's no particular difference at this level: rather the difference lay in the finiteness (in principle) of the stock of gold...

is that all there is to it?

I somewhat fall into this category for a number of reasons. One being that the perception of a regulated market often gives people a false sense of security and results in them taking on too much risk.

One of the functions of market regulation is risk analysis and management. A failure to adequately regulate a market does not mean market regulation doesn't work. It needs to be fixed, is all.

The sooner we figure out how to adequately regulate things on a global level in a way that is compatible enough for it to work, the sooner we "fix" capitalism. There are too many people putting a lot of stake in the "good" things globalization has to offer while ignoring some of the more dangerous elements--the elements that go awry when left unwatched (let alone unmanaged).

The "sense of security" is far less false with reasonable regulations that prevent or minimize:

unsafe working conditions and unethical treatment of workers
environmental degradation
unsafe products making their way into the marketplace
unsavory or corrupt business practices (like tearing down the wall between commercial and investment banking)

than without such regulations.

The "invisible hand" equates the bottom line with the public good...and we know from experience since the industrial revolution that that is not the case.

Particularly if free marketeers have their way with deregulation...while at the same time demanding tort reform, even further limiting the rights of the public to legal redress.
-----Added 2/1/2009 at 12 : 44 : 21-----

Talk to the Invisible Hand
by Max and the Marginalized:
Listen here: Talk to the Invisible Hand (number 58)

paul krugman's column in the ny times this morning seems germaine to this latest turn in this thread:

http://www.nytimes.com/2009/01/02/op...02krugman.html

the comments are interesting to read through as well.

I had to laugh when I saw this:

The RNC (which traditionally stays out of policy debates).taking on the Republicans in Congress in a cage match, leaving both of them bloodied with the Democrats smiling from the sidelines.

I don't argue that there should be no regulation. I do think there is an optimum level of regulation. So in my mind the debate centers around the question of is there too much or too little.


Capitalism is not broken and I think we do know how to regulate things. However, I think the perceptions of what regulations can and can not do are in question.

I should ask the question, but I doubt I would get a direct honest answer, so here is what I think. I think some (those always wanting more regulation) believe that regulations can eliminate risk, that they can stop greed, excessive profits, exploitation, fraud, crime, etc., regulations can not do all of this.

For example there are regulations regarding insider trading in publicly traded stocks. every once in awhile the SEC has a high profile case and get a conviction, however, given the number of stocks, the volume of transactions, the methods to transact trades, it is virtually impossible for any regulation to prevent insider trading will actually prevent insider trading, people profiting from it and protecting "innocent" victims. What do you think, at best will regulators uncover .001% of profits from insider trading activity? The result of this regulation is that it gives amateurs a false sense of security and they then fail to do their homework - hence they get burned. In my view we do need some controls on disclosures, etc., but to make insider trading illegal is kind of a joke. When trading stock people need to do their homework - that is the real answer. You say how could this ever work? Well for starters if the buyer asks the seller the right questions and then if the seller is dishonest that could be fraud. But the issue is the buyer asking the right questions.
-----Added 2/1/2009 at 01 : 49 : 19-----
I agree there are some regulations that are needed and have proven to be effective. I think on a whole OSHA regulations do more good than harm.

Some of your other points here are questionable because the point are vague. What is a "safe" product? What is an "unsavory" business practice? Is "unsavory" different from illegal? How do you eliminate "unsavoryness" through regulation?

unsavory is an investment bank leverage 10 or 20 or 30 times over....a practice that was previously regulated.

safe products are ones that meet external (regulatory) standards for quality control.

Bush had a few high points, but fiscal policy was not one of them. And in the last few months he seems to be going along with and doing whatever Democrats in Congress want. There is clearly going to be a fight in the Republican party between real fiscal conservatives and moderates. There needs to be a winner. We need to clearly define what we stand for as a party. I think it is healthy. I would support the resolution.
-----Added 2/1/2009 at 01 : 58 : 48-----
Is all leverage "unsavory"? Or is it just "unsavory" for investment banks?

Call it something else, if you dont like "unsavory"....the fact remains, it was regulated until 2000.

Hell...call it "putting lipstick on a pig"....its still a pig.

I don't follow your logic.

I think if highly leveraged investment banks become insolvent they should go out of business. If they lied to investors about the amount of leverage they had, I consider that fraud.

ace....if you cant accept that the massive over-leveraging was a direct result of the deregulation of commercial and investment banking in 2000, I guess you cant follow the logic.

I question the premise that massive over-leveraging was a direct result of "deregulation" leading to market failures. Short of having no leverage, firms always have the risk of failure due to leverage (I know some will call what I just wrote tautology or stating something that need not be stated, so let's just say we already know I am guilty of it or whatever, I just think the point needed to be put on the table). In addition there are far more firms that did not fail due to leverage than those that have. The real issue is the decisions made or the judgment of those who employed leverage. The regulation governing the use or non-use of leverage is a false indicator of the cause of failure.

So based on my view, people who hold the view that the lack of regulation lead to market failure are going to attempt to fix the problem with a solution that is not going to be workable or with a solution that is not relevant to the issue.

I understand what I don't accept on this issue and I know why I don't accept it. I wonder if those who disagree with my position can say the same.

Call it regulation if you want to use that word, I see "honest disclosure" being the most important component. If the brokers/investment houses were required to disclose the extent of their leveraging, then potential investors could weigh the risks and invest accordingly, or not, depends on how much you want to gamble for the potential return.

This.

Capitalism is still, at its core the economic system that has given the most to the world, and will continue to. Capitalism encourages us to better ourselves by productive achievement, and that won't be lost in the US for a long time.

I hope the trend of "bail-outs" stops.

there's nothing even unusual about mixed state/private economic sectors in a capitalist context. in fact, if you think about it, capitalism isn't a thing--it's a system of production and ownership, which are at the center of broader modes of social reproduction or control. what capitalism looks like in any given space is a function of the histories of that shape it, that it shapes, etc.

so there are many varieties of capitalism: in a sense there's nothing but versions of it.

this "definition" of capitalism as involving "free markets" is just another version. the collapse of moral categories into ways of thinking about this social system are nothing more than aspects of the histories of american-style capitalism(s) that are one of many contextual factors that shape where we've collectively landed in the states today.

if you say that state action in a market context is socialism, you're making a statement that's only valid within a particular set of political contexts. outside them, it's meaningless.

what's finished is neoliberalism--in this, krugman's right.
one of the many problems facing the states at the moment--and here more than most places i think--is that neoliberals are ideologically opposed to state action in the economy, so if they find themselves in a position such that reality forces them to act otherwie, they do not know what to do. it's outside their worldview and so can't help but be incoherent. which is, i think, what we're seeing.

folk should hope that obama is much more a social democrat than the retro-nature of us mass politics lets him say he is.

I tend to agree. Honest disclosure is at the root of investors (or consumers) making informed decisions. Short of making honest disclosure a requirement, I think investors faced with a choice between honest disclosure and no honest disclosure will pick honest disclosure. So when there is an informed investor there is not even a need to make honest disclosure a "requirement" because those seeking investors will voluntarily provide honest disclosure to obtain investment. If "regulators" want to try and make the market idiot proof they can put in "requirements" all day long based on what an informed investor would look for - but at the end of the day no "requirement" will protect anyone from dishonesty or even incompetence. Caveat emptor - that is the best market regulator.

That is the basic difference, yes. We're currently running a global economy that is based on some fictional concept of inifinite economic growth, which is impossible given our finite resources. It doesn't matter what we use as the standard, but whatever arbitrary value is assigned must be representative of our resources, and not what people owe each other. You know a system is screwed up when you think about the fact that it would completely crash if everyone paid off their debts.

So yes, primarily because gold is finite. Also because it was the initial standard so it is a familiar one, and gold has a very stable market value compared to other resources.

Regulation worked pretty well between 1929 and the Glass-Stengall Act.....until the deregulation of the S&Ls in the 80s and the deregulation of commercial and investment banking in 2000.

There has always been fraud, dishonest, greed... but regulatory oversight keeps it in check far greater than the "invisible hand" or caveat emptor..

Regulations are the brakes that keep the train from going too fast and coming off the tracks. If housing had gone up 3-5% in the past 10 years, house prices would be at the same place that they are right now, yet we would feel a lot better about the outlook of this economy. It's true that it is harder to make money, and growth isn't as fast. But since anyone could have gotten a mortgage, and plenty of people got too many mortgages in order to make a quick buck or borrowed too much from their home's paper value it caused us to get into the mess we are in. Banks have grown too big and should have their size regulated. When IndyMac failed, it was just another bank. But if Chase or Bank of America failed, well there would be major problems.

It will be interesting to see in the new administration announces a comprensive economic plan and direction for the next 4 years when they take office.

"Owners of capital will stimulate working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable.The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and State will have to take the road which will eventually lead to communism."

Karl Marx, 1867

:)

I can generate a very very variable amount of resources, depending on my motivation.

False. I am not aware of a shock that was greater than the great depression. And it is often argued that the 1870s depression was far worse than the 1930s depression.

Think what it would mean if everyone paid off their debts.

It means nobody has any obligation to anyone to do any work. The demand for money is based off of people who really want to get money for ... well, eventually, to pay off their debts. On top of that, if nobody wants to borrow money, it means nobody can think of a means to take money and invest it to generate a profit using resources beyond what they already own.

Nobody that others think can replay debt wants to borrow money. Which means everyone that has the ability to repay already has all of the resources they desire. Only those who don't have the ability to repay want to borrow money. Everyone wants their resources enough that they aren't willing to lend them at a rate anyone is willing and able to to pay back...

If you don't have something that the farmer immediately wants for his food, what can you give the farmer? You can give that farmer an IOU, saying you'll repay the farmer later. Even better, you can find an IOU that many people are willing to repay, and give it to the farmer, giving the farmer lots of choice.

An IOU that many people are willing to repay is currency.

What about the period before 1929? The banking system was working then with even less regulation than today. Perhaps the generic concept of "regulation" is meaningless. We should think in terms of value adding regulations, and regulations adding no value. This current form of liberal speak suggesting that banks and the financial sector are not regulated is either dishonest or uninformed. Yes, I said it again - unfortunately it is true.

I disagree. The best protection against dishonesty, greed, etc. is due diligence, doing your homework, being proactive, alert, cautious, etc. at the individual level. Even in highly regulated markets a person can be a victim and unfortunately the regulators may not be able to respond until after the damage has been done, but if one does their own due diligence one can avoid being a victim to begin with.

It is interesting how this illustrates a fundamental difference in the thinking of current liberals and real conservatives. And even Obama stated that government is the only solution to our current economic problems. Unbelievable.:shakehead:

Insull, the original Ponzi scheme, Florida real estate scams, the Crash itself...

Put it this way: there was a reason for all that regulation.

Greed.

Also, I think history clearly shows that regulators are reactive. They let an excess cause a problem, then they do something that they think solves the problem. Then the next excess causes a problem and the cycle continues. There were many smart people in 1929 that did not get burned just like today. So they want to protect those who get duped. The duped should take their lumps and move on.

Also, many would argue it was the government response to the crash in 1929 that actually caused the depression.

1. Under capitalism, greed is a constant. Capitalist ideology tells us it has always been so, and will always be so, and can only be so. You own it, Ace. Enjoy.

2. I would agree that regulation is reactive, and it seems you think that regulators should have been more proactive. No doubt. Considering that the current crash developed after the dismantling of the 1930s regulatory framework, i cannot agree that an excess of New Deal regulation led to the Crash of 2008.

3. Many of those "many" would argue that any gummint anything is a priori bad bad bad. They have the same knee-jerk response to every development. So does my cat. Meow.

Still others would point out that attempts to balance budgets after 1929 exacerbated the situation. That is happening right now.

There is a difference between greed and doing what is in your own best interest. I disagree that greed is a constant, the constant is people doing what is in their best interest. Greed is always potentially present and when it comes to the surface bad things usually follow eventually.

I think regulators need to be more thoughtful, understand the delicate balance between excessive and reasonable regulation. they should understand the ever potential for unintended consequence and be prepared and willing to make adjustments.

I think most thoughtful people, even those with libertarian tenancies, recognize a role for gummint.

ace--in no. 2 it almost sounds like you're arguing for an explicit industrial policy from the state.
because without that, how would a regulator--or anyone else for that matter--be able to distinguish between types of consequences?

The first step would be to clearly define the intent of the proposed regulation. Then we can easily determine if the consequences are as intended. And I would say lawmakers have the obligation have clearly defining intent.

For example if the intent of regulating the number of hours a truck driver drives in a 24 hour period to xx number of hours is to reduce accidents on the road by 10%. We should be able to quantify the impact on accidents and also the impact on other things like the cost of good transported. If we find that with this regulation the frequency of accidents do in fact go down, but the severity goes up (perhaps because drivers are driving faster when actually on the road), the regulation should be revisited and compared to the original intent. In this case we find that the original intent is being accomplished but that fatal accidents have increased, perhaps another approach is in order rather than a more and more complicated patch work of regulations.

And perhaps unfortunately in the situation above what may really be happening is that people who have the ability to safely drive 18 hours in a 24 hour period are being dumbed down to those who can't.

Ace, individual optimizing actions do not generate globally optimal results in a general free market.

That is because Nash equilibriums that are not global maxima exist in most cases.

The hope is that the system is set up so that Nash equilibriums exist close to the global maxima, so we can use each individual processing information and making decisions in their own best interest to generate a good approximation to the global maxima solution, far better than a central resource allocation could do.

The problem is knowing where the global maxima is challenging. On the other hand, it can be easier to see isolated Nash equilibrium failures and fix them without knowing what the global maximum solution is (ie, you see a situation where action X done by all parties would create efficiency, but action X done by any one party would result in the externalities being captured by other parties. That results in no party having an incentive to individually do action X. A regulation enforcing action X on all parties that costs less than the projected benefit is worth exploring, in order move the Nash equilibrium, and hopefully find a better hill to climb.)

Naturally, these experiments can be dangerous -- misestimation of cost of enforcement or return from the policy, or the possibility that the costs cause other more-ideal equilibriums to fall into worse states, can cause damage.

The idea of bank regulation is that having companies able to generate market-responsive liquidity, and who have internal incentive to evaluate the worth of people who want cash, is a useful thing for society. But the internal incentives don't line up perfectly -- banks have lots of short-term and medium-term incentives to "bet against the black swan" event. A bank that failed to bet against the black swan would see lower returns on their investments in a systematic way. It would fare better in a catastrophic downturn -- but the damage from that downturn wouldn't be limited to the banks who did bet against the black swan, and the 'cautious' banks would suffer a good chunk of the economic damage that the 'reckless' banks generated.

So the idea is that we allow banks to do term-inversion of investments on reasonably large scales in exchange for being conservative in their investment actions. The reserve requirements exist so that the bank can survive a black swan event without collapsing. (The damage caused by a bank collapse is not just limited to bank creditors, account holders, and investors -- due to the economic lubricating job of the bank, it creates far-flung damage that is external to agreements directly with the bank and bank counterparties.)

Anyhow, that is how I see it.

Has this really gone to game theory? Really?

Game theory is still, somehow, fashionable, even though it has never worked in practise and almost all of its original proponents now accept its divorce from reality.

Rational actors acting exclusively in their own self-interest... Have never been part of society, will never be part of general society - aside from psychopaths and economists. Human beings, as social animals, will _always_ find ways to cooperate. Game theory is based on strict non-cooperation, hence game theory cannot be applied to anything but simplified situations (like the cold war standoff, to a degree) and absolutely cannot be applied to society.

Even Nash (mad as he is and always was) says this himself.

The conservatives who have been in power over the last few decades have made us believe that ANY government spending is socialism. That's just not true. This country was built through strong government programs and spending. The conservative myth that all private spending is wise and productive and public spending foolish and wasteful is what has gotten us into the economic mess we find ourselves in today. There is nothing socialist about having a government that serves the people - we live in a democracy, not a socialist state. It's the decline in national investments that has led us to a place where from 1989 to 2006, the highest-earning 10 percent of U.S. households collected over 90 percent of the nation’s income gains. Today the top 1 percent of American families receives 23 percent of all personal income, up from just 10 percent in 1979. Corporate executives earn 275 times as much as average workers, compared with 27 times in 1973 (these facts are taken from the downloadable book "Thinking Big", which I highly recommend: Thinking Big). If the market and hard work could have saved us - it would have already done so. So yes - the is the final failure of capitalism as it stands.

A good question would be what is the goal. At one level I do care about globally optimization, but on another global optimization is secondary to my immediate needs for optimization. (Some will be beside themselves and call me all kinds of names, but I am being honest. If others would put the needs of the world ahead of their own immediate needs, they deserve a special place in heaven.) Also, to be clear I am not talking about extreme unreasonable needs. But for example if caring for me and my family required me to level a forest I would do it, even if the net effect was negative globally.

I think this defines the inherent risk with "government" or any type of centralized planning. Not only is there the risk of misestimation of cost, there is the risk "doing" regardless of the cost to promote a political agenda not related to the collective good.

But can a market self-regulate? I think the answer is yes in some cases (at least for a time period) because of the point you make. Banks have an incentive to make sure other banks play by a certain set of rules that won't lead to reckless behavior that harms all banks. However, I think eventually all free markets will reach a point of failure without some regulation. I think EBAY is an example of a basically self-regulated market with just enough centralized control to make the market work on a long-term basis.

I think the market response in the banking industry was to allow the imposition of regulations through FDIC recognizing the problems with bank failures. but it is interesting how in our current crisis many in Washington did not want to allow existing controls in the system work. I think they should have let more banks fail. Failure would have uncovered all of the weaknesses in the system much faster and solutions would have been more direct.

apparently, the gao doesn't buy this la-la markets will fix themselves nonsense.
here's the report of high risk areas released yesterday:

http://www.gao.gov/new.items/d09271.pdf

it takes you straight to the full report. the section on outmoded american regulation of the financial sector is pp. 13-19.
it simply outlines the problem, pointing to it's magnitude, without making specific policy recommendations.
but the central arguments are:

a) financial sector activity has not, cannot and should not be unregulated.
b) a regulatory framework that is hopelessly outdated is no better than no regulation.
c) the current regulatory framework is in no way adequate.

to address this, the most basic requirement is the rejection of neoliberal economic ideology out of hand.

but read it for yourself.
99 ppg. of fun.

If you want to mis-characterize a position and then call it nonsense you will not get a reasonable exchange.

I don't know anyone who suggests that there are not problems with "free markets" (as if you could actually find one). There are risks is "free markets" and there are risks in highly regulated markets.
Here is a quote from page 14:

What this is basically saying is that the market moves/develops/reacts/grows/changes/etc. much faster than regulators can. Basically we have trillions and trillions of financial transaction, we have some of the most highly educated and creative people trying to profit in the system and we have a handful of legislators and bureaucrats in Washington trying to control it, and them actually thinking they can. If anything is nonsense, that is. Oh, and they think it is a risk, I didn't need their report to figure that out. I noticed they offered no solutions to manage the risk.

Don't you mean to say that the markets are developing much faster than regulators have? This is what the report is saying. Regulators aim to reign in the risk taken on by institutions (especially big ones) so that these kinds of failures don't happen in the future—they are more or less, at least, trying to minimize the impact of such failures.

I think the problem that most people have is they think that markets are efficient, when they aren't typically. We tend to overlook the impact of behavioral trends in the marketplace. Investing and borrowing is an emotional thing on all sides of the equation. Leaving the market to "fend for itself" is a dangerous thing when you remember that the market is more human than you think.

Let's not overlook this too, from the report:

[...]despite the increasingly global aspects of financial markets, the
current fragmented U.S. regulatory structure has complicated some
efforts to coordinate internationally with other regulators.

This isn't just about the U.S. and the U.S. government; this is also about global markets and how regulation is a coordinated effort.

The idea of free markets is becoming increasingly dangerous as markets in general become increasingly complex.

the idea of free markets hasn't been credible since the 1870s, except in some sectors of the jurrasic park of reactionary ideologies that is the united states. most of the 20th century can be parsed as a series of attempts to figure out ways out from under the social chaos generated by markets in create instead something approaching a livable form of capitalism, one not controlled by a self-serving type of social darwinist ideology. failure after failure to rig up some adequate regulatory framework, initially at the nation-state level (once these were jammed into place, a process still underway in the lovely afterglow of world war 1) mostly at the trans-national level (via economic interdependencies and political structures like the league of nations)...it was only after world war 2 that something approaching such a structure took shape, but it only managed to produce a veneer of functionality in the metropole for a little over a decade. since the late 70s, the dominant ideological framework "rediscovered" the middle 19th century and deployed through an authoritarian media apparatus to convince some segments of the american jurrasic park of rightwing ideologies that what failed over a century before is now somehow the next step in some fiction of progress.

it's so ludicrous a position that it's hard to imagine how it could possibly have taken hold without reliance on an authoritarian ideological delivery system.

at this point, such debate as there is left about the (delusional) chicken-egg argument of markets/regulation which is primary comes down to a simple proposition:

regulation enables markets to function. so the state has to approach regulation in that manner, from that viewpoint. the american financial regulatory system is as outmoded as it is because the ideological framework that was dominant under neoliberalism presupposed that it was ancillary to the functioning of markets and so was allowed to deteriorate, grow increasingly out of phase.

simple fact of the matter is that while this was happening, the class fractions that stood to benefit from neoliberalism simply pillaged the store. and now you have a wholly dysfunctional system. way to go.

i don't see why american conservative-style market metaphysics are relevant any more.
look around and you see what they've done.

What I am saying is broader. Not only is the financial market developing much faster than regulators can manage that development, the market is too big, the participants too clever. The fundamental problem with regulators is that they are always in a position of being reactionary. Also, in complex markets regulators who no longer participate directly in the market will not be current on what is happening in the market. It is ironic that the current administration is making so much noise regarding lobbyist, people who can connect government to markets in both directions. I understand the issue of conflict of interest, but there can be a bigger risk of regulators simply not being in touch and not having a clue on what is needed to address issues.

I think a bigger problem is the false sense of security naive market participants have thinking regulators have markets under control. The Madoff scandal was due to the fact that investors thought he was in compliance with market regulation and because of that they did not do their own homework.
-----Added 23/1/2009 at 02 : 48 : 42-----
It is relevant because it is dominate.

this sort of "debate" gets exasperating. we aren't talking about the same things. ever. i have worked on the history/political economy of capitalism for a very long time and am accustomed to being able to assume some basic knowledge about that in debates---you don't seem to know anything about that history to speak of, preferring instead to oscillate between some retro-metaphysics about the Magic of Markets and occasional snippy asides about preferring to talk to "real people" rather than folk with academic background, whose heads are pointy and live in chess pieces in some interior quadrant of your imagination.

i don't think you know what you are talking about. like at all.
but maybe i expect something entirely different than makes sense to expect.
either way, this isn't interesting to me---it isn't fun, it doesn't get anywhere.

Under neo-liberal regimes, sure. They created situations where there weren't enough regulators or regulation and by golly, the regulators just couldn't keep up with the dynamism of the market. It was a self-fulfilling prophecy. Once the first attacks were felt, they lopped off even more by saying that those regulators/meddlers were so darn inefficient and reactive.

The neo-liberal balderdash about gummint & markets was a smokescreen to obscure the institution of neo-liberalism. Hiding its own institution was one of the things that made neo-liberalism so anti-democratic.


It was.

It's been negated in practice since last fall by the crapitalists and your man G.W. and crew -- at least before they went limp. Considering that practical negation, it doesn't really matter what is said in factless vacuoles of the superstructure.

one of the interesting problems with any reworking of the extant regulatory regime will be figuring out where to locate mechanisms that impinge on transnational financial flows.

the present regime was assembled ad hoc on the basis of the nation-state understood as a kind of natural horizon--i think this happened more or less organically because like (pace wittgenstein, by way of a graceless paraphrase)---> a curious feature of the most structuring of assumptions is that they do not strike you at all. they're knit into the framework that you impose on the environment, like an a priori. during the long, bloody history of the 20th century, across 3 world wars, nation-states were a baseline feature of capitalist ideology, a device which enabled self-location, the starting point for the ordering of propositions that replace increasingly experience-distant phenomena (by working them into a sequence and so generating a sense of machinery).

to regulate transnational capital flows requires breaking with that assumption concerning location. if the above is right, this poses a cognitive problem, so the outcomes will probably be backed into---it seems to me that the most logical way out of the present fiasco is the fashioning of some kind of transnational regulatory system, which requires institutions, which require some kind of legal authority.

for example, at the moment currency speculation seems to be a real problem, given that the players in that game are not from nowhere and do not operate without political assumptions and so react in ways that are ideologically structured to moves like, for example, the uk project of nationalizing the banking sector outright. the choices are either operate within the present regime, in which case the tanking of the pound will place a obvious limitation on regulatory choices, or change the way currencies operate. this might be a good time to resurrect the tobin tax idea--a tax on transnational currency movements the idea behind which was to create a disincentive for speculation.
but while that would slow down activity in currency markets, it wouldn't change the game. so changing the game seems more logical, as much as theater as anything else--because without such a move, "free markets" remain understood as natural formations at a point where that assumption is being dismantled in other areas. so the theater would be geared around a reassertion of the fact that currency markets are regulatory effects.

one option would be something like a new bretton woods arrangement---another would be the articulation of a different type of regulatory logic that operates at the transnational, rather than at the multinational, level. it could be instituted as a transitional regime, as an expedient that would enable states to operate with greater flexibility in elaborating a relation to capital flows that is a practical atomization of neoliberalism. but i think something like that needs to happen, or the process will be hamstrung from the outset.

i don't have an idea of content to this regime yet, though.
do you think this reasonable?
if so, what kind of currency regime would you think effective?

The Rules of National Socialist Acquisition

a. To each according to his ability to work the system.
b. Compassion without coercion is useless.
c. Never ask, when you can use the government to take.
d. The vast majority of the rich in this galaxy are undertaxed.
e. All we want is what's yours.
f. Class envy makes a good running mate.
g. Never feed the hungry on an empty stomach.
h. A liberal without guilt is no liberal at all.
i. Entitlements and handouts will always overcome freedom and opportunity.
j. Beware of relatives giving speeches.
k. Citing Global Warming yields more cash than pointing a gun.
l. Moral choice is a complex personal issue that is better defined by focus groups.
m. Never argue with a loaded Kennedy.
n. Labor camps are full of people who opposed someone's beautiful dream.
o. Entitlement is the easiest way to enslave a population.
p. Democracy has limits. Dictatorship has none.
q. Give someone a fish, you feed him for one day. Teach him how to fish, and you lose a Democrat voter.
r. Money taken as profit is immoral; money taken by government is the highest form of Lightworking.
s. Poverty is no crime. Better yet, it's an excellent source of votes for the Democrat party.
t. There's nothing wrong with big business as long as they donate to anti-business causes.
u. Never cross Michelle Obama.

what is the point of that, powerclown?

Couldn't think of the last five, eh?

*sigh*

v. Actual progress is not guaranteed.
w. When someone says, "I'm not a racist," he's lying.
x. Never confuse powerful financial backers with luck.
y. The most beautiful thing about the environment is that you can turn it into an election issue.
z. Never snort cocaine and have sex in a limo with a homosexual drug user named Larry Sinclair.

where's sf?

Quoi quoi? Did I miss something somewhere?

Some folks cling to the idea of Obama as a socialist just as tenaciously as they cling to guns, religion and xenophobia.

Wait. What does that even mean?

The recent Group of Thirty report is likely to be the framework for some very comprehensive regulatory reform by Obama.

Obama's economic team were significant players in the report - Paul Volcker, Tim Geitner, Larry Summers. Its likely that we will see the framework of significant US regulatory reform by the time that Obama attends his first G-8 summit meeting this summer.

More from the Economist - Financial regulation...How to fix finance

The push back from the right will be interesting to watch over the next few months as the proposed reform dribbles out.

Prepare for more charges of "euro-socialism" or "New World Order" fueled by the Limbaurghs, O'Reillys, Malkins and other ignoramuses who claim they know better than any economist.

We seem to be more of a kleptocracy than a capitalistic democracy.

No matter which economic system we wish to embrace, we will have major problems until voters insist on accountability from our elected officials and their connections in the so called private sector. It seems that large politically connected companies are bailed out with taxpayer money when their bad decisions cause failure while small companies and individuals are mostly left to fend for themselves.

This is not a debate.

How did this personal attack add value to the thread?

You control what you read, you control how you respond. If something is not fun to you, why not act on it accordingly?
-----Added 27/1/2009 at 03 : 27 : 55-----
Perhaps you can enlighten and give us the best response to the primary point they will bring up in regard to the financial status of one of the most heavily regulated/highest tax rate states in the country, California? Is California an example of the final failure of tax and spend, highly regulated economies?
-----Added 27/1/2009 at 03 : 33 : 01-----
We have a man in charge of the IRS, that was not able to figure out how to do his own taxes, and this government official is going to fix the most complex financial market in the history of man kind. I don't think so.




The US sneezed and the world caught a cold. That is, comparatively speaking, what happened. 50/100/200 years ago other economies were not so dependent on the US economy.

Sadly true.

In today's IBD on the editorial page:

Today in Investor's Business Daily stock analysis and business news

There you have $22 billion of stimulus money going into a black hole.

In fact, it is probably closer to 38 (states facing deficit) black holes if you like the IBD characterization and its hit job on California.

Many more objective economists attribute the fact that California has experienced severe budget shortfalls as a result of nearly 1/4 of all housing foreclosures coming in California.

California was doing pretty damned well until the housing bubble burst.....the 5th largest economy in the world...despite all those anti-business taxes that has IBD bitching and crying like a spoiled child.

In fact, one growing sector in California has been in green technology start-ups brought about by the state's forward looking environmental program, despite the IBD's false claims.

For the record, in FY 09, 38 states are facing budget deficits and nearly half the states in FY 10.

NCSL table

States can either raise taxes or cut spending. When they cut spending, they lay off employees, cancel contracts with the private sector, reduce payments to businesses and nonprofits that provide services, and cut benefis to individuals.

All of these actions remove demand from the economy, which only worsens a downturn, particularly for the most vulnerable populations that are hurt by state budget cuts.

ace..do you even know how that $22 billion would be allocated? I suspect not.

The IBD solution?.....just give more tax cuts to the wealthiest taxpayers and it will all work out?

Is there a difference between going into a deficit compared to the crisis California is in? I think there is a big difference. The government is anti-business, high tax, high spend, high regulate, with no discipline. This is a recipe for failure and the track our federal government is on.

Can you give a name of one or a source?

The California downward spiral started long before the housing problem. Remember the dot com, bubble bursting, remember the rolling power outages, remember the hospital problems... Housing and the dot com. boom covered up California's problems.

Have "green" technology start-ups had a material impact? An impact compensating for all the lost jobs due to companies moving out of the state?


The tax cuts in Obama's plan is the only thing that will actually have a lasting impact on stimulating the economy. People investing in the future creates lasting opportunity and jobs, not one time projects, pork or handouts. Why did Obama put tax cuts in his plan if they don't have an impact? Why not raise taxes, like he said he would on the rich?

it's funny that the causes the idb edito--and WHY do you still post these pieces of crap, ace?---points to are all functions of deregulation (financial bubbles, the fiasco of attempting to put electrical power into non-controlled markets, the housing meltdown).

as for the "solution" offered: at this point, all that's repeated is a neoliberal article of faith. that it's repeated in a situation shaped by the failure of that article of faith to generate anything like the desired outcomes in 3-d indicates that once again the few remaining neoliberals have closed in on themselves, have entirely run away from reality.

at it's center is that tired, useless neoliberal conception of the state.

it's kinda funny to read it, particularly given that the rnc a couple days ago decided to "return to fiscal conservatism" as a way of attempting to maintain something of a republican brand identity. so there's this in the idb editorial page, and the results in the house last night on the economic package.

i look forward to the republicans exploring new and improved degrees of irrelevance as they adopt a neo-hooverite strategy to neither acknowledge their own ideology's centrality in creating this mess and offering nothing in the way of solutions.

I enjoy IBD editorials and I think they have a style that cuts to the underlying issue mixed with a bit of humor. I post the editorials because I often think of you and a few others on TFP after I have read them.

I am surprised about the amount of concern over the remaining Republicans in the House. The Democrats basically have the control to do what they want, they have the WH, and public opinion.

ibd editos are irrelevant. i mean, post what you like---but they're irrelevant as analyses.
but who knows?
it's statistically inevitable that something coherent may turn up in them as a function of the fact they continue to appear.


i'm not personally concerned about the republicans in the house---i just thought it funny that the rnc decided over the past few days to stake it's brand identity on opposing obama's economic initiative and then there's a straight party-line vote in the house.
i'm not sure that the republicans imagine themselves to be accomplishing--maybe it was a safe vote in their view because they knew they'd loose.

Agreed. However, the point is that California is a failed example of over-regulation, high tax rates and excessive spending with no legislative discipline. If there is data or opinions to the contrary, I am interested.

California is, or perhaps was, home to the "Californian ideology" & other such nonsense like Ronnie Reagan, Prop. 13, 3 strikes yerout, the "taxpayer revolt", deregulation, etc... You guys won! Now is the time for you guys to sit back and enjoy the fruits of your labours. Sweet ain't it?

California's current crisis is the result of Reagan, Prop 13... and not current tax rates, excessive regulation, government spending and lack of legislative discipline? We disagree if that is your view.