More Fodder For Thought On The ‘GFC’
There are some ancient names in this one sent in by Pleiades. It’s a pretty interesting read, seeing that it comes from somebody who has had a lot to say about all this for some time.
Greenspan presided over not one but two financial bubbles. After the high-tech bubble popped, in 2000–2001, he helped inflate the housing bubble. The first responsibility of a central bank should be to maintain the stability of the financial system. If banks lend on the basis of artificially high asset prices, the result can be a meltdown—as we are seeing now, and as Greenspan should have known. He had many of the tools he needed to cope with the situation. To deal with the high-tech bubble, he could have increased margin requirements (the amount of cash people need to put down to buy stock). To deflate the housing bubble, he could have curbed predatory lending to low-income households and prohibited other insidious practices (the no-documentation—or “liar”—loans, the interest-only loans, and so on). This would have gone a long way toward protecting us. If he didn’t have the tools, he could have gone to Congress and asked for them.
Of course, the current problems with our financial system are not solely the result of bad lending. The banks have made mega-bets with one another through complicated instruments such as derivatives, credit-default swaps, and so forth. With these, one party pays another if certain events happen—for instance, if Bear Stearns goes bankrupt, or if the dollar soars. These instruments were originally created to help manage risk—but they can also be used to gamble. Thus, if you felt confident that the dollar was going to fall, you could make a big bet accordingly, and if the dollar indeed fell, your profits would soar. The problem is that, with this complicated intertwining of bets of great magnitude, no one could be sure of the financial position of anyone else—or even of one’s own position. Not surprisingly, the credit markets froze.
Here too Greenspan played a role. When I was chairman of the Council of Economic Advisers, during the Clinton administration, I served on a committee of all the major federal financial regulators, a group that included Greenspan and Treasury Secretary Robert Rubin. Even then, it was clear that derivatives posed a danger. We didn’t put it as memorably as Warren Buffett—who saw derivatives as “financial weapons of mass destruction”—but we took his point. And yet, for all the risk, the deregulators in charge of the financial system—at the Fed, at the Securities and Exchange Commission, and elsewhere—decided to do nothing, worried that any action might interfere with “innovation” in the financial system. But innovation, like “change,” has no inherent value. It can be bad (the “liar” loans are a good example) as well as good.
The rest of it is pretty far-reaching too. I never understood the ‘Alan Greenspan as banking hero’ that played out during his tenure, partly because banking isn’t as exciting as making a film, but also because he always came across as a patriarchal bore. It’s sort of interesting to see him getting discredited in the throes of the GFC.
Poring Over Madoff’s Books?
This one also came in from Pleiades: Good Heavens, isn’t that a bit like reading a Science Fiction novel in search of the Unified Field Theory?
Harbeck, who has been with SIPC for 33 years, said this will most likely become the biggest fraud case that SIPC has handled. He has fielded dozens of calls since Madoff’s confessed the scam and was taken into custody, and projects is office will continue to be flooded with questions from investors.
“This is absolutely heartbreaking,” he said. “Their faith was abused, and investors who put virtually all of their financial assets with Madoff are near ruin. The simple fact of the matter is there is no precedent for this.”
A variety of investors have been identified as having lost money in the scam, including Spain’s Grupo Santander SA, Britain’s HSBC Holdings PLC and New York Mets owner Fred Wilpon. More victims emerged Tuesday, including Rye Investment Management, of Rye, New York, which lost $3.1 billion, almost all of its clients’ funds, and Austria’s Bank Medici, which had two funds with $2.1 billion (1.5 billion euros) invested with Madoff.
I’ve seen some critiques that suggested that those who placed money with Madoff were screwed because they were essentially ‘greedy’. It’s soothing to find that I didn’t get ripped off because I wasn’t greedy like the wealthy set, but that can’t be true, can it? It’s just that I didn’t have money to throw at him.
I’ve been trying to figure out our notions of greed and propriety and money and I’ve been thinking that perhaps we’re focused too much on the moral dimension of “greed is good/bad” thinking.
There’s a big difference between say, a bad player like Centro or Babcock and Brown, and a fundamentally criminal Bernie Madoff who deliberately went about deceiving with a Ponzi Scheme. So if you backed the cowboys like Centro and lost tonnes of money, well, that’s greed but it can’t be the same thing as being swindled out of your money.
It’s a bit harsh to judge the profit motive as being negative – after all, why would anybody get out of bed and go to work if it was not going to benefit them any?Clearly couching this in terms of greed being good or bad alone isn’t going to cut it.
Germaine Greer Savages Baz Luhrmann
First, there’s Germaine Greer Having a spray about ‘Australia’.
The scale of the disaster that is Baz Luhrmann’s Australia is gradually becoming apparent. When the film was released in Australia in November it found the odd champion, none more conspicuous than Marcia Langton, professor of Australian indigenous studies at Melbourne University, who frothed and foamed in the Age newspaper about this “fabulous, hyperbolic film”. Luhrmann has “given Australians a new past”, she gushed, “a myth of national origin that is disturbing, thrilling, heartbreaking, hilarious and touching”. Myths are by definition untrue. Langton knows the truth about the northern cattle industry but evidently sees as her duty to ignore it, and welcome a fraudulent and misleading fantasy in its place, possibly because the fantasy is designed to promote the current government policy of reconciliation, of which she is a chief proponent.
Reconciliation is the process by which Australians of all shades forgive and forget the outrages of the past and become one happy nation. State and federal governments have pumped money into reconciliation and created a new class of Aboriginal entrepreneurs who accept the values of the property-owning democracy and are doing very well out of it. Luhrmann’s fake epic, set in 1939, shows Aboriginal people as intimately involved in the development of the Lucky Country; the sequel would probably show Nullah, the Aborigine boy who narrates the film, setting up an Aboriginal corporation and using mining royalties to build a luxury resort on the shores of Faraway Bay.
Unfortunately for the reconciliation gravy-train and all aboard it, Luhrmann’s lack of faith in his own invention is obvious. The hero, played by Hugh Jackman, is a drover, whose job is to collect cattle from the stations and drive them wherever they have to go. For the film to work at all we are required to believe that he is ostracised by his peers, simply because, years before the film begins, before the 1914-18 war, he married an Aboriginal woman, who, obligingly, died childless. The most respected drover of central Australia in this era was Matt Savage, otherwise known as “Boss Drover”, a white man whose marriage to an Aboriginal woman lasted 40 years and produced many children who rode with their father. In case that should sound romantic, Savage was known to say, “I got her young, and treated her rough, and she thrived on it.” Savage would have been considered beyond the pale by some, but not by the drinkers in a bar on the Darwin waterfront, but then no amount of blandishment would have got Boss Drover into a white tuxedo to dance at Government House, as the drover does in this film.
Here’s the SMH article about her spray.
I tend to think Ms Greer is more upset at how critics have fallen over themselves to embrace a pretty ordinary film. Can’t really blame her. She’s usually even more venomous and harsh, but we’ll settle for this review.