Friday, Jan 30, 2009
How to avert financial disasters in future
Economist: Greed—and fear
A substantial article on some of the causes of the financial crash and the difficulty of avoiding them in future.
Posted by letthemfall @ 10:56 AM (366 views) Add Comment
5 Comments
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1. icarus said...
This reads like a combination of Economics 101 and a sermon. A large chunk of the Economist is owned by Rothschild bankers and it shows. Financial liberalisation has increased the living standards only of those in the finance industry. It has opened up markets around the world in order to make them vulnerable to the speculation that the new financial order made possible - inflating profitable bubbles (e.g. eastern European stock markets in the 1990s) and crashing economies (e.g. Asia in '97 followed by Russia and Brazil).
Real affluence has been confined to finance. In the US there's not been much productive investment outside military expenditure and ICT, which has been of benefit mainly to finance and retail. Most of the economy has seen little income growth and it has come to depend on debt-fuelled consumption, based on cheap Chinese goods and asset bubbles which made the borrowing possible, and on creative national acoounting.
2. letthemfall said...
icarus:
I agree that the so called new affluence has ended up in the pockets of a small section of society, one of the "benefits" of globalisation (if you were at the top of the earning tree). But to be fair the author does state that a balance of regulation and free market is probably the best option, so the Economist is not suggesting business as usual. The difficult question is how to combine the benefits of open financial services while ensuring that all contributors to the economy receive a fair share, and preventing catastrophic instability.
I'm reminded of Tony Benn's comment when "socialism" was discussed in the House of Commons, following the collapse of the Soviet Union. He said something along the lines that he welcomed this because socialism hadn't actually been tried yet.
3. icarus said...
letthemfall - 'a balance of regulation and free market' doesn't say a lot. I disagree with the thrust of the article, which is that financial liberalisation was a great thing - then something happened. The writer talks of wanting a financial system that supports economic growth but fails to see that the financialisation of economies (investment going into speculation, bubbles etc. for high but unsustainable profit, drawing funds away from productive but temporarily less profitable purposes) is what stymies this.
4. letthemfall said...
icarus: Well, no it doesn't say much, but then no one seems to be able to articulate how these fundamental problems can be solved. I don't think the thrust of the article is that liberalisation was a great thing; and it does conclude that "modern finance is flawed". The question is what to do about it. Clearly the last 10 or more years has allowed a minority of people to get very rich at the expense of the rest of the population, and indeed at the expense of the economy it would seem.
5. icarus said...
"Modern finance improved countless lives" "Ordinary people had unprecedented access to borrowing". "Remember the remarkable prosperity of the last 25 years" - all because of financial globalisation / liberalisation. Something needs fixing, but let's not throw the baby out with the bathwater. That's the thrust of the article. Nothing about whether whether the bubbles and busts of the last 20 years were systemic. Nothing about which interests were behind the creation of the conditions facilitating the unprecedented leverage that enabled Wall Street to make big enough bets to rig markets in its favour.