European Tribune - Community, Politics & Progress.

Logic

by Jerome a Paris
Thu Jul 16th, 2009 at 08:54:37 AM EST

1) We are going through an unprecedented economic crisis;
2) Everybody, even neoliberal economists, tag-along pundits and politicians, agree that it was caused by the irresponsible risk-taking of the financial sector, itself driven by a ruthless focus on short term profits (including personal ones);
3) there is also a general consensus that finance needs to be tamed, made boring and more strictly regulated, given its proven ability to privatize profits and blackmail governments into socializing losses; and a general agreement that this would make banking less profitable;
4) Goldman Sachs and JP Morgan have just announced record quarterly profits (and the accompayning "bonus pools"), thereby suggesting that investment banking has not quite yet been tamed;
5) in the face of such evidence that the causes of the recent crisis have not been eliminated ... markets rose massively.

So... either markets think that the current crisis is a good thing for investors, or they are not quite as efficient at processing information as they claim to be. In both cases, one might want to question why the health of financial markets is seen as a good proxy for the overall health of the economy.

Will the pundits even notice this little paradox right in front of their nose?

. Home
. About
. Contact
. New User Guide
. FAQ
. ET Editorial Guidelines
. Search
. Search (Google)

Username:
Password:

. Make a new account
. Reset password

Logic | 15 comments (15 topical, 0 editorial, 0 hidden)

You're a party pooper (4.00 / 7)

Markets are up, what more evidence do you need that...?

the economic crisis is not that bad
it's the governments' fault
financial innovation is the key to growth
the bank rescues worked
the crisis came out of the blue, nobody could have anticipated it

</snark>

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.

by Migeru (migeru at eurotrib dot com) on Thu Jul 16th, 2009 at 09:05:12 AM EST

Re: You're a party pooper (4.00 / 6)

6. Regulation is Death

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Thu Jul 16th, 2009 at 10:10:02 AM EST
[ Parent ]

Re: You're a party pooper (4.00 / 4)

Worse than that, it's <gasp> Socialism!

Pardon me for using dirty words in this nice clean story.

There's no such thing as original sin - Elvis Costello

by dvx (dvx.clt ät gmail dotcom) on Thu Jul 16th, 2009 at 11:12:43 AM EST
[ Parent ]

Re: You're a party pooper (none / 1)

how dare you suggest we harness our gorgeous, lean ferrari to the grubby, battered plough of public benefit!

(after pulling it out of the ditch we drove it intoand giving it Another Freaking Trillion paint job!)

If'Madness is the absence of work'(Foucault), then Sanity is the presence of play..

by melo (melometa4(at)gmail.com) on Thu Jul 16th, 2009 at 09:06:37 PM EST
[ Parent ]

Maybe slightly off topic... (none / 1)

but still relevant I think - TUC press release

Responding to the publication today (Thursday) of Sir David Walker's interim review of corporate governance in banks and financial institutions, TUC General Secretary Brendan Barber said:
'There is much to welcome in this review, in particular the call for more voting disclosure by fund managers and investors which will help pension trustees and unions to find out how workers' pensions are being invested.
'We support moves to curb the short-termism and excessive risk taking behaviour that bankers' remuneration has encouraged. But by focusing solely on risk, the review has not considered the wider problems with bankers' pay. The growing gap between executive and employee pay has a damaging impact on staff engagement and has created a new class of super-rich that float free from society.
'It is clear from some of the decisions approved by non-executive directors in the run up to the financial crash that a greater understanding of banking is needed. But many experienced bankers also showed terrible judgement. People from outside the world of finance must be brought on to company boards to ensure that the consumer voice is heard and avoid repeating the groupthink that contributed to the financial crash.
'The proposal for new Principles of Stewardship, ratified by the Financial Report Council, will help set a higher benchmark for standards of shareholder engagement.'

Ad astra per aspera

by In Wales (inwales aaat eurotrib.com) on Thu Jul 16th, 2009 at 09:23:41 AM EST

Re: Logic (none / 1)

No, no, no, your premise no longer holds, the economic crisis is now over. For proof of this, you need look no further than the recent quarterly profits reported by Goldman Sachs and JP Morgan. It's an easy mistake to make though, thank gods the markets are here to make sense of it all though.

Crisis over, although there's still nothing decent on the telly though.

by ectoraige on Thu Jul 16th, 2009 at 09:35:18 AM EST

lesson learned (4.00 / 3)

the current crisis is a good thing for investors

Seems pretty self-evident. Bring on the perpetual crises! Ride the waves! Get rich!!

If you believe that, I have some exotic content I'd like to sell you real cheap. You can put these on a secret password protected website, and people will pay money for just a glimpse. Some day they'll be worth millions!

Build your house upon the rock, not the sand. ~ J.C.
In living, stay close to the ground. ~Lao Tzu

by jjellin on Thu Jul 16th, 2009 at 10:12:53 AM EST

Understatement (4.00 / 3)

thereby suggesting that investment banking has not quite yet been tamed;

That's one way to describe the greatest robbery in western history. Derivatives total 10x global GDP?

Skennah Kowa

by Crazy Horse on Thu Jul 16th, 2009 at 10:46:26 AM EST

Re: Understatement (4.00 / 2)

Crazy Horse:

Derivatives total 10x global GDP?

Notional values. But that means the actual payments taking place would be measured in units of 10% of GDP...

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.

by Migeru (migeru at eurotrib dot com) on Fri Jul 17th, 2009 at 03:50:49 AM EST
[ Parent ]

Re: Logic (4.00 / 3)

a. A couple of the big guys, with a little help from their retainers now doing heroic duty in despicable government agencies, have figured out how to make money in the current situation, especially GS.

b. Except during times of high volume the "market makers" and "liquidity providers" have a disproportionate role in setting market prices.

c. The High Frequency Trading programs have been able to generate small rises in some stocks and day traders have started to jump on.

d. This is all a big relief for the market. Traders and day traders were bored and annoyed by continual uncertainty and now it seems like a leader, GS, has been established. All will be well.

Skeptics and contrarians don't really matter and should sit down and shut up.

If sanity be culturally normative, then by the norms of this culture I claim insanity.

by ARGeezer (ARGeezer at eurotrib.com) on Thu Jul 16th, 2009 at 12:05:10 PM EST

Parasites, extermination of, failed. (none / 1)

These ticks have been squeezed a little, they leaked some blood, but they will now re-engorge themselves.

If you won't limit population, just stop blabbing about conservation and carbon dioxide.

by ormondotvos (ormond lmi net no spam) on Fri Jul 17th, 2009 at 02:17:45 AM EST

Re: Parasites, extermination of, ... (none / 1)

was never attempted.

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.

by Migeru (migeru at eurotrib dot com) on Fri Jul 17th, 2009 at 03:49:30 AM EST
[ Parent ]

More logic (4.00 / 3)

The ability of a few banks to extract huge revenues by playing on volatility in a basically stagnant market and their practice of paying far more of this money to their employees than their stockholders causes a market rally.

'Not quite as efficient at processing information as they claim to be' is a nice understatement.

by nanne (zwaerdenmaecker@gmail.com) on Fri Jul 17th, 2009 at 05:11:16 AM EST

Re: More logic (4.00 / 3)

nanne:

'Not quite as efficient at processing information as they ~~claim~~are claimed to be' is a nice understatement.

I think the "Efficient Market" theorists and especially their parrots in the pundit class need to be drawn and quartered.

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.

by Migeru (migeru at eurotrib dot com) on Fri Jul 17th, 2009 at 05:50:00 AM EST
[ Parent ]

Re: More logic (none / 1)

I think the "Efficient Market" theorists and especially their parrots in the pundit class need to be drawn and quartered.

Now, now. They have shown extraordinary efficiency at differential information processing. They can figure things out well when they are in their short term benefit.

If sanity be culturally normative, then by the norms of this culture I claim insanity.

by ARGeezer (ARGeezer at eurotrib.com) on Fri Jul 17th, 2009 at 11:43:13 AM EST
[ Parent ]

Logic | 15 comments (15 topical, 0 editorial, 0 hidden)

Go to: [ European Tribune Homepage : Top of page : Top of comments ]