Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
I think we miss something if we look at these sector-specific bubbles one by one and not in the context of a larger cultural/social paradigm now prevailing among the rentier and speculator classes:
Ingenious and precarious schemes in the world economy today have great legitimacy, and they profit in the sense that classical economics is fast becoming irrelevant. It is the era of the fast talker and buccaneer-snake-oil salesmen in suits. Nothing old-fashioned has credibility. Joseph Schumpeter and other economists worried about pirates, but they are more important today than ever before, including than during the late 19th century when they were immortalized in Charles Francis Adams Jr's Chapters of Erie.

The leitmotif is "innovation", and many respectables are extremely worried. I argued in Counterpunch earlier (June 15 and July 26) that gloom prevailed among experts responsible for overseeing national and global financial affairs, especially the Bank for International Settlements, but I grossly underestimated the extent of anxieties among those who know the most about these matters.

More important, over the past months officials at much higher levels have also become much more articulate and concerned about the dominant trends in global finance and the fact that risks are quickly growing and are now enormous. Generally, people who think of themselves as leftists know precious little of those questions, questions that are vital to the very health of the status quo. But those most au courant with global financial trends have been sounding the alarm louder and louder.

The problem is that capitalism has become more aberrant, improvised, and self-destructive than ever. It is the age of the predator and gamblers, people who want to get very rich very quickly and are wholly oblivious to the larger consequences. Power exists but the theory to describe the economy that was inherited from the 19th century bears no relationship whatsoever to the way it operates in practice, a fact more and more recognized by those who favor a system of privilege and inequality.

Even some senior officials at the International Monetary Fund (IMF) now acknowledge that the theory that powerful organizations cherish is based on outmoded 19th-century illusions. "Reconstructing economic theory virtually from scratch" and purging economics of "neoclassical idiocies", or that its "demonstrably false conceptual core is sustained by inertia alone", is now the subject of very acute articles in none other than the Financial Times, the most influential and widely read daily in the capitalist world.

Kolko in Asia Times Online

overextension, overcapitalisation, a mania for liquidity, compression of traditional financial cycles, expectation of ridiculously inflated returns, etc. are epidemic and not limited to one sector;  increasing shortages of commodities from fuel to food to water only increase the opportunities for short-term looting and gouging, which in turn exacerbate shortages (cf earlier thread on the crash of world fisheries).  an insane dogma of unlimited growth and contraphysical rates of return has led to insane expectations (some of which are realisable in the near term for a very limited number of players) which lead to insane behaviour including irresponsible risk taking (on every front -- financial, geopolitical, physical).

I note in passing that behavioural researchers have discovered that inconsistent, intermittent or arbitrary reward is more conditioning than predictable reward.  people and other animals will exert more effort and take higher risks to obtain a reward which is less predictable or certain than one which is predictable, even if the two rewards are of apparently equal value.  which is why gambling is addictive;  and there is a good reason why we call it "casino capitalism".

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Thu Nov 30th, 2006 at 05:03:17 PM EST
The bubble is all pervasive, but this was a good article about an alarm being sounded in the sector I (and Agnes) know well, and it was a good illustration of the phenomenon.

As you point out, those in the know are deeply worried.

I have actually used this argument with a good client, which appreciates us, but has received more aggressive financing offers from other banks than from us on a recent deal. I told them quite directly that if they took these offers, they'd get a better return, but they would threaten the likelihood that the financing would ever be repaid in full. They'd lose very little money, but it would still destroy their reputation as a prudent investor. Since then, they've failed to take a decision, and seem to be taking steps to make the transaction more complex - which looks to me like they are looking for excuses to take a less aggressive offer. Maybe I'm kidding myself that we ca nstill win the deal, but it would fit with their disciplined business practice, and their reputation not to overbid for assets (and thus to often lose bidding contests). But many others do not have such scruples.

Casino capitalism it is - except that with low interest rates and lots of liquidity, all players win ... until (blank not filled yet).

Good to see you around here, De.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Nov 30th, 2006 at 06:07:59 PM EST
[ Parent ]
"all players win, until..."

is the definition of a Ponzi Scheme.

but you knew that :-)

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Thu Nov 30th, 2006 at 06:49:15 PM EST
[ Parent ]
As discussed at La République des Blogs, I'd love to know who currently holds the potato for Credit derivatives.
by Laurent GUERBY on Fri Dec 1st, 2006 at 08:01:14 PM EST
[ Parent ]


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