An alternative to bailing out Wall Street | 26 comments (26 topical, editorial, 0 hidden)

As a matter of historical record ... (4.00 / 3)

... banknotes as money and near money pre-dates the establishment of central reserve banks to regulate credit-money and act as lender of last resort when credit-money periodically gets itself into a bind.

So the question is not whether a money can be established on a different basis, but first, whether to eliminate depository institutions as creators of debt money, and second, if so, how to do so.

In particular, the current crisis shows what happens when an important central reserve bank is captured by its industry, and instead of acting as a regulator, acts as a collaborator in expanding an asset inflationary boom.

I don't see how changing to a different monetary system solves that problem. There will still be lenders, if we still have a monetary production economy. Those lenders will still get into the binds that they get into periodically. They will still have an incentive to capture the control center of the main monetary system.

It seems like looking at a drunken teenage driver that has driven a sports car into a ditch, and saying that the solution is to give them a 4-by-4 so that if they drive into a ditch they can keep driving.

If we can recapture the regulatory function from the finance sector, we can get a functioning system that will serve an important and useful function for a generation ... a generation in which we have quite important real work to do in terms of massively restructuring our energy economy.

And if we instead devote our efforts to building a new monetary system, the three alternatives are

(1) that there are so few willing to jump on board that those efforts are marginalized or wasted;

(2) that those efforts are successful after a long fight, and a decade or more in the future we can turn our attention to addressing the challenge of reconstructing our energy economy; or

(3) that those efforts are successful after a long fight, but it turns out in practice that there is an unintended consequence of the new monetary system that is worse than the known side-effects of the system it is replacing.

In the American descendant of Rugby Union Football, Woody Hayes argued against a pass attack rather than a run attack on the basis that three things could happen ... complete, incomplete, or intercepted ... and two of them are bad. I'm not sure I see why a fight to design a novel monetary system right now is as good as that.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Sep 23rd, 2008 at 12:12:01 PM EST

Re: As a matter of historical record ... (4.00 / 2)

Bruce

It seems like looking at a drunken teenage driver that has driven a sports car into a ditch, and saying that the solution is to give them a 4-by-4 so that if they drive into a ditch they can keep driving.

I think that the problem is one of appropriately reconnecting the political to the economy. Your analogy illustrates the problem when you use a drunken teenage driver as the protagonist. It was not drunken teenagers that got us into this mess. It was sober captains of finance that did. They may be better analogized as pirates masquerading as investment bankers, regulators and real estate brokers.

If what they did is not illegal, it should be. But I find it inconceivable that many laws were not broken. The problem has been political: a lack of will to enforce laws on some of the most powerful individuals in our society. (That will may be emerging in the form of rage amongst the general population.)

This lack of will was, IMHO, partly enabled by the presence in our population of a large number of traditionalists who see business and political leaders in the context of strong fathers. Calvinists will always tend to defer to the wealthy. To them the fact that these folks are wealthy is a justification of their claims of authority, per se. Finding ways to reduce the incidence of that mindset amongst the next generation will be the best insurance against a recurrence of this type of crisis. With a substantial majority of people who function as self aware adults rather than as manipulable children such shenanigans would me more difficult to sustain.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 23rd, 2008 at 04:15:12 PM EST
[ Parent ]

Pirates? (4.00 / 9)

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Tue Sep 23rd, 2008 at 04:19:42 PM EST
[ Parent ]

Re: Pirates? (none / 1)

Fucking brilliant.

Better than any television I've seen since June.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Sep 23rd, 2008 at 04:40:45 PM EST
[ Parent ]

By contrast I find it highly unlikely that ... (none / 0)

... very much of what they did was illegal ... that is, what they did that directly led the finance sector far beyond the bounds of financial prudence. Teaching Money and Banking at the upper division Undergraduate level is a long walk through a series of steps removing the regulatory limits on behaving stupidly with other people's money.

Now, the argument for each deregulatory step was that the people doing the finance knew more about what would work and what wouldn't work than the regulatory authorities, but starting from the 1950's, through to the Fed getting permission to take garbage as the debt instrument for a 3-month repo loan, its been a fifty year slide downhill into "do what you want, make a million, if you go broke, its your own damn fault".

And the reason the regulations were in place was because we know how financial systems like that work. Under the pressure of competition, financial firms that do not "keep up with the Joneses" get squeezed out of the market, so its abandon prudence or abandon market share, and then once financial fragility is in place, something interrupts the money train, and a Banking Panic is set off.

It used to be illegal to do the stuff that put the bread and butter home mortgage and small business 90-day finance of the wage bill business of the commercial banking system at risk ... but that interfered with maximizing profit in go go times, and so they changed those laws, one by one by one, starting under Eisenhower from before I was born.

Now, once the Fed started lending with 3-month repos on assets that were overvalued at 85 percent of face value rather than undervalued ... by then there was clearly a capitalization crisis in place, and so people desperate to avoid things going bad before they could get out with their golden parachute might have cut corners. But I would not be surprised if most of the damage was done adhering to the letter of the law that has had its spirit completely forgotten decades ago.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Sep 23rd, 2008 at 11:46:31 PM EST
[ Parent ]

Re: By contrast I find it highly unlikely that ... (none / 0)

I agree about the baleful effects of deregulation. It proponents would now be adorning the ends of long sharp poles in other worlds and times equivalent to this. But, amazingly, given all the evil and stupidity that can legally be done, it appears that Fanny, Freddy and AIG all may well involve accounting fraud. Roaring greed impales itself in its attempt to get just a little more!

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 24th, 2008 at 12:58:49 AM EST
[ Parent ]

The risk is that in chasing down the illegal ... (none / 0)

... activity engaged in by those who find that their institution is under water and are trying to get back to solvency before "anybody finds out" ...

... that provides enough scapegoats to allow the systematic policy that put those firms under water in perfectly legal ways to escape unscathed.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 24th, 2008 at 09:09:34 AM EST
[ Parent ]

Re: The risk is that in chasing down the illegal . (none / 0)

We have to drive a stake through both the perpetrators and the policies. If we let the perps off, they will be emboldened to begin anew to subvert any reasonable regulations so as to get their cons going again. Discredit the policy and philosophy. Prosecute and destroy financially all that can be convicted of fraud. Firmly establish the connection between the deregulatory philosophy and fraudulent behavior. Drive this home to the public.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 24th, 2008 at 10:28:19 PM EST
[ Parent ]

But is it necessary to do this on a foundation ... (none / 0)

... of right wing monetarist fairy tales and historical lies, such as the video in this diary?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Oct 4th, 2008 at 11:36:04 AM EST
[ Parent ]

it's the nature of compound interest to snowball (none / 0)

and economics shouldn't resemble gambling so much, that makes it a game to the players, while to trusting, naive people downline of the purposely arcane lipsticked pigfarm-in-a-trillion-little-pokes, it's anything but.

compound interest has a relentless quality to it over time, making it a potent force. what we see now is what happens when that force is misused by shallow, greedy individuals.

obviously the temptation to break trust while in such a tempting situation is not for those too weak to resist it.

there should be an algorithm that governs compound interest so it's not such a juggernaut, thus removing, or at least tempering such a lottery-winner mentality that has developed around the financial (self)-service industry.

as there is no moral litmus test which will let us know whom to trust to watch our goodies while we sleep, there seems like there are two ways to go, one make it a capital crime to betray the public trust, with the show trials and even death penalty, or exile to the equivalent of siberia.

second, rotate the responsibility, so no-one gets too fond of the power for too long.

the first would have to be real, it would have to have as terrifyingly deterrent an effect, as has the glittering fantasy of hyper-acquisition to make some people succumb, human nature being what it is, there will always be people who will try and game it, just to see if they can.

transparency, transparency, transparency, keep the sun on it.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Sep 23rd, 2008 at 08:57:01 PM EST
[ Parent ]

An alternative to bailing out Wall Street | 26 comments (26 topical, 0 editorial, 0 hidden)

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