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Do you think the current crisis will be deep enough to bring about radical change in the system?

Yes, it will be the beginning of a new era where the finance isn't the dominant power anymore   6 votes - 28 %
No, some cosmetic changes will be made, but the system will remain unchanged   11 votes - 52 %
I don't care, we're all doomed!   0 votes - 0 %
Jesus savings will solve the problem (yes, Jesus saves!)   4 votes - 19 %
 
21 Total Votes
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The "voices of the elites," Wolf and Kaletsky regretfully inform us that we need a bigger bubble before finance can be tamed...
by Metatone (metatone [a|t] gmail (dot) com) on Thu Jul 10th, 2008 at 11:23:44 AM EST
There is a chance that this bubble is it, though Kaletsky and Wolf downplay that possibility.

But re-regulation will be useless unless we get a crop of reformists in charge of economic policy who actually believe in economic policy rather than "the market will provide".

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Thu Jul 10th, 2008 at 11:34:57 AM EST
[ Parent ]
I agree with Soros: asset bubbles are endemic and tweaking interest rates doesn't affect the availability of speculative credit: you have to raise marging requirements (which the SEC has been empowered to do since it was created in the aftermath of the Crash of '29).

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Thu Jul 10th, 2008 at 11:30:59 AM EST
But this is exactly the problem that Stiglitz was talking about (someone posted his column recently, but I don't have time to look for it now.)

i.e. Neoliberalism is at heart the belief, the faith that markets are always automatically self-correcting, stable and tend to equilibrium.

It's just not true, but until we beat the knowledge that it's not true into the average economist and the average politician we're not going to get very far in reforming the system.

by Metatone (metatone [a|t] gmail (dot) com) on Thu Jul 10th, 2008 at 12:16:45 PM EST
[ Parent ]
The problem is that when they understand it's not true, they conclude that lack of market freedom is the cause.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Thu Jul 10th, 2008 at 12:20:42 PM EST
[ Parent ]
That is why attempts to change the opinions of existing political and economic elites is futile.  They will always make the minimum concessions and move on.  If those concessions are accepted as the solution, the problem is only deferred, perhaps for a few decades, as after the Great Depression, likely for a much shorter time this time around, given resource problems.

The only real solution is to replace these policy makers with ones with a different agenda.  That requires public support.  That requires a public willing to consider alternatives.  Should the next year prove as interesting as the last those conditions may obtain.  The question is who will prevail?

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jul 10th, 2008 at 12:39:21 PM EST
[ Parent ]
But bogus market thinking and the ideology of the management class have infected everything including education - so it's haaard.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri Jul 11th, 2008 at 06:03:05 AM EST
[ Parent ]
Like the Freedmanites, we must await the opportunity.  In the USA, the presidential election may be enabling, but will not be determinative.  However, more financial meltdowns combined with still higher energy and food prices along with possibly unforeseen developments could set the stage.  It would only be an opportunity, and unless skillfully exploited, would be lost. Under such conditions small forces can have large effects. Why should Freedmanites be the only ones who can benefit from shocks and disasters?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jul 11th, 2008 at 12:12:22 PM EST
[ Parent ]
Who's waiting in the wings, like the Friedmanites used to?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri Jul 11th, 2008 at 12:40:11 PM EST
[ Parent ]
Well, the Freedmanites didn't disappear when Freedman died.  The question is if anyone else is waiting and if there will be any contest for the "solution" to a crisis.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jul 11th, 2008 at 01:02:26 PM EST
[ Parent ]
I guess the answer is 'no', huh?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri Jul 11th, 2008 at 05:58:26 PM EST
[ Parent ]
European Tribune - LQD: "How to stop the next bubble?"
To do that, it isn't enough to regulate the money supply; you also have to regulate the availability of credit.

Hmmm...even Soros is not aware that money is bank credit then...

There won't be another bubble because the pyramid of credit we have just seen, and which is now slowly deflating, was supported only partly by Bank capital.

For the most part the pyramid was supported by Investors' capital through:

(a) securitisation;

(b) credit derivatives;

(c) credit insurance by Monolines eg Ambac.

This "outsourcing" to Investors has to all intents and purposes ceased.

It follows that the availability of credit does not remotely come close to that necessary to support asset prices anywhere near current levels, never mind to support investment in new productive assets and the working capital needed for the economy to flourish.

The Anglo Disease has had another interesting side effect and that is that as income for the many has declined, so has the capability of retail investors to make deposits (aka savings).  

The top 10% of investors (who were the gainers in all this as wealth concentrated in their hands) typically do not make retail deposits, I suggest, but put their money in hedge funds, private equity and the like.

We have therefore seen a secular decline in the ratio of retail vs wholesale deposits, and if the wholesale market dries up, the Central Bank is the only means of making up the difference. Northern Rock was only the beginning, IMHO.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Jul 10th, 2008 at 12:57:37 PM EST
To do that, it isn't enough to regulate the money supply; you also have to regulate the availability of credit.
Hmmm...even Soros is not aware that money is bank credit then...
Well, he then talks about tightening margin requirements and raising reserve requirements so I think he's talking about speculative credit, i.e., money created just to inflate asset bubbles as opposed to investing in creating new (productive) assets.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri Jul 11th, 2008 at 06:05:31 AM EST
[ Parent ]
But Nietzsche scores on the rebound!

Sorry, just couldn't resist.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jul 12th, 2008 at 03:04:48 PM EST
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