Modernization and Conservativism, Or How Do We Get Out Of This Nightmare...

Shucks. Decided not to wait.

Toyota's February production numbers went down 56%. Honda is not far behind. We all know the daily stories of this cut back and that.


I read the FT every day as part of my job. There were two editorials in today's FT: one from Michael Skapinker, the other from Eric Dinallo.

First that from Skapinker, "Dangers In A World Of Disillusionment", link here.

Basically, Michael Skapinker says that at least during the last such crisis, there were alternatives: socialism and fascism (he doesn't use the latter word) were at least alternatives back in the 1930s. The utter and complete discreditment of socialism means that this is not a viable option, and of course fascism, the corporate statism kind at least, is even more thoroughly discredited. So what's the alternative?

Skapinker says this, basically: that given the need to rethink the social contract between government and the market, we also need a clear set of goals and a simple story. Instead, we are getting "casting around trying one thing and then another until we find what works", with a bit of die-hard cultural fear/antisemitism tossed, visible in the resentment against foreigners and migrant workers, as well as Jews.He says:

Replacing simple narratives with a pragmatic search for what works requires a grown-up approach. Let us hope we are up to it. The stakes are high.

This is a good turn of phrase: taking a grown-up approach. What does Skapinker really mean, even if he doesn't actually come out and say it?

It's time to return to tried and true methods of dealing with problems, of getting back to the Gods of the Copybook Headings. It's time to grow up.

Huh? Gods of the Copybook Headings?

Kipling, of course. Here.

Let's start at the beginning:

AS I PASS through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

He's not talking about markets, that simple, elegant and utterly ruthless mechanism, but rather to the phenomenon of ignoring fundamental truths in order to make a buck.

We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.

This is the core of our problem, one that has been with us for a long time and, unfortunately, will continue to plague us: that there are those amongst us who desperately want things to be different. Rather than acknowledging the basic elements of logic and knowledge, they believe their fantasy world to be reality.

We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

In other words, you cannot ignore reality: there are inarguable facts and there are causal chains that always lead to ruin, no matter how many times people claim that this time things are going to be different. I'm expecting a neo-socialist movement, for instance, who will claim that the mixture of the internet and inventory control mechanisms will make control of the means of production feasible for the state...

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

Like I said: those who desperately want things to be different, not so much because things are so horrible and unjust, but really because to get anywhere, you really have to work at it. There are really no short cuts to wealth besides working yourself half to death and pushing consumption into the future: get-rich-quick schemes always work for those selling the books, but never for those who try the methods.

When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."

None of my pacifist friends would ever recognize this: that the price of liberty is the willingness to do violence to protect it.

On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."

There are no short cuts to happiness with a partner besides working hard at the relationship and being faithful: the warning against hedonism - covet not thy neighbor's wife - is one of the 10 commandments.

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."

If that isn't a clearer condemnation of the welfare system, both personal and corporate, then I don't know one. You can rant and rail against the laws of economics, against the laws of physics, but you can't ignore them: that way leads invariably to the funeral plain in one way or another.

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

Again: Kipling is not talking here of the idea of markets, but rather those who sold themselves off in the market.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

Bluntly, the Gods of the Copybook Headings are returning.



Eric Dinallo, the New York Insurance Superintendent, also wrote in th FT, link here.

Many compare this financial crisis to the stock market crash of 1929, but it is closer to the credit freeze and bank panic of 1907. We might have avoided the worst of the current troubles if we had not overturned laws adopted in response to earlier crises. We should have placed more value on the hard-earned lessons of the instability that comes from unregulated markets and gambling on securities prices.

The Gods of the Copybook Headings...can be placated by those who recognize what they are doing wrong and take actions to restore their place in the scheme of things.

There is hope for us yet: but at a cost:

Thus, one of the major causes of the financial crisis was not how lax our regulation, or how hard we enforced, but what we chose not to regulate.

Indeed, what we decided was old fashioned and in need of modernisation was, in fact, an effective check on an activity that for 100 years had been illegal, for good reason. As a result, we modernised ourselves into this ice age.

The fear in 2000 was that if we regulated credit default swaps and required holding sufficient capital, the market would go where unregulated sellers could make more money. We forgot that the biggest competitive advantage of the US financial system has always been safety, security and transparency. If we destroy that perception, the long-term cost to our society is incalculable.

What did we learn at the start of the last century that we then disregarded either through amnesia or hubris? What lessons, now learnt twice, can be gained from all this?

There are basically four ways people hand over money to financial institutions: 1. Bank deposit accounts. You deposit your money and the return of principal and interest is guaranteed. Banks are required to hold enough capital to deliver on that promise. 2. Insurance. If you suffer a loss, you are guaranteed recovery. Insurance companies are required to hold capital to meet that guarantee. 3. Gambling. If your bet wins, you are guaranteed your winnings. Casinos and racetracks are required to hold enough funds to ensure payouts. 4. Investment. There are no guarantees when you invest in a stock or a bond. You could lose everything. Appropriately, investment bank capital requirements are much lower. The first three categories contain guaranteed payments against future events; the fourth is merely aspirational.

We thought we could use alchemy to create a perfect fifth category that allowed guarantees supported by little or no capital, and that would produce hefty profits with no real risk. Instead, we re-created the old bucket shop gambling parlours on steroids and another credit crisis. Financial products should be seen as belonging in one or another of those four categories and regulated appropriately. If there is a guaranteed outcome, then the guarantor must hold sufficient capital to make good on that guarantee. A key lesson of this crisis is the danger of insufficient capital and the risks of alchemy.

And the risk of not listening to the Gods of the Copybook Headings.

In sum, if you offer a guarantee – no matter whether you call it a banking deposit, an insurance policy, or a bet – regulation should ensure you have the capital to deliver. If you offer investments, be transparent, but buyer beware. No one should ever again get to bet the store called the Entire American Economy. And certainly do not assume we are smarter than folks 100 years ago. As Mark Twain is supposed to have said, history may not always repeat itself, but it sure rhymes.

The question should be, rather, what measures must be taken to please the Gods of the Copybook Headings, to assuage their appetite for those who forget the lessons of the past in their delusions.

What both writers are pointing at is something that economists know will happen: a correction. Only that appeases the Gods of the Copybook Headings.

The correction will be a return to those old, staid, boring rules that the Gods of the Copybook Headings enforce so ruthlessly. Hard work trumps slick salesmanship every day. Age and guile will always trump youth and ambition. All those platitudes that get in the way of all the modern-day liberal fantasies will surround exactly those and banish them once again.

In other words, a return to classic values, a return to small-town banking and business practices, or to put more simply...a return to conservative values.

That's how we get out of this nightmare. Not by a magic bullet or some super-secret neato-keeno plan, but by simple hard work and investment, not spending money we don't have and buying things we don't need.

Death seed blind mans greed
Poets starving children bleed
Nothing hes got he really needs
Twenty first century schizoid man

Reality Continues to Intrude...

Reality has intruded a fair amount lately, and it's only slowly starting to get better...

Stay tuned...

We Are Truly Frakked...And Frelled, For That Matter, Too...

Frak and Frell are two replacement words for that lovely anglosaxon word that has, as its bases, the meaning "to thrust, to penetrate". One is from Battlestar Galactica, the other from Farscape, two of my more favorite TV series...



When Paul Krugman, the liberal Nobel-Prize winning economist, says that the Geithner plan is severely and fundamentally flawed, then you know that we're both frakked and frelled.

You can read his column here.

Basically, the Geithner plan is operating under the fantasy that there is a way to get back to the warm and nurturing price levels of the peak of the bubble. Once there, everything falls into place and the world recovers.

That is exactly like the idea that I can go on a wild spending spree and then sell everything on eBay in order to pay off my debts. If I sell enough for more money than I paid, then I am in good shape.

The idiocy is more than simply mind-boggling, and since the beginning of March, the dollar is already starting to tank.

Let's take a look at the key quote:

The Obama administration is now completely wedded to the idea that there's nothing fundamentally wrong with the financial system — that what we're facing is the equivalent of a run on an essentially sound bank. ... there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.

To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.

But it's immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn't, that's someone else's problem.

Or to put it another way, Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard.

This plan will produce big gains for banks that didn't actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won't be able to come back to Congress for a plan that might actually work.

What an awful mess.

Oy vey. This is recipe for a disaster for the taxpayers and a huge windfall for those - some of them banks - who have the money to spend and who don't need any help.



The last book I read by Krugman I ended up almost throwing down in frustration because the man had become so patently and ridiculously partisan that he had become blind to reality. But since Bush has been out of office, and perhaps more importantly, after he won his Nobel, he's started to revert to the economist he once was.

Read and weep: this is the liberal's liberal economist telling us that the Geithner plan isn't about getting out of the mess: it is part and parcel of the mess.

Remember, unless you are part of the solution, you are part of the problem...

Slowly It's Becoming Apparent...

This caught my eye as I was working last night...

It's not that it is the end of America: rather, the sheer ineptitude, the sheer incompetence of Obama's administration and the US Congress is matched only be the truly sickening levels of corruption in at least Congress, and it is becoming more and more visible to all but the most puerile and partisan observers.

President Obama so far, to the detriment of the office, has turned out to be an unusually weak leader: he defers to his colleagues in the Congress to an unusual extent, one that borders on subservience. While the President at all times needs to listen to Congress - they are, after all, the folks who decide whether the President gets his budget or not - it's quite another thing to allow Congress to set the agenda when it comes to things that are usually the President's perogative, such as putting together things like the TARP and the stimulus bill.

There's a reason for seperation of powers. Before there was a US Constitution, there was a confederation of states that left one thing perfectly clear in the minds of the Founding Fathers, that a loose confederation of states couldn't make decisions in a timely manner, if they could come to a consensus at all. Hence the creation of the Executive branch in the US trinity of governmental structure: they gave someone the power to make decisions, with Congress as the financier and the judicial as the arbiter of what was allowed and allowable.

But this quote makes it painful to see what has happened:

The AIG bonus firestorm is a diversion from real issues , but it puts the ghastly political classes who make U.S. law on display for what they are: ageing self-serving demagogues who have spent decades warping the U.S. political system for their own ends. We see the system up close, law-making that is riddled with slapdash, incompetence and gamesmanship.

The problem here? I can't find a reason to contradict what Terence Corcoran has written, and that is indeed a sad state of affairs.


If the Democrats aren't hell-bent on destroying the structure of US life, they're hiding it well. Slowly it's becoming apparent that the worst fears are coming true: the destruction of great institutions on the bonfire of political vanities; instilling hopelessness that things will get better; preparing for radicalization; wanting the impoverishment and despair of millions in order to realize their hopelessly incompetent and dysfunctional green utopia ideas; and finally, preparing the destruction of key institutions to further their political goals of a different America.

Slowyl it's becoming apparent that the American voter didn't elect who they thought they were getting.


The problem is that we still don't know who Obama is.

Ain't That The Truth...

Sorry to be so quiet, reality has intruded and I've been negligent. Unfortunately, this will continue for the next few days.

Here's something that was, however, too good not to pass on:






















Perfectly formulated, I have nothing more to add.

MBAs, Business Schools and Ignorance...

Today's Times has an interesting mea culpa here.

This is the key quote:

Business schools have shown a remarkable ability to miss the economic catastrophes unfolding before their eyes.

Of course they do: they're not economists.

The real problem is that economists have also shown a remarkable ability to miss the same economic catastrophes. Especially the forecasters.

Now, those who know me also know that I do forecasting: am I saying that I missed it as well?



Yep.

We all did.

Even those who were convinced a downturn was coming missed it.


The article linked to ut supra also points out the fundamental problem: that most in the profession follow what others in the profession do. And think. And forecast.

Amongst forecasters, there is a convenient benchmark called the Consensus. I've worked with the consensus extensively, and think that orienting forecasts towards the consensus is one of the things that helped lead to this problem: using the consensus as a benchmark means that the forecaster has ceased to critically think about why his forecast looks the way it does. Group-think is also a problem within the forecasting community, and what the author says about MBAs is applicable here as well:

"They can't really step back and take a critical view," he said. "They're totally defined by others and by the outcomes of what they're doing."

The non-academic economics profession is facing an uphill struggle after losing two significant battles: first, the economists have been replaced by the accountants and the lawyers; second, the mathematization of the academic economist has also had its impact on the lowly business economist.

The only problem is that the failure, the abject failure of the MBAs and the lawyers in the current crisis doesn't mean that the business economist will suddenly return to vogue, especially given the power that the accountants and lawyers wield in the companies. Rather, if anything, things will have to become significantly worse before anyone is willing, once again, to listen to economists. It's our task to make that what we say also something worth listening to.

While the ignorance of the lawyers and the accountants to la via economique didn't create the problems we are facing, it helped make them inevitable.

Redlining, Subprimes and Irony...

Oh the irony.

Let's step back and repeat something I've touched upon here.

Let's go back to the establishment of the subprimes.

Back in the 1960s, you had a generation of people who seem determined to find where the wrongs in society were and to correct them. Yound, idealistic, some did some good things.

Others, well intentioned, did some awful things.

For those who decided to get involved in local community politics, the asked why some areas were blighted, apparently permanently so, whilst other areas with not dissimilar incomes thrived and did well. It's a sociological problem, one of urban development, and at least some found out, by asking people living in those areas, what a partial reason for this was: it is called redlining.

Simply put, redlining means that a bank or other lender simply decides that a geographic area - outlined in red on a map, hence the term - was fundamentally a high-risk area and that the bank either would simply not make loans to that area or, if loans were to be made, these loans would command a significant risk factor. While this is fairly sound commercial practice, it was interpreted as how capitalism was exploiting the poor, either refusing them access to capital or, even worse, punishing them for being poor by raising their costs. It's the same reason that you don't find the best stores in low-income neighborhoods: risk is greater there for theft and vandalism, which reduces the potential profit to be made, and stores operating there tend to be higher priced and lower quality (since things are going to be damaged, no sense in investing in something of higher quality when it will be vandalized). These are legitimate commercial decisions, but are, of course, politically distasteful.

Hence the Community Reinvestment Act, the original one: it made redlining very difficult. It didn't stop it, since the banks continue to do geographical analysis to determine which areas are in demand and which ones aren't, which areas are perhaps underpriced and could be targeted for development work, and other commercial considerations based on physical location.

Redlining was generally condemned and amongst the activist left actively demonized.

Which is why this from the WSJ is so wonderfully, wonderfully ironic.

Redlining back in the 1960s had everything to do with the ethnic makeup of neighborhoods and with mortgages, i.e. long-term financial investments. Yes, there was a time when mortgages really were considered to be long-term investments.

Now let's pop back to the current day: redlining is back, back big, and is, just as it was back then, a commercial consideration that has real repercussions.

But now it's not mortgages, but credit card lines of credit. Not debt as such: lines of credit:

...home price depreciation has been a more reliable determinant of consumer behavior than FICO scores. Hence, lenders have reduced credit lines based upon "zip codes," or where home price depreciation has been most acute. Such a strategy carries the obvious hazard of putting good customers in more vulnerable liquidity positions simply because they live in a higher risk zip code. With this, frequency of default is increased. In other words, as lines are pulled and borrowing capacity is reduced, paying borrowers are pushed into vulnerable financial positions along with nonpaying borrowers, and therefore a greater number of defaults in fact occur.

Welcome to the brave new world of redlining: zip code redlining for credit lines of risk.

What are the implications for this?

And fourth, along with many important and necessary mandates regarding fairness to consumers, impending changes to Unfair and Deceptive Acts or Practices (UDAP) regulations risk the very real unintended consequence of cutting off vast amounts of credit to consumers. Specifically, the new UDAP provisions would restrict repricing of risk, which could in turn restrict the availability of credit. If a lender cannot reprice for changing risk on an unsecured loan, the lender simply will not make the loan. This proposal is set to be effective by mid-2010, but talk now is of accelerating its adoption date. Politicians and regulators need to seriously consider what unintended consequences could occur from the implementation of this proposal in current form. Short of the U.S. government becoming a direct credit-card lender, invariably credit will come out of the system.

Lovely: Washington is interfering with the markets once again. The article is complete accurate: if risks cannot be repriced, then there will be no money lent. Period.

Over the past 20 years, Americans have also grown to use their credit card as a cash-flow management tool. For example, 90% of credit-card users revolve a balance (i.e., don't pay it off in full) at least once a year, and over 45% of credit-card users revolve every month. Undeniably, consumers look at their unused credit balances as a "what if" reserve. "What if" my kid needs braces? "What if" my dog gets sick? "What if" I lose one of my jobs? This unused credit portion has grown to be relied on as a source of liquidity and a liquidity management tool for many U.S. consumers. In fact, a relatively small portion of U.S. consumers have actually maxed out their credit cards, and most currently have ample room to spare on their unused credit lines. For example, the industry credit line utilization rate (or percentage of total credit lines outstanding drawn upon) was just 17% at the end of 2008. However, this is in the process of changing dramatically.

Without doubt, credit was extended too freely over the past 15 years, and a rationalization of lending is unavoidable. What is avoidable, however, is taking credit away from people who have the ability to pay their bills. If credit is taken away from what otherwise is an able borrower, that borrower's financial position weakens considerably. With two-thirds of the U.S. economy dependent upon consumer spending, we should tread carefully and act collectively.

Amen to that.

What is happening here? Simple: the bankers/credit card companies are commercial entities that must manage their risk. If risks cannot be repriced - which is, fundamentally, what happened with the subprimes - then these entities will not be interested in taking those risks on: you can't blame them for that.

In the interest of protecting consumers from having changes in their risk profile result in higher risk premiums, the government - in its infinite wisdom - is going to stop those who carry the risk from charging higher risk premiums.

Which will throttle the credit card system.

Which will reduce liquidity for the individual consumer.

Which will move us closer and closer to a cash society, one that lives not on a leveraged cash flow, but only on the cash flow. No more using your credit card for large purchases: save up and pay cash. No more using your line of credit as a puffer zone for unexpected large expenses: better have that money saved up and put in some sort of fast-access short-term account. No longer can you simply drive to the airport and get on the next plane on a Saturday evening if you receive news that a loved one is dying and you need to get there before they die: wait until the banks are open (because you can't get the amount of money you need from your ATM).

No more using your line of credit as a deposit for renting cars, or to avoid the risks of carrying large amounts of cash for a long trip. Unless, of course, you have a job earning a salary in the top 5%, have no outstanding loans, have a proven track record of repaying loans, and really don't need it in the first place.

Talk about unintended consequences: a progressive policy, aimed at protecting consumers from those evil and nasty commercial companies who just want to rip them off, has the effect of forcing all of us to become financial ... conservatives.

Oh, the irony.

Markets, the Left and Capitalism

Reading the editorials of the last few days one could get the feeling that capitalism has failed, that markets don't work, and that the chantings of the Left are now being listened to.

What a crock.

Let's talk first and foremost about markets and what the Left has failed to understand - and appears congenitally incapable of understanding - about how markets work.

First and foremost: markets are ruthless, efficient and really, really don't give a shit about you or how noble or empowered you may be. Markets clear seller's goods from their shelves to meet the demand from the consumers of those goods with simple and ruthless methods: price and availability. Price something too low and it will disappear quickly; price something too high and no one will buy it. If you've only got a few goods, then you'll be able to sell them at a high price if demand allows it; if you've got a huge amount of goods, you'll probably have to drop prices to get rid of them.

The law of supply and demand is ruthless and punishing: price your goods too low and you forgo profits; price them too high and you won't sell. It's really a very simple set of rules that govern the most complex game there is.

Markets invariably work: it's just that they don't always work the way that some people think they should work. I remember working, back in college days, in a food coop to get my groceries cheap. I remember how the folks there would rant and rave about how some of their acquisitions - usually vastly overpriced goods from politically correct countries, such as Nicaragua - didn't sell, that the people buying coffee, for instance, had an obligation to support the coffee growers in Nicaragua directly instead of buying what they liked to drink. They were seriously proposing that when consumers refused to buy an overpriced product (overpriced for political purposes) that it meant that the market didn't work. The same was true for the poorly dyed t-shirts they were selling, as they were dyed using organic dyes and were dyed by a local woman's collective. The truth was that they were so poorly dyed that you had to wash them separately for weeks on end until the dye finally stabilized, and then the damn things were splotchy and looked drab and terrible; you were supposed to wear them to show that you were politically correct. When no one bought them, that was, in their view of the world, a failure of the market.

I can't repeat it enough: markets are ruthless and efficient, but not always in the way that people want them to behave.

And that is the failure of the Left: to claim that markets don't work is to show their fundamental ignorance of what markets are and what they do. Banks are going bankrupt not because of market failures, but rather because the market is ruthless and buyers are putting low values on something that someone paid too much money for. Credit has dried up because the banks are carrying too many bad loans on their portfolio, largely because markets were manipulated and the banks made mistakes based on that.

You see, markets are not magical places where things magically happen: the invisible hand, while invisible in the sense of no one is really able to see exactly how it operates, is still how the market works. Or, more exactly, it's what we use to explain that we can't exactly describe how markets actually function.

Markets are like the brain that way: while lots of neurologists out there like to think they know how the brain works, no one has ever been able to document where the feelings of love that I have for my wife and children are encoded in my brain; we know basic functions, but we don't have the ability to document the details. We know that such things work and do so in ways that no one can figure out, but at least the neurologists - generally - know that if you create a chemical imbalance in the brain, you skew the personality associated with that brain severely. While psychotics and other loonies can be helped by changing back the chemical balances, the basic idea remains: interfere with brain chemistry at your peril. So it is also with economic and financial markets.

There are few markets out there that aren't skewed in one way or another. The market for health-care drugs is strictly regimented to avoid damage to patients from drugs not adequately tested; the market for consumer goods are skewed by safety testing and liability laws; these are interferences into a market to ensure that these markets don't end up providing dangerous pharmaceuticals or toys that kill small children routinely. This kind of interference serves to ensure that the goods traded meet certain requirements and standards.

But then there's interference in markets that try to adjust them to skew their functioning in one way or another. That is where things go really, really wrong.

Capitalism is, to the Left, cruel and unjust, concerned only with profits and not with people.

What the Left doesn't realize is that while Capitalism is the worst of all economic and financial systems in providing some sort of "justice", it is the only way for any working economic system to achieve any sort of political goal. They are making the fatal conceit of associating business with politics, a rather tedious trait of the Left (the incessant and permanent politicization of everything is what makes the Left largely unbearable even in the worst of polite company).

More on capitalism and the errors of the Left to come...

No Comment Necessary...

Hattip: Sense of Events.

Something To Remember...

In the coming days you'll be bombarded with pundits and opinions on what caused the recession, largely with the story line of "deregulation" and the failures of the Bush Administration. That way the Obama Administration will have someone to blame.

But keep in mind the real reasons behind this world-wide crisis: politically motivated meddling in markets, creating the necessary conditions for what has happened.

Of course, you'll have lots of folks out there who will search for prime causes, someone or something to blame directly. The left is already doing this, blaming deregulation and capitalism for our woes.

But consider this: sometimes things happen not because of a direct, single and simple cause (as much as it stretches the intellectual ability of most on the left to consider this). Instead, they are the result of a chain of events, which may be a comedy of errors or may be rather more sinister than that. Indirect approaches to achieving goals can be subtle and may, in some cases, literally take decades to complete, and one ignores little steps that add up at one's peril.

Hence our troubles aren't based on any one single event, but rather a series of events, in many cases done with good will towards a good cause, but have led us to where we are now.

This editorial at the IBD gives good coverage of why the banks aren't to blame. But that's not the whole story.

The real story, for me, is that there is a real paucity of right and proper economic analysis out there. Sure, there are a lot of people out there writing analysis of what is happening, what has happened, what might happen: the problem is that relatively few of them are actually economists.

The problem is that the role that economists used to play has been largely usurped by non-economists. In the 1980s and well into the 1990s, most larger companies has a corporate economist who would write up analysis of what was going on in markets, what the Fed might do to interest rates, how markets might develop.

Starting in the mid-1990s, these folks slowly disappeared, more or less in conjunction with the increasing quant nature of economics training.

This is the failing of the economics profession, as far as I am concerned (and given that I have no academic aspirations, I also have no fears of upsetting anyone): the fatal conceit that to be a good economist, one must also be an excellent mathematician, mastering calculus and other advanced forms of math in order to build models. The problem with this is that the only ones who are really interested, then, in what you say are other quants or other technicians, rather than the businessmen who actually need your analysis to help them make decisions that make or break companies.

While I may be here, to a certain extent, guilty of perfect hindsight, I do remember, back when the Community Reinvestment Act was first introduced in 1977, being struck by the idea that high-risk loans be covered by higher costs for loans to those with lower risks. What struck me was that rather than subsidize the working poor so that they could buy a house (i.e. removing them from the high risk group that they belonged to), it had been decided to create something that was in and of itself inherently risky, and requiring banks to make such loans.

Now, I'm talking back in 1977 with the original CRA, rather than the later modifications under Clinton. The failure here was the creation of the risky loans, not how this risk was to be carried. Back then I was actually knew Acorn people and thought they were doing a good thing by fighting for those trapped in redlined districts to be able to buy a place to live, rather than be stuck paying rent to a landlord who may or may not have been exploiting the working poor.

And let us remember that these folks were the original target of aid: those who, while working and earning a living wage, were nonetheless severely disadvantaged as building up capital because their living costs failed to build up equity. They were denied loans not because they were a severe risk, but rather because of where they lived: their neighborhood was redlined. Redlining meant that on the local maps up at the local mortgage bank, the areas were marked off in red because the bank had decided that they wouldn't provide mortgages there at all: this might be because of empirical risks, or because the areas involved were slums and hence the banks wouldn't want to own buildings there in case of default, or because the banks had financed the slumlords who effectively had a monopoly on low-income housing in that area and hence a vested interest in keeping tenants in such housing. More often than not, the latter was the real reason for redlining a district after an investor had bought up a large majority of the buildings: this was a common business practice in the real estate business.

The goal was to get the working poor out of bad housing that was rented out at market rates, but with poor maintenance in order to save on costs. This is, after all, the only way to make money on renting to low-income tenants: you have to build cheap, and you have to cut all costs as strongly as possible in order to repay your loans as fast as possible in order to turn a profit on such rental units. Low maintenance meant that the places ran down fairly quickly and vandalism and destruction wasn't fixed in a timely manner (if at all). Increasing wages meant that people could afford to move away, but more often than not increasing wages would be accompanied by increasing rents.

So what was done to alleviate the problem? The Subprime Mortgage was invented, one that required the banks to make the loans to their community based on the makeup of the community, rather than based on the financials and economics of the situation.

And let me make it clear: the basic idea is good. Districts with lots of home owners are invariably cleaner, brighter places to live, in comparison to tenement slums and welfare islands.

But this is where the error was made. The banks kicked and screamed, quite rightly so, but also, when it became law, accepted the burden of the subprimes.

The error wasn't in trying to help the working poor, but rather how this help was achieved. The CRA distorted the market: loans were made to those who did not qualify for them in the traditional sense, but which were subsidized by increasing overall costs of lending monies for mortgages, i.e. the risks were carried by the traditional mortgage user.

This is where the mistake occurred: risky mortgages were created. This is the first sin, as it were, on the road to perdition.

Rather than having created the risky mortgage, other alternatives should have been considered, such as direct subsidies to first-time home buyers in distressed neighborhoods so that their mortgages were no longer risky; rezoning to eliminate tenement slums and encourage home ownership and rent subsidies to ensure that maintenance was properly done. These alternatives would have avoid the creation of risky mortgages, the creation of the subprimes, and would have effectively achieved the same result.

So keep in mind where the mistakes were made: they weren't made by deregulation (as if the banks weren't heavily regulated!), they weren't made by bankers selling off their mortgage portfolios, they weren't made by capitalists.

They were made by serious, ernest people trying to help out the working poor, but who chose to create something risky in order to right what they perceived as a wrong.

That was the failure, and hopefully the lesson to be learned: never chose the path of least resistance but of the greatest risk.


And also remember that decisions made today may first have their repercussions 30 years or more in the future, with changes and addendums done by those with the best of intentions but with no understanding of what they are really doing. The decision to create the subprimes was first and foremost a political decision, and these kinds of politics and economics do not mix.

Why Geithner Got His Job...

According to this report, the reason should be obvious, and it points to what will be coming down the road.

U.S. oil and natural gas producing companies should not receive federal subsidies in the form of tax breaks because their businesses contribute to global warming, U.S. Treasury Secretary Timothy Geithner told Congress on Wednesday.

Will this be the new litmus test, the new benchmark?

Apparently so:

"We don't believe it makes sense to significantly subsidize the production and use of sources of energy (like oil and gas) that are dramatically going to add to our climate change (problem). We don't think that's good economic policy and we think changing those incentives is good for the country," Geithner told the Senate Finance Committee at a hearing on the White House's proposed budget for the 2010 spending year.

This isn't about incentives, this is about punishing the small companies in the business to drive them out of the business. This is what the effect will be: anything else is whitewash.

The Obama administration's budget would levy an excise tax on oil and natural gas produced in the Gulf of Mexico, raising $5.3 billion in revenue from 2011 to 2019.

This new 13 percent tax on all oil and gas production in the Gulf would only affect those companies enjoying a loophole that allows them to avoid paying royalties on the energy supplies they drill. Companies already paying royalties would get a tax credit.

Obama's budget would also place a $4 per acre annual fee on energy leases in the Gulf that are designated as nonproducing. The budget proposal projects the fee would generate $1.2 billion from 2010 to 2019.

This is also known as the "use or lose" provision: this is stupid. Companies lease large tracts because if you don't lease them, your competitor will: nonproducing tracts haven't been explored yet, meaning that all the White House is doing here is telling the companies that if they reserve tracts - an industry practice - that may or may not be productive, they have to do the drilling to determine whether they are productive or not in order to avoid paying a tax on their holding the leases. All this is designed to do is to drive small companies, who live or die according to their ability to drill more producing wells than non-producing wells on unknown tracts, out of the business.

Gee, and I thought the Republicans were the party of Big Business: my bad.

Senator John Cornyn of Texas criticized the tax increases, saying they would hurt independent energy companies that provide a large share of U.S. oil and gas supplies.

"My view is that higher taxes on small and independent producers here in America will make us more dependent on imported oil and gas while we transition to cleaner energy alternatives, a goal we all share," said Cornyn. "And it will also hurt job retention and job creation in the energy sector, which provides an awful lot of jobs in this country."

Bingo.

Geithner said the additional taxes "can be absorbed" by the oil and gas companies, given the billions of dollars they have earned from high energy prices.

Here you can see why Geithner has his job: class envy, let the rich pay, businesses can pay for everything, I don't want to hear about the billions in costs.

"The impact of these subsidies are very small relative to revenues produced by U.S. oil and gas producers," he said.

Ah, but which U.S. oil and gas producers?

Let's look, briefly, at the history of this industry. You start out with a few big players who knew how to game the system and got subsidies to go do their work, persuading enough lawmakers in Congress at some point that This Was A Good Thing.

Smaller companies pop into existence as the subsidies make it possible for them to compete, and not a few of the smaller companies are staffed by folks who left the big companies to go out on their own. They're faster and more efficient than the big companies, who tend to stake claim to huge tracts of land to keep the small guys out. Big companies got deep, deep pockets, not the least because of the subsidies, which favor big companies.

Big companies don't like the small guys because they're horning in on a very profitable business.

So the big companies lobby and spend, and they're happy to find that the ecofreaks of the new Administration, while in some ways smart people, are naive about how the world actually works, and they are able to find ways to kill the subsidies.

Result: small businesses can't compete - no deep pockets, remember - and the large companies go back to the days of practical monopolies and maximizing their profits at the cost of the consumer.

In this case aided and abetted by the ecofreaks of the White House, who think that they're shafting the big companies with the per-acre fees. The big guys just need to have enough money to outlast the little guys, who simply don't have the reserves to pay the fees and remain profitable.

Great example of how big business will get along famously with the Obama Administration.

The losers? The small companies and, above all, the American consumer, who, after all, has to be protected from low energy costs in order to save the environment.

Yarrrgh.

Gaza, Naivete and Hamas...

So, donors have pledged no less than $4.5bn for Gaza, but have stipulated that none of the money may go to Hamas.

Wait a second...how is that supposed to work?

It's along the same line of thought that an elderly aunt uses to give money to her niece, but stipulates that the awful husband her niece married can't profit from that money.

How naive. Of course that niece will take the money and her husband will benefit: the idea that you can stipulate a non-benefit from someone in the household is absurd. If the niece buys a flatscreen TV, will the husband not be permitted to watch? If the niece buys a new house, will the husband not profit from that? Duhhhh.

According to the news reports, this money will be given to the Palestinian Authority, led by Mahmoud Abbas, with safeguards to ensure that Hamas doesn't get any of the money.

Fundamentally, it goes further than that: it stipulates that no money may be spent until Hamas is no longer in control of Gaza. And where, you might ask, is the mechanism where Hamas is no longer in control of Gaza?


Ahhhhhhh.

There is none.

This is naive at best and downright subversive at worst.

Consider this: Hamas, for all its problems, did win the election. It did so because of disgust with the corruption of the PA - and giving them $4.5bn just ensures that the PA will continue to be corrupt - and because of the extreme frustration of the Gaza population with the incompetence of the PA in getting services to actually work, as well as making progress with coming to an understanding with Israel that could actually work. Of course Hamas made sure that the PA in Gaza couldn't work out a deal: anyone recommending one was intimidated into silence or killed. The PA isn't blameless here: if anything, the opposite. Hamas would never have had the success that it has had, especially access to Iranian money, if the PA weren't so venally corrupt and, as a result, pathetically incompetent.

But the only real way forward is for Hamas to be defeated at the polls, defeated in such a way that the Palestinians in Gaza show a clear commitment to an actual peace settlement. I don't recommend investing in that argument, since it simply isn't going to happen as long as the Hamas are less corrupt than the PA.

So what is the point of doing this for the donors?

Zilch. There is no point.

This is nothing less than political grandstanding of the finest: everyone can now pat themselves on the back and say that they've done their job, the money is there, and we're not going to aid Hamas. Style and appearance over substance, but I wouldn't expect anything else from Hillary and the political pundits of the Democratic Party.

In reality, the donors are ensuring that the PA remains corrupt and hence not a challenge to Hamas; they're ensuring that the Palestinian civil war will continue; they're ensuring more years of ignorance, deprivation and poverty; in other words, they're ensuring that nothing will change.

In a related note, the Israelis are upping the pressure: plans to build another 70 000 housing units on the West Bank, adding another 300 000 Israelis living there. Strategically the Israelis are upping the ante, making the establishment of an independent Palestinian state more and more difficult.

So where to go from here? Hamas exists only to destroy Israel and ensure that the Palestinians live under their thumb as human shields; the PA is corrupt and incompetent (otherwise Hamas couldn't have dealt them quite the blows that they did in Gaza); the West and the Arab states, at the end of the day, couldn't care less what happens to the people living in Gaza; Israel is taking the strategic advantage and improving its position; in the meantime, nothing happens.

Well, that's quite a recipe for success.

Could It Be That Snowball Fights Are Breaking Out In Hell?

No, the Cubs haven't won the World Series, nor have the Mullahs decided that a secular society has its advantages.

But a columnist in the FT apologizes to the Republicans in the House and in the Senate.

Yep, you read it right. Clive Crook says, here, and I quote:

Barack Obama's first budget is a revelation. The US president's plans will not come to pass in the form he suggests. Congress writes the laws and will make a hash of it. Still, this first full statement of intentions speaks volumes, and leaves me in a paradoxical position. On one hand, I admire much of what the budget says. On the other, I feel I owe Republicans an apology.

As you recall, in the debate over the fiscal stimulus, Republicans accused the president of presenting a measure they could not support, disguising this with an empty show of co-operation. Bipartisanship, they said, is more than inviting your opponents round for coffee and a chat. I did not buy it: I accused them, in effect, of brainless rejectionism and a refusal to compromise, and congratulated the president for trying to come to terms with the other side.

This budget says the Republicans had Mr Obama right all along. The draft contains no trace of compromise. It makes no gesture, however small, however costless to its larger agenda, of a bipartisan approach to the great questions it addresses. It is a liberal's dream of a new New Deal.

Hah! The Republicans had President Obama right all along.

This happens when you actually bother to listen to what the man says, rather than the spin.

A tip of the hat to Clive Crook for his honesty in this matter: I sincerely, sincerely doubt that any columnist at the New York Times or the Washington Post would have the backbone to write the same words. Perhaps there is still hope for England after all...

And this is too good to ignore:

This is indeed a new social contract: we get, they pay. Liberals never had it so good.

And America never had it worst.

Liberals come from good times, from surpluses and money to spend. They get their contributions from those who are doing well - as the records show, Democrats are the party of big money, not the Republicans - and from those who work in areas that are, at the end of the day, not really all that productive, productive in the classic economic sense of actually making and doing things.

With the recession we're in now - which has the potential to become much worse - the last thing the US needs is more taxes for things that liberals love, but are really luxuries in a time when so many jobs could disappear. GM may well tank into Chapter 12, not "merely" Chapter 11, and that could take 5-7 mn jobs with it (including upstream and downstream impacts): rather than find a way to encourage spending, the President is, instead, proposing a carbon tax to discourage spending on cars.

We get, they pay. Have fun, folks.

Hate to say: told you so.

Insanity...or Corporate Responsibility Gone Seriously Wrong

This is more than a little curious.

You've got a UK finance group that wants to invest your money in an "ethical way". To quote from their web site here:

When choosing companies to invest in, most fund providers just analyse the financial performance of a company. We are the only UK fund manager to also analyse social, ethical, environmental and other company management issues (eg 'fat cat' pay) across all the funds we manage.

Now, that's just fine and dandy: if you want to include that in your investment portfolio for political reasons, fine.

But that is not what the group is now doing. Instead, they are starting what must be considered a political campaign against oil sands.

If I were an investor, I'd be pulling my money out of that group ASAP: instead of investing your money, they're taking 50 thousand pounds sterling and are financing the research aimed at providing the rationale to block development of Canadian oil sands. Overall, they're taking 500 000 pounds sterling to "fight toxic fuels".

That is insanity: this is "corporate responsibility" gone completely, stonk raving mad. This is an investment company that is going political with other's money.

It's one thing to invest in solar and wind, to finance "good" things. It's another thing entirely when your actions are designed to stop business activity, and it is especially appalling to do it far from where the negative impact will be felt.

And it is in direct contradiction to this statement, found here:

Our firmly embedded responsible lending policy reflects our belief that as customers and members, it's your money first and foremost, and you have a right to expect good stewardship.

The Bank's financial position is strong, which is reflected in our credit ratings. We also have one of the highest liquidity ratios in the marketplace – that is, our assets are relatively easy to convert into cash should we need to. On top of this the Bank is well capitalised, i.e. we have a good cushion of reserves.

The Bank maintains a prudent approach to lending, and its underwriting and arrears management processes are subject to regular review and improvements. The Bank's loan books are high quality with low Loan to Value ratios, which provide significant protection against future falls in property values.

The choice to fund a politically-motivated campaign against "toxic fuels" doesn't reflect good stewardship in these challenging times. It reflects, if anything, appalling stewardship that places politically motivated ecological activism above good banking practices.

Miscommunication, politics and wonder...

First of all, a hat tip to Neo-NeoCon.

Second of all, the relevant link here.

The title of this post is miscommunication, politics and wonder.

Miscommunication: not merely the accidental, but also the deliberate. The last election was marked by a curiously uncritical press that failed to communicate the fact that President Obama, while intellectual and educated, is fundamentally a product of the Chicago political machine (this has been covered on this blog before) and fundamentally beholden to a Democratic Party that is fundamentally reactionary, populated by radicals from the 190s and 1970s that continue to believe in something completely and totally discredited, i.e. some sort of utopianism based on a fundamental ignorance of economics. The miscommunication was also deliberate: if the Republican Party had decided to go after President Obama's fundamental lack of actual detail for his panaceas, the shallowness of now-President Obama might have appeared for everyone to see.

Yes, I am saying that President Obama is a shallow man. How can you be both educated, intellectual and yet shallow? Simple: there's no depth to the man, no real person there. No one knows what President Obama really believes or says: his track record in Congress and in the Illinois Senate was exemplary in the use of "present" to avoid taking positions. We have elected a President without knowing where he really stands: this is what I mean by him being shallow. Intellectuals, highly educated ones especially, have a tendency to avoid making decisions because there are too many implications, too many possible resolutions, preferring to postpone any actual decision until it is either no longer necessary because events have overtaken the necessity of decision, making it moot, or to wait until a decision is forced by events.

Intellectually, this is an elegant solution to the danger of having to defend decisions and face the derision of your peers. Politically speaking, it is a catastrophe, since it is nothing less than indecision writ large: faced with an indecisive opponent, other political players will re-write the rules of the game to ensure that they win.

But, you say, President Obama is a product of that rought-and-tumble, hard-knuckled world of Chicago politics, where indecision is punished and power politics are rewarded.

Yes: the operative word is product. President Obama isn't a Chicago politician, but rather the perfect foil, the perfect passive player in the system to ensure that the system can be gained. He beat his opponents for his Senate seat by taking them to court, rather than being the better candidate; he ran unopposed.

The problem now is that he's no longer in Chicago, or, more exactly, the real world is not Chicago.

The world economy is in turmoil, and President Obama is doing his level best to make things better. That is what is being communicated via the press, and this is another case of miscommunication, where the IBD article above comes into play.

What the world markets and the US public need to hear is how adults are in charge. Instead, we here and see how President Obama's administration is turning into a right and proper catastrophe, with major posts unfilled and others filled with those sullied by banal and mundane human failings, but also with more than a taint of disdain for the rule of law. His major accomplishment is to have made things worse, rather than better: his perfect storm of Democratic control of both houses is being ripped apart by the irresponsibility of the "stimulus" bill and its apparent basis, that it is better to do something than nothing.

Now that's a specious argument: how about doing something effective for the economy as a whole, rather than obviously rewarding the party faithful? This is where President Obama is a product of the Chicago system: he is doing what is expected of him.


What about wonder?

I wonder at the the naivete of the voting public not to have realized just who they voted for. The facts were not hidden, but out there, merely under-reported (again, the uncritical press is to blame here). The vote for President Obama, for many, was a vote against Bush, against the past, for hope and for change.

I wonder at the sense of wonder now being expressed as to how things could be so totally screwed up.

Because it's no wonder at all. We have elected a President who, despite being intellectual and educated, is fundamentally shallow and out of his depth; we have installed the least competent and trustworthy Congress in decades (if not longer), re-electing politicians whose irresponsibility is legion; we have given the control of government, at a time of economic crisis, to those whose fundamental political theory shows an almost complete ignorance of real-world economics.

The cause of the economic crisis is manifold and ultimately the stuff of historians yet unborn. Solving the problem is of political priority, and yet we have the least qualified people in charge.

Oy vey.

Speaking Truth To Power ...

The Left, particularly in the US, is enamored of its role in "speaking truth to power", which it views as a dangerous and heroic role. It's the role of the lone truth-seeker standing up to the tyrant and speaking truth to the power of the tyrant, regardless of the consequences (as if there were any in our day and age: that is what makes the claim so patently absurd).

The modern sense of the phrase came from that humorless lot, the Quakers, as can be seen here. Nice folks, the Quakers, but naive in the extreme (to put it mildly: the result of Quakers talking to tyrants never went well for the Quakers).

I ran across another history of that phrase here. You gotta go to page 9 to find the following (all credit to Michael Hendry):

In Sicily Dionysius, the tyrant of Syracuse, . . . was enjoying peace and
leisure. He began writing poetry with great enthusiasm, sending for the
famous poets, spending his time with them and showering honours on them,
and using them as supervisors and reviewers of his poetry. His generosity
led to flattery on the part of these grateful critics, and removed from reality
by it he bragged more of his poetry than of his military successes. One of
the poets at his court was Philoxenus, the composer of dithyrambs, who had
a high reputation for his own style of composition, and at the drinking-party
when the tyrant's wretched poems were read he was asked his opinion of
them; he gave a rather frank reply, and the tyrant took offence, faulted him
for slandering him out of envy, and told his attendants to take him off at
once to the quarries. Next day his friends begged him to pardon Philoxenus,
so he made it up to him and invited the same company to the drinking
party. As the drinking progressed, Dionysius again began to brag of his
poetry and cited some lines which he regarded as particularly successful;
but when he asked Philoxenus what he thought of them, his only response
was to summon the attendants and tell them to take him off to the quarries.
At the time Dionysius smiled at the wittiness of the reply and put up with
his frankness: laughter took the edge off fault-finding; but soon after when
the friends of each party asked Dionysius to excuse his untimely frankness,
Philoxenus made the strange offer that his answer would preserve both the
truth and Dionysius' reputation; and he kept his promise, because when the
tyrant cited some lines which described lamentable events and asked what
he thought of him, Philoxenus said, 'Tragic', using the ambiguity to
preserve truth together with the tyrant's reputation: Dionysius took
'tragic' to mean 'lamentable and full of pathos', and knowing that good
poets excelled in such writing accepted it as praise from Philoxenus; but the
rest of the company picked up the true meaning and saw that the term
'tragic' had been used only to brand a failure.

In other words, "speaking truth to power" is a joke, based on the ambiguity of the word "tragic" when dealing with tragedy. To quote Michael Hendry, who comments on this ancient joke:

'Tragic' is perhaps not the best translation of Philoxenus' ambiguous adjective,
though Dionysius was apparently writing tragedies. The Greek
word (οἰκτρά) is more general: 'pitiful' or 'pathetic'. The pun would work
just as well today: "Your tragedy / elegy is absolutely pitiful, totally
pathetic, I couldn't stop crying!" (What should you say if someone you do
not wish to offend writes a lame attempt at comedy or satire and asks you to
judge it? "Truly ludicrous! I couldn't stop laughing!")

In other words, the left has gotten it wrong again (quelle horreur!): speaking truth to power only works when the "truth" is so carefully hidden that it cannot appear to anyone less erudite than the speaker.

The use of the phrase is, for me, bankrupt: anyone in the modern West claiming to "speak truth to power" is merely trying to cover their partisan, usually vicious attacks with a panacea of bravery, when in fact many, if not most, using that phrase don't have the least to fear of speaking their "truth": if anything, it is rewarded with self-serving accolades from the peer group...

Speaking truth to power? That'll be the day from the left. They have become so reactionary that they can be considered, at best, regressives, not progressives.

Causality and Inevitability...

I'll come out and say it: the CRA didn't cause the subprime crisis, which generated the world-wide recession.

But it did make it inevitable.

What's the difference?

To understand why the CRA didn't cause - cause in the sense of having a clear causal chain from 1977 to today - the subprime crisis, go here. While I don't agree entirely with what Ellen Seidman writes there, she does make a decent case for the relative innocence of the CRA, strictly speaking, for direct responsibility for the subprime crisis. What don't I agree with? The creation of the subprimes as such was a very, very bad idea, one that I've covered on this blog before.

In short, the CRA created a situation where

But let's go here where Phil Gramm looks at the problem.

I believe that a strong case can be made that the financial crisis stemmed from a confluence of two factors. The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001. The second was the politicization of mortgage lending.

This second aspect is what terrifies the Democrats: it just didn't happen on their watch, it was their policy. Frank Raines, Chris Dodd and Barney Frank, to name just the major players, pushed Fannie Mae/Freddie Mac into backing mortgages for political reasons. This is the true scandal of our current recession.

The 2001 recession was brought on when a speculative bubble in the equity market burst, causing investment to collapse. But unlike previous postwar recessions, consumption and the housing industry remained strong at the trough of the recession. Critics of Federal Reserve Chairman Alan Greenspan say he held interest rates too low for too long, and in the process overstimulated the economy. That criticism does not capture what went wrong, however. The consequences of the Fed's monetary policy lay elsewhere.

In the inventory-cycle recessions experienced in the last half of the 20th century, involuntary build up of inventories produced retrenchment in the production chain. Workers were laid off and investment and consumption, including the housing sector, slumped.

In the 2001 recession, however, consumption and home building remained strong as investment collapsed. The Fed's sharp, prolonged reduction in interest rates stimulated a housing market that was already booming -- triggering six years of double-digit increases in housing prices during a period when the general inflation rate was low.

So, yes, the Fed - and Greenspan - deserve some blame: money was (and remains) very cheap and readily available. The easy availability of money for the average company means that they can invest for relatively little cost; the problem with cheap money is that it also reduces the risk threshhold, because of the relative lack of cost involved. This is what helped trigger the housing boom: a lack of proper risk controls.

Buyers bought houses they couldn't afford, believing they could refinance in the future and benefit from the ongoing appreciation. Lenders assumed that even if everything else went wrong, properties could still be sold for more than they cost and the loan could be repaid. This mentality permeated the market from the originator to the holder of securitized mortgages, from the rating agency to the financial regulator.

This is what caused the boom: the irrational belief that housing prices would always go up, driven in part by the suppresed realization that a drop in housing prices would cause the house of cards to collapse. Everyone had an interest in keeping the spiral going, which is something that the rating agencies should have caught: while they did their mechanistic jobs providing ratings for things no one understood, the qualitative risks were ignored and even denied.

Meanwhile, mortgage lending was becoming increasingly politicized. Community Reinvestment Act (CRA) requirements led regulators to foster looser underwriting and encouraged the making of more and more marginal loans. Looser underwriting standards spread beyond subprime to the whole housing market.

This is for me the critical point: the CRA didn't cause marginal loans, but it did make them necessary and inevitable:

As Mr. Greenspan testified last October at a hearing of the House Committee on Oversight and Government Reform, "It's instructive to go back to the early stages of the subprime market, which has essentially emerged out of CRA." It was not just that CRA and federal housing policy pressured lenders to make risky loans -- but that they gave lenders the excuse and the regulatory cover.

Bingo: now you can understand why the CRA made the financial crisis inevitable. It gave those issuing subprime mortgages the excuse to do so, and the moment that Fannie and Freddie took over the guarantees, the issuing institute was risk-free.

Countrywide Financial Corp. cloaked itself in righteousness and silenced any troubled regulator by being the first mortgage lender to sign a HUD "Declaration of Fair Lending Principles and Practices." Given privileged status by Fannie Mae as a reward for "the most flexible underwriting criteria," it became the world's largest mortgage lender -- until it became the first major casualty of the financial crisis.

To reiterate: the CRA didn't cause the financial crisis: it made it possible. The politicization of loan-making is, if anything, the prime cause of the exploitation of the CRA by mortgage institutes who were interested in one thing only, the one thing that the CRA approved and wanted: increasing the number of subprime loans.

The 1992 Housing Bill set quotas or "targets" that Fannie and Freddie were to achieve in meeting the housing needs of low- and moderate-income Americans. In 1995 HUD raised the primary quota for low- and moderate-income housing loans from the 30% set by Congress in 1992 to 40% in 1996 and to 42% in 1997.

This is where the direct culpability of Congress comes into play. This is where the politicization starts: raising the primary quota made no economic sense, but was done as a matter of policy under Clinton. This is where the rot starts.

By the time the housing market collapsed, Fannie and Freddie faced three quotas. The first was for mortgages to individuals with below-average income, set at 56% of their overall mortgage holdings. The second targeted families with incomes at or below 60% of area median income, set at 27% of their holdings. The third targeted geographic areas deemed to be underserved, set at 35%.

The first quota is absurd: 56% of mortgages were, by law, aimed at people with less than 50% of income. This is, simply, madness: it means that Fannie and Freddie were condemned to taking on the risks.The math also doesn't add up: of the Fannie/Freddie holdings, 56% were reserved to individuals below average income, 27% for those below the 60% area median income, and 35% underserved: this adds up 118%, which requires double-counting to work.

The results? In 1994, 4.5% of the mortgage market was subprime and 31% of those subprime loans were securitized. By 2006, 20.1% of the entire mortgage market was subprime and 81% of those loans were securitized. The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.

This is the law of unintended consequences writ about as big as you can get. The CRA, which when properly interpreted aimed at improving loans to the lowest decile - 10% - expanded and expanded and expanded until it ran up against system limits.

Blinded by the experience of the postwar period, where aggregate housing prices had never declined on an annual basis, and using the last 20 years as a measure of the norm, rating agencies and regulators viewed securitized mortgages, even subprime and undocumented Alt-A mortgages, as embodying little risk. It was not that regulators were not empowered; it was that they were not alarmed.

This is the massive failure, the abject and fundamental failure of the rating agencies. This is where the fundamental failure of the anglo-saxon rating agencies is apparent: you cannot use the past to rate the future. Loans aren't made in the past: you have to look forward. The regulators failed in their jobs because they didn't understand the fundamentally risky nature of the subprimes: on the other hand, how could they have, given the outstanding ratings given by the rating agencies?

With near universal approval of regulators world-wide, these securities were injected into the arteries of the world's financial system. When the bubble burst, the financial system lost the indispensable ingredients of confidence and trust. We all know the rest of the story.

When the bubble burst, it showed the failure of the rating agencies: the ratings were worthless. Given the incredible importance of these, this is one of the major secondary causes of the crisis.

The principal alternative to the politicization of mortgage lending and bad monetary policy as causes of the financial crisis is deregulation. How deregulation caused the crisis has never been specifically explained. Nevertheless, two laws are most often blamed: the Gramm-Leach-Bliley (GLB) Act of 1999 and the Commodity Futures Modernization Act of 2000.

GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified.

This is the key lesson: to quote Heinlein, specialization is for ants.

Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.

When no evidence was ever presented to link GLB to the financial crisis -- and when former President Bill Clinton gave a spirited defense of this law, which he signed -- proponents of the deregulation thesis turned to the Commodity Futures Modernization Act (CFMA), and specifically to credit default swaps.

Yet it is amazing how well the market for credit default swaps has functioned during the financial crisis. That market has never lost liquidity and the default rate has been low, given the general state of the underlying assets. In any case, the CFMA did not deregulate credit default swaps. All swaps were given legal certainty by clarifying that swaps were not futures, but remained subject to regulation just as before based on who issued the swap and the nature of the underlying contracts.

While I was - and remain - a fan of Glass-Steagall because it regulates the banks to keep them out of the business of flogging their own products, inherently risky and at best opportune (and at worst downright criminally fraudulent), Gramm is right (even if a tad self-serving, given that he helped write the bill).

In reality the financial "deregulation" of the last two decades has been greatly exaggerated. As the housing crisis mounted, financial regulators had more power, larger budgets and more personnel than ever. And yet, with the notable exception of Mr. Greenspan's warning about the risk posed by the massive mortgage holdings of Fannie and Freddie, regulators seemed unalarmed as the crisis grew. There is absolutely no evidence that if financial regulators had had more resources or more authority that anything would have been different.

Correct: the problem wasn't one of deregulation, but rather one of the regulators believing in the ruddy health of Potemkin villages and the assurances of the local mayors - the rating agencies - that everything was fine.

Since politicization of the mortgage market was a primary cause of this crisis, we should be especially careful to prevent the politicization of the banks that have been given taxpayer assistance. Did Citi really change its view on mortgage cram-downs or was it pressured? How much pressure was really applied to force Bank of America to go through with the Merrill acquisition?

Good luck on that one: knowing Congress, they will try to white-wash their incompetence and venality by politicizing the banks: after all, it's probably the only way to continue a cover-up of Congress' abject failure to do what it is supposed to do.

Restrictions on executive compensation are good fun for politicians, but they are just one step removed from politicians telling banks who to lend to and for what. We have been down that road before, and we know where it leads.

Do we really? I dare say that there is an entire generation of Democratic Congressmen who are just champing at the bit to find out where that road leads and are more than happy to discount the warning signs as remnants of older days.

Finally, it should give us pause in responding to the financial crisis of today to realize that this crisis itself was in part an unintended consequence of the monetary policy we employed to deal with the previous recession. Surely, unintended consequences are a real danger when the monetary base has been bloated by a doubling of the Federal Reserve's balance sheet, and the federal deficit seems destined to exceed $1.7 trillion.

This goes to the core of the problem: causality and inevitability.

While causality, either in its legal form or any other form, is a slippery beast at best (if you're honest: if you're not, then you can "prove" anything) and more than difficult to lay out, inevitability is easier, especially because you don't have to be specific.

In this case, it was inevitable that bad things would happen when lax money met politic influence in mortgage lending. Add to that the complicity of those who were supposed to be providing objective assessments - and who were, in reality, colluding with their clients to make as much money as possible while not appearing to be selling their ratings to the highest bidder - and we enter the realm of Rumsfeldian "known unknowns": any good, honest economist could have told you that political interference, cheap money and bad information leads to poor allocation of scarce resources.

The problem today is that no one listens to good, honest economists. The snake-oil sellers, the lawyers and the accountants, the sophists of the markets, are much more attractive, much more entertaining and much easier to understand.

A follow-up...and liberal condescension

This was in today's WSJ.

Read the whole thing.

The key quote is:

Thus, if patriotism is the last refuge of a scoundrel, snobbery is the last refuge of the liberal-arts major. The striver may wind up with the bigger house, better car and nicer vacations, but the very meretriciousness of these aspirations confirms the liberal arts major's belief in the striver's inferior taste and barren inner life. Conspicuous consumption advertises not the wealth but the cluelessness of the consumer who acquires to flaunt. It has been supplanted by conspicuous disdain for conspicuous consumption. The Toyota Prius is a testament to its driver's virtue, not a mark of his prosperity. Its distinctive homeliness has made it a hit, at a time when Honda has cancelled production of the hybrid version of the Accord: it turned out nobody wanted to buy a hybrid that was indistinguishable from an iceberg-melting V-6.

This is exactly the snobbery that we saw buried in the last post: a sort of post-modern snobbery, as it were. It is the core of the anti-globalist sentiment that we saw in yesterday's article: the cluelessness of the consumer and how it is necessary to stop them.

Further:

...the new bourgeois bohemians have figured out a way to have their pesto and eat it, too. They can have nice homes, cars, clothes and vacations—as long as all those consumption items are ones that the Babbitts wouldn't buy, wouldn't like, and whose appeal they'd find mystifying. The Bobo can pay for his socially correct lifestyle by working in a socially correct career—in Silicon Valley, a public-interest law firm, a startup involved with the internet or renewable energy; anything where work "becomes a vocation, a calling, a métier," according to Mr. Brooks.
...

We see here all the basic elements, employed for the past 28 years, of liberal condescension. Every issue of The New Yorker, Vanity Fair or Rolling Stone makes clear that the policy positions of George W. Bush, Republicans and conservatives in general are wicked and stupid. The real problem, however, is that everything about these people—where they reside, what they believe, how they live, work, recreate, talk and think—is in irredeemably bad taste. To embark on a conversation with one of them, based on straight-faced openness to the possibility of learning something interesting or important, would be like choosing to vacation in Wichita instead of Tuscany.
...

By the same token, whatever the correct assessment of Sarah Palin's abilities and limitations, it's impossible to imagine that it would have taken her 20 years of close contact with the Rev. Jeremiah Wright to notice that he sincerely believes a number of toxic, lunatic ideas. The thread connecting all of these—that 9/11 was a minor incident compared to the terrorism undertaken by the U.S., that AIDS was inflicted on Americans through deliberate government policies, that Louis Farrakhan is one of the greatest leaders of the 20th century—is that America is a wicked, contemptible place, and there is no such thing as an excessive criticism of it. Barack Obama's degrees from Columbia and Harvard law school may be proof of intellectual agility, but they do not guarantee good sense. For this, as William Buckley suggested 45 years ago, we are better advised to rely on graduates of the University of Idaho, or even the opinions of stewardesses.

This last is the key: liberalism has come to mean condescension and an arrogance that is at times overwhelming in its vehemence.

Intellect is no guarantee of good sense, let alone commons sense.

And Buckley was right: it would be better to be governed by the first 2000 names out of the Boston telephone book than by the 2000 professors of Harvard.

Gucci Capitalism, Cliches and Reality...

This is one of the more absurd articles I've seen recently, and I seriously question the thesis that underlies it. Unfortunately, it's only in German, but I'll give it the college try here to make it understandable. The author, one Noreena Hertz, is considered a "leading expert on economic globalisation", according to Wikipedia, but all I see here are cliches and wishful thinking, and no serious analysis. It appears in today's Handelsblatt, the German equivalent of the Wall Street Journal (very rough equivalent).

I'm not going to translate everything - lord, that'd be tedious - but rather just a few bits here and there. I won't take anything out of context (I hope), but rather I'd like to show how this kind of wooly-headed thinking is just plain wrong. The article is titled "Leaving Gucci-Capitalism" (Abschied vom Gucci-Kapitalismus). Consider this a semi-fisking: I'm not going to point out everything, just exactly how naive, cliche-ridden and how distant from reality this article is, reflecting, if anything, a kind of "new" pseudo-criticism of capitalism.

A warning: this is long. I had to make it long so that you can see what sort of absurdities are really being talked about by a "leading expert".

First the German, then my translation, both in italics, then my comments thereto. Ellipsis (...) point to where I left text out because it wasn't, in my opinion, important.

Manch einer behauptet, dass die akute globale Finanzkrise, diese Depression, die London und New York gleichermaßen trifft, keinen Einfluss auf die Natur des Kapitalismus haben wird. Dass wir uns unseren Weg durch die Höhen und Tiefen der Wirtschaftsentwicklung schon immer gebahnt haben und dass der Kapitalismus auch aus dieser Krise unversehrt hervorgehen wird. Und dass der Kapitalismus in fünf Jahren im Grunde ebenso aussehen wird wie vor sechs Monaten.

Ich verstehe diese Vorsicht, etwas Neues zu prognostizieren, dieses Zögern, einen Abgesang auf den Kapitalismus anzustimmen. Aber ich stimme dem nicht zu. Ich glaube, jetzt sind alle Bedingungen für ein merklich anderes Wirtschaftsmodell vorhanden, das aus dem Blutbad entstehen könnte, welches diese Krise angerichtet hat.

Some maintain that the acute global financial crisis, this depression that has hit London and New York equally, has no effect on the nature of capitalsm, that we have been through ups and downs of economic development and will continue to do so,, and that capitalism as such will emerge from this crisis unaffected, looking in five years the same way it looked six months ago.

I understand the caution to forecast something new, the reluctance to agree that capitalism has had its day. But I cannot agree. I think that all the necessary prerequisites for a significantly different economic model are present and this new model will emerge from the bloodbath of the current crisis.

Well, first off: there's no bloodbath, literally or even to a large extent figuratively, that is the result of some sort of fundamental fault of capitalism: rather, as we should have understood by now (but I fear that this may not have trickled down into academia), the problem was and is the deliberate distortion of markets that made the crisis inevitable.

...

In dieser ersten Krise der Globalisierung zählt jedermann zu den Verlierern: Sie trifft die Angestellten, sie trifft die einfachen wie auch die qualifizierten Arbeiter. Sie geht in ihren Auswirkungen sehr tief, wird viele Menschen überall auf der Welt negativ beeinflussen. Sie ist zugleich so offensichtlich ein Ausdruck dessen, was passiert, wenn private Institutionen ihr Profitstreben über alles andere stellen, und ist dermaßen verknüpft mit den fehlerhaften Doktrinen der vergangenen 30 Jahre, dass ich glaube: Sie hat das Zeug dazu, einen radikalen Wandel des Kapitalismus auszulösen, einen radikalen Wandel der Beziehungen zwischen Regierungen, Geschäftswelt und der Gesellschaft. Und das ist eine Gelegenheit, die wir beim Schopfe packen müssen.

In this first crisis of globalization, everyone is a loser: employees, both skilled and unskilled. The effects are very deep and have negative effects everywhere. At the same time it is obvious that it is the result when private institutions raise their profit interests above everything else and is so directly tied to the errors of the doctrines of the last 30 years that I believe that this crisis has the potential to release a radical change in capitalism, a radical change in the relationships between government, business and society. And that it is an opportunity that we should grasp.

First and foremost: this is not the first crisis of "globalization". I put that word in quotes because it's not new, not unusal, not even in the volume and economic impact that foreign trade has. Globalization has been going on since the early days of trade as the Silken Road bound Europe and Asia together and the early American natives traded shells from the Pacifc for turquiose from what would become Colorado and New Mexico. The impact of "globalization" drove the Dutch to dominate Asian trade for many decades, drove the British to ban Indian cotton goods in the 17th century and wage war against the Indian kingdoms; it drove the Spanish to export 1 mn gallons of wine from New Mexico to Spain per year in the 18th century until they were driven out by the encroaching Anglo-Saxons. Fortunes have been made and lost galore in the history of foreign trade, and the skilled watchmakers of Germany fought against the "American" method of making watches with interchangeable parts in the 19th century; history is filled with examples of how trade breaks and makes fortunes and livelihoods. There is even a branch of history that concerns itself with quantitative change: cliometry (and yes, there is a journal dedicated to this: Cliometrica).

Second: the obsession with the idea that private companies put their profits above everything else. This is, at best, a straw man argument that is based on a fundamental lack of experience with actually working for any kind of for-profit company. None that I have ever worked for have profits as their main goal: rather, profits enable them (the owners of such companies) to do what they want to do. I've seen lucrative offers for buy-outs turned down because they knew that the potential buyers wanted to acquire them to put them out of business (to remove a competitor); I've seen less-profitable activities preferred because it led to long-term sustained growth. To attribute "profits above all" to private companies is a cliche, and a poor one at that.

Ich habe die vergangene Epoche des Kapitalismus den Gucci-Kapitalismus genannt. Gucci-Kapitalismus war eine Ideologie, die Mitte der 80er-Jahre entstand. Ein Wunschkind von Ronald Reagan und Margaret Thatcher. Milton Friedman war der Pate und Bernhard Madoff der Junge auf dem Plakat. Eine Ära, deren fundamentale Annahmen waren, dass Märkte sich selber regulieren sollten, die Regierungen sie sich selbst überlassen sollten und die Menschen nicht mehr und nicht weniger seien als rationale Nutzenmaximierer.

I have called the past epoch of capitalism "Gucci-Capitalism". Gucci-Capitalism is an ideology that developed in the 1980s, the love child of Ronald Reagan and Margaret Thatcher. Milton Friedman was the godfather and Bernhard Madoff the poster-child. An era whose fundamental expectation was that markets regulate themselves, that governments should let them do that, and that people are nothing more and nothing less than rational maximizers of utility.

First of all: the polemics. Gucci, of course, are rather expensive luxury goods that tend to be rather obvious and represents the nouveau-riche rather than appealing to established money, the epitome of conspicious consumption. While Friedman definitely would play the role of Godfather here gladly, Bernie Madoff is tossed in there to deliberatly distort what both Reagan and Thatcher recognized.

Second: facts do not make an ideology. The fundamental fact, the one that Friedman recognized and who both Reagan and Thatcher realized, is that markets are the most efficient way of distributing scarce goods. Nothing more, nothing less: the implication is that markets which are distorted and manipulated by government are inefficient, as history has long shown. People do maximize their utility when making purchases on markets: this has been the function of markets from day one.

Es war eine Ära, in der sich die Machtbalance zwischen Unternehmen und Gesellschaft zunehmend zugunsten der Wirtschaft verschob. Zum Teil lag das daran, dass die Unternehmen so groß geworden waren. Vor dem Ausbruch der Krise stellten Unternehmen ein Drittel der weltweit 100 größten Wirtschaftseinheiten, also nationale Volkswirtschaften eingeschlossen.

It was an era in which the balance of power between corporations and society was tilted towards business. This was partially because businesses were so large. Before the start of the crisis, corporations were one-third of the 100 largest business units, i.e. including national economies.

First of all, the differentiation of sectors of society into some sort of balance of power between them is specious: it assumes that corporations must be under societal control - for their power to be somehow "balanced" so that the corporations may not do as they wish - quelle horreur - but rather submit to some sort of corporate governance that requires them to become political (by requiring them to fulfill roles best left to the body politic: sponsoring left-wing think tanks, for instance, to avoid an often rather crude blackmailing of corporations by vocal minority leaders with a penchance to political grandstanding. Yes, Revered Jackson, I mean you).

Zum Teil lag es daran, dass die These, Wirtschaft sei gut und der Einfluss des Staates sei schlecht, immer mehr Anhänger fand. Und zu einem Teil ging es auch darauf zurück, dass in diesem bequemen Netzwerk von typischerweise weißen, älteren Herrschaften die Rollen in den Regierungen, in Unternehmen und Aufsichtsgremien munter rotierten. Diese Art des Umgangs war eher dazu angetan, miteinander Golf zu spielen, als sich gegenseitig auf die Finger zu schauen.

This was also partially so because the thesis that business is good and the influence of the state is bad continued to find believers. It was also partially so because the comfortable network of typically white, older managers shared office in government, corporations and oversight offices. This way of dealing with each other was appropriate for the golf course, but not for oversight.

And her counterpointing thesis is that business is bad and the state is somehow inherently good? Her claim of racial purity in management is laughable at best and pathetically ignorant at worst.

Diese Periode bestärkte den fast religiös anmutenden Glauben in die Kraft der Märkte nicht nur als effizienten Verteilungsmechanismus für Güter und Ressourcen, sondern auch als Garant von Gleichheit, Gerechtigkeit und sogar Freiheit. Und das, obwohl sich der Eindruck verdichtete, dass die Realität dem nicht standhielt und dass sich in all jenen Ländern, die dem Gucci-Kapitalismus frönten, eine immer tiefere Kluft zwischen der Wirtschaft und der sozialen Gerechtigkeit auftat.

This period amplified the almost religious belief in the power of markets, not only as efficient distribution mechanisms for goods and resources, but also as guarantee for equality, justice and even freedom, despite the increasing impression that this construct did not co-exist with reality and that all countries that subscribed to Gucci-Capitalism saw an increasing chasm between business and social justice.

Here is a recently recurring meme from the left, designed to reduce and belittle the functioning of markets: that anyone who sees the power of markets does so religiously. The corrolary arguments - that markets act as a guarantee for equality, justice and freedom - are used as if that is what markets do: instead, she is trying to show how markets cannot reach her goals - not capitalism's goals - of equality, justice and freedom - whatever those words may mean (and believe me, they mean, for the left, nothing what you might think, but tend towards the opposite meaning instead). 

...

In dieser Zeit, über die wir hier reden, wurde nicht nur die Gesellschaft, sondern auch die Umwelt verwüstet. In den vergangenen drei Jahrzehnten haben wir mehr Stürme, mehr sintflutartige Regenfälle, mehr Hitzeperioden als je zuvor erlebt. Der Klimawandel hat das Leben vieler gekostet, er hat Wanderungsbewegungen von Hunderttausenden erzwungen, Hungerkatastrophen ebenso verursacht wie Kriege um Ressourcen.

During this time it was not only society ravaged, but the environment also pillaged. In the last three decades we've had more storms, more torrential downpours, more heat periods than ever before. Climate change has killed many, had led to mass exodus numbered in the hundreds of thousands, created catastrophic famines, as well as wars about resources.

This is what prodded me to write here. This is how the left views global warming: not as a problem to solve, but rather as a bludgeon to be used to denigrate capitalism. Please ignore the fact that she's completely and totally wrong on all of her points, as she has conveniently ignored the fact that if you go a tad further back, you find more extreme weather; further, you'd be hard-pressed to find a direct, causal link to climate change killing and leading to mass exodus, since these occur due to failed economies and political oppression (the Sudanese genocide isn't about global warming); famines today are invariably political, as we now see in Zimbabwe, and wars have always been fought over population pressures, not resources.

This is the typical wooly-headed thinking that takes a political enemy - in this case, capitalism - and blames all of the woes of the would upon it. Nice try: reality is a tad different.

Wenn wir nichts dagegen unternehmen, wird er noch viel mehr Unheil in weitaus größerem Ausmaß erzeugen. Dennoch dauerte es dank der Unternehmenslobby und der Bush-Administration an der Spitze des Gucci-Kapitalismus bis zum vergangenen Jahr, bevor es ein breites Eingeständnis dafür gab, dass der Klimawandel in vollem Gange ist und dass Mensch und Industrie dafür verantwortlich sind.

If we do not do anything against this, more catastrophes will come. However, thanks to the business lobbyists and the Bush administration at the head of Gucci-Capitalism it was only last year before a broad consensus war reached that climate change was in full gear and that humans and industry are responsible for that.

Oh my goodness gracious. The election of Obama "means" that everyone is now on board and that the ecological gravy train can start moving? How simplistic and naive: Obama was elected because he outspent the other guy seriously and enough people drank the Kool-Aid that Obama would actually do things differently. The election of Obama doesn't mean that there is a broad consensus on climate change: it merely means that Obama was elected. I see someone setting themselves up for major, major disappointment on this theme.

...

Es ist kein Wunder, dass in einer Zeit mit einem solchen Ethos die Regulatoren zu schwach und die Banker zu mächtig waren und die gegenseitige Kontrolle nicht funktionierte. Es ist auch kein Wunder, dass die herrschende Meinung aktiv vor allem von Bankern genährt wurde, von Hypothekenbrokern, von Kreditkartengesellschaften und von Werbetreibenden. Danach war nur derjenige erfolgreich, der ein größeres Haus besitzen oder die neueste Mode einkaufen konnte. Bei solchen Triebkräften in einer Gesellschaft war es nicht die Frage ob, sondern wann das ganze Kartenhaus einstürzt.

It's no wonder, then, that in a time with such ethics that regulators were too weak and bankers too powerful and that mutual control didn't work. It is also not a wonder that public opinion was fed primarily by the banks, by the mortgage brokers, by the credit card companies and advertisers. Accordingly, only successful people had a bigger house or could buy the newest clothes. Given such societal drivers, it was only a question of when the house of cards would collapse.

Again: what a cliche. The problem with the banks wasn't that the regulators were to weak: rather it was that the regulators - hi, Barney and Chris - had their own agenda and laws were passed that tied the hands of the bankers and forced them into risky loans: that's what the CRA did, and those loans were called subprimes. It's also a hoot to blame US consumer behavior not on the consumers, but rather banks and mortgage brokers: looking at it from an ethical standpoint, it is the consumer who is responsible for having taken on such debt.

Of course, that would go against the leftists meme of the consumer as being a malleable simpleton who is incapable of taking care of themselves. Apparently all the sinners have only the devil to blame.

Als das passierte, wurde auf einen Schlag für uns alle sichtbar, wie hohl das Gebilde war, wie wenig Fundament es besaß. Der Gucci-Kapitalismus beruht nicht auf realen Werten, er konzentrierte sich auf bedeutungslosen Konsum, seine Absicht war, das Geschäft zur wichtigsten Triebkraft der Gesellschaft zu machen - er blieb daher so oberflächlich wie sein Name.

As that happened, we could all then see how hollow the building was and how weak the foundations were. Gucci-Capitalism rested not on real values, it was limited to meaningless consumption, designed to make business the most important driving power behind society, but remained as superficial as its name.

Now we see the true colors coming out: capitalism doesn't have "real" values, and the luxury of western economies - inexpensive and high quality food, affordable housing - is meaningless consumption. What the left cannot stand is the idea that people consume what they want to, and if they can choose their Nintendo games over attending a revolutionary theatre play, that they will stay away from those "cultural" goods of the left in droves. The left cannot abide even the idea that their ideologies are, for the common man, bankrupt and completely uninteresting.

Sorry, too, that business is the driving force behind societal development: that's always the way it has been, and it's the reason that socialist society is such a dull and insipid place.

...

Ich glaube, dass die Voraussetzungen für einen neuen Kapitalismus da sind, der aus den Trümmern des alten hervorgehen wird: ein kooperativer Kapitalismus, mit den Werten von Kooperation, Zusammenarbeit und kollektiven Interessen in seinem Zentrum. Aus fünf Gründen halte ich dies für möglich.

I think that the prerequisites for a new capitalism are there, which can create, out of the ruins of the old capitalism, a new, cooperative capitalism, that combines the values of cooperation, working together and collective interests as its core values. There are five reasons why I see this possibility:

Cooperative capitalism?

Cooperative capitalism??????

What the hell does she think exists out there? No company works on its own, like some obnoxious robber baron, but rather is embedded in an entire network of cooperation and working together, with common goals. These are called business partners. Ye gods, the ignorance of how the real world works!

Erstens: Die Öffentlichkeit ist zornig über das, was vorgefallen ist im Zuge der Finanzkrise, und die Medien sind auf ihrer Seite. Anfangs richtete sich der Zorn allein gegen die Banker, gegen ihre Bezahlung, ihre Boni, ihre Verantwortungslosigkeit und die Haltung nach Ausbruch der Krise, die sehr dem Motto "Was zum Teufel schert mich das!" ähnelte.

First: the public is angry about what has happened in the financial crisis, and the media are on their side. First their anger was directed only against the bankers, their income, their bonuses, their irresponsibility and their behavior after the crisis started, which resembled "Why should I care".

Well, the public is angry, and will get even angrier when they realize it was wooly-headed fools like Chris Dodd and Barney Frank who got them into the clusterfuck we are currently in: however, the media is the last place to go to find that sort of story. Our dear lady here also apparently thinks that it'd be perfectly okay for highly qualified and trained folks not to earn much money - try managing a multi-billion dollar company on a small salary - and not expect them to then become corrupt: there is a reason why salaries are high. It reduces the incentive to start stealing, either directly or indirectly, since if you're caught, you lose forever the chance of continuing to earn large amounts of money. The people making the trades and making the deals are also not simply replaceable by someone off the street: the inexorable law of supply and demand controls that. 

And the bankers were as gobsmacked as everyone when the markets came tumbling down: no one saw this coming. That's not being irresponsible. No bankers said "why should I care" when they saw big chunks of their liabilities coming home directly to roost on their balances: if anything, the opposite. Again, reality intrudes: this is nothing more than a cliche.

Aber nun kehrt sich die Stimmung mehr gegen große Unternehmen allgemein, auch außerhalb des Finanzsektors. Sie richtet sich gegen Unternehmen, die ihren Managern Millionengehälter zahlen, während sie Mitarbeiter entlassen. Gegen Unternehmen, die immer noch signifikante Gewinne einfahren, aber unwillig sind, einen Teil davon an ihre Kunden weiterzugeben, denen es schlechtgeht. Gegen Investoren, die Unternehmen mit minimalem eigenem Kapitaleinsatz übernehmen, indem sie die betrieblichen Pensionsfonds zur Finanzierung ausschlachten. Wir sehen bereits zunehmende Proteste, auf den Straßen und im Internet, und in den nächsten Wochen werden sie anwachsen, wenn Unternehmensführer und Politiker nicht klar sagen, wo sie stehen.

Now sentiment is tunring against large corporations in general, even those outside of the financial sector. They are angry with companies who pay their managers millions while firing others; angry with companies who continue to make large profits but are unwilling to to give anything to their customers who aren't doing so well; angry at investors who buy companies with minimal equity in order to use pension funds to finance the acquisition. We are already seeing increasing protests on the street and on the internet, which will grow in the coming weeks, if companies and politicans do not say where they stand.

The only protests out on the street are from the professional anarchists and otherwise useless chattering classes, the parasites who can actually afford to be professional activists without actually creating any value to society.

Die naive Annahme des Gucci-Kapitalismus, Unternehmen seien inhärent gut oder es gebe notwendigerweise einen positiven Zusammenhang zwischen ihrer Profitabilität und dem, was gut ist für die Gesellschaft, hat sich als übermäßig simpel herausgestellt. Es war kein Zufall, dass Adam Smith neben seiner berühmten Abhandlung über den "Wohlstand der Nationen" auch eine über "Die Theorie der moralischen Empfindungen" geschrieben hat. Er, der Begründer einer Theorie der freien Marktwirtschaft, verstand ihre Grenzen und die Notwendigkeit, sie nicht sich selbst zu überlassen, sondern sie durch einen Schutzmechanismus, einen "Nachtwächter", zu ergänzen. Was bereits Adam Smith erkannt hat, wird der kooperative Kapitalismus ausformulieren und verwirklichen.

The naive assumption of Gucci-Capitalism, that companies are inherently good or there is some necessary positive relationship between their profitability and what is good for society, has now been shown to be overly simplistic. It was not an accident that Adam Smith, besides his famous essay on the Wealth of Nations, also wrote about the Theory of Moral Sentiment. Smith, the creator of the theory of free markets, understood their limits and the necessity of not leaving them to themselves, but rather providing a protective mechanism, a "night watchman". What Adam Smith recognized is what cooperative capitalism will formulate and make into reality.

Sigh. Where to begin?

First, the usual pseudomarxist theme of generating anger in lieu of arguments, of creating crises where there are none: not that we're not facing a crisis, it's just that the crisis we're facing is the result of abusing the system, and not the systematic crisis that the author is convinced the crisis is all about. Street protests? Again, GMAFB: the only ones that exist are ones manufactured by those who want to hijack the crisis for their own aims.

Second: the idea that capitalism views companies as inherently good is a cliche at best and a caricature of reality otherwise. Profits enable societies the luxury of things like state-sponsored universities and arts, it forms the basis for endowments and trust fund kiddies, yet here the idea that profits are good for society is denigrated. Typical.

And bringing in Adam Smith is a hoot: it's intellectual whitewashing, to try and claim the "founder" of capitalism for their own. It's so intellectually dishonest that it's almost surprising.

Der zweite Grund ist: Die Regierungen haben ein neues Mandat erhalten, um in die Wirtschaft einzugreifen, eines, wie es in den vergangenen drei Jahrzehnten nicht bestanden hat. In einer aktuellen Umfrage in den USA, dem Land, das traditionell jeder Art von Regierungseingriffen in Märkte und Unternehmen besonders feindlich gegenübersteht, war mehr als die Hälfte der Befragten der Ansicht, der freie Markt solle nicht sich selbst überlassen werden.

The second reason is: governments have received a new mandate to intervene in business, one that hasn't been around for the last three decades. In a current survey in the US, the country that traditionally rejects government intervention, more than 50% of those surveyed said that free markets shouldn't be left alone.

This is particularly absurd: the idea of a mandate based on public sentiment surveys. This has got to be one of the shallowest arguments that I have seen for a long time:  anyone remotely familiar with surveys knows how they can be manipulated to achieve whatever result is being paid for.

Das ist geradezu ein politisches Erdbeben. Wieder sind es die Banken, die seine Folgen zuerst zu spüren bekommen. Das geschieht in Form von Interventionen, die von direkten Verstaatlichungen bis zur Begrenzung der Managergehälter reichen. Ich erwarte allerdings kein Mikromanagement des Privatsektors durch die Regierung. Das würde ich auch nicht wünschen oder befürworten. Doch jedes Unternehmen, dessen Handeln so aufgefasst wird, als sei es gegen das Allgemeinwohl gerichtet, kann nun in die Schusslinie geraten.

That is a political earthquake. Again it is the banks that have felt this first. This is in the form of interventions that range from direct state control to the limitations being placed on manager incomes. I expect, however, that the government will not micromanage the private sector, which is something I would neither desire nor approve. However, any company whose actions are aimed against the general welfare can now be targeted.

If this is a political earthquake, it's around 0.1 on the Richter scale. The expectation that government control won't end in micromanagement is naive at best and foolish at worst: unless there is a clear and direct path to the removal of government intervention, all governments will intervene: it's how bureaucrats create career jumps and it's where they learn how corrupt they can become without being discovered.

Besonders gefährdet sind die Fast-Food-Industrie und die großen Pharmakonzerne. Da die Kosten des Gesundheitssystems steigen und die Staatsausgaben eingeschränkt werden müssen, wird der Druck auf Unternehmen aus diesen Branchen zunehmen. Sie werden dazu gedrängt werden, einerseits gegen den Trend zum Übergewicht und andererseits für erschwingliche Medikamente einzutreten. Im Gucci-Kapitalismus war es selten, dass Unternehmen zu sozialverantwortlichem Verhalten gedrängt wurden. Nun wird das zunehmen. Kein Wunder, dass die klügsten Unternehmen diese Tendenz vorwegnehmen und unaufgefordert versprechen, ihr Verhalten zu ändern.

The fast-food industry and the pharmaceutical sectros are in danger here. Since health systems cost are increasing and state expenses must be limited, pressure here is due to increase. They will be forced to do something against the trend to obesity on the one hand and to provide for inexpensive medications on the other hand. In Gucci-Capitalism it was rare that companies could be forced to have a social conscience. This will now increase. No wonder that the cleverest companies have recognized this and have offered to change their behavior without being forced to.

Sigh. The consumer again is the innocent victim of the mean nasty fast-food places that make food that makes people fat, and we all know that the evil pharmaceutical companies get their kicks out of making sick people pay through the nose for medications that we all know don't cost much to make.

GMAFB. Fast food doesn't cause obesity: modern life styles, lives of leisure, the ability to purchase massive amonts of calories for a pittance is what makes people fat. Fat used to be considered the true sign of wealth, but today those with the greatest weight problems are the lower classes, economically speaking. And do you really think that new medicines to treat diseases magically appear? Someone has to finance the literally thousands of dead ends researched before the right combinations are found that help: remove the profit motive, and meanigful pharmaceutical research will cease, leaving untold thousands to suffer instead of allowing companies to make enough money to finance their research.

These arguments blaming the fast food industry and the pharmaceutical industry for such problems are the sign of economic illiteracy, of someone who has no idea of where value is actually generated and that demand drives business, not the other way around.

Der dritte Grund: Die Zeit ist reif für einen neuen, auf Zusammenarbeit aufbauenden Kapitalismus, weil die Schattenseite der Globalisierung sichtbar geworden ist. Die Schnelligkeit und Heftigkeit, mit der die Finanzkrise ein Land nach dem anderen infiziert hat - Taiwan beispielsweise erwartet einen Fall seiner Wirtschaftsleistung um elf Prozent -, zeigt nur zu deutlich, dass wir in einer verbundenen Welt leben, in der wir gemeinsam stehen oder fallen.

The third reason: the time is ripe for a new capitalism, based on cooperation, because the shadow side of globalism is visible. The speed and impact that the financial crisis has hit country after country - Taiwan is now expecting a decline in economic performance of 11% - shows that we live in joined world, one in which we stand or fall together.

Again: cooperative capitalism, whatever that is supposed to mean. Interdepencies on world markets is new? Not to me, not to anyone trained formally in economics that actually paid attention to their international trade studies. Again, substandard.

Im Gucci-Kapitalismus hatte ich immer den Eindruck, dass der gemeinsame Absturz wahrscheinlicher war als der Aufstieg, weil nur Unternehmen international beschützt wurden. Die Welthandelsorganisation (WTO) sorgte für freien Warenverkehr, es gab Regeln und Vorschriften, Schiedsgerichte und Strafen, wenn ein Land dagegen verstieß. Doch es gab keinen vergleichbaren Mechanismus für globale Probleme: den Klimawandel, Verstöße gegen Arbeitnehmer- und Menschenrechte, gegen Gesundheits- und Sicherheitsvorschriften, oder als Reaktion auf die negativen Konsequenzen von Unternehmensverlagerungen.

In Gucci-Capitalism I always had the impression that a common fall was more likely than a common stand, because only companies were protected internationally. The World Trade Organization (WTO) took care of free trade, there were rules and regulations, courts and penalties when a country violated those rules. There were no similar organizations or mechanisms in place for global problems like climate change, violations of worker and human rights, against health and safety considerations, or as reaction to the negative consequences of corporate fusions.

Here we see a glimpse of the only acceptable future for the antiglobalists: world government where the unions of the industrialized West will determine what is best for the Indian or Chinese worker, but where in reality the only thing of importance is to prevent the rise of an Indian or Chinese middle class, bourgeois and probably only interested in buying a house, a nice place in the country for the weekends, a couple of cars, the dolce vita.

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Der vierte Grund: Neue geopolitische Kräfte nehmen Gestalt an als Folge des Aufstiegs von China, Brasilien, Indien und der G20. Ich erwarte eine Phase des Aushandelns, in der politischer Einfluss gegen Zusammenarbeit getauscht wird. Beispielsweise wird es eine Begrenzung der CO2-Emissionen geben im Gegenzug zu einer stärkeren Vertretung der Schwellenländer in Institutionen wie dem Internationalen Währungsfonds (IWF) und der Weltbank.

The fourth reason: new geopolitical powers are forming as China, Brazil, India and the G20 increase their presence. I expect a new phase of trade in which political influence is exchanged for cooperation. For example, developing countries wil agree to a reduction in Co2 emissions in exchange for stronger presence in institutions like the IMF and the World Bank.

Interesting idea: blackmail as political tool. This will become a meme amongst the watermelon left to justify their policies: we have to do this to ensure that the others will even talk to us!

Aber es ist nicht alleine der neue Machtblock, der die intellektuelle Hegemonie des Gucci-Kapitalismus herausfordert. Man muss es im Zusammenhang mit einer neuen US-Regierung sehen, die eine breitere Vermögensverteilung will und dem Ideal des Multilateralismus verpflichtet ist, und mit der Tatsache, dass Kontinentaleuropa besonders hart von der globalen Rezession getroffen wird. Europa ist deshalb hoch motiviert, sich von einer Ideologie zu distanzieren, die nie so ganz zu seinen eigenen Werten passte. Nimmt man all das zusammen, sieht man: Alle Voraussetzungen für einen bedeutsamen ideologischen Wandel sind vorhanden.

This new power block alone will not challenge the intellectual hegemony of Gucci-Capitalism. One needs to see it in connection with a new US administration that wants a wider distribution of wealth and feels duty-bound to the ideals of multilateralism, along with the fact that continental Europe has been particularly hard hit by the recession. Europe is therefore particularly motivated to distance itself from an ideology that no longer conforms to its values. Take all of this together and you can see that all prerequisites are there for a meaningful ideological change.

There are no prerequisites in place for anything but a naked power grab.

Fünftens und letztens: Wir sehen nicht nur auf Regierungsebene Anzeichen einer stärkeren Zusammenarbeit. Die Annahme des Gucci-Kapitalismus, alle Menschen seien egoistisch, super-individualistisch und nur damit beschäftigt, ihren eigenen Reichtum zu maximieren, stellt sich mehr und mehr als eine fehlerhafte Hypothese der Mainstream-Ökonomen heraus. Es ist wahr, in den letzten beiden Jahrzehnten gab es eine wachsende Fixierung auf materielle Werte. Aber das war wohl mehr eine Frage der Einstellung als eine der menschlichen Natur. Soziologische Studien zeigen, dass Angehörige armer Gesellschaften eher miteinander teilen.

Fifth and last: we see indications of increasing cooperation on non-government levels. The assumption of Gucci-Capitalism, that all people are egoists, super-individualists and only interested in increasing their personal wealth is increasingly a mistaken hypothesis of main-stream economists. It is true that in the last two decades there has been an increasing fixation on materual values. But this is more a quesiton of attitude than a reflection of human nature. Sociological studies show, that members of a poor society are more likely to share things.

In other words, a world governed by NGOs. Another straw man is also presented here: the caricture of how "Gucci-Capitalism" see the individual. Sorry, this is a straw man argument, one that grows out of believing that businesses manipulate the poor masses and if only people saw how much better our cooperative ideas are instead of playing their Nintendos.

And sociological studies also show that nature abhors a vaccum, especially power vacuums, and that members of a poor society, when made rich, act the same as other newly rich people, usually badly.

Deswegen sind wir keineswegs alle reine Individualisten, auch wenn der Gucci-Kapitalismus die Tendenz zum Eigennutz befördert hat. Es ist sehr viel wahrscheinlicher, dass wir in den kommenden Jahren enger zusammenrücken wie in der Zeit der großen Weltwirtschaftskrise nach 1929 und im Zweiten Weltkrieg. Das dürfte eines der wichtigsten Kennzeichen dieser Ära werden. Dafür gibt es erste Anzeichen: etwa den kometenhaften Aufstieg der "Free Cycle"-Bewegung, deren Mitglieder lieber Dinge verschenken, als sie bei Ebay zu versteigern, oder die wachsende Bedeutung des Job-Sharings in Japan, mit dem die Beschäftigten auf eigene Initiative hin Massenentlassungen verhindern oder abmildern.

Hence we are in no way pure individualists, even when Gucci-Capitalism has promoted this tendency to egoism. It is very likely that in the coming days we will have to share more than during the days of the Great Depression after 1929 and during the Second World War. This will be the major sign of the new era. There are already signs of this, such as the rapid increase in the "Free Cycle" movement, where members prefer to give things away rather than sell them on eBay, or the increasing importance of job-sharing in Japan, where workers volunteer in order to prevent mass layoffs or reduce their effects.

Ignoring, of course, the fact that Japan is a higly homogenous society with great emphasis on social status and harmony, even to its detriment. Ignoring as well that giving things away instead of selling them, while an act of altruism, also points to a very high level of wealth. You don't give away things unless you can afford to: this is not the basis for functioning economy, unless you are unsucessfully trying to be funny.

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Manager und Politiker müssen sich entscheiden. Entweder sie setzen sich ein für eine Agenda der Kooperation, die multilateral ausgelegt ist, mit globalen Institutionen, die unsere Umwelt und unsere Bürger schützen. Eine Agenda, die die Idee einer Politik erneuert, die auf die Menschheit insgesamt abzielt, auf Reiche und Arme gleichermaßen.

Managers and politicians must make decisions. They can chose an agenda of cooperation, multilateral, with global institutions to protect our citizens and the environment, an agenda that renews the idea of politics that are aimed at improving mankind as a whole, both rich and poor.

The alternative being: anothe straw man argument (see below). There is no reason to assume that there are only two ways out of our financial crisis, unless, of course, there is "your way" and then a caricature of anything else.

Dazu gehört, dass auch die Wirtschaft sich als eine Kraft begreift, die Innovationen und Fortschritt für die Welt schafft. Die sich zurückhält, wenn geschäftliche Ziele allgemeinen Interessen widersprechen, und sich einbringt, wenn kurzfristig das Geld zur Finanzierung von Innovationen fehlt.

This includes business that recognizes that it is a power for innovation and improvements for the world. Those that give way when societal interests take precedence over business interests and help out when short-term money for financing of innovations isn't available.

Hmmmm: and who makes the decisons? The only way that business will "make" such enlightned decisions is if those in control decide to do so, and that will only happen if laws require this and management is filled with do-gooders. That such businesses will increasingly be used for pet projects and not to earn money is incidental, but bears with it the core of destruction: at some point you go broke. In any case, it is a bad use of capital, a bad use of a scarce resource: here I thought greens and watermelons didn't want resources wasted. Right.

Die Alternative dazu wäre der Weg des nackten Selbstinteresses, des Kampfes jeder gegen jeden. Die Trader der Londoner City haben das auf lokaler Ebene vorgeführt. International war das Paradebeispiel dafür die Politik der 30er-Jahre: Statt in der Weltwirtschaftskrise zusammenzuarbeiten, haben die einzelnen Nationen versucht, jeweils dem anderen ihre Probleme zuzuschieben, und haben sich damit im Endeffekt selber geschwächt. Jeder, der heute Schutz für die heimischen Märkte fordert, sollte wissen, wohin das führt. Wenn China spürt, dass seine Exporte behindert werden, wird sich die Regierung dort beim gemeinsamen Klimaschutz zurückhalten. Wenn Großbritannien versucht, Jobs für Briten zu reservieren, dann wird die ohnehin leidende Exportindustrie keine Absatzmärkte mehr finden. Außerdem gibt es, wie die Geschichte lehrt, nur einen schmalen Grat zwischen wirtschaftlichem Nationalismus und Fremdenfeindlichkeit.

The alternative is the way of naked self-interest, the fight of each against every. The trade in London City have brought this around locally. Internationally the policies of the 1930s are a perfect example of these policies: instead of cooperating during the Great Depression, countries tried to make their problems someone else's problems, with the result that everyone was weakned. Anyone demanding protection of domestic markets knows where that ends. If China sees that its exports are being delayed, it will refuse to enact climate protection measures. If the UK tries to reserve jobs for Brits, then the export industries will find no markets for these companies. Further, there is, as we know from history, a thin line between economic nationalism and xenophobia.

Wow. Talk about straw men and cliches: vote for me and I'll set you free, if you don't do what I tell you, we'll all end up mercantalist, protectionist, and probabyl fascist to boot.

Wir stehen also vor einer kritischen, gefährlichen Grundsatzentscheidung. Es lohnt sich, für die richtige Richtung zu kämpfen, denn es hängt sehr viel daran. Meine Hoffnung ist, dass unsere Politiker genügend Einsicht haben - und wir, die Bevölkerung, genügend Elan -, um die drohende Katastrophe in eine Chance zu verwandeln: die Chance, gemeinsam ein besser überwachtes, ausgeglicheneres Wirtschaftssystem zu schaffen. Ein System, das an Fairness, sozialer Gerechtigkeit und Nachhaltigkeit ausgerichtet ist und die Moral zurückbringt in die Wirtschaft. Meine Hoffnung ist, dass wir zusammenarbeiten für eine bessere Zukunft, dass wir es ernst meinen, wenn wir sagen "Yes we can", und dass wir dabei das "Wir" betonen. Wir sollten die Open-Source-Version des Kapitalismus wählen, in der jeder Einzelne nur gewinnt, wenn alle zusammenarbeiten. Wir sollten uns an Coop orientieren, nicht an Gucci.

We stand in front of a critical, dangerous break. It is worthwhile to fight for the right direction, since so much depends on this. My hope is that our politicians have enough insight - and that we, the population, have enough elan - to change the catastrophe into opportunity: the opportunity to create a better controlled and more balanced economic system. A system that is oriented towards fairness, social justice and sustainability, one that brings morals back into business. My hope is that we can cooperate for a better future, that we really mean it when we say "Yes We Can", with emphasis on the "We". We should choose the open-source version of capitalism, in which everyone first wins when all cooperate. We need to orient ourselves on Coop, not on Gucci.

What really strikes me about this is the incipient fascism implicit here. You have the clear subjugation of business interests to the interests of the state, the elimination of autonomy in private business. The system proposed here would ignore the realities of business and expects economics to take care of themselves after the spirital re-awakening of the masses to their true calling; corporatism and class cooperation - cooperative economics! - are the key. This "new" economy is one where the government exerts strong directive influence, effectively controlling both allocation of resources and therefore the means of production; private property and initiative are allowed only when these are subservient to the state...

Articles like this - it was a full page in the Handelsblatt - drive me up a wall because there is no way to thoroughly fisk them in public. I've spent way too much time on this one already: suffice to say that the greatest danger of the current crisis is the resurrection of ideologies that deeply deserved to die and be tossed on the rubbish heap of history. This is one of them.