Saturday, October 25, 2008

Economic Meltdown Article and My Thoughts. Non Partisan views

In my Internet travels I came across an article by Waldon Bello. He's a foreign policy columnist, professor, author, etc. He talks about the recent meltdown and it's causes. The article can be seen here - http://www.fpif.org/fpiftxt/5560 - but I've included a few excerpts.

Is the worst over?
No. If anything is clear from the contradictory moves of the last week — allowing Lehman Brothers to collapse while taking over AIG, and engineering Bank of America's takeover of Merrill Lynch — there's no strategy to deal with the crisis, just tactical responses. It's like the fire department's response to a conflagration.The $700 billion buyout of banks' bad mortgaged-backed securities is mainly a desperate effort to shore up confidence in the system, preventing the erosion of trust in the banks and other financial institutions and avoiding a massive bank run such as the one that triggered the Great Depression of 1929.

Did greed cause the collapse of global capitalism's nerve center?
Good old-fashioned greed certainly played a part. This is what Klaus Schwab, the organizer of the World Economic Forum, the yearly global elite jamboree in the Swiss Alps, meant when he said in an interview earlier this year: "We have to pay for the sins of the past."

Was it lack of regulation?
Yes. Everyone acknowledges by now that Wall Street's capacity to innovate and turn out more and more sophisticated financial instruments had run far ahead of government's regulatory capability. This wasn't because the government was incapable of regulating but because the dominant neoliberal, laissez-faire attitude prevented government from devising effective regulatory mechanisms.


Click the link to see the rest.

I agree with pretty much everything he said. It's really a no-brainer that the current economic collapse stems from deregulation and greed. Those who promote deregulation believe the markets and financial institution will police themselves. Give me a break! Greed is that exact reason you must have regulation.

These so-called sophisticated (read as complicated & speculative), financial instruments are like Ponzi schemes because they are priced not on inherent value (like earnings), but on perceived future value. Think of the internet bubble. The price keeps going up because everyone wants into what seems like a good thing. The price ends up having no relationship to the value of the company. As soon as someone heads for the exit, everyone else scrambles. The average Joe (not the plumber) and their 401k's end up holding herman.

I don't understand it though when Bello says neoliberal, laissez-faire attitudes and aligns that with Reaganism and Thatcherism. Those guys were big on supply-side economics (known as voodoo economics by their detractors). It is and always has been a conservative Republican agenda to remove constraints to growth which ignores the greed factor and "redistribution of wealth" for a trickle down effect (Bush tax cuts). There's nothing liberal about it, neo or otherwise. I could have missed something. I haven't been paying close attention these past 5 years.

Interestingly, McCain now calls tax cuts to the middle class a "redistribution of wealth" and equates it to socialism. Supply-side is the chief factor for overproduction in the absence of either demand or disposable income. I never understood that policy, but this article helps me see it effects now.

He makes a very good point about how investing in the financial sector doesn't create new value. If you invest in GM, say, they can invest in a new plant in Kansas to build cars and trucks and create jobs. All of that interms of inventory and payroll adds to the economy. The financial sector just creates credit swaps and derivatives that they don't even understand and whose price is not quoted anywhere. Pretty scary and nobody was watching.Interesting guy, this Bello. He doesn't present a partisan ideology, but what he blames is all Rebublican policy since Reagan's time. Meanwhile, he validates free trade - NAFTA of the Clinton years - and quotes George Soros, not your average Wall Street guy.

Maybe this helped explain some things. Maybe it confused you further. Either way... there it is.

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