I don’t usually start my blogposts with video, but William K. Black seems to me right on the money about a number of issues: capitalism, regulation, the economy and how the world should move forward. The reason I’m posting it here is mostly because of the end of it. He talks there about what can and should be done now, and about how the ideology of Wall street has pervaded US society and law enforcement. The basic idea is this one: if you give people freedom, they will prosper. But the fact is: that just gives frauds the opportunity to prosper. So the most important idea of liberalism (in the European sense) has always been to punish the bad guys. That’s the one duty of government that everybody always used to agree on.
Apparently even that basic idea was let go in the Bush administration and to some extent before that by the Clinton administration as well. Because what capitalism should do is to allow honest business men and women to prosper. Let me repeat that and stress it: capitalism should allow honest business men and women to prosper. That’s the reason pyramid schemes (and gifting programs etc.) are punishable by law. Guess what: this current economic collapse is one big pyramid scheme that has collapsed. Why has it collapsed? Because it wasn’t punished for fraud before it collapsed. Pyramid schemes are inherently unstable: they WILL collapse at some point. Calling them on fraud just makes sure less people fall for the scheme before it does collapse.
Alright: back to morality. In the savings and loans crisis only about 10% of the bank bosses were fraudulent, even though there was no one to punish the bad guys. Why? They had ethics. They had integrity. It’s sad to see that right now at the top of the banks the good guys seem to be totally absent.
I guess it comes down to this: if the frauds aren’t punished, the good guys loose. And the worrisome thing is that Barack Obama seems so intent on only stressing the positive, that he has refused to punish the bad guys – not just in this, but also where they were using torture methods (that don’t even work) to get confessions out of prisoners. I mean – the managers who sanctioned that should at least be fired if not prosecuted by law.
To get this back to my usual topics a bit: do you all think that the bad guys should be punished, or should even the government just turn the other cheek and move on?
Very insightful! I always enjoy your blogs Katinka.
When you put your money into the hands of another and then make no effort to keep an eye on them. Then later say that you don’t want anyone else to keep an eye on them (deregulation). You set up every day men to sin, steal, comitt deciet, fraud, lie, and on and on.
We did it to ourselves. We voted for it. Paid for. Supported it.
By now you’ve paid for it, yes. I believe more in paying the government to keep an eye on such things than in not paying anybody at all though. One of the things the video makes clear is that the FBI knew what was going on and would have done something earlier if half their staff hadn’t been reassigned (after 9/11) to investigate terrorism. AND not been replaced. And them not being replaced surely has something to do with money… and the government not having enough of it.
While greed was obviously one of the major causes of the crisis, I think that we are a bit stuck on this issue and missing parts of the bigger picture.
I recently wrote an article where I point towards the fact that this crisis was also a crisis of epistemology, of the biased ideology stemming from the financial industry’s pseudo-scientific approach to understanding the economy, and in particular, its blind faith in mathematical tools that in essence are unable to capture the enormous complexity of a modern market economy.
For example, Felix Salmon wrote a recent article where he demonstrates that a single mathematical formula proposed by a Chinese economist who was revered to the point of being consider the possible next Nobel prize winner, was responsible for the triple A’s given to CDO’s that exploded as soon as the real estate market collapsed.
My conclusion is that Wall Street would benefit greatly not only from better regulation and ethics, but also from hiring people with a more right-brain approach to the world, less prone to the pseudo-scientific hubris that deluded the industry into the arrogance of thinking they could predict the economy with simple mathematical models.
I reflect on these issues and provide links to relevant articles here: http://alanfurth.com/a-whole-new-mind-for-finance
Hi Alan,
Nice to see you here. As this is a spiritual blog, morality is a central topic for me. I’m sure the factors you mention played a part, as well as the basic problem that humans react in herds – people were starting to believe that the market could only go up. What that lead to has been known ever since the first ‘stock market’ collapse in human history: tulip bulbs prices sky rocketing in Amsterdam – and then price collapse.
If we could find a way to NOT have people respond in herds so much, we’d be a lot better off. But I’m afraid that’s very unlikely to change. Partly, probably, because one of the strengths of our species is precisely that we learn from each other and can delegate knowledge to specialists. And then the specialists have to be trusted.