They are lining up on opposite sides. On one side, is the “we are all Keynesians now” mob who are delighting in saying: “We told you so; all this deregulation will end in tears.” Or, “Marx was right; capitalism is inherently unstable. On the other side we have those who say capitalism will rebound as it always does; capitalism is the least worst system; we should not re-regulate for that will sow the seeds of the next recession.
Neither is right. The seeds of this financial crisis lay not in too much de-regulation or too much regulation. Rather, in one poor piece of regulation and one poor piece of de-regulation. Both in the US in the late 1990s.
The combination was deadly, and made more deadly by the additional spices of greed and fear.
The US Congress in one of its silly moments of compromise at once repealed the Glass-Steagall Act (de-regulation) and tightened the Entry Reinvestment Act (regulation). The former was a product of the Great Depression. It outlawed the on-sale of mortgages. The latter demanded that mortgage providers give the down-and-out a “fair go” with easy-entry loans – no deposits and low repayments for the first couple of years, on pain of large fines.
The deadly combination was that mortgage providers could write sub-prime mortgages, bundle them up and sell them off. They then had more cash to lend to another lot of sub-prime borrowers.
If they had been prohibited from on-selling them, they would have by necessity been more cautious or had to ration their funds to the better borrowers.
Add a bit of greed so the process is rampant and then add a bit of fear when the debt looks wobbly, and you have a financial crisis – say five million US homes owing an average unrepayable $100,000 each after mortgagee sale. That adds up to five trillion (a five with 12 zeros after it).
Of course, if the US had a decent minimum wage in the first place, most of these people would have had a sporting chance at repaying their loans.
President George W. Bush and former Federal Reserve Governor Alan Greenspan were too stupid or too ideological to see it coming, despite having access to huge amounts of knowledge and information that others could not get.
They put their faith in the market. Faith in ideology displaced intelligent, scientific, dispassionate appraisal of evidence and history.
Regulation or deregulation is not the question. Rather it is intelligent regulation or intelligent deregulation, often learning from history and adapting and evolving for the better.
But evolution is not a respected intellectual discourse in the US. Faith is preferred. But a failure to learn and adapt is the path to extinction, irrespective of apparent strength – like the dinosaurs.
Why did they remove a sensible regulation that dealt with one of the causes of the Great Depression – the resale of mortgages? Why did they regulate against the ordinary prudence of the market to insist that lenders dole out money to people who could not repay?
And where did the money go? Essentially value is an expectation. Your house, superannuation units, shares or whatever are valued according to the expectation of what someone will pay for them. Before the financial crisis, the expectation was high. Each share could be expected to fetch $X. If everyone tried to cash out that expectation at once – sometime before the crisis – the expectation would have been sorely tested and true value ($x miunus something) would have been quickly reached.
Some people were lucky enough to cash out on those unsustainably high expectations. Of their nature, not everyone could.
Now the expectation is more realistic. In fact, our present superannuation statements and share portfolio statements show the true value. We have not lost anything.
But there will be losses in the long run because fear is a stronger emotion than greed. Yell “free pizza outside” in a room and some people may take a look. Yell “fire” and everyone will rush to the door – and many will get hurt in the stampede.
When fear takes over, humans horde. They do not trade or do transactions. Trade and transactions, however, make both parties wealthier. One gets something useful and so does the other – or money to buy something useful. Humans are not fully skilled at everything. When they trade their skills for others, they benefit.
Because of that, capitalism, the least worse system, makes us better off, provided we ameliorate its significant weaknesses: inequality and environmental pillage. That means intelligent Hegelian evolution not some Marxist nirvana or some faith-based pro-market mantra.
BLOB … RULE .. . SEPARATOR.
Thanks heavens no-one took me up on my bet that there would be no second Green MLA in Molonglo. I turned out to be wrong, and the Greens with 18 per cent of the vote got 28 per cent of the seats. But there is something even more entertaining in this for the Greens – why I was wrong.
The silly, silly Motorists Party stood seven candidates in Molonglo and advised their supporters to vote for just those seven and no more. The ballot paper said to put seven, so that is what they did. They got nearly three per cent of the vote. And nearly all of it exhausted because they failed to express preferences for electable candidates. Presumably Motorists’ supporters would have preferred the Libs or Labor to the Greens. But their stupidity directly resulted in the second Green getting up.
With three per cent of the voters out of the way because of their dumb advice, the Greens overtook the Libs. Ironic that the Motorists’ idiotic advice elected a Green.
Well stupidity deserves extinction. The dinosaurs of the Motorists Party can kiss their dragway and other petrol-head ideals away with an Assembly of four Greens — and they only have themselves to blame.