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The Institute for New Economic Thinking reposts this video from “Head to Head: Al Jazeera’s new forum of ideas — a gladiatorial contest* tackling big issues,” held this time at the Oxford Union. For your morning coffee instead of NPR!
Basically, what we have here are representatives of various British ruling class factions — the great and the good — all confessing, each in their own way, their utter bafflement on how to rebalance the regulatory system to disfavor big banks. I transcribed this passage starting at 8:48:
MEHDI HASAN: You mentioned the thinking that has led to some of these intellectual mistakes; we talked about the role of regulators, but as you say it wasn’t limited to this group or government, there were international institutions, like the International Monetary Fund which was hailing all this financial innovation [ADAIR: It was, it was]; there were the credit ratings agencies, which were giving AAA ratings to some of these toxic assets; but none of these guys — put punishment to one side, justice — in terms of actually getting rid of them from the scene, they’re all still hanging around the scene, these economists who got it wrong, the IMF, the ratings agencies… How can you move forward when you’ve got all the people who caused the crash still in influential global positions?
LORD ADAIR TURNER: When you get mistakes made, sometimes there are people who’ve made mistakes who have the technical skills of economists who are capable of seeing what’s gone wrong. I don’t think you can say we’ve got to completely get rid of the entire set of people who’ve been involved in that process. But it’s very, very important that we learn from those mistakes and we understand what a deep set of mistakes were made. And along with the Great Depression of the early 1930s, this is the biggest setback, other than global wars, this is the biggest peacetime setback to the growth of prosperity that’s occurred.
“Mistakes were made.” Mistakes were made?! WTF?!?! Of course, one loses patience after awhile.
Pour encourager les autres, what?
NOTE * As a former policy debater, this really tickles my fancy.
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It doesn’t look like financial capitalism is failing the top 1-2 percent, so what’s the problem?
By the way, paying taxes is for suckers:
http://www.guardian.co.uk/business/2013/jul/14/us-tax-avoidance-google-amazon
This is one that’s crossed my mind at times. I’m frequently puzzled by why, even though the TBTF banks are an existential threat so economic wellbeing, sovereignty, the rule of law and the ability of the political classes to continue to exercise power nothing seems to be actually done about resolving the problem. There’s some powerful vested interests threatened, the threat is very real, much lesser risks to the state have been dealt with ruthlessly but not in this case.
The conclusion I keep coming back to is, all the above might be true, but that truth notwithstanding, unless there’s something that can step in to replace the bits of the TBTFs which are essential (and there’s a lot of those, not least money transmission, credit creation and Treasury operations) then you can’t dismantle the system without having something ready to replace it. That something can’t frighten the horses and small children who are the political classes and their view of the general population.
It’s sort-of like the thought experiment they should have conducted before invading Iraq. Okay, you can dismantle the old regime. But what then ?
It was okay (well, okay if you’re Donald Rumsfeld) to simply leave the hapless citizenry to suffer while you make it up as you go along if that citizenry are a load of funny foreign people a long way away. Politicians tend to think twice before inflicting that level of experimentation closer to home.
Of course, there are several perfectly acceptable alternatives to TBTF-based crony capitalism. Acceptable to NC readers, that is. Not to Jacob Lew or Mario Draghi et al though.
It’s like this for all fields and is the essence of a paradigm shift. It’s not enough to merely point out absurdities in the status quo, but for the replacement to adequately address the current facets while being more accurate in the areas the status quo fails.
A lot of biology and medicine is similar to economics in that it’s based on the same fundamentally absurd notions of homeostasis that arose in the 19th century. I’ve given several presentations that demonstrated the more accurate systems oriented approaches that should be taken, only for the audience to state that the points were meaningless until we made it so they could easily use the worldview (both from a technical and political prospective). Of course it is very hard to get funding for alternative paradigms, and even harder when the metrics to beat are defined within the context of the status quo.
Max Planck is all too right with, “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”
Too bad we don’t have a generation to wait…
Change does not happen seamlessly. Any fix would guarantee a rocky period and this would surely impact a group that is still OK: the top 20-30%.
Most in this group are in retirement or close and crossing their fingers they can make it through the storm without having to change their comfy ways. For this group, the last thing they want is change in the last decade or 2 of their lives.
My prediction is that change will only start when this group loses something or becomes sure it is about to lose something.
We’re not there yet.
No, we’re there. The reason for the further delay is twofold:
(1) It takes several years after getting to a point for the majority of people to notice that they’re there. The upper 20% have already been severely impacted. They will notice in 5-10 years.
(2) The powerful people — the dissident 1%ers, mostly — who would dismantle the existing, non-functional TBTF banking system and replace the corrupted political institutions with ones with more legitimacy, in order to save their own skins — these people are not organized. There is no Earl Grey with a coherent agenda for stabilizing governmental legitimacy through reform.
Money can be issued as Equity, not just as debt (Liabilities). Look at a balance sheet and note that Equity is on the same side as Liabilities. That means that both are backed by the Assets so that either or both can be issued as money.
But hey, why “share” wealth and power when via a bank charter and government privilege one can steal instead?
But but but if wealth was like shared you know it’d be communism you know, and then freedum is dead an we’re all like, you know, liek nazis.
But seriously though, the question in the article (and video) title is kind of a foregone conclusion, to the point I nearly did a spittake when it popped up on the RSS feed.
Actually, it’s taken a bit of trouble to convince (or at least silence) those who know accounting that money can be issued as Equity; the “money must be debt” programming is that deep.
Even if money was based on equity instead of debt, they’d still manage to give the blue chips to the elite and the venture equity to the people.
If we want a better money system, we’ve got to change our worldview first.
Of course we need a bit of re-leveling too such as a universal bailout with new fiat, at least until all deposits are 100% backed by reserves. And this need hurt no one in real terms if it is combined with at least a temporary ban on new credit creation and metered to just replace existing credit as it is repaid.
And if that is not enough then the common stock of all large corporations can be equally distributed to the population.
When one understands that government-backed credit creation is theft then restitution is mandatory.
we’ve got to change our worldview first. Moneta
You’ve already done that, for the worse. Common stock as money is entirely consistent with the Bible. In fact, common stock as money reconciles a serious paradox wrt “profit” (good according to the Bible) and “profit taking” (bad according to the Bible). Too bad Progressives abandoned it for a mess of pottage. Well, eat up! Yum!
I respectfully invite you to reconsider your position requiring use of equities as the only legal form of money.
The value and velocity of equities are pro-cyclical. Thus, the money supply and turnover of money would likely contract during times when a society needs expansion of the money supply to support the economy.
Moneta makes a very good point about the stage at which a company’s common stock would be considered “money good” under the system you are proposing.
Further, the life cycle of corporations is finite and the value of their stock fluctuates for many reasons, sooner or later often becoming worthless (I think of buggy whip manufacturers in 1909 and dotcoms in 1999).
It is very difficult to ascertain the real value of a company’s stock, which can and does fluctuate minute by minute in today’s markets.
The system you propose ignores the level of influence and control that major institutions have over financial markets and the influence of corporate media on the valuation of stocks.
There is no benchmark against which the value of equities would be measured under such a monetary system. Accordingly, I believe that what you are proposing is essentially the equivalent of a barter system.
Absent answers to these issues and others, I would opt for the system proposed by Mosler, Wray, Kelton et al over a system such as that I believe you are proposing.
I share your view and that of others here regarding the ongoing massive racketeering, fraud and theft, and the need for restitution. However, I don’t share your view with respect to the solution, although I would certainly agree that equities could be used as a form of restitution by those who have stolen so much from us.
Thank you, Beard. Just some thoughts.
I respectfully invite you to reconsider your position requiring use of equities as the only legal form of money. Chauncey Gardiner
Huh?? I’ve never recommended that!! And, of course, inexpensive fiat is the ONLY ethical money form for government debts so I could never advocate the use of only equities as money.
However, once all explicit and implicit* privileges for the banks are eliminated then business might find it necessary to issue their own common stock as private money. I point this out to those who insist that endogenous money creation is necessary. Fine. Then common stock is an ethical means of endogenous money creation; a government-backed credit cartel is not needed.
* Such as lack of a risk-free fiat storage and transaction service provided by the monetary sovereign (e.g. US Treasury) – a Postal Savings Service, for example.
“Mistakes were made.”
Oops! Sorry, folks! Really though, no big. Those mistakes are now history. Lets just carry on now.
The largest population of retirees and the bigger part of the population than ever before have started pulling their investments out the markets to live on, it is common sense that the markets would go down. Add the fact that the removal of Glass-Stegall and the US out sourced a big part of it’s jobs which left fewer people investing in wall st. and the economy. Capitalism is just mirroring the inevitable repercussions from above actions.
There is nothing wrong with Capitalism, it’s the globalist endeavor in our country that has caused the problem. Now all the big bad investors who were going to make a killing off of outsourcing got their hats handed to them because they destroyed the bigger part of the consumers in the process. Now they want the people they destroyed and their children to bail them out.? They got what they had coming to um and they screwed us again. How do you handle a bunch of soulless thieving tyrants?
Hindsight is 20/20.
10-20 years ago when I mentioned what was coming to anyone, from the 1% to the 90%, I was told was a pessimist. The only ones who agreed were the ones who were marginalized early, or the rare few who can think long term and understood what was coming. The rest of the population just called these marginalised people losers.
These “visionaries” agreed but kept on imploring me to just play the game and be positive because I was just torturing myself or standing in front of a moving train.
The reality is that the vast majority of people only truly understand abstract concepts when they become concrete, meaning when they live it themselves.
For example, there are 2 levels to the Golden Rule: sympathy and then empathy. The vast majority stays at the 1st level. They project their own situation, thoughts and desires onto others. Empathy requires people to really put themselves into other people’s skin and shoes. Not many are able to do that.
There were a few crooks in the 1% who saw it all coming, but chances are the vast majority really wanted to believe that they were god’s gift to the world.
I have been on board since 2004 talking out against the U.S. Chamber of Commerce with their illegal labor and out sourcing in the name of profit by destruction. These people for the most part knew what was coming they plan to nurse the bail out till they die. All the hind sight int the world would not have mattered because 99% of the people in charge of the system are timothy law brats right on down to the county and city levels and have 401 K’s looking at retirement. They saw it coming and look the other way every chance they get, they are the problem and need to be removed. Maybe we need the Timothy Law to be reinstated, it would free up a lot of jobs.
Nature hates a void. There will always be a new sociopath to replace an old one.
Hate will never fix the world.
Accountability is the key to stem the hate, the world agreed to that a long time ago with out it the sociopaths run wild.
“There is nothing wrong with Capitalism, it’s the globalist endeavor in our country that has caused the problem.”
You think that the two are not intricately intertwined? Weren’t the early standard bearers of capitalism part of globalization, like the British East India Company? Didn’t London financiers own a good bid of the First Bank of the US? Weren’t the trusts of the late 19th century globalists? Capitalism has always been at odds with national sovereignty.
Capitalism has to be regulated, all players must adhere to the same laws. It’s the lack of equality in accountability in the system which was and is the problem. The US ran it’s accountability better than most and excelled because of it. You can cherry pick history all you want, but the US system pulled in more foreign investors because we ran the straiter game than the rest. We lost that with removal of Glass -Stgall, the globalist movement and the Bush trickle down bail out. Now people are in the markets for the Fascist (economic system of it’s own) trickle down bail out of investors (nothing Capitalist about it).
We need to keep and maintain our sovereignty, reinstate glass-stgall and ax HFT along with ETF’s in commodities
Re illustration:
Note that the victim was properly shriven.
The picture looks like something from Jean Duc de Berry’s Book of Hours. Am I guessing right?
For provenance see — http://commons.wikimedia.org/wiki/File:Enguerrand_de_Marigny_death.jpg
I learned a lot chasing after the Duc de Berry!
Thanks for the I.D.!!
“Mistakes were made. Mistakes were made?! WTF?!?!”
The problem isn’t their response; the problem is that we keep asking them about anything.
Why do we keep asking them about anything?
If they said, “We made huge mistakes, everything we did or advised was wrong, everything we learned was wrong, everything we taught was wrong, etc…” would it somehow redeem them? Would a mea culpa re-establish their legitimacy?
Mistakes? Hardly. Try deliberately engineered. Once they’ve completed the confiscation of your assets and the product of your life’s labor they’ll coerce you into signing away the rights to any economically-important body parts you may have. Then they’ll impose retroactive fees on you for having been born and charge you in advance to cover their production costs when they convert you into Soylent Green.
Redeem them? You will be fortunate indeed to survive them.
The good news is that eventually the rentiers will run out of common kine and will end up preying on each other.
Aren’t you being a little over-optimistic here?
I gave you a sugar-coated scenario because the most probable scenarios are far more depressing.
All involve terminal cannibalization of the real economy by the financial-industrial complex. It’s a given any more, because it won’t even be possible to prevent them from accelerating the process, much less slow them down. Scenarios where the process is reversed or where some minimal status quo is preserved are very improbable to several decimal places.
Wars are coming in the more probable scenarios, not only because the ruling classes can use them to impoverish the general population to their great profit but because they’re expected to be a very effective way to cull the herds. Catastrophic collapse of the planetary ecology will be the least of your worries.
A Huxleyan dystopia is out of the question because an Orwellian dystopia is far more cost-effective. Sift in some of the worst bits of the Terminator series and The Road and you’re there.
It hasn’t even gotten ugly yet, much less weird ugly.
I would flee to the Adirondacks, searching for potable water and edible plants, but no doubt I’d be shot before I got as far as Schenectady :(
You’ll improve your chances by not wearing a hoodie.
Nonsense. An Orwellian dystopia is actually *impossible*, as it relies on a nonexistent type of human psychology. Ask the North Koreans what happens when you try to implement an Orwellian dystopia — you get something quite different.
You make the mistake of assuming that the 0.1%ers, the sociopaths, are smart. They’re not. They’re idiot savants at best, and some of them are just plain idiots. They will trigger wars, but they are following the path for exactly the sort of wars which will kill *them*.
There are, no doubt, would-be warlords in the wings waiting to take over — future Napoleons, or Caesars, or Stalins, or Porfirio Diazes. Smart people. They will be awaiting the fall of the 0.1% and seizing the opportunity (and you can be sure they will execute the leaders of the old regime). It is *them* who I fear, not the current 0.1%.
They are illegitimate in the sense of serving no good purpose!
A replacement system was designed during the Great Depression.
Read the Chicago Plan Revisited by IMF economists.
I think it’s a little bit of a misnomer to call the system we live under as either a financial system or an economic system. We live under a political system. Financial arrangements are made on the basis of political power not anything else.
So, does the system work? Yes, is the short answer it certainly does as a system. The people, in the EU and the US are reasonably satisfied there are no powerful and dynamic opposition movements to speak of other than Syriza in Greece. The national and international institutions are gamed and functional in their roles as maintaining the status-quo.
However, in the long-term the system is unsustainable because it has increasingly become rigid and relying, increasingly, on mind-control and police powers to keep order; thus, this creates a less creative population such that the more you limit the range of alternatives the more difficult it will be for the system to adjust to unforeseen difficulties.
Successful systems must have essentially a strong conservative element, a strong liberal/progressive/radical element and a strong center to function well. Each element must maintain its vigor. In the world today we see a consistent decline in the liberal/progressive/radical element which causes the right to expand into the radical sphere which is utterly destructive, as we can see. The only real opposition movement in the U.S. is based in the libertarian right which would be fine if it was balanced with an equivalent radical left which could ally itself with the libertarian right on matters of militarism and the Constitution. But after the failure of Occupy that movement is nowhere to be seen.
What about the restore the 4th movement?
http://news.cnet.com/8301-13578_3-57592352-38/hundreds-join-new-york-city-march-to-restore-the-fourth/
Bootless.
But who knows? Maybe many of these gestures may turn into something one day but they remain gestures, somewhat important as such but largely meaningless from a political POV. If, for example, this movement were to shut down, temporarily, portions of the internet as a show of power then I’d take notice and so would everyone else. If such a movement were to institute a targeted boycott of a bank or, better, a major media outlet then that would be also be significant.
It’s very noticeable we can’t even buy underwear or drink a coffee without taking part in financial scams. Starbucks has just offered to pay some UK tax after being outed.
I agree, of course, but who do we boycott? I’ve been with the Coop Bank for ever, but it seems they may have been up to their ears and engaged in dud buy-outs to cover it up, only to end up with blackhole parcels.
Boycotts have to focused on realistic targets that you can damage–the idea is to attack companies that are vulnerable. Perhaps they are facing high debt or over expanded. But all this implies having a smart organization and that requires, well, organization and the American left prefers to only act within the confines of the Democratic Party so….
The idea is to acquire strength first then really begin to make a difference. Also any boycott would have to be joined by all opponents of the state, including the right.
“So, does the system work? Yes, is the short answer it certainly does as a system.”
It works and has worked but not in the manner many describe it. Most choose not to describe the system for what it is because that would damage if not eliminate the myths surrounding it.
Thank you, Banger. Great comment IMO. Esp. appreciated your third paragraph.
You make a key point in your third paragraph.
Rigidity and fragility are the characteristics of the current system — and furthermore, the people in power have been making the system more and more fragile.
Meanwhile, the system is making fewer and fewer people content.
This is a recipe for revolution. If I had a cookbook with recipes for revolutions, the current path would be listed as the “most reliable” recipe for getting a revolution — take away people’s food and jobs, hoard money in the hands of a deeply stupid elite who waste it visibly and obviously, while also wasting money on a giant “national security” establishment which is incapable of actually catching criminals *or* winning wars.
What I worry about is what happens after the revolution starts. They are usually hijacked by people like Napoleon. Smart dangerous people.
RE: Has Financial Capitalism Failed the World?
Failed? Is that what you call it: failed?
What, is this some kind of euphemism?
If you take your dogs out hunting and you come back without any game because the dogs weren’t into it, you could say that they ‘failed’.
If you take your dogs out hunting and they decide you are the prey and you have to fight for your life, you’d definitely have to call it something, but failed really isn’t one of them. It’s far too misleading and mild a term.
The financial-industrial complex isn’t going to serve humanity except on a spit. It’s turned into a monster that’s wolfing down civilization: you’re watching it happen in real time. And the more it gorges the hungrier it gets, until at long last, in its uttermost famine, it will finally devour itself.
And you won’t be around to see it.
In other real-world scenarios the machines take over the job, and finish it up faster than you can say ‘Tralfamadore’.
“The financial-industrial complex isn’t going to serve humanity except on a spit.” That is probably the pithiest, most accurate summary of our current situation I’ve read this year!
Apparently “on a spit” is only one of the gustatory presentments adored by our hungry Oligarchs that are found in the newly translated book from the Twilight Zone circa 1962 titled:
“To Serve Man”
Thanks for the memories Ulysses and Walter !
Great metaphor Walter. I shall re-evaluate the adoring eye my Labrador gives!
Banger has to be right that we live in a political system. I don’t see how economics can be a subject when it leaves this out as an externality.
Turner has long inspired a lot more than WTF in me. I bought ‘Just Capital’ second-hand and would like my money back plus damages.
I’d go back to many incidents that define capitalism. I’m sure we have never had it as it describes itself. An example in my mind at the moment is the abolition of slavery in Britain. My short version:
We knew slavery was immoral (though even Locke argued it might be all right for slaves taken in just wars). We made it illegal. However, we didn’t do abolition quickly or to sort out reparation for those who suffered. Vast sums were actually paid from the exchequer (tax payers) to the slavers. To tide them over (the slaver investors), the slaves were indentured (40 and a half hours week for board and lodging) for 7 years. Solid research here at UCL on memory. Many of those paid out are represented in today’s ‘fine families’ including Cameron. Gladstone was in there at the time securing his family’s “investments”.
So what happens now when we catch our banks, top managers in our corporations and financial services stealing? The first thing has been denial they were doing anything wrong and acting legally as the slavers did. The next was to get governments (tax payers) to reimburse the rich thieves and indenture the rest of us through low wages and debt. No doubt they pay a few ‘modern philosophers’ like Turner to argue this ‘modern slavery’ is fine and dandy.
People who transported, abused and murdered slaves and none of those who financed this vile trade were ever prosecuted. The finance, as ever, was considered ‘neutral’. What we can’t see, despite sweat shops in South Asia, is the modern slavery.
To top it all we don’t even know the extent of this “failure”. The banks have been trading knowing they are bankrupt for 8 years. Reggie Middleton has it that Anglo-Irish alone would take a third of future EU bailout to fix. All banks have balance sheets that rely extensively on mark-to-model, tiny equity, little productive investment and need “growth” to make profit – a very odd claim as most of what they were doing (and have continued with) needs to be stopped. They are even claiming past losses as capital because they can use this as an expense against future tax!
The payments to UK slavers were about half the exchequer in their day. What are we paying now? Frankly, if this is human society I want no part of it.
“Blessed are those who hunger and thirst for righteousness, for they shall be satisfied.” Matthew 5:6
For the most part, slavery has been abandoned because it is usually not profit-maximizing:
“We disapprove of slavery and the cost of the maintenance and upkeep of slaves. We prefer our English model in which we control the issuance of currency, and control of money, it allows us to control labor without the cost of maintaining it.”
Lord Baron Rothschild (private owner of the Bank of England. Quote 1849)
Naturally there are conditions where slave labor is more cost-efficient than free labor, for example, when slaves are cheap and free labor is expensive. I recall seeing one modern repulsive analysis of such situations in an article recently, possibly linked from NC, and a cursory search shows that such articles are fairly easy to find.
The rich rules over the poor, and the borrower becomes the lender’s slave. Proverbs 22:7
The title of a book about cognitive dissonance entitled Mistakes Were Made (But Not by Me) by social psychologists Carol Tarvis and Elliot Aaronson refers to Henry Kissinger’s euphemizing the false assumptions and atrocities of the Vietnam War with the clause, “mistakes were quite possibly made by the administrations in which I served.”
Sadly, we can rationalize anything.