I have just finished rereading “The Quants”, the 2010 book by Scott Peterson, a pretty rollicking tale of how math and physics whizzes took on Wall Street with exotic predictive models and made obscene amounts of money and then crashed the economy. Recommended, it’s available on audiobook as well.
It reinforces an idea we’ve been talking about a lot here at the offices, about how much of the ‘financial sector” defies the Standard Economic Model put forth by Classical/NeoLiberal theory, that people are fundamentally rational, make predictable choices based on utility, and are logically consistent in their application of utility and choice. Often touted alongside the SEM is the Efficient Market Hypothesis, the idea that markets are self-regulating, that prices inherently reflect all known information, and capital flows to underpriced assets and away from overpriced assets in a balancing mechanism often termed “the Invisible Hand”.
Holy shit, what poppycock. Yet this has been the backbone of Conservative economic theory and policy forever. Why?
The first reason is simply that this is what Finance, Business, and Economics schools teach. This is accepted dogma, and programs funded by fanatics of that religion, like the Koch Brothers, corporate funders like GE and the banking industry, all stick to the catechism of these failed theories because it is their religion. They can no more step outside of their fasith to view the world as it is than can any Evangelist, which is part of why these things are often joined at the hip.
The second reason is because it benefits them. Not only is it financially useful – volatile markets where one can act quickly to exploit tiny differences n price with massive amounts of money is terrifyingly lucrative – it is politically useful, to be seen as the serious, knowledgeable Party on Economics. The GOP has owned Econ politics at least since the 50’s, where they stood as brave Capitalists standing against the existential threat of Communism and Socialism, ideologies demonized incessantly by Cold War propagandists. “We need to run America like a business”, the refrain became, after all, who knew more about management than management?
Rich people ran governments on policy to make them richer, which made them appear more competent, so they got elected, which allowed them to implement policy to make them richer which made them appear more competent… it’s a cycle of lies that has now reached apotheosis in a failed, bankrupt criminal capturing power because he has the imprimatur of this seriousness and competency.
And we are going to suffer another crash because of it. Worse, the few people able to react appropriately in 2008 aren’t there to soften anything. it’s going to be a nightmare, and none of these gormless fuckbags have any clue what to do, because they don’t know anything real. It’s all this weird, obviously incorrect dogma. They’re going to “thoughts and prayers” the inevitable economic global collapse, standing outside with gaping mouths like cops watching a school shooting that just won’t stop.
Alan Greenspan, testifying on the 2007-2008 financial crisis, was genuinely confused and befuddled by the crash. He and those who followed his brand of Economic Theory – Libertarianism, NeoLiberalism, Classical Liberalism, Chicago/Austrian School, whatever you want to call it – were ideologically, religiously, positive that something like this was literally impossible. As they leveraged more and more unbalanced books, paid huge sums of money to keep markets as unregulated as possible, and siphoned value out of the most insanely complex products they could possibly imagine (created with the help of literal physics geniuses), they looked at their own cooked books, and swore in interview after interview that this was all safe as, well, houses.
A “black swan”, they called it, an unimaginable anomaly that defied every law they held to be true. Which helped literally no one when decades of working people’s accrued wealth vanished in thin air as the house of cards collapsed with such stunning rapidity that it almost zeroes out the global economy itself. In “13 Bankers” by Simon Johnson and James Kwak, the resistance of Conservative lawmakers, fiscal policy officials, and industry leaders to the clear recommendations of experts led to far less effective management and mitigation of the crisis, all because they could not let go of their failed ideology.
There we were, in the middle of the greatest economic catastrophe possible, taking down these massive, load-bearing economic structures, with a historic evaporation of value and absolute destruction of economic stability, putting millions of home owners under water on their mortgages as they lost their jobs, broad aggregate consumer spending dropping to nil as it fueled the death spiral into massive unemployment, obliteration of equity, and devastation of investment and pension/retirement portfolios, a global catastrophe that hurt every single person on the planet.
And the Right just fucking refused to help. They certainly didn’t take responsibility.
Immediately, the narratives came pumping out of Fox Newsrooms: stupid people bought houses beyond their means. Fannie Mae and Freddie Mac gave out too many loans to people who shouldn’t have gotten them. Stupid, lazy,unAmerican people were trying to flip houses but were too stupid and lazy to do it. It was a housing market being taken advantage of by outsiders and exploiters.
In case the racism here is too subtle, let me be crystal clear here. In nightly news broadcasts and daily pundit shows from Murdoch’s little Nazi empire, the “real reason” for the crash was framed: black people got loans they didn’t deserve, and couldn’t pay back and they crashed the housing market. That was their story, and they were sticking to it.
This provided the thought terminating cliche an angry and terrified base was waiting for. It wasn’t their fault, it wasn’t the fault of the banks or billionaires, it wasn’t the fault of math and science nerds who used literally trillions of other people’s money as an experimental playground to show off that they were the smartest kids in the room, it wasn’t the Bush administration’s support for deregulation of banking laws or refusal to regulate these new exotic securities and debt vehicles, it was an inherent flaw in THE MUD RACES.
This – heh – trickled down into every argument I had on forums in the next few years, despite forensic examinations like Bethany McClean and Joe Nocera’s “All The Devils Are Here”, or Andrew Ross Sorkin’s “Too Big To Fail”, or even the FCIC Report itself being largely corroborative on the expected narrative that greed, hubris, greed, deregulation, greed, a blinkered, absolutist belief in faulty ideological mechanics, a ruthless fanaticism to the Pope, er, Economic Orthodoxy, etc being the cause of the meltdown, and its exacerbation by interlocking systems built like said house of cards. Nope, black people are just inherently incapable of rational acting as a race. Sounds familiar.
Fun fact, given recent events, a survey given to some 1500 households that had defaulted on mortgages at that time showed that fully half – 53%, IIRC – listed “unexpected medical expense” ans a critical factor in their inability to pay their mortgage.
So why bring this up now? Because what this really shows is the basic lie of Capitalism: the idea is, as we’ve posited, that a “market of markets” facilitates funding of innovation, amortizing risk across a large pool of investors as investors can also amortize risk by diversifying a portfolio, allowing for a nimble and dynamic market that can adjust to the needs of the consumers very quickly.
Or you can just wield huge amounts of capital to exploit, if not outright manipulate, small differences in the market through computerized, algorithmic formulas at lightning speed to extract value out of the couch cushions of the economy in massive, unholy amounts.
This is what they don’t want you to see. None of this ever touches the real economy. This isn’t investment into an innovative good idea or problem-solving product. It’s arbitrage with capital that never leaves the closed loop of the top of the economy. Price differences aren’t real value. There’s no real asset that has increased in utility or demand. it’s purely speculative, and not only is it not real, it is a fever dream of a bunch of gambling lunatics all playing Liar’s Poker with other people’s money. As soon as someone blinks, billions upon billions vanish into thin air because someone spooked the horses.
This is why they love crypto – pure, manipulable value to be arbitraged like a video game. None of it is real. And when that balloon deflates, it is going to take all that value with it, just like the collapse of the massive funds that depended on the delusional speculation of an obviously unsustainable housing bubble.
Wages are not a path to wealth. They never have been. You cannot “work hard enough” to earn the kind of wealth the lowliest of these parasites make in year. Movie stars, top athletes, even most business owners, the absolute top of the pure salary class, never see anything close to the kind of wealth siphoned off by the financial sector and their exploitive, manipulative, fuckery on paychecks alone. The whole game is to leverage a lifetime of labor to put capital in the hands of these fucking shitbags in the vain hopes that they parley it into something sustainable before zeroing out the economy yet again.
Every penny the extract from the system takes from the real economy of goods and services, enshittening the products, the jobs, the opportunities the rest of us depend on to live our daily lives. Venture capital, private equity, hedge funds, investment banking, all have carveouts to protect them from transparency, accountability, regulation, basic safety precautions. None of the toxic debt vehicles that crashed the economy in 2008 are regulated at all, and the virus of securitization is spreading to any kind of debt they can find. Nothing has changed except they have become emboldened by corporate Democrats as well as the GOP to take even greater risks.
The economy must be regulated to serve the needs of the greater population, support the real economy, and protect the safety and welfare of all who live in this country. This simple bargain isn’t ideological, it is purely pragmatic.
All of these things – crypto, VC/PE/hedge funds, etc, all exist in a closed loop economy we don’t have access to, because Capitalism rewards one thing, and one thing only: access to capital. These sociopathic greedheads are addicted to the game itself, and only care about the trappings to flex like toxic trophies of their carelessness. Their narcissism and violent fantasies of power will never be sated.
This is the top of the fountain, and they have gathered around it, sealed it off, and gotten drunk for generations on it. It is far beyond time that these apex predators were brought to justice, before they once again bring us to ruin.
Kelsoland.Institute 