@5:45 JON STEWART: Is the greatest disappointment for you that you were a guy who believed in what they were doing and probably still believe in the political end of it, to be... do you feel betrayed in that sense?
DAVID IGLESIAS: Yeah, and to use a Star Wars kind've image, I thought I was working with the Jedi Knights and I was working for the Sith Lords, y'know.
JON STEWART: I wanna tell ya something--
AUDIENCE: WOO-HOO!
JON STEWART: I wanna tell ya somthing, for the audience for this show, you could not have used a better example... http://www.thedailyshow.com/video/index.jhtml?videoId=173526&title=david-iglesias
By Paul Krugman
Excerpted from a blog post originally published March 26, 2009 in the New York Times
But it has become increasingly clear over the past few days that top officials in the Obama administration are still in the grip of the market mystique. They still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic.
The market mystique didn’t always rule financial policy. America emerged from the Great Depression with a tightly regulated banking system, which made finance a staid, even boring business. Banks attracted depositors by providing convenient branch locations and maybe a free toaster or two; they used the money thus attracted to make loans, and that was that.
[...]But the wizards were frauds, whether they knew it or not, and their magic turned out to be no more than a collection of cheap stage tricks. Above all, the key promise of securitization — that it would make the financial system more robust by spreading risk more widely — turned out to be a lie. Banks used securitization to increase their risk, not reduce it, and in the process they made the economy more, not less, vulnerable to financial disruption.
Sooner or later, things were bound to go wrong, and eventually they did. Bear Stearns failed; Lehman failed; but most of all, securitization failed.
Which brings us back to the Obama administration’s approach to the financial crisis.
Much discussion of the toxic-asset plan has focused on the details and the arithmetic, and rightly so. Beyond that, however, what’s striking is the vision expressed both in the content of the financial plan and in statements by administration officials. In essence, the administration seems to believe that once investors calm down, securitization — and the business of finance — can resume where it left off a year or two ago.
To be fair, officials are calling for more regulation. Indeed, on Thursday Tim Geithner, the Treasury secretary, laid out plans for enhanced regulation that would have been considered radical not long ago.
But the underlying vision remains that of a financial system more or less the same as it was two years ago, albeit somewhat tamed by new rules.
As you can guess, I don’t share that vision. I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good. I don’t think the Obama administration can bring securitization back to life, and I don’t believe it should try.
10. March 28, 2009 12:39 pm Link
Your comment [on "Was I unfair?" posted 3/27/2009] is awaiting moderation.
Sorry, magicians, I applaud Krugman’s use of the Wizard metaphor. I’ve been calling it “myth-jacking,” a synthesis of Campbellian comparative mythology, radical behaviorism, and zealous evangelizing of the myth of the cosmos as god’s own justice-dispensing machine.
This is the myth by which we are being jacked to hell and stuck with the bill right freakin’ now.
If the cosmos is a Newtonian machine, then to get more out put, what do we do? Grab the key and wind ‘er up, right? And on the advice of chief cultists Greenspan, Summers, Gramm, and other high priests of the temple of overwhelming force, they did with the economy what 3-year olds do with wind up toys.
Turns out, that key they’re still twisting like mad? It’s the neck of the Goose who lays the Golden Eggs. Is it dead yet? Can they reattach the head and make it fly again?
We are being FORCED to dance to the tune of fanatical mechanists and atavistic social Darwinists, who just happen to be the same damn NSA-type fiends who’ve been jacking us to hell and back, and sticking us with the bill both ways, for god knows how long now.
It’s all about the conversion of our Commonweal into private property in the context and under the cover-story of a bogus “holy” war.
STEPHEN JAY GOULD (2001): The implications of this finding cascade across several realms….
But the deepest ramifications will be scientific or philosophical in the largest sense. From its late 17th century inception in modern form, science has strongly privileged the reductionist mode of thought that breaks overt complexity into constituent parts and then tries to explain the totality by the properties of these parts and simple interactions fully predictable from the parts. (”Analysis” literally means to dissolve into basic parts). The reductionist method works triumphantly for simple systems — predicting eclipses or the motion of planets (but not the histories of their complex surfaces), for example. But once again — and when will we ever learn? — we fell victim to hubris, as we imagined that, in discovering how to unlock some systems, we had found the key for the conquest of all natural phenomena. Will Parsifal ever learn that only humility (and a plurality of strategies for explanation) can locate the Holy Grail?
The collapse of the doctrine of one gene for one protein, and one direction of causal flow from basic codes to elaborate totality, marks the failure of reductionism for the complex system that we call biology — and for two major reasons.
First, the key to complexity is not more genes, but more combinations and interactions generated by fewer units of code — and many of these interactions (as emergent properties, to use the technical jargon) must be explained at the level of their appearance, for they cannot be predicted from the separate underlying parts alone. So organisms must be explained as organisms, and not as a summation of genes.
Second, the unique contingencies of history, not the laws of physics, set many properties of complex biological systems. http://www.nytimes.com/2001/02/19/opinion/19GOUL.html?ex=1226466000&en=f7655ce4049eba50&ei=5070&pagewanted=all
NAOMI KLEIN: And here’s the quote. This is Larry Summers in 1992: “Spread the truth. The laws of economics are like the laws of engineering. One set of laws works everywhere.” And then he laid out those laws a little bit later. He referred to the three “ations,” and those were privatization, stabilization and liberalization. So he has been preaching the doctrine. He is by no means sort of an innocent bystander. He is a dyed-in-the-wool privatizer, free trader. http://www.democracynow.org/2008/11/25/naomi_klein_robert_kuttner_and_michael
ARIANNA HUFFINGTON: In a speech at the Kennedy School of Government in September 2000, Summers declared: “The traditional industrial economy was a Newtonian system of opposing forces, checks and balances… While, in contrast, the right metaphors for the new economy are more Darwinian, with the fittest surviving.”
He forgot to add the part about the fittest surviving by being bailed out by the rest of us.
Real economic Darwinism -- or Randian capitalism -- would mean letting old institutions that have failed die. Keeping them on life support is not just catastrophically burdensome for taxpayers, but also prevents new institutions from flowering.
In a fawning new profile of Summers in The New Republic, we discover that Summers' tired thinking extends to the way he views being tired.
Noam Scheiber reports that "Summers functions on exceedingly little sleep.... To power through the day, Summers relies on a punishing Diet Coke regimen. The combination of fatigue and extreme caffeine intake can produce the occasional verbal and physical tic: Summers is a chronic foot-tapper and sometimes turns over words and clauses like an engine that won't start."
The notion that driving yourself to the point of exhaustion and chronic foot-tapping is a sign of commitment and achievement is as obsolete as the belief that pumping more money into the same institutions that created the crisis will solve it.
Summers' old boss, Bill Clinton, once said, "Every important mistake I've made in my life, I've made because I was too tired." http://www.huffingtonpost.com/arianna-huffington/larry-summers-brilliant-m_b_178956.html
GORDON BIGELOW: Economics, as channeled by its popular avatars in media and politics, is the cosmology and the theodicy of our contemporary culture. More than religion itself, more than literature, more than cable television, it is economics that offers the dominant creation narrative of our society, depicting the relation of each of us to the universe we inhabit, the relation of human beings to God. And the story it tells is a marvelous one. In it an enormous multitude of strangers, all individuals, all striving alone, are nevertheless all bound together in a beautiful and natural pattern of existence: the market. This understanding of markets—not as artifacts of human civilization but as phenomena of nature—now serves as the unquestioned foundation of nearly all political and social debate. As mergers among media companies began to create monopolies on public information, ownership limits for these companies were not tightened but relaxed, because “the market” would provide its own natural limits to growth. When corporate accounting standards needed adjustment in the 1990s, such measures were cast aside because they would interfere with “market forces.” Social Security may soon fall to the same inexorable argument.
The problem is that the story told by economics simply does not conform to reality. This can be seen clearly enough in the recent, high-profile examples of
the failure of free-market thinking…. http://www.harpers.org/archive/2005/05/0080538
JIM HIGHTOWER: Why was Greenspan so insistent on no regulation? Because he is the hardest of hardcore laissez-faire ideologues, holding a blazing disdain for government. An avowed worshiper of libertarian novelist Ayn Rand, he views public oversight of business as an evil force that deters the creativity of smart elites. He is so psyched by his religious-like faith in the “free market” that he fervently believes in what he considers to be the innate good will and moral superiority of investors and bankers. He asserts that these self-interested individuals can simply be trusted to do the right thing, and that government should not second-guess their decisions.
Even the faith of snake handlers is not as devout as Greenspan’s. Unfortunately, however, he was able to hitch our nation’s economic well-being to his own absurdist ideological fancy. The guy who was lionized as the smartest, most- stable economic thinker in the land essentially turns out to have been a quasi-religious nut. http://www.hightowerlowdown.org/node/1801
Myth-jacking is obviously our MO, the state of the art in manuFRACTURing consent.
— Dave Parker
