'Melting Down and Sinking into Debt
An analysis of the financial crisis by Dr. Juliet Schor
With the financial system in a meltdown, the underlying economy in recession (or worse), the American Dream is in even more in jeopardy than usual. Millions of Americans are wondering who caused this disaster, what does it say about the role of government in the economy, how much is due to “greed” as the simplistic political discourse suggests, and whose greed? Individuals who wanted homes? Bankers and Wall Streeters whose obsession with money grew to mythic proportions? How much is this a morality tale? A political saga? Growing pains for a global economy? Business as usual?
The process of assigning blame for the financial meltdown is in its early stages, and it will take economists and other analysts time to sort out exactly what has happened and how things unraveled to such an extent. But some dimensions of the crisis are already clear. The first, which has been widely reported, is that financial markets began creating it with complex new types of mortgages, and other exotic “assets that were impossible to value. That in turn led the Federal Reserve and government regulators to turn a blind eye to the growing levels of risk and lack of transparency in the system.
They shouldn’t have. Both the private and public sector actors forgot the lessons of history. Unregulated financial markets have always been wildly unstable, and financial panics like the one we’re living through were regular events. The Great Depression was so severe that it led to regulation designed to prevent economy wide crashes like the one we’re in.
But recently, Wall Street has used its expanding influence to amass record profits and flexed their might to craft regulatory policy and legislation to their liking. They have been exercising a dangerous level of control over government agencies whose job is to police these companies in the name of the public.
Another dimension of the story is that financial interests have been gaining power relative to other businesses for 25 years. They used their expanding influence to get massive profits and craft regulatory policy and legislation to their liking. (Remember the retrograde bankruptcy bill that the credit card companies got through in 2005?)
What about ordinary citizens? Isn’t the downturn due to people being irresponsible and taking on too much debt, especially in the housing market? While there are always some abusers of any system, pinning this crisis on poor people who wanted to buy houses, or even people of means who took on multiple mortgages, or excessive debt, looks at the problem backwards, and puts far too much causal stress on the proximate cause (the sub-prime meltdown of months ago). We have a system that has been constructed to operate on debt—the health of financial institutions depends on it. When competition heats up they have to lend more aggressively to keep pace. Industry looked to keep siphoning from a well of unsustainable loans, sold with tricks such as adjustable rates, teaser rates, lack of income verification and other methods to milk more money from consumers. Individuals have been the focus of a big social push for home ownership, which started out as a cornerstone of the American Dream.
The government gives enormous financial incentives for home ownership, while renters occupy a kind of second class citizenship. Mortgage brokers and other financiers understood that the social pressures to buy a home are strong, and found a way to capitalize on Americans’ dreams. National policy has stacked the financial deck against renters—to then moralize about irresponsible financial decisions in pursuit of home ownership is short-sighted.
Perhaps the most important numbers to remember in today’s situation are those registering the extreme skewness of income. According to recent analyses, in 2005, 10% of households now receive 48.5% of all income, and the top 1% has grabbed a staggering 21.8%. These numbers are approaching their 1929 peak values, extremes which many economists believe were important in prolonging the Great Depression of the 1930s.'
The process of assigning blame for the financial meltdown is in its early stages, and it will take economists and other analysts time to sort out exactly what has happened and how things unraveled to such an extent. But some dimensions of the crisis are already clear. The first, which has been widely reported, is that financial markets began creating it with complex new types of mortgages, and other exotic “assets that were impossible to value. That in turn led the Federal Reserve and government regulators to turn a blind eye to the growing levels of risk and lack of transparency in the system.
They shouldn’t have. Both the private and public sector actors forgot the lessons of history. Unregulated financial markets have always been wildly unstable, and financial panics like the one we’re living through were regular events. The Great Depression was so severe that it led to regulation designed to prevent economy wide crashes like the one we’re in.
But recently, Wall Street has used its expanding influence to amass record profits and flexed their might to craft regulatory policy and legislation to their liking. They have been exercising a dangerous level of control over government agencies whose job is to police these companies in the name of the public.
Another dimension of the story is that financial interests have been gaining power relative to other businesses for 25 years. They used their expanding influence to get massive profits and craft regulatory policy and legislation to their liking. (Remember the retrograde bankruptcy bill that the credit card companies got through in 2005?)
What about ordinary citizens? Isn’t the downturn due to people being irresponsible and taking on too much debt, especially in the housing market? While there are always some abusers of any system, pinning this crisis on poor people who wanted to buy houses, or even people of means who took on multiple mortgages, or excessive debt, looks at the problem backwards, and puts far too much causal stress on the proximate cause (the sub-prime meltdown of months ago). We have a system that has been constructed to operate on debt—the health of financial institutions depends on it. When competition heats up they have to lend more aggressively to keep pace. Industry looked to keep siphoning from a well of unsustainable loans, sold with tricks such as adjustable rates, teaser rates, lack of income verification and other methods to milk more money from consumers. Individuals have been the focus of a big social push for home ownership, which started out as a cornerstone of the American Dream.
The government gives enormous financial incentives for home ownership, while renters occupy a kind of second class citizenship. Mortgage brokers and other financiers understood that the social pressures to buy a home are strong, and found a way to capitalize on Americans’ dreams. National policy has stacked the financial deck against renters—to then moralize about irresponsible financial decisions in pursuit of home ownership is short-sighted.
Perhaps the most important numbers to remember in today’s situation are those registering the extreme skewness of income. According to recent analyses, in 2005, 10% of households now receive 48.5% of all income, and the top 1% has grabbed a staggering 21.8%. These numbers are approaching their 1929 peak values, extremes which many economists believe were important in prolonging the Great Depression of the 1930s.'
Lees verder: http://www.newdream.org/blog/?p=254
1 opmerking:
Uitstekende (korte versie) van de voordracht van Abram de Swaan, socioloog en emeritus universiteitshoogleraar aan de Universiteit van Amsterdam, in de NRC!
Hoe wetenschap plots een meninkje werd - Hoogleraren economie zijn slechts ideologen, Business Schools hoogstens vormingscentra
Citaat begin:
Maar in het Westen en vooral in de Verenigde Staten heeft een andere dwaalleer om zich heen gegrepen, de leer van de vrije en de ongebreidelde marktwerking. Hoe heeft na het bolsjewisme en het nazisme nu de dwaalleer van de totale markt zich zo kunnen verbreiden? Net als die andere wanen was het ‘marktisme’ omhangen met de wade der wetenschap. Het werd gepredikt in de meest excellente universiteiten, door de meest gelauwerde geleerden. Er werden vormingscentra gesticht om de gestaalde kaders van de nieuwe leer te doordringen, Business Schools en Schools of Management; en alles ging in het hedendaagse Kerklatijn, het Engels. Laatst hoorde ik op de radio zo’n koorknaapje – het deed iets met effecten op de beurs - wat nakwaken. Hij had nog niet gemerkt dat de voorzangers er al een ander missaal bij hadden gepakt: "In de markt", zo sprak de knaap, "komt alle kennis van de wereld samen en niemand kan het beter weten dan de markt, die dus onfeilbaar is... De markt heeft altijd gelijk. Althans in beginsel, althans op termijn" Je hoorde eensklaps zelfs bij hem de geloofstwijfel toeslaan.
Wij leven in een tijd van adembenemende vernieuwing in de economische wetenschap. Het merendeel van de hoogleraren in de economie is in enkele maanden tijds geheel van inzicht veranderd. Sommigen zijn zelfs helemaal vergeten wat ze vorig jaar nog verkondigden.
Waarom lezen journalisten dat niet?
Weetje: Topbestuurders van financiële instellingen zijn verplicht zich door De Nederlandsche Bank te laten toetsen op geschiktheid. Daarbij wordt onder meer naar integriteit gekeken. Vorig jaar toetste De Nederlandsche Bank 1578 beleidsbepalers. Geen van hen kreeg een negatieve beoordeling.
Hou dat in uw achterhoofd wanneer Nout Wellink babbelt over 'integriteit' en zo.
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